Corporate income tax
Corporate income tax (CIT) is charged at the standard rate of 33.33% and is payable by both resident and non-resident entities. The additional contribution (previously 1.5% of the CIT charge) has been abolished effective from 1 January 2006. A further contribution of 3.3% of the annual CIT charge is payable if the corporate income tax liability of the company exceeds €763,000 before the deduction of any tax credit. The effective rates of corporation tax are therefore 34.33% (previously 34.93%) or 33.33% (previously 33.83%). Profits are taxable on an accounting year basis.
Capital gains
Capital gains realised on the disposal of property are generally subject to CIT at the standard rate.
Property tax
Any legal entity, regardless of its residence, with 50% or more of total French assets composed of French real estate, is liable to an annual tax of 3% on the fair market value of the property. Exceptions may apply, e.g. for individuals and listed companies. Exemptions may also apply subject to filing requirements, e.g. for French companies and companies located in a country that has signed a tax treaty with France.
Where properties are rented furnished, business tax is charged at 15% - 30% by local communities on 84% of the tax base held by the company. The tax base is the total of:
- The rental value (determined by the tax authorities) of premises allocated to the activities of the business, and
- 16% of the gross book value of fixed assets at the disposal of the business and used in connection with its operations. If the assets are rented, the tax base will generally be 16% of the rent paid by the company.
Real Estate Property Tax (taxe foncière) is charged annually at 28% to 60% (depending on the nature and location of the property) on the tax base of real estate owned as at 1 January in a given year. The tax bases of developed and undeveloped land are 50% and 80% of the land registry rental value respectively. In practice this is much lower than the fair market rental value.
Property transfer tax
All transactions concerning real estate whose construction was completed more than five years prior to the transaction are subject to registration tax at the standard rate of 5.09% (previously 4.89%) on the higher of the purchase price or fair market value of the property.
The sale of shares in ‘real estate companies’ triggers a taxation of 5% (previously 4.8%) based on the sale price. Companies are considered as real estate companies for French tax purposes providing at least 50% of their total French assets are composed of French real estate.
VAT
VAT is charged at 19.6% on the sale price of a building in construction or a building completed less than 5 years prior to disposal. In addition, a specific registration duty of 0.715% (previously 0.615%) is payable by the seller on the higher of the sale price or fair market value of the property.
Real Estate Investment Trusts (REITs)
Provided the main activity of a company listed on a French regulated stock exchange is the leasing of property and its share capital is at least €15m, the company can elect for itself and its subsidiaries to be taxed as REITs (Sociétés d’Investissements Immobiliers Cotées or ‘SIIC’). REITs are exempt from CIT on rental income and any capital gains realised on disposal of real estate provided the following conditions are met:
- at the time of election to be taxed as a REIT, a 16.5% exit tax is paid on any unrealised capital gains on real estate; and
- at least 85% of the accounting profits arising from rental income must be distributed to shareholders within one year of realisation; and
- at least 50% of the accounting profits from sale of property must be distributed to shareholders within two years of realisation; and
- 100% of the dividends derived from shareholdings in subsidiaries which have elected to be treated as REITs must be distributed the year after they are received.
New provisions were adopted in 2005 such that transfers of assets to companies which have elected to be treated as REITs for French tax purposes are now subject only to the 16.5% exit tax (above) on any unrealised capital gain on the assets contributed. This is subject to the REIT committing to hold any assets contributed for 5 years.
Furthermore mergers, demergers, and other comparable transactions involving REITs are tax neutral provided that:
- the beneficiary company meets the distribution obligations of the contributing company within the same time period and for the same amounts; and
- the beneficiary company satisfies additional distribution obligations with respect to capital gains realised upon such a merger (if any).
The above is for general information purposes only. It is not intended to be comprehensive or to provide any specific tax advice.
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