SAREG - French Rental Activity Rules And Regulations
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).
1) 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 17.2% are also applied to this fixed profit (previously 15.5%).
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€.
2) 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 17.2% are also applied to this fixed profit.
*There is a maximum turnover threshold of 70,000€ per annum in this category (previously 33,100€), unless a tourist certificate is held, which enables the furnished rental landlord to take advantage of turnover up to 170,000€ (previously 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 an updated regulation came into place in January 2017 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.
The information provided relating to the calculation of the social charges was unclear in 2017 and the application of the “quasi professional” status does not appear to have been put in place by the RSI to date – they do not appear to know how to apply this! However, a document has been produced by the authorities suggesting that the auto-entrepreneur (“pay as you earn”) system can be used for anyone whose turnover exceeds 23,000€ but does not exceed 70,000€ (previously 33,100€), meaning that social contributions of 22.7% of turnover would be paid for properties without a tourist certificate, or 6% of turnover for properties with a tourist certificate, by means of a monthly or quarterly turnover declaration.
For those who opt for the general social security regime (via CPAM), contributions calculated on the salaried employees’ scale will be made on 40% of turnover for properties without a tourist certificate (ie 60% allowance), and on 13% of turnover for properties with a tourist certificate (ie 87% allowance). What is unclear is how the contributions are calculated for those on the REEL (profit & loss) regime, as quite often the result of the P&L shows a loss. However it is likely that these will be around 40-45% of profit and it has been stated that if there is ZERO profit, there will be minimum social contributions in the region of 1,200 Euros per person.
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.
With regards to method of purchase/ownership and rental activities:
- If you own the property via an SCI (civil property company), you can let unfurnished only. This type of structure lends itself to rental of commercial units or long-term rental.
You cannot rent furnished directly through an SCI as this is a “commercial activity” and as such is run as a small business.
- If you need a company structure for inheritance reasons, for easy transmission of shares to your children or other family members, it may be worth looking at a family limited company (SARL de Famille), which has the advantage of being taxed under the individual tax regime rather than the corporation tax regime but is only possible between direct line family members.
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 or 00 33 (0)4 50 25 23 97 for further information.