The rules for furnished and unfurnished lettings explained
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).
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.
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