When working out your finances to buy that dream property in France you need to take into account the taxes involved in purchasing French property. There is a difference in these costs depending on whether the property is subject to TVA (VAT) or not.
Where a property is subject to TVA it is at the rate of 20% and is usually included in the purchase price, even though it is technically payable by the seller. If the price paid by the purchaser includes the TVA then the seller (or notaire) must pay the TVA over to the tax authority.
There will also be land registry fees of around 0.7%. The notaire will charge around 1%, although the exact amount is dependent on the price of the property. The amounts a notaire can charge are set by law, and are subject to TVA at 20%.
Property subject to TVA
The sale of a building is subject to TVA if sold:
a) before completion (vente en l’état futur d’achèvement), or
b) within five years of completion, unless the sale in question has been preceded by an earlier sale by a non-trader (i.e. a private individual)
In other words, re-sale within five years of completion is not subject to TVA if the re-seller bought from a private individual and not a trader in property (so the re-sale in question is the second, or subsequent, and not the first, sale by a private individual).
On a sale five years after construction there’s no TVA, whether by private sale or not.
If you are contemplating buying land on which to build a dwelling, then land acquired by individuals (after 21st October 1998) is not subject to TVA but is instead subject to registration duties at 5.09%. Land acquired by a builder/developer or company is subject to TVA as normal, plus a fixed registration fee of €125.
TVA also has to be paid when there is a ‘self delivery’ of properties, in certain defined circumstances. A ‘self-delivery’ occurs when the owner of a property, which was not within the scope of TVA at the time of purchase, carried out major works, which results in a ‘new’ building within the meaning of the French legislation. Major works are defined in the French tax code as:
- Renewing 50% or more of the foundation
- Renewing 50% or more of the structure
- Renewing 50% or more of the facades
- Renewing at least two thirds of each of these following items: partitioning; windows and doors; plumbing; electricity; heating; floors (non-load bearing).
Only one of the above four categories has to be undertaken to make the building a new building for TVA purposes. As a new building, if it is sold within five years of these works being completed, the sale will be subject to TVA at 20%.
In addition, if certain other improvements are made to the property, such as the addition of a pool house, TVA will be chargeable on the element of the sale price related to the addition.
In many cases the French authorities are alerted to the TVA position when the seller submits invoices for building works to mitigate French capital gains tax, making it obvious major works have been undertaken. The contractors on the site will normally have included the TVA on their invoices at 20%, which is the major works rate, and not at 10%, which is the minor works rate. The authorities will also look at building permissions etc, to see the nature of the works undertaken.
Invoices must be prepared to a certain standard by the artisans who work on the property – they must not just be addressed in respect of the property itself, but also must specify that that was the property that the work was done on.
If the previous owner started the works, which were then completed by a subsequent owner, the date for charging TVA runs from the date of completion of the works, not when they were started, so if the new owner sells within five years of completing the work, they will have to charge TVA accordingly.
Sales of properties not subject to TVA
Registration (or transfer) taxes (droit commun) of 5.09% are charged on property sales not subject to TVA. The notaire collects these on behalf of the French government. Registration taxes are broken down as follows:
Departmental tax: 3.6%*
Expenses tax: 2.5% of the departmental tax
Communal tax: 1.2%
State tax: 0.2%
The balance represents the notaire’s fees, again at around 1% with the exact figure depending on the price of the property.
In both cases there are additional costs of around 3% if a mortgage is taken out.
*The departmental tax can in principle be varied anywhere between 1.0% and 3.6% each year by the individual departements, depending on the nature and location of properties, producing a range of taxes from 2.425% to 5.09% maximum.
There are certain reliefs and exemptions in special cases.
Local property taxes
When you own property in France you will be liable for local property taxes, whether you are resident or non-resident in France. The two main property taxes are taxe d’habitation and the taxe fonciere. The taxe d’habitation is paid if you own a residential property and use it yourself (or have it available for your use). The taxe foncière is paid by the owner of the property, irrespective of who occupies it. For more information on both these taxes please see our article Local property taxes: taxe foncière and taxe d’habitation.