The Accredited Tax Representative for Non-Residents

Capital gains tax on property disposals > Disposals of immovables

Sales by individuals
- General rules
- Furnishings
- Works
- Exemptions
- CGT & Supplementary Tax rates
Sales by companies
- EC companies, (Liechtenstein, to confirm)
- Non EC companies
• Sales by SCI's and registered partnerships
- General rules
- Exemptions


>Sales by individuals > General rules

Calculating the chargeable gain

• The chargeable gain is calculated as follows (see section 150 V of the French Tax Code (CGI) :

Disposal price (Art 150 VA I of the CGI)
+ amounts due by seller but paid by buyer (Art 150 VA II of the CGI)
– costs borne by the seller (Art 150 VA III of the CGI)
– purchase price
– costs and expenses allowed by law
– acquisition costs
– works

= Gross chargeable gain

• The gross chargeable gain is then reduced by:
- Allowance for length of ownership: see table opposite,

• This gives the net chargeable gain, which is taxed at the rate of tax which depends on the seller's country of domicile.


Disposal price
(§ 36 to 44 Instruction of 14 January 2004) :

• This is the actual price as stated in the deed. If the price is not declared in full, the dissimulated amount is added to the price stated in the deed (Art 150 VA-I of the CGI)

+ Increased by any charges normally payable by the seller but which are paid by the buyer (§38/39/40 Instruction of 14/01/04) :

>These include any capital charges and any indemnities declared to benefit the seller for whatever reason, but which are paid by the purchaser instead of the seller,

Less :

> the VAT paid by the seller on this disposal (§43 Instruction 14/01/04)

>the costs borne by the seller, limited to (Decree of 31/12/03) :
- fees paid to an intermediary (agency) or representative (tax representative),
- costs of the certificates and surveys imposed by law,
- eviction indemnities paid to a tenant by the owner who sells the property vacant,
- fees paid to an architect for surveys enabling a preliminary authorisation for a planning permit,
- the costs paid by the seller to de-register a creditor's mortgage charge on the property.

Acquisition price (Art 150 VB-I of the CGI)

• Defined as:
- For acquisitions made in return for payment: the price actually paid by the seller, as declared in the deed
- For acquisitions without payment : the value taken into account to calculate the conveyance tax (if ownership split into usufruct/bare title, see form n° 16, Instruction of 4/8/2005).

• Are added to the purchase price, subject to justification and actual payment by the seller:
- All capital charges and all indemnities declared to benefit the seller in any way or for whatever reason,
- The costs associated with the acquisition:
>If acquired in return for payment:
->either an all-in amount equal to 7.5% of the purchase price (inc agency comm.),
-> or the actual costs (notary's costs and fees, registration taxes, agency commission, etc.)
> If acquired free of charge:the conveyance costs and fees
-> if they were actually paid by the seller
->and in proportion to the fraction of the value represented by the property or property rights.


Works

• The cost of building, rebuilding, extension and improvement works are deductible:
- either under certain conditions and with documents in proof at their actual value,
- or at an all-in value of 15% of the purchase price, under the condition that the person liable for the tax sells the property more than 5 years after purchase.

• Costs of roads, drains and utilities:
- incurred for building land,
- whether or not such works are imposed by the local council or group of councils


Allowance for length of ownership

• For all types of properties (except building land), the capital gain is totally exempt:
- from the CGT part of the tax: after 22 years of ownership,
- from the social charges part of the tax: after 30 years of ownership
Simplified form to help calculate the supplementary tax.


• For building land:
- Exempt after 30 years (tax scale for buildable land).


Temporary 25% Extra Allowance

Applicable:
• To disposals signed between 01/09/13 and 31/08/2014,

• EXCEPT disposals:
- of building land,
- of shares of companies whose capital consists mainly of real estate,
- to a spouse, PACS/civil partner, live-in partner, ascendant, descendant
- to a company owned by the seller and/or the persons listed above.


• to the net capital gain after deducting the allowances for length of ownership (CGT + social charges),

• for calculating the tax basis of the Supplementary Tax (article 1609 9 G of the French Tax Code) (calculated on the CGT part of the tax).

Taxe rate and supplementary tax





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>Sales by individuals > Furnishings

The value of the furnishings

The value of the furnishings cannot be deducted from the sales price if their existance and market value are not justified ( § 24 Instruction of 4/8/05), either:
- by presenting invoices (discounted for wear and tear, if appropriate)
- by an inventory prepared by an auctioneer

>Sales by individuals > Works

Works carried out on a built property can be taken into account:

Either for an all-in rate of 15% of the purchase price; conditions of application:
- The property must be a built property
- The property must have been owned for more than 5 years
- You do not need to prove that the works have really been done.

