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Non-Residents and Micro-Entrepreneur Business Status

Many non-residents who let out furnished property in France are likely to pay less in tax by registering as a micro-entreprise business.

If you own property in France that you let out on furnished basis your tax liability on the rental income arises in France, whether the property is let only on a seasonal basis or permanently and whether you are resident or non-resident.

Most non-resident landlords do not register as a business in France as a result of which they are liable for income tax at the fixed rate of 20% on net rental income. This applies to both those who use the system of régime réel and those who use a standard cost allowance.

If you have not adopted the tax system of régime réel, you will be granted a fixed cost allowance of 50% on your gross rental income, meaning that you will pay income tax at the rate of 20% on 50% of your gross rental income. Classified meublés de tourisme and chambres d'hôtes obtain a cost allowance of 71% and so pay tax on 29% of rental income.

In addition, whichever system you have chosen, you will also be liable for social contributions. If you are a resident of the EEA and in the health system of your home country, you will pay a solidarity tax of 7.5%, whilst non-EEA residents will pay social charges at the rate of 17.2%.

Accordingly, your combined rate of taxation will be either 27.50% (EEA) or 37.20% (non-EEA).

From 1st January 2021 UK residents will be liable at the rate of non-EEA nationals.

As an alternative to being taxed on this basis, it is possible to set up as a micro-entrepreneur business and opt to be taxed for income tax using the system of micro-fiscal.

Under system of micro-fiscal, you pay a fixed rate of social security contributions and income tax on turnover.

The standard rate of social security contributions payable for furnished accommodation is 22.70%, but for unclassed meublé de tourisme (short-term furnished accommodation) it is 13.0%, to which is added 1% of income tax.

Those who are business registered and whose furnished property is a meublé de tourisme classé or a chambre d’hote pay even less – 6% social security contributions and 1% income tax.

A summary of the different outcomes for a meublé de tourisme is shown below. As can be seen, the differences can be quite significant.

Thus, an EEA resident would pay €7.97 per €100 of taxable income or €13.75/€100 (depending on property classification) if not business registered, but €7.00/€100 or €13.00/€100 if business registered.

A non-EEA resident landlord who was not business registered would pay €18.60/€100, which falls to €13.00/€100 with a business registration using micro-fiscal. If they owned a meublé de tourisme classé, the landlord would pay €10.78/€100 if not business registered, which falls to €7.00/€100 with it.

Accordingly, particularly for non-residents with an meublé de tourisme classé it would be more tax efficient to be business registered using micro-fiscal.

Non-Resident Landlord Taxation

Not
Business Registered -
EEA Resident
Not
Business Registered -
Non-EEA
Resident
Micro-Entrepreneur -
Unclassified Meuble de Tourisme

Micro-Entrepreneur -
Meuble de Tourisme Classé
Income Tax
20%
20%
1.00%
1.00%
Social Security
7.50%
17.20%
12.90%
6.00%
Total27.50%
37.20%
13.00%
7.00%
Taxable Turnover
29%/50%
29%/50%
100%
100%
Taxes Payable on €100
€7.97/€13.75€10.78/€18.60€13.00€7.00

Non-residents are entitled to set up a micro-entrepreneur business in France, although those from outside of the EEA may need to obtain a work permit do so. In general, however, the authorities are likely to be supportive of new business investment by non-residents.

Non-residents can also opt to use the system of micro-fiscal for income tax.

There is no minimum rental income required to register, although it is always open to the tax authority to decide that the lettings business is so insignificant as not to be able to justify registered business status. The risk of this happening is not high, and there are no penalties payable should they decide to declassify the business.

Clearly, where you are letting out furnished property in France using the system of régime réel on which you declare a deficit or you pay a minimal level of income tax and social charges, then there is no point in changing that approach. Indeed, if you are liable to no more than €305 in income tax, it is not imposed, whether under régime réel or using the standard cost allowance.

In addition, the system of régime réel is not compatible with micro-entrepreneur tax status.

The same approach cannot be used by those non-residents who let out unfurnished residential property in France, as it is not possible to set up a business for this type of letting activity.

In addition, the position is not the same for residents, as they are not subject to a minimum 20% rate of income tax, although it may benefit some to  adopt the system of micro-fiscal.


This article was featured in our Newsletter dated 11/08/2020





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