New changes in real estate taxation

by Reed Smith

The French Amended Finance Act for 2013 and the Finance Act for 2014, both dated 29 December 2013, have been adopted and entered into force on 31 December 2013. Some of their provisions bring again new changes on real estate taxation.

Real estate listed companies (French SIIC)

Some adjustments are made to the tax regime applicable to listed real estate investment companies (French SIIC).

The thresholds for mandatory distribution are increased from 85 per cent to 95 per cent for rental income and from 50 per cent to 60 per cent for property sale income. This increase applies for financial years ending on or after 31 December 2013.

In counterpart, and precisely because of this mandatory requirement, the exemption from the additional contribution of three per cent to the corporate income tax for income distributed under the SIIC mandatory distribution is legalised. This exemption applies for payments made after 1 January 2014.

Besides, the scope of the withholding tax applicable to foreign companies realising profits in France is completed in order to better cover situations where the revenue generated in France is not taxed ultimately. Thus, for financial years ending on or after 31 December 2013, listed real estate investment companies established in the European Union (such as UK REITS) and for which the profits realised in France are not taxed in their home country, can no longer benefit from the exemption of the French withholding tax.

Real estate capital gain tax for individuals

For sales made after 1 September 2013, a full tax exemption of the real estate gain applies after a holding period of 22 years (but still after a 30-year holding period for social security contributions). Before the 22-year holding period, there is a tax reduction of six per cent for each year of ownership beyond the sixth year and the twenty-first year, and of four per cent for the twenty-second year of ownership.

In addition, an exceptional reduction of 25 per cent also applies to the sale of real estate properties made after 1 September 2013, but only for a period of one year.

Nonresidents capital gains

The legislation amends the scope and implementation rules of the specific exemption that can benefit nonresidents on the sale of their home in France. First, by waiving the condition of free disposal of the property where the transfer is completed no later than 31 December of the fifth year following the transfer of tax residence outside France and second, by introducing a cap of €150,000 of the net capital gain that is tax exempt.

Transfer tax

The total amount of real estate transfer duties to be paid by the purchaser of a property is increased in 2014 from 5.09 per cent to a maximum of 5.80 per cent of the purchase price.

VAT on real estate transactions

VAT rates applying for 2014 are the following:

  • For the upgrade of the energy efficiency of existing buildings: 5.5 per cent
  • For development works: 10 per cent
  • For all other works and services in the field of real estate: 20 per cent

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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