Real estate VAT, VAT group

The VAT group applied to real estate: intra-group rents outside the scope of VAT

Article 256 C of the CGI allows taxable persons established in France, linked to one another financially, economically and organisationally, to form a single taxable person: transactions between members become internal transactions outside the scope of VAT. Applied to a real estate group, the regime removes VAT from intra-group rents and eliminates the pre-financing of the tax between the property company and the operating companies. This neutralisation comes at a price, however: recalculation of the right to deduct and of the deduction ratios at group level, exposure to payroll tax (articles 231 and 231 A of the CGI) and adjustments when a building enters or leaves the group. The firm quantifies these effects before any election is made.

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— In brief
Regime
Single taxable person under article 256 C of the CGI, by election, for taxable persons established in France linked financially, economically and organisationally
Main effect
Transactions between members, including intra-group rents, are outside the scope of VAT
Duration
Election mandatorily covering a period of three calendar years
Points to watch
Right to deduct and deduction ratios assessed at group level, payroll tax (articles 231 and 231 A of the CGI), adjustments on entry and exit
Governance
Single group representative for filing and payment obligations, members jointly liable for payment of the tax
— 01

Neutralising intra-group rents: a real advantage, with trade-offs to be quantified

In a typical real estate group, the property company lets its buildings to the operating companies and exercises the option to tax the rents, so as to preserve its right to deduct VAT on acquisition, construction and works. The arrangement works, but it forces each tenant to pre-finance the VAT on the rents, which weighs on cash flow when the tenant cannot recover the tax, or recovers it with a delay.

The single taxable person under article 256 C of the CGI reverses that logic. Taxable persons established in France that are linked to one another financially, economically and organisationally may elect to form a single taxable person for VAT purposes. Transactions between members then become internal transactions, outside the scope of the tax: no more VAT charged on intra-group rents, no more pre-financing, no more risk of the price or the invoicing between members being challenged for VAT purposes.

The trade-off is structural. The right to deduct is no longer assessed company by company but at the level of the single taxable person, by reference solely to its transactions with third parties. A property company whose internal rents were previously taxed may find its input VAT exposed if the tenant members carry out exempt transactions. Added to this is an effect often discovered too late: companies that were fully subject to VAT may, once their internal receipts fall outside the scope, become liable for payroll tax (article 231 of the CGI). For remuneration paid from 1 January 2026, article 231 A of the CGI provides an exemption for members of a single taxable person, but it is subject to strict conditions, in particular a group turnover carrying a right to deduct of at least 90%: in real estate groups with exempt tenants, it is far from guaranteed.

The firm deliberately limits the number of matters it takes on so as to guarantee the direct involvement of the partners in each case, and systematically assesses whether its involvement is warranted before accepting any engagement.

— 02

The single taxable person applied to real estate, point by point

01

Conditions, election and group perimeter

Article 256 C of the CGI reserves the single taxable person for taxable persons established in France united by a threefold link, and makes it a binding elective regime.

  • Eligible members: taxable persons established in France, whatever their form (operating companies, property companies, taxable active holding companies, shared-services companies)
  • Threefold cumulative link: financial (capital control, assessed under the criteria set by the statute), economic (activities of the same nature, interdependent or pursuing a common objective, which includes making buildings available to members) and organisational (common management in law or in fact)
  • Formal election exercised by the representative with the consent of each member, by 31 October at the latest for effect on the following 1 January; it mandatorily covers a period of three calendar years and the chosen perimeter binds the group for that period, subject to the changes permitted by the statute
  • The single taxable person receives its own VAT identification number and becomes the sole person liable for the group's VAT; each member ceases to be a taxable person within the meaning of article 256 A of the CGI and constitutes a business sector of the single taxable person, its transactions with third parties being deemed carried out by the group
02

Intra-group rents outside the scope: cash flow and invoicing

The neutralisation of internal flows is the most tangible benefit of the regime for a real estate group.

  • Rents invoiced between members become internal transactions outside the scope of VAT: no tax is charged or deducted on those flows
  • Elimination of the pre-financing of VAT by internal tenants, particularly significant where the tenant is a partial recoverer (healthcare, finance, education, non-profits)
  • Simplification of internal invoicing: no more questions about the option to tax rents between members, and no more debate over the chargeability of the tax between group entities
  • Beware of the flip side: the disappearance of taxed rents alters the revenue structure of the property company, which affects its right to deduct and can create a payroll tax charge
03

Right to deduct, deduction ratios and payroll tax

The move to a single taxable person entirely redraws the deduction mechanics and awakens a tax that is often forgotten.

  • The right to deduct is assessed at the level of the single taxable person, by reference solely to transactions carried out with third parties; the property company's expenditure is deemed incurred for the external transactions of the members using the buildings
  • Recalculation of the deduction ratios: a property company that previously deducted VAT on the strength of taxed internal rents may see its deduction curtailed if the tenant members carry out exempt transactions (medical activities, financial services, unfurnished lettings without an option to tax)
  • Payroll tax (article 231 of the CGI): employers not subject to VAT on at least 90% of their turnover are liable for it; members whose receipts become predominantly internal, and therefore outside the scope, may fall into that situation, subject to the conditional exemption under article 231 A of the CGI (remuneration paid from 1 January 2026), reserved for members that would not have been liable outside the group and for single taxable persons whose turnover carrying a right to deduct reaches at least 90%
  • The overall trade-off is made by comparing the cash flow gain and the saving in irrecoverable VAT on internal flows with the payroll tax cost and any loss of deduction rights: depending on the composition of the group, the balance may be favourable or distinctly negative
04

Entries, exits and the life of the group: adjustments and joint liability

The entry of a building or a company into the group, like its exit, is analysed as a change of use for VAT purposes.

