France has always been a particularly attractive choice for foreigners from all over the world to own a second home. There are no restrictions for foreigners to purchase real estate and a house in France is a dream for many. From an international tax and estate planning point of view, however, France is rather less ideal, and probably one of the most difficult countries in the world in which to own real estate.

Comprehensvie tax laws and regulations France has extensive laws and regulations aiming to prevent foreigners from owning real estate through domestic or foreign structures without disclosing the real ultimate owner and/or from avoiding payment of substantial taxes and penalties. Generally, and with only few exceptions, if any company owns real estate in France, it will have to pay a 3% annual tax based on the property's market value. In addition, rental income is taxed at a higher rate than if the property is owned personally, and full corporation tax at 33.3% will be payable on any gain upon the sale of the property, whereas various inflation and other allowances are available on personally owned property.

Villa, Southern France

If the value of the real estate in France is in excess of 4.7 million French francs, then an additional wealth tax applies on the total market value. The top rate of this wealth tax is 1.5%.

It is possible to avoid the 3% tax in certain circumstances, for example if the real estate consists at least partly of agricultural land – for example vineyards or olive groves. The same applies to structures involving publicly listed companies or companies located in a country which has an appropriate double-taxation treaty with France, if the ultimate owners are also resident in such a country. In any event, such structures leading to actual tax savings are rather complex and expensive to set up. Moreover, there are really only very few structures available which are 100% sound and can withstand scrutiny from the French tax authorities, and they are only worth considering in case of high value real estate or where the actual owner does not wish to disclose his identity.

French inheritance laws and the Société Civile Immobilière (SCI)

There is, however, a type of French company which quite often offers a suitable and inexpensive vehicle for holding French real estate: the Société Civile Immobilière, or SCI for short. The SCI combines the benefit of avoiding some tax disadvantages while at the same time allowing the foreign investor to own shares, rather than real estate directly. The SCI shares, which are considered movable property, are not subject to French inheritance law. This means that they can be left to the heirs of the deceased, according to the inheritance laws of the latter's place of residence. If the deceased owned French real estate directly, French inheritance law would apply and most of the property would have to pass to the deceased's children, including children of a possible earlier marriage. However, French inheritance taxes are applicable in any case, and are quite high, ranging from 20% in cases of direct lineage up to a staggering 60% if the deceased and heirs are related only distantly or not at all. There are only very few ways of avoiding French inheritance taxes, namely by using international structures of considerable complexity, and as already mentioned, they are only worth considering for real estate of very high value.

Contact Henley & Partners for the acquisition of French real estate

The acquisition of real estate abroad requires careful and professional planning. Every day, individual clients as well as other law and consulting firms worldwide rely on us for specialised advice in this area. No matter how complex your needs are, Henley & Partners will be able to advise and assist you. Contact us today for individual advice and comprehensive, yet cost-effective solutions regarding the acquisition and holding of French real estate.