Non-national property owners in France who are in receipt of rental income must submit a tax return to the French tax office each year. However it can be confusing to know what your obligations are, especially if you don’t speak the language. This is where overseas tax experts Property Tax International can help. While they can take care of your tax obligations both at home and abroad, here is a brief overview of tax on rental income in France.
The tax year in France is usually the calendar year, running from January 1 to December 31. Income tax is applied to taxable income at a progressive rate with a minimum of 20% and as of the 2015 tax year, the taxable gain is also subject to an additional 15.5% social charges.
Furnished, unfurnished, and leaseback properties are taxed differently in France.
Unfurnished properties are typically long term lets of residential premises. Owners of unfurnished properties are not required to perform special registration with the tax office. They can report their rental income on their personal income tax return using one of the following options:
- MICRO REGIME – also called Micro-foncier. This is applicable when rental income is less than €15,000 and a notional deduction of 30% is offset against gross rental income. This is beneficial where your actual costs are lower 30% of the income – in general if no mortgage is taken on the property.
- REAL REGIME – this applies if your French rental income is greater than €15,000 or if you choose to opt out of the simplified scheme because your actual expenses exceed 30% of the gross rental. Various expenses are considered as deductible, such as mortgage interest, agency fees & communal charges, local taxes, insurance, maintenance and repairs. You should keep records and relevant supporting documents in respect of expenses.
Furnished Properties that are typically let on a short term basis (generally also includes Leaseback properties) give you two options when it comes to your taxes:
- MICRO REGIME – also called Micro-enterprise is available where the rental income is less than €32,900. Owners are permitted to take 50% of the rental income as a deduction for related costs in arriving at taxable income. There is no registration obligation. It is generally more tax efficient to choose the Micro Regime if your actual costs are lower than 50% of the income.
- REAL REGIME – applies if your French rental income is greater than €32,900 or if you choose to opt out of the simplified scheme. This regime enjoys the benefits of a larger number deductible expenses such as mortgage interest, all types of local taxes due, insurance, management fees, cleaning, maintenance and repairs, advertising, accountancy fees, bank charges, utilities and others. Most notably however are the building and furnishing capital allowances.
You must retain relevant valid supporting documents in respect of expenses incurred and deducted from the gross income. In the majority of cases capital allowances result in reporting loss for the tax year and there is no income tax due.
You should note that there are certain obligations related with the Real Regime that should be taken into consideration:
- There are registration obligations to start/stop activity with the tax office
- An additional annual tax return is due in relation to the activity (business return)
- For non-leaseback properties there is an additional local tax applicable (CFE – Contribution Fonciere des Entreprises) that in certain regions can be considerable
The filing deadline for business returns due for furnished rental activities under the Real Regime is May 5 and the tax office is usually strict about receiving these returns on time.
If there is an occasional delay while you cope with your filing obligations, there is a good chance you can avoid fines and penalties, however failing to meet this deadline for 2 or more consecutive tax years usually attracts fines calculated on a number of tax forms that were not submitted on time.
Filing deadlines for personal returns due for all property owners are May-June. The deadlines for 2016 returns are not published as yet. Last year they were May 19 (paper submission)/June 9 (if tax return is filed online) so it is expected that they should be around the same time this year.
If you are resident in the UK or Ireland you will need to report any income received in France on your annual resident tax return (i.e. your Irish or UK tax return). However, there are double taxation agreements between France and Ireland and France and the UK so relief from double taxation is usually available.
It can be really confusing to know what your tax obligations are in a new country, not least because of language barriers and different legislation. This is where Property Tax International can help. Their tax accountants are highly specialised in taxes for overseas property owners and will ensure you are tax compliant both at home and abroad.
The friendly, experienced team will also make sure you maximise your property’s profit potential and will prepare and submit accurate tax returns to give you peace of mind, so you can relax and enjoy your overseas property without getting bogged down in paperwork!