  • Entry of a member holding a building still within its adjustment period: the change in the treatment of its receipts (taxed rents becoming internal flows) may trigger adjustments to the right to deduct under article 207 of Annex II to the CGI, following a logic comparable to a transfer between business sectors
  • Exit of a member or dissolution of the group: return to an individual assessment of the right to deduct, with a fresh review of the deduction ratios and, where applicable, adjustments on buildings still within the twenty-year period
  • The group representative files the returns and pays the tax for the whole group; each member remains jointly liable for payment of the VAT, interest and penalties up to the amounts for which it would be liable if it were not a member, which makes a group agreement organising internal financial flows essential
  • The internal allocation of the VAT cost (who funds the tax due by the single taxable person, how deduction rights are reallocated) is a matter of contractual freedom and must be documented to withstand a tax audit, including from a corporate income tax standpoint
— 03

Our approach

The firm acts upstream of the election: mapping of intra-group flows and of the VAT position of each entity, quantified simulation of the right to deduct and of the payroll tax before and after the group is formed, definition of the optimal perimeter, securing of the financial, economic and organisational links, drafting of the group agreement (representative, funding of the tax, joint liability) and handling of the adjustments attached to buildings on entry as on exit. The firm also assists groups during tax audits concerning the perimeter or the deduction rights of the single taxable person.

  • Single taxable person
  • Article 256 C
  • Intra-group rents
  • Payroll tax
  • Deduction ratios
— FAQ

VAT group and real estate: your questions

What is the single taxable person under article 256 C of the CGI?

It is an elective regime allowing taxable persons established in France, closely linked to one another financially, economically and organisationally, to be treated as a single taxable person for VAT purposes. The group receives its own VAT identification number, a representative files the returns for the whole group and, above all, transactions between members become internal transactions outside the scope of VAT. The election binds the group for a mandatory period of three calendar years.

What is the benefit of a VAT group for a real estate group?

The main benefit lies in the intra-group rents: once the property company and its tenants are members of the same single taxable person, the rents no longer bear VAT. Tenants that could not recover the tax, or recovered it only partially (clinics, financial institutions, training organisations), stop bearing irrecoverable VAT on their rents, and the group eliminates the pre-financing of the tax between entities. The overall assessment must, however, factor in the effects on the right to deduct and on payroll tax, which can reduce or cancel out this advantage.

Do rents between members really escape VAT?

Yes, as long as the landlord and the tenant are members of the same single taxable person: the letting constitutes an internal transaction outside the scope of VAT, with no tax charged and no invoice subject to VAT rules between the two entities. By contrast, rents invoiced to tenants outside the group remain governed by the ordinary rules: exemption of unfurnished lettings with the ability to exercise the option to tax, and taxation of fitted-out lettings under the usual rules. The composition of the perimeter therefore directly determines which flows are neutralised.

Why can the VAT group impair the property company's right to deduct?

Before the election, a property company that lets to its subsidiaries with VAT deducts the tax on its buildings on the strength of its taxed rents. Once it is a group member, those rents become internal flows outside the scope: the right to deduct is assessed at the level of the single taxable person, by reference to the transactions carried out by the members with third parties. If the internal tenants carry out exempt transactions, the input VAT borne on the building is no longer deductible in the same proportion. Recalculating the deduction ratios before the election is therefore essential, building by building.

Does the VAT group trigger liability for payroll tax?

It is a real risk. Article 231 of the CGI imposes payroll tax on employers that are not subject to VAT on at least 90% of their turnover. A company whose receipts now come mainly from internal transactions, outside the scope of VAT, may cross that threshold and become liable for the tax on all or part of its remuneration. Since 1 January 2026, article 231 A of the CGI nevertheless exempts remuneration paid by a member of a single taxable person where that member would not have been liable for the tax outside the group and where the group's turnover carrying a right to deduct reaches at least 90% of its taxable turnover: this exemption protects groups that are very predominantly taxable, but not those with significant exempt activities. For a property company or a shared-services company with staff, this cost can absorb a significant share of the expected gain on the rents. The simulation must be carried out entity by entity before the election.

What happens to a building that enters the group during its adjustment period?

Entry into the single taxable person changes the use of the building for VAT purposes: rents that were previously taxed become internal flows outside the scope. That change is analysed under the deduction adjustment rules of article 207 of Annex II to the CGI, following a logic comparable to the transfer of an asset between business sectors. Depending on the position of the members using the building and their transactions with third parties, the entry may trigger a partial claw-back of the tax initially deducted, or remain neutral. This review must be carried out before the election, building by building, over the twenty-year period.

Who pays the group's VAT and who answers for it in a tax audit?

The representative of the single taxable person, designated from among the members, files the group's VAT returns and pays the amount due. Each member nevertheless remains jointly liable for payment of the tax, late-payment interest and penalties, up to the amounts for which it would be liable if it were not a member of the group. An internal agreement must organise the funding of the tax, the circulation of the savings achieved and the recourse between members, failing which the joint liability and the allocation of the cost become sources of dispute, between shareholders as with the tax authorities.

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Describe your situation See the real estate VAT practice
François Ouairy, avocat associé

Written by

Me François Ouairy, avocat associé en charge du bureau de Paris, expert en fiscalité immobilière, fiducie et fiscalité financière.

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