What are the advantages of the French leaseback?

• stress-free purchase notably for investors living abroad as your have the peace of mind of owning a property and benefiting from a guaranteed income without the hassle related to letting out and maintaining the property,

• properties are sold furnished and maintained in excellent condition by the management company during the lease term,

• tax advantage: 2 years exemption from Tax on Property (or land tax) (“Taxe Foncière”),

• lower deposit than for a resale property (5% instead of 10%),

• property investments located in growth potential tourist areas (along the Mediterranean Coast, the Atlantic coast and the Alps) in a steady political and economical environment,

• lower notary fees (between 2 and 4 %) than for a resale property (between 6 and 8%),

• VAT returns.

What are the rules for VAT returns on French leaseback?

Main rule of VAT:

You can deduct VAT only if you have previously collected some!

4 main terms for VAT:

• Collected VAT (“TVA collectée”): it is the VAT you are collecting on behalf of the French authorities whenever you are invoicing rents, and which has to be paid back to the French authorities.

• Deductible VAT (“TVA déductible”): it is the VAT you have paid each time you have purchased something in connexion with your activity.

• VAT credit (“Crédit de TVA”): you have a VAT credit that you can claim back to French authorities, whenever the amount of deductible VAT is higher than the amount of VAT collected.

• Payable VAT (“TVA à payer”): it is the VAT you have to pay when the amount of VAT collected is higher than the amount of VAT deductible.

VAT rules for leaseback:

When you acquire a new build property intended to be rented furnished within a residence with services, rents can be subject to 5.5% VAT, if the owner renounces to the tax exemption of € 76,300.

Indeed, in France, certain activities are subject to VAT and others are not. Furnished renting is not subject to VAT as long as it benefits from a tax exemption (“franchise en base”) up to € 76,300 from the French government. However, the owner of the property rented furnished can decide to renounce to said tax exemption and thus its activity will be subject to VAT.

The main advantage of being subject to VAT is that you can claim back VAT! And obviously claim back the 19.6% VAT on your acquisition price!

Deadlines:

• You only have 15 days as from the the delivery date of the property or the signature of the deed of sale (whichever date is the latest), to inform the French tax administration that you renounce to the tax exemption on your furnished renting activity.

• You have two years to claim your deductible VAT back.

It means that in theory, the tax administration can refuse the claiming back of your deductible VAT if you have not renounce to the tax exemption within the legal time limit. This is just theory, as in practice, it is almost never the case!

• Claiming back VAT is done quarterly, before the 20th day following the end of the quarter.
You cannot request the reimbursement before the quarter is finished.
For instance, the leaseback property you have bought on April 15, 2006, is fully delivered on May 15, 2006. If you decide to renounce to the tax exemption, you have to do it before May 30, 2006, and your request for VAT reimbursement will have to be done only at the term of the second quarter 2006, before June 20, 2006, at the latest.

There are two exceptions:

- for October and November, you can request the reimbursement until December 20.
- for December, it will be included in the annual VAT declaration to be made before April 30.

• It has to be specified that VAT reimbursement on leaseback property is fully acquired only at the expiry of 10 or 20 years, depending on the development, as it is the number of years needed to offset the total VAT.
If the property is sold before that term, then a pro-rata of the VAT would need be re-paid to the French authorities.

What are the obligations related to VAT?

As you are being paid rents on a French property, you need to fill in an annual French tax return, and make TVA (purchase tax) returns.

Being a small company with a revenue lower than €763,000, you can choose the taxation scheme “réel simplifié” which is intended for one declaration per year instead of very quarter. However, every quarter you will be requested to pay a certain amount of VAT, amount which will be deducted at year end. In the event at year end you have a VAT credit, the tax administration will reimburse you.

How can French Tax Online help you fill in your VAT form?

We will help you request to the French tax administration the VAT credit you have, further to your leaseback acquisition. This will include registration, request of reimbursement, as well as annual VAT declarations:

• Registration
You have to inform the French tax administration that you have bought a leaseback property and that you decide to renounce to the tax exemption (“franchise en base”).
We will prepare on your behalf the documents for registration!

• Request of reimbursement:
We will fill in on your behalf the documents by which you will request the reimbursement. You will thus be sure that the documents are properly filled in!

• Annual VAT returns:
We will prepare on your behalf the annual VAT returns that need to be sent to the French tax administration.

• Follow-up of your French tax file:
Rest assured! Our team will follow your file with the French tax administration on your behalf!