Tax

The rules for fur­nished and un­fur­nished let­tings ex­plained

French Property News - - Contents -

Gen­er­ally, when you earn an in­come from prop­erty in France, you are obliged to de­clare that in­come in France and pay any rel­e­vant taxes in France. UK res­i­dents would also de­clare their French in­come on their UK tax re­turn and a tax credit would be ap­plied if any French tax had been paid, thus avoid­ing dou­ble tax­a­tion. The French tax year runs from Jan­uary to De­cem­ber and in­come tax re­turns have to be filed in May of the year fol­low­ing the tax year.

Un­fur­nished rental in­come is classed as a ‘pri­vate’ in­come and does not in­volve regis­tra­tion as such. How­ever, as soon as the prop­erty is let fur­nished, this comes un­der the cat­e­gory of self-catered fur­nished rental and is classed as a com­mer­cial ac­tiv­ity in France, re­quir­ing regis­tra­tion with the rel­e­vant au­thor­i­ties (not sim­ply with the mairie).

Un­fur­nished ren­tals

For un­fur­nished rental, if your an­nual turnover does not ex­ceed €15,000, you can opt to de­clare the rev­enue un­der the Mi­cro regime. The French tax au­thor­i­ties ap­ply a fixed tax-free al­lowance of 30% for your costs and you are taxed on the re­main­ing 70%; res­i­dents on the pro­gres­sive scale of in­come tax and non-res­i­dents start­ing at 20%. So­cial taxes of 15.5% are also ap­plied to this fixed profit, what­ever your res­i­dency or house­hold sit­u­a­tion.

How­ever, if your turnover ex­ceeds €15,000, you are obliged to com­plete a mini profit and loss (P&L) ac­count in your tax re­turn on the Réel regime, de­duct­ing cer­tain costs for that year (mort­gage in­ter­ests, agency fees and com­mu­nal charges, taxes fon­cières, in­sur­ance, re­fur­bish­ment, main­te­nance and re­pairs) and you will be taxed on the real profit un­der the same rules as above ac­cord­ing to whether you are res­i­dent or non-res­i­dent. This regime would also be an op­tion if costs ex­ceed 30% of turnover, even where turnover does not ex­ceed €15,000.

Fur­nished ren­tals

For a fur­nished rental, ac­cord­ing to how the prop­erty is owned and the level of gross in­come earned per an­num, the tax regimes ap­ply as fol­lows.

With the Mi­cro regime, you sim­ply de­clare your gross rental in­come on your an­nual re­turn and the French tax au­thor­i­ties ap­ply a fixed tax-free al­lowance of 50%* for your costs. You are then taxed on the re­main­ing 50%; res­i­dents on the pro­gres­sive scale of in­come tax and non-res­i­dents start­ing at 20%. So­cial taxes of 15.5% are also ap­plied to this fixed profit.

(*There is a max­i­mum turnover thresh­old of €33,100 per an­num in this cat­e­gory, un­less a tourist cer­tifi­cate is held, which en­ables the fur­nished rental land­lord to take ad­van­tage of turnover up to €82,800 and a tax-free al­lowance of 71% in­stead of 50%, thus re­duc­ing to­tal tax li­a­bil­i­ties ac­cord­ingly.)

With the Réel regime, a set of profit and loss ac­counts must be filed to jus­tify the costs off­set against in­come. De­ductible charges are the ‘real’ run­ning costs re­lated to the rental ac­tiv­ity (mort­gage in­ter­ests, taxes fon­cières, pro­fes­sional premises tax, taxe de séjour, in­sur­ance, man­age­ment fees, clean­ing, main­te­nance and re­pairs, ad­ver­tis­ing, ac­coun­tancy fees, bank charges, util­i­ties) as well as an an­nual al­lowance for de­pre­ci­a­tion re­lated to the value of the prop­erty. The P&L can of­ten re­sult in a loss on pa­per and there­fore zero in­come tax and so­cial taxes are due in France. The re­sults of the P&L are filed with the tax au­thor­i­ties in April each year and re­it­er­ated in the an­nual in­come tax re­turn in May.

