COMPASS IMMOBILIER: TAXATION Part 1 - Income Tax

INCOME TAX

Income tax is a consideration for those purchasing French real estate property in two situations: firstly, if the property is to generate an income by being rented out; secondly for those who become French residents.

The French tax year is based on a calendar year and returns are filed in the following spring e.g. spring 2010 for income earned in 2009. Non-residents file returns to the ‘Centre des impôts des non-résidents’ in Paris. The method of calculation of the tax due varies according to the nature and type of income. For example, if property is rented out furnished the tax is payable under the BIC regime. Under this regime, for income below either 80,300 Euros (furnished lets such as hotels, 'chambres d'hôtes', rural gîtes, furnished tourist lets) or 32,100 Euros (other types of furnished lets), it is possible to opt for taxation on a simplified basis (known as ‘micro-entreprise’) with a fixed deduction representing costs of either 71% or 50% (the latter being applicable to furnished lets) being applied to arrive at the taxable amount. As for unfurnished letting, for income below 15,000 Euros tax can be paid on a similar simplified basis (known as ‘micro-foncier’) with a fixed deduction representing costs of 30% to determine the amount upon which tax is payable. The new simplified regime of auto-entrepreneur may also be a possibility for this type of activity.

Those who become French tax residents are liable to taxation on their income wherever it is earned and regardless of whether or not it is not repatriated to France. The principal criterion for determining tax residency is physical presence in France e.g. more than 183 days out of a given calendar year.

Deductible personal allowances and relief are applied to the individual and the personal quota is determined. Factors taken into consideration include marital status, number of dependent children, age... The level of tax is calculated in accordance with the following sliding scale (figures for income tax for the year 2009 for which the return is submitted in 2010):
0% not exceeding 5 875 EUR 5.50 % between 5 875 EUR and 11 720 EUR 14 % between 11 720 EUR and 26 030 EUR 30 % between 26 030 EUR and 69 783 EUR 40 % above 69 783 EUR

Non-residents normally pay tax at a base rate of 20% with any tax falling into the higher brackets payable in accordance with the superior bands. The rules on the avoidance of double taxation are governed by any double taxation treaty between the country of residence of the individual and France.

Copyright All Rights Reserved Victoria Headdon, Compass Immobilier