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The French 3% Tax on Real Estate: A Guide to Treading in Perilous Waters

The French 3% Tax on Real Estate: A Guide to Treading in Perilous Waters

No rule is more easily ignored than one no one seems to have heard of, and few provisions of French tax law make the point as neatly as the annual 3% tax on the fair market value of French real estate held by legal entities (taxe annuelle sur la valeur vénale des immeubles). Indeed, while having a very broad scope – the 3% tax is never far away where a French real estate property is not owned directly by an individual – it seems to be often overlooked by international investors, exposing them to significant tax risks. The 3% tax was initially conceived as a tracking device to seek out individuals attempting to avoid wealth tax or registration duty. Assessment of the tax is not time-barred until the end of the sixth year following the year involved, leading in the most egregious case to a 21% tax based on the real estate value. In their article, Xenia Lordkipanidze, a Partner in the Tax Department of OVERSHIELD Avocats, Paris, and Clement Pere, a Senior Associate in the Tax Department at the same firm, take a deep dive into the rules, explaining (i) how the tax is computed when a chain of corporations stands between the individual and the property, (ii) the persons who a deemed to be authorized to receive notices from the French Tax Authority, (iii) the 30-day grace period to file late that is offered to first time offenders, (iv) seven applicable exemptions to the 3% tax, (v) adverse case law for persons and entities that challenge the tax, and (vi) several items of practical guidance for affected individuals.

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Can the Shares of Companies Owning French Real Estate be Categorized as Real Estate? Some Keys to Solve the Riddle

Can the Shares of Companies Owning French Real Estate be Categorized as Real Estate? Some Keys to Solve the Riddle

An immovable asset is a plot of land or a structure built on the land. Neither can be moved without being damaged or without damaging the land to which it is attached. Certain rights are also immovable due to their intrinsic link to immovable assets. An example would be real estate property rights, such as those embedded in a usufruct arrangement. In comparison, a movable asset can be transported from one place to another or is intangible by its nature. The French Civil Code expressly includes shares of companies in the concept of movable assets, even where such companies own real estate. The historical distinction between immovable and movable property is why French tax law created an autonomous concept of a “predominantly real estate company.” The definition of a predominantly real estate company varies depending on the tax being imposed. In their article, Xenia Lordkipanidze, a Partner in Overshield Avocats, Paris, and Clement Pere, an Associate in the Tax Department of Overshield Avocats, Paris, explain the inconsistency of French law and cases. The Cour de Cassation, the French Supreme Court for non-administrative matters, has jurisdiction over disputes relating to gift and inheritance duties and wealth tax has reached one conclusion – shares comprise movable property. The Conseil d’Etat, the French Supreme Court for administrative matters has jurisdiction over disputes relating to personal and corporate income tax, including capital gains tax, has reached a contradictory conclusion – shares of a predominantly real estate company comprise immovable property. The question posed by the authors is which Supreme Court reached the correct answer. Not surprisingly, the answer given is that it depends on relevant factors. 

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