If 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 are 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 on 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.
However, if your turnover exceeds 15,000€, you are obliged to complete a mini P&L account in your tax return on the REEL regime, deducting certain costs for that year (mortgage interests, agency fees & 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 furnished rental, according to how the property is owned and the level of gross income earned per annum, there are 2 tax regimes available for this type of rental activity, 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 REEL regime, a full 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 in the annual income tax return.
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 in addition to the taxes indicated above.
A decree is still to be published explaining 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!
It is therefore important for each furnished rental landlord to obtain advice related to their particular situation, annual revenue, costs and eventual depreciation allowance, to make sure they are registered and declaring under the most tax-efficient regime.
SAREG is a group of English-speaking French chartered accountants specialising in furnished rental activities, able to assist with registration formalities and annual accounting & tax services. Feel free to contact Debbie Bradbury at firstname.lastname@example.org or 00 33 (0)4 50 25 23 97 for further information.