There are a few taxation specificities attached to real estate investments in France when you are an expat living abroad as a non-resident for tax purposes. Amongst these, the status of non-professional furnished real estate lessor is particularly advantageous.
The law clearly states that whether you are an expat or not, whether you are a tax resident or not, if the source of property revenue is in France, income from the property is subject to French taxation! Indeed, expats who are not French residents for tax purposes remain subject to tax on any income from French sources. The same applies to local taxes payable on their real estate assets (“taxe foncière” – property tax, “taxe “d’habitation” – council tax and “taxe sur les locaux vacants” – vacant premises tax).
Avoiding being penalized… twice
The good news is that an international tax convention signed between France and most other countries allows you to avoid having to pay tax twice on this French-source property income. This is the case with all European Union countries and most of the countries that attract the highest number of French expats. If in doubt, it is best to double check with French tax authorities beforehand. To do that, consult the list of tax conventions concluded by France established by the Ministry for Action and Public Accounts (those in force on 1st January 2018).
Resident or non-resident – what difference does it make to taxation?
Real estate tax for a non-resident expat is very similar to real estate tax for a French resident. Tax on income from real estate located in France is exactly the same, calculated in accordance with the graduated schedule of tax rates and the “family quotient” whereby tax owing is calculated based on the number of dependents a taxpayer has.
The only notable difference is that non-residents are subject to a 20% minimum tax rate on their real estate income (for unfurnished rentals) or “BIC” tax on commercial and industrial earnings (for furnished rentals). The phrase “application of the minimum 20% rate” will, moreover, appear on your tax assessment. On top of this, will be added social security deductions amounting to 17.2%.
Investing in “LMNP” (non-professional furnished letting) is by far the most advantageous option.
The status of non-professional furnished property lessor (“LMNP”) is ideal for expats wanting to invest in an asset in France generating rental income to constitute extra revenue (such income must not exceed the annual limit of 70,000 euros or 50% of total revenue).
Even if it is definitely less “vigorous” than the one reserved for professional furnished letting, the tax regime covering renting out furnished dwellings for non-professional purposes presents a certain number of advantages as far as tax is concerned, especially as compared to unfurnished letting.
A minor, but important, point to remember: furnished rental is subject to the “BIC” regime (commercial and industrial earnings), the owner-lessor being considered as a businessperson, whereas unfurnished rentals are subject to the less favourable regime of real estate revenue.
“Micro BIC” or simplified actuals regime
As the lessor of a furnished property, you can declare your income under the simplified actuals regime or the “micro BIC” regime, which is also known as the micro-enterprise regime. The latter is often more advantageous, especially where there is a mortgage attached to the purchase of the property.
In fact, in the context of the “micro BIC” regime, you benefit from a fixed rate abatement of 50%, the remainder being added to your other income and subject to France’s graduated schedule of income tax rates. No other charges are payable on the sum.
With the actuals regime, taxable revenue is calculated in accordance with the general rules governing commercial and industrial income.
Income is made up of the amount of rent before tax, whether actually received or not, together with provisions for charges as set out in the rental agreement and any other incidental income. Thus, your taxable income corresponds to the difference between your annual rental income and deductible amortisation and charges. You can, therefore, amortise anything that represents a charge in respect of your purchase of the property, most significantly your mortgage. This means that it will be a few years before your property revenue increases your tax bill to any noticeable extent.
How do I declare my income and when?
The year in which they leave France to live abroad, expats are considered as residents for tax purposes for the period from 1st January to their date of departure, then as non-residents for the rest of the year. Even if non-resident expats are no longer considered to be French taxpayers, they remain under the obligation to declare their French source real estate income at the same time as all other tax residents. They must complete their annual tax declaration indicating their “income deriving from letting property located in France” or their “income related to a commercial operation located in France” (commercial and industrial income).
For more detailed information, take a look at the Légifrance website, where there is a whole section devoted to The taxable income of foreigners and persons not domiciled in France for tax purposes.