Or, under certain conditions, at their actual cost :
They must be costs of building, rebuilding, extension or improvement, paid for by the seller and carried out by a company since the completion of the building or its acquisition, if acquired after completion (Art. 150 VB §II 4° of the CGI)


Basic conditions:

I - Type of deductible works:

>Expenditure on building, rebuilding or extension works

• What is meant by "expenditure on building and extension works"?
- expenditure that brings about a substantial modification to the structure of the existing premises;
- interior works which are substantial enough to be equivalent to reconstruction;
- or which increase the volume or habitable surface area of the existing premises.

• What is meant by "expenditure on improvement works"?
- expenditure that adds new equipment or elements of comfort to a building or which make it more adapted to the modern lifestyle, but without changing the structure of the building;
- expenditure that either cannot be dissociated from the building, rebuilding, extension or improvement works that are also deductible from the chargeable gain.

• Expenditure on maintenance and repairs, including big repairs, are not deductible. i.e. :
- expenditure on works that aim to put back or maintain a property in good condition and to enable it to be put to normal use without changing the surface area, the layout or the initial equipment DB 5 D 2224 N°1 ET S;
- tenant's expenditure : expenses that tenants are obliged to pay in application of section 1754 of the Civil Code, but which are paid by the landlord. This exclusion applies whether or not the property is rented out;

> but also the costs of roads, drains and utilities.

The cost of laying out building land and connecting it to the utilities, whether or not such works are imposed by the local council or group of councils

2 - The works must have been carried out by a registered builder

The following are NOT deductible:
- Works carried out by the owner himself or by a paid labourer,
- invoices for purchases of materials by the owner himself, even if they were fitted by a registered builder.

Exception: When a building is built on bare land (a building project carried out on an occasional basis), it is accepted that the cost of the materials can be deducted (all of the other conditions of form have to be complied with).


Conditions of form:

1 - The costs must have been actually paid for by the seller and must be justified

These costs must:
- have been actually paid for by the seller (justified by bank statements in his name);
- be justified by presenting invoices that show the information required under Art. 289 of the CGI (client's name and address, registered number, European VAT number, information about VAT, etc.);

2 - The works must not have previously been deducted from income

Any expenditure that has been deducted from income tax (total income, property income, etc.) or that has been included in the calculation of a tax reduction or tax credit is not deductible from the chargeable capital gain.

3 - The works must have been done after the purchase (or after completion of the works, if acquired off plan)

That means that no works done prior to the purchase can be deducted.


Useful resources:

- Art 150 VB II of the CGI
- Form n° 5 Instruction of 14 January 2004, knowing that the directive of 4 August 2005 put an end to the notion of "renovation works".
- §38 directive of 4 August 2005
- Art 289 of the CGI



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> Sales by private individuals > Exemption for non residents

Exemption based on the duration of ownership

Thanks to the allowance based on the duration of ownership, no capital gains tax is due if the property has been owned for more than 30 years.

The duration of ownership is calculated from the date of acquisition of the property.


Exemption for disposals under 15,000 Euros:

The sale of a property, part of a property or of the rights attached to the property is exempt from CGT if the sales price is less than or equal to 15,000 Euros.

This threshold is calculated as follows:
- property by property, and not annually;
- and by taking into account the value of the absolute title to the property or part of property;
- For sales of property owned jointly, the threshold is calculated with respect to each jointly-owned share.
- In case of disposal of a property for which the ownership is split into usufruct and bare title, the threshold of 15,000€ is calculated as if each jointly-owned share were owned absolutely

Example: Property sold for 100,000 €
1 beneficial owner (beneficial interest valued at 30%) and 7  bare owners
. Value of each jointly-owned share of bare interest 10,000 €, i.e. 14,285 € in absolute title, so the 7 bare owners are entitled to the exemption.
No exemption for the beneficial owner.


Exemption in favour of the French home owned by non-residents
(Art 150 U II 2e of the CGI and directive of 16/02/06)

Two exemptions are allowed:

• Exemption for the French home of non residents: First sale

Conditions of exemption:

1°) It must be the first sale they have done since 1st January 2006.

2°) The property must have been at the seller's full disposal since the 1st of January of the year preceding the year of the sale (e.g. : sale in 2010, the property must have been at seller's disposal since the 1st of January 2009 at least).

