Are you a French expatriate wondering about capital gains tax on property sales as a non-resident? Many expats face uncertainty navigating France’s complex tax system. In this article, we’ll provide a comprehensive guide to help you understand the rules and regulations surrounding capital gains tax on French property sales.
What's the tax impact of selling your French property?
In France, making a capital gain is generally subject to taxation, unless you sell your principal residence. This rule also applies to the sale of shares or property held through a “société civile immobilière” (SCI) or shares in a “fonds de placement immobilier” (FPI). As a non-resident, specific rules apply, and tax treaties with many countries combat tax evasion. According to the French government, “gains from the sale of a property are taxed in the country where the property is located” (Article 150 U of the French Tax Code).
The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing. – Jean-Baptiste Colbert, French Minister of Finance (1665-1683)
How to calculate non-resident capital gains
The capital gain is the difference between the sale price and purchase price of the property. To calculate the capital gain, you need to determine the sale price and the purchase price. If you’re unsure about how to calculate your capital gains or need assistance with tax planning, consider seeking expert advice from our tax specialists through our tax assistance for individuals and corporate page.
Determining the sale price
The sale price is the amount stated in the deed of sale. However, you can deduct certain costs, such as:
- Compulsory surveys
- VAT
- Commissions paid to intermediaries (e.g., estate agents)
- Architects’ fees
- Cost of releasing a mortgage on the property
On the other hand, you must increase the sale price by any sums paid by the buyer, such as eviction compensation to the tenant.
Determining the purchase price
The purchase price is the amount stated in the deed of purchase. However, you can increase it by including the acquisition costs (notary’s fees, registration fees) and the charges and indemnities paid to the vendor. If the property is more than 5 years old, you can deduct the actual cost of any works or, in the absence of supporting documents, deduct 15% of the purchase price. You can also include the cost of roads, networks, and utilities.
How ownership duration impacts your capital gains tax
Capital gains for non-residents are calculated by applying a sliding scale of allowances depending on the length of time the property has been held. An allowance of 6% per year of ownership applies from the 6th to the 21st year, then an allowance of 4% for the 22nd year. A total exemption from taxation is possible after 22 years of ownership.
Patience and perseverance are key to navigating the complexities of tax law. – Robert S. Holzman, Tax expert and author
What social security contributions are levied on non-resident property gains?
When selling a property in France as a non-resident, your capital gain is subject to social security contributions at a rate of 17.2%. However, deductions are applicable from the fifth year of ownership, which can help reduce the amount of social security contributions you owe. To qualify for full exemption from social security contributions, you must hold the property for at least 30 years. It’s worth noting that if you are affiliated with a European Economic Area (EEA) or European Union (EU) social security scheme, you are exempt from the Contribution sociale généralisée (CSG) and Contribution pour le remboursement de la dette sociale (CRDS), which amounts to 9.7% of your capital gain.
Are you eligible for exemptions?
Non-residents are exempt from capital gains tax in two cases: for their principal residence and for another property, subject to certain conditions. In both cases, the expatriate must be a national of the European Union or have elected to live in a European Economic Area (EEA) country that has signed a tax treaty with France. If you’re dealing with related business and commercial issues, such as property transactions or disputes, our experts can provide guidance on our business and commercial issues page. If you’re considering setting up a company in France to manage your properties, you may want to consult our experts on our company setting-up page to explore the best options for your business. Additionally, if you’re facing debt recovery issues, our team can assist you with our debt recovery service.
Exemption for principal residence
According to a ministerial response, your principal residence is defined as the home where you usually live and where your professional and material interests are located. To benefit from the exemption, you must sell your principal residence no later than December 31 of the year following your departure and the transfer of your tax residence to your host country. However, you will not be able to claim the exemption if you have rented or lent your home to a third party free of charge during this period. In the event you generate a capital gain of more than €50,000, you will still be subject to tax, the rate of which varies according to the amount of the capital gain.
Exemption for other properties
This exemption applies to a property located in France that was not the non-resident’s principal residence. It can be claimed for a single property and for a maximum net taxable capital gain of €150,000. The exemption ceiling varies according to the non-resident’s marital status.
Do you need to appoint a tax representative?
If you do not live in France, you may need to appoint an accredited tax representative. Their role is to calculate your capital gains tax and certify your declarations. You must comply with this obligation if you have elected domicile in a country outside the EU, the EEA or Liechtenstein, if you realise a capital gain of more than €150,000, or if you are a legal entity.
In conclusion, navigating the complexities of capital gains tax on French property sales as a non-resident expat requires careful consideration of various rules and regulations. By understanding the tax implications, calculating your capital gains accurately, and taking advantage of available exemptions, you can minimize your tax liability and ensure compliance with French tax laws.