4. Taxation of Property Rental Income in France

1. 4.1. Non-Residents
   4.2. Summary of Tax Regimes
   4.3. Furnished Lettings
   4.4. Unfurnished Lettings
   4.5. Lodgings

4.3. Taxation of Rental Income from Furnished Lettings in France

1. 4.3.1. Income Tax
2. 4.3.2. Social Welfare Levy
3. 4.3.3. VAT

4.3.1. Income Tax

There are two different income tax regimes for the taxation of profits from furnished accommodation, and most landlords can choose the regime under which they wish to be taxed.

The two tax regimes are:

1. i. Micro-Entreprise
2. ii. Regime Réel

The following guidance notes refer primarily to furnished accommodation let on an annual basis or seasonal basis, although the basic rules remain the same for furnished accommodation offering a range of services, e.g. chambres d'hôtes and holiday complexes in rural areas, called résidences de tourisme .

i. Micro-Entreprise (BIC)

Most small landlords of furnished accommodation choose to be taxed as a micro-entreprise under a system of taxation called Bénéfices Industriels et Commerciaux (BIC).

You will be eligible for micro-entreprise tax status if your gross revenues from furnished lettings do not exceed €76,300 per annum.

In the case of landlords of furnished accommodation the allowance is a not inconsiderable 71% against earnings.

This means you are taxed on 29% of gross rental earnings.

The actual rate of taxation will be that applicable under the normal rules for personal income tax, so it will depend on your family circumstances.

In short, income from furnished lettings is taxed as personal income tax, but under the rules of Micro-Entreprise BIC.

If your earnings are small, the level of income tax is likely to be minimal, as there is a strongly progressive system of personal income tax in France.

ii. Regime Réel

If your actual costs are higher than 71% of gross revenues, then you would be better off electing to be taxed under a system called regime réel.

These costs include general management costs, the costs of property insurance, local property taxes, the costs of a managing agent, guardian, caretaker, or gardener and the costs of insurance taken out against the risk of non-payment of rent by the tenant.

Also deductible are the interest costs associated with the purchase, repair or improvement of a rented property or a property purchased with a view to it being let. It is irrelevant whether these interest costs arise from a secured or unsecured loan.

You can also deduct the fees associated with taking out a loan, as well as life insurance premiums payable to guarantee the loan.

Whilst the costs of improvement, repair and maintenance of the property are deductible, works to increase the size of an existing property, or add additional units, are not ordinarily deductible. This is often a difficult area, and a discussion with your local tax office is advisable before you start any new construction works.

Similarly, works such as a new swimming pool would not be deductible.

However, local offices are often reluctant to accept invoices for materials only, so make sure the invoice has on it the address of the property, and not that of your principal home. You may also want to take 'before' and 'after' photos as proof, or discuss the project with the local office before you start.

In the event that you incur a loss in the year (due, for instance, to major works) then you are entitled to carry forward losses.

Losses can be carried forward on your furnished rental earnings for up to six years. If you are registered 'professional landlord', then losses can be set against the totality of your earnings, whether from furnished lettings or other activity.

Accordingly, if you elect for the regime réel, or you are obliged to use it, there is a degree of bookeeping involved, which you might be wise to do in any event!

Nevertheless, if you elect to be taxed in this way then it is irrevocable for a period of three years, and renewed automatically for a further three years if not revoked.

Whilst you will not necessarily be required to produce the invoices and receipts for the purposes of the tax declaration, you can later be asked to do so by the tax authority.

4.3.2. Social Welfare Levy

In addition to income tax, the main other tax for which a landlord is liable is a social welfare levy called the prélèvements sociaux, (and otherwise also known as CSG/CRDS), at the rate of circa 11% on net rental income. This charge is deductible against income tax at the rate of 5.8%.

Non-residents are not liable for the tax.

4.3.3. VAT

Generally, there is no VAT applicable to furnished lettings, although VAT is applicable for registered landlords, where at least three of the following services are also provided to the tenant - breakfast, daily cleaning, reception service, linen service.

There are particular rules on VAT and other taxes which apply to hotels, chambres d'hôtes and classified tourist properties, called les résidences de tourisme classées, which we shall cover in due course.