3°) The seller must be able to justify that he is tax domiciled in France for all of his income, continuously for at least two years at any time prior to the sale

4°) The seller must be an individual and a national of a Member State of the European Economic Area (excluding Liechtenstein), i.e. he must hold the nationality of a member state of the EEA (excluding Liechtenstein).

5°) Clause of equal treatment. The benefit of this exemption is granted to nationals of a State that is not a member of the European Union each time the following conditions are satisfied:
- Be able to invoke the benefit of a non-discrimination clause,
- and be place in an identical situation to that where a French national could claim the same exemption, namely: fulfil the conditions 1 to 3 above.

N.B.: Many treaties subordinate the benefit of the non-discrimination clause to a condition of residence.

By way of example, an American living outside the US cannot benefit from the Franco-American Treaty.

Therefore, proof of residence will often be required.

You should make sure:
- you check the definition of the scope of the Treaty;
- and of the specific scope of the clause of equal treatment.

Exemption based on the person's capacity:

• Foreign agencies and states, under the conditions ofArt 131 (6th) of the CGI

- International Organisations,
- Foreign States
- Central Banks
- Public financial institutions of such States

• Persons that run a business in France under certain conditions:

- that are foreign individuals or companies that run, in France, an industrial , commercial, agricultural or non commercial business (except rentals)*
- and that allocate the property to this business in France and that, since acquiring the property, have written it either into the balance sheet or into the depreciation table

* NB renting a property (unfurnished, furnished or equipped) can never be considered as an industrial, commercial, agricultural or non-commercial business. Consequently, the owners of such properties are not exempt from capital gains tax.

• Beneficiaries of old-age pensions and disabled persons, under certain conditions(Art. 150 U III CGI)

Several conditions have to be satisfied:
- they must be beneficiaries of an old-age pension or be disabled in a class of the 2nd or 3rd category as defined in Art. 341-4 of the Social Security Code ;
- they must not be liable French wealth tax for year N-2 before the year of the sale;
- the chargeable income serving as a reference in year N-2 before the year of the sale must be under the limit defined in Art. 1417 I of the CGI, calculated for that year;
- they must be nationals of a Member State of the European Economic Area (except Liechtenstein),
- or be able to invoke a Clause of Equal Treatment - see the conditions listed in 5 above.


Exemption following a declaration of public interest § 36 to 52 - form n° 2 - Directive of 14 January 2004


Exemption in certain cases of land consolidation § 53 to 63 - Form n°2 - Directive of 14 January 2004



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Capital Gains Tax (CGT) (Which rate applies to you?)

Individuals
Domiciled in France 34,5%
Domiciled outside France domiciled in a Member
State of the European Economic Area
*
34,5 %
(19 % + 15,5 %)
domiciled outside the EEA,
not in an uncooperative country
34,5 %
(19 % + 15,5 %)
domiciled in an uncooperative country 34,5 %
(19 % + 15,5 %)

*Liechtenstein: more details are expected soon.

Supplementary tax

  • Supplementary tax on capital gains exceeding €50,000 (1609 nonies G CGI)

    Applicable to :
    - From 1st January 2013
    - This tax is payable by individuals and by individual members of partnerships/SCIs.
    Not applicable to :
    - Building land
    - Exempted capital gains
    - Disposals for which a preliminary contract was signed and registered before 07/12/2012.

  • Scale of the supplementary tax(in Euros)

    Taxable capital gain (TCG) Tax
    from €50,001 to €60,000 2% of TCG – (60,000 - TCG) x 1/20
    from € 60,001 to € 100,000 2% of TCG
    from € 100,001 to € 110,000 3% of TCG – (110,000 - TCG) x 1/10
    from € 110,001 to € 150,000 3% of TCG
    from € 150,001 to € 160,000 4% of TCG – (160,000 - TCG) x 15/100
    from € 160,001 to € 200,000 4% of TCG
    from € 200,001 to € 210,000 5% of TCG – (210 000 - TCG) x 20/100
    from € 210,001 to € 250,000 5% of TCG
    from € 250,001 to € 260,000 6% of TCG – (260 000 - TCG) x 25/100
    Above € 260,000 6% of TCG

    TCG = Taxable capital gain

> Sale by a company > Companies established in an EEA country

From 1st March 2010, the rules for calculating the chargeable gain by European companies change.


It will be calculated as follows:

- the tax basis,
- and the rates applicable to corporation tax on the date of the sale by companies established in France.


The tax is payable:

- at the time of the sale (form 2048 IMM is filed along with the deed of sale when it is registered),
- under the responsibility of the tax representative.


It is obligatory to appoint an accredited tax representative:

- no matter what the sales price is,
- no matter how long the property has been owned,
- whether or not any capital gains tax is due.


