Not every property transaction falls within the scope of VAT. The principle set out in article 256 of the French Tax Code, completed by article 256 A, requires two cumulative conditions to be met: the carrying out of a supply of goods or a supply of services for consideration, and the fact that it is performed by a person acting as a taxable person in the course of an economic activity. Where one of these conditions is not met, typically a transfer between private individuals, or by a body governed by public law acting as a public authority, the transaction falls outside the scope. The distinction between out of scope and exempt is central: it governs the regime of registration duties, the right to deduct input VAT, and the reporting obligations.
The boundary between a transaction that is outside the scope and one that is exempt from VAT is not merely a doctrinal subtlety: it drives very different practical consequences: (1) the applicable registration duties regime; (2) the right to deduct any input VAT (not available for out-of-scope transactions); (3) the option for VAT (not available for out-of-scope transactions, whereas it is available for certain exempt transactions within the scope); (4) the reporting obligations (VAT return, register).
Article 256 A of the French Tax Code defines the taxable person as the person who independently carries out an economic activity. The isolated transfer of a property by a private individual who merely exercises his right of ownership does not fall within this definition: it is outside the scope of VAT. Conversely, an exempt transfer (for example a building completed more than 5 years ago transferred by a taxable person, French Tax Code art. 261, 5) remains within the scope but benefits from an exemption.
The characterisation issue is therefore central from the preparatory phase of any property transaction. An incorrect characterisation may lead either to the loss of a right to deduct, or to a reclassification as a taxable person with reassessments and surcharges.
These cases illustrate the range of situations in which VAT is not intended to apply.
The isolated transfer of a property (principal residence, second home, inherited property left unchanged) by a private individual who merely manages his assets is outside the scope of VAT. The transferor does not act as a taxable person within the meaning of art. 256 A: he simply exercises his right of ownership. Consequence: registration duties at the ordinary rate (5.80% / 6.40%), no VAT, no right to deduct.
Article 256 B of the French Tax Code places outside the scope the transactions carried out by bodies governed by public law when they act as a public authority (granting of permits, management of the public domain, etc.). Conversely, the State or a local authority that carries out an economic activity in competition with private operators is within the scope of VAT: the boundary is regularly clarified by case law.
An investor who holds a property as a simple asset placement, without allocating it to an economic activity, does not act as a taxable person. The later transfer of that property remains outside the scope. The boundary with the status of taxable person depends on the continuity and the organisation of the activity: a single isolated act is not sufficient, unless characterised active steps are taken.
Transfers for no consideration (gifts, transfers on death) are outside the scope of VAT because they do not constitute a supply for consideration within the meaning of art. 256 of the French Tax Code. They fall under the regime of gratuitous transfer duties (DMTG): progressive scale, allowances, Dutreil pact where applicable. The distinction is clear in practice but may become blurred with mixed transfers (gift-partition with balancing payment, etc.).
Since 2023, the single taxable person regime (French Tax Code art. 256 C) allows integrated groups to be treated as a single taxable person for VAT purposes. Internal transactions within the group are then outside the scope of VAT, which may concern intra-group property transfers. A substantial advantage for groups that carry out both taxable and exempt activities.
The firm secures the tax characterisations upstream of every complex property transaction: analysis of the transferor's status (private individual / taxable person / public body / member of a group), of the nature of the transaction (gratuitous / for consideration / internal to the group), and of the underlying economic activity. The aim is to lock in the characterisation from the preliminary agreement onwards, in order to avoid surprises during a tax audit.
In the event of a reclassification by the tax authorities (moving from out of scope to within the scope, or vice versa), we build the defence on the coherence of the economic analysis, the history of the activity and the applicable case law.
A transaction that is outside the scope does not fall within the definition of VAT: it does not meet the conditions of art. 256 of the French Tax Code (for example, a transaction for no consideration or carried out by a person who is not a taxable person). An exempt transaction falls within the scope of VAT but benefits from an express exemption (for example, the transfer of a building completed more than 5 years ago, art. 261, 5). The practical consequences differ: right to deduct (not available out of scope, adjusted where exempt), option for VAT (not available out of scope, possible where exempt), reporting obligations.
In principle yes, where both parties act as ordinary private individuals without active marketing steps. The transfer is then limited to the exercise of the right of ownership. However, the CJEU case law Słaby/Kuć (15 September 2011) and the practice of the Conseil d'État have established the concept of active steps to market land: a private individual may become an occasional taxable person if he deploys means similar to those of a professional. See our dedicated analysis: Active steps to market land.
It all depends on the capacity in which the municipality acts. If it acts as a public authority (French Tax Code art. 256 B), for example the transfer of a public-domain asset in the course of a sovereign mission, the transaction is outside the scope. If it acts in competition with private operators (for example the development and resale of a business zone), it may be a taxable person. The BOFiP doctrine clarifies the many specific cases.
No right to deduct arises on purchases and costs directly linked to the out-of-scope transaction: this is the logical consequence of the fact that the transaction does not generate output VAT. If the operator nonetheless bore input VAT believing it could deduct, and the tax authorities reclassify the transaction as out of scope, the deduction may be reassessed.
No. And even among transactions that are within the scope but exempt, the option is available only for certain transactions listed exhaustively by the French Tax Code, not all of them: for example, art. 260, 5° bis opens the option for the transfer of buildings completed more than 5 years ago, and art. 260, 2° for the bare letting of premises for professional use. Outside these expressly provided cases, no option is available. An out-of-scope transaction cannot be brought back within the scope by option: the conditions of art. 256 and 256 A would first have to be met (which may require dedicated structuring, for example the creation of a taxable company that will take a lease of the property).
Yes. Since 2023, the single taxable person regime (French Tax Code art. 256 C) allows an integrated group to be treated as a single taxable person for VAT purposes. Internal transactions within the group are then outside the scope. This includes intra-group property transfers. It is an important optimisation lever for mixed groups (taxable and exempt activities).
Three axes: (1) economic analysis of the transferor's activity (continuity, organisation, intention); (2) drafting of the deeds (explicit statements of the characterisation adopted, supporting reasons); (3) accounting and reporting consistency (a transferor who reports comparable transactions for VAT will hardly be presumed to be out of scope for the disputed one). An upstream audit considerably secures the position in the event of an audit.
Topics frequently connected with out-of-scope VAT transactions.
General framework of real-estate VAT: scope, regimes, options, exemptions.
Voir la page VATOverview of the regimes applicable to property transactions.
Voir la page VATWhen does a private individual become liable to VAT?
Voir la page VATMechanics of the option for VAT and formal requirements.
Voir la pageA confidential initial discussion to analyse the transferor's status, the nature of the transaction and to weigh up between out of scope, exemption and the option for VAT.
Written by
Me François Ouairy, avocat associé en charge du bureau de Paris, expert en fiscalité immobilière, fiducie et fiscalité financière.
© BENSAID Avocats — The information on this site does not constitute legal advice and cannot replace a personalised tax analysis.