Im­por­tant changes to the French Fi­nance Law

It should be noted that the new French Fi­nance Law was voted in De­cem­ber 2016 and this in­cludes an up­dated reg­u­la­tion re­lated to so­cial con­tri­bu­tions, pre­vi­ously only due where fur­nished rental was run as a ‘pro­fes­sional’ ac­tiv­ity.

From Jan­uary 2017, any fur­nished rental land­lord of­fer­ing short-term ac­com­mo­da­tion such as hol­i­day lets, whose an­nual turnover ex­ceeds €23,000, will be li­able for so­cial con­tri­bu­tions.

These land­lords will be obliged to regis­ter either with the self-em­ployed wel­fare ser­vices (RSI) or the gen­eral wel­fare ser­vices (CPAM). So­cial con­tri­bu­tions will be cal­cu­lated ac­cord­ing to net profit for those on the Réel regime and a fixed al­lowance will be ap­plied to turnover for those on the Mi­cro tax regime.

To date, we have been in­formed that this would be a 60% al­lowance via CPAM and that land­lords on the Mi­cro regime hold­ing a valid tourist cer­tifi­cate ( meublé de tourisme) would be en­ti­tled to an 87% al­lowance via RSI. We un­der­stand that those

In­come tax re­turns in France have to be filed in May

with­out the tourist cer­tifi­cate will be charged the stan­dard rate of so­cial con­tri­bu­tions on their fixed profit (eg ap­prox­i­mately 45% of 50%).

A de­cree is still to be pub­lished ex­plain­ing the de­fin­i­tive guide­lines of how these con­tri­bu­tions will be cal­cu­lated and whether there will be any ex­emp­tions for non-res­i­dents but it is likely there will be a min­i­mum con­tri­bu­tion, even where the P&L shows the ac­tiv­ity run­ning at a loss!

Fi­nally, although this new regime came into line on 1 Jan­uary 2017, as it was brought in at the last minute, fol­low­ing lob­by­ing from French hote­liers up in arms about in­ter­net plat­forms such as Airbnb, the French au­thor­i­ties have not yet de­fined how the so­cial charges will be in­voiced and paid – hence why, at the time of writ­ing (end of Fe­bru­ary), we are still no clearer on this point!

But it should be noted that once the new pro­ce­dure is in place, so­cial con­tri­bu­tions will be back­dated to Jan­uary 2017.

For now, it has been sug­gested that you do not need to regis­ter with the RSI un­til your turnover ex­ceeds €23,000, as you are likely to have to de­clare your in­come by means of a so­cial dec­la­ra­tion of rev­enue.

How­ever, if his­tor­i­cally your an­nual turnover ex­ceeds €23,000, you should be ready for the regis­tra­tion process and pay­ment of so­cial con­tri­bu­tions.

From the above, you can see that it is im­per­a­tive for each fur­nished rental land­lord to ob­tain ad­vice re­lated to their in­di­vid­ual sit­u­a­tion, an­nual rev­enue, costs and even­tual de­pre­ci­a­tion al­lowance, to make sure they are reg­is­tered and declar­ing un­der the most tax-ef­fi­cient regime.

It is also worth look­ing at ob­tain­ing a tourist clas­si­fi­ca­tion of meublé de tourisme in or­der to re­duce the amount of so­cial con­tri­bu­tions that may be payable un­der this new regime.

Un­for­tu­nately, it is not pos­si­ble to change tax regimes part-way through the year. The choice must be made prior to 31 Jan­uary of the year in which you wish to change so it is im­por­tant to make the right de­ci­sions for the next tax year well in ad­vance.

Deb­bie Brad­bury works for SAREG, a group of English-speak­ing French char­tered ac­coun­tants spe­cial­is­ing in fur­nished rental ac­tiv­i­ties Tel: 0033 (0)4 50 25 23 97 Sareg.com

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