The capital gains tax is deductible,if appropriate, from the corporation tax due by the company as a result of the capital gain made during the year of the sale. If it exceeds the corporation tax that is due, the surplus is refunded to companies established in a Member State or in a State or territory that has signed a tax treaty with France that contains a clause of administrative assistance for the exchange of information and the fight against tax fraud and evasion, and which is not uncooperative in the meaning of Article 238-0 A.



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> Sale by a company > Companies not established in an EEA country

Calculation

Sales price
+ expenses due by seller but paid by purchaser
- costs borne by the seller
- purchase price
- purchase costs
- building, rebuilding and
extension works
+ amortisation of the cost price

= Gross chargeable gain

This chargeable gain is taxed at the rate of 33.33%

Notes:
- There is no allowance for length of ownership,
- No 7.5% all-in allowance for purchase costs,
- No 15% allowance for works.


Amortisation

• The cost price of buildings (not land) is reduced by an amortisation of 2% per year of ownership, from date to date.

• The consequence of this amortisation is to reduce the purchase price and increase the capital gain as a result.


Works

• Only the following expenditure is taken into account:
- building, rebuilding and extension works,
- that are considered to constitute fixed assets.

• These costs must:
- have been actually paid for by the seller (justified by bank statements in its name);
- be justified by presenting invoices that show the information required under Art. 289 of the CGI (client's name and address, registered number, European VAT number, information about VAT, etc.)
- that have not already been deducted from their taxable income;

• The cost of the works must also be amortised at the rate of 2% per year of ownership.


Rates of tax

• The tax rate is:
- 33.33% for companies not established in uncooperative countries;
- 75% for companies established in uncooperative countries.


The capital gains tax is deductible,if appropriate, from the corporation tax due by the company as a result of the capital gain made during the year of the sale. If it exceeds the corporation tax that is due, the surplus is refunded to companies established in a Member State or in a State or territory that has signed a tax treaty with France that contains a clause of administrative assistance for the exchange of information and the fight against tax fraud and evasion, and which is not uncooperative in the meaning of Article 238-0 A.



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> Sales by SCI's and registered partnerships > - General rules

Who do these rules apply to?

They apply:
- to SCI's and registered partnerships
- that have not opted for corporation tax.


How are these companies taxed.

SCI's and registered partnerships that are subject to income tax (i.e. that are not taxed as companies) are companies whose profits are taxed in the name of the shareholders.

As a result, their shareholders (whether domiciled in France or abroad) are taxed on the share of the company's profits corresponding to the stake they hold.


Who files the tax return, and how?

The SCI or registered partner must file the return using form 2048 IMM. Page 3 of form 2048 IMM must be filled in.

The capital gains tax return is filled in by the company, not by the respective shareholders. That means there is only one form to fill in, even if there are several shareholders.

How is the chargeable gain calculated?

As each of the shareholders is taxed according to their stake in the company, the calculation applicable to each shareholder will depend on their status and capacity.

• If there are individual shareholders :
- the calculation, the rate applicable and the supplementary tax to their portion will be the same as for private individuals( find your rate),
- page 2 of form 2048 IMM should be filled out

• If there are foreign companies:
- the calculation and the rate will be the same as for foreign companies (EC or outside EC)
- page 4 of form 2048 IMM is to be filled out and the tax for this portion is to be mentioned on page 2, line 64.


In which cases must a tax representative be appointed?

- If all of the shareholders are individuals:
If the sum of the portions held by non- resident shareholders exceeds 150,000€,
- and if the property has been owned for less than 15 years;

• one of the shareholders is a company established outside France:
- For all property sales (whatever the minimum price or length of ownership)

• If there are individual shareholders and one corporate shareholder not established in France:
In all cases for the corporate shareholder established outside France,
- for the individual shareholders: if the portion owned by all of the non-resident shareholders (individuals + foreign corporations) exceeds 150,000€ and if the property has been owned for less than 30 years.



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> Sales by SCI's and registered partnerships > Exemptions

Sales under 15,000 € are exempt from appointing a tax representative. Does this exemption apply if each shareholder's stake in the sale price is less than 15,000€ ?

No, the taxable entity is the company, not the shareholders, so it is the overall price of the sale by the company that is taken into account for the 15,000€ threshold.


Can an individual shareholder be exempt on the basis of the rule applicable to the sale of a French home by a non-resident, defined under Article 150 U II 2nd of the CGI?

No. This exemption does not apply to capital gains made by an entity such as an SCI or registered partnership, even if its shareholders satisfy the other conditions of the law.



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