Service France

Please note this article is for general information only. It does not constitute investment advice. Tax law is a complex subject. You should always seek professional advice on the facts of your case.

Q. I am resident in a country which has no tax treaty with France. I would like to invest in French property with a view to carrying out renovations and resale. What are the tax implications?

A. The first issue is always whether you will be viewed as a dealer or "marchand de bien". If so you will be taxed at a punitive rate of around 55 per cent. Assuming you do one project at a time keep the property for a while and rent it or use it yourself the risks here are much reduced.

Q. What about capital gains tax?

A. This is a problem because if you are resident in a country with which France does not have a tax treaty you are taxed in France at 33.3 per cent of the gain.

Q. How is this enforced?

A. On sale the notaire is required to act as a tax collector to deduct this tax from the net proceeds when the property is sold. There is no payment out as in the UK with any tax paid later. All your French tax must be paid on completion by the notaire. You will be required by the notaire to appoint a French tax agent who is linked to the French Tax authorities who will have to ascertain your tax residency. Using our scheme there is no need to appoint a French tax agent.

Q. What rate do you pay if you are resident say in the UK?

A. Normally the same as the French rate of 16%. This applies to all countries France has a tax treaty with. These people normally also have a liability to capital gains tax in the country in which they are resident though can deduct the French capital gains tax against say their UK tax.

Q. That does not help me as where I am resident there is no capital gains tax. So all I care about is not paying the French tax.

A. Agreed this is the only issue for you. This is a common problem for residents of countries which France classes as tax havens.

Q. Is there any way round this?

A. Yes. It is possible to structure your investment so that no capital gains tax is paid in France. This structure is relatively simple to set up and run and is acceptable to the main banks. The overall tax cost is about 2% of the net gain you make on the sale and purchase. We are able to give more information after analysing all the circumstances of your case.

Q. Does this structure allow me to control the transaction without the need for trustees?

A. Yes. No trustees are involved.

Q. Can I avoid the French 3% tax levied on non residents?

A. No you will have to pay this.

Q. Can I avoid French Wealth Tax?

A. It is still payable in principle but by maximizing the debt on the property it can be considerably reduced and in some cases eliminated.

Q. Are there any risks?

A. As with all such schemes there is a low level of risk but this scheme has been carefully vetted and looked at by leading tax lawyers. The scheme is very transparent which lowers the risks.

Q. What fees are involved?

A. We can give you a comprehensive written fee estimate once we have the facts of your case.

Q. I am UK resident but non-domiciled? Does you scheme work for me?

A. Yes though you will not be able to remit the gain to the UK. If you are UK resident and UK domiciled then the scheme will not work for you.

Q. I am resident in Monaco. Does this scheme work for me?

A. Yes. Your exposure to French Capital Gains Tax is 16% not 33.3% but the scheme works. It does not work for French residents.

Q. Can you offer this scheme as a "package"?

A. Yes subject to us first having full knowledge of what is proposed.

David Anderson
March 2008