Furnished rentals are considered a commercial activity. You will be taxed in the Commercial and Industrial Benefits regime (BIC). This regime offers two possibilities: the micro-BIC regime and the “regime reel”.
A good knowledge of the differences between the two options is an essential condition to make a wise choice. What distinguishes the two? Which one should I choose based on my income range? What are the exemption criteria they grant? Is it possible to switch from one option to the other?
The following sections will give you answers to these questions and guide you to get the most out of your investment.
The micro-Bic regime is a simplified tax regime designed for property owners who want to rent out their property furnished. It allows to deduct a flat rate of charges made compulsory by the state.
What are the advantages and disadvantages of the micro-BIC? What are the obligations of the owner?
Eligibility conditions for micro-BIC regime
To be eligible for a micro-BIC regime, your annual rental revenues must be less than the threshold of €72.600.
Your taxable rental income in a micro-BIC regime is equal to half of the annual revenue (rental payments including charges plus additional income). The resulting amount is added to your income from other sources and is subject to the progressive income taxation (cf article on income tax).
This 50% flat-rate deduction is supposed to take into account all costs related to the management of the property. You cannot add any other costs.
The particular case of the rental of tourist accommodation and guest rooms
In the case of a rental of rental of tourist accommodation, the threshold for eligibility is increased to a revenue of €176.200 a year. The lump-sum deduction also changes. The owner benefits from a new tax base at 29% of annual revenue, increasing the deduction to 71% of rental income. You can read more about that here.
What if the revenue exceeds the threshold?
If your revenue exceeds the threshold, you are not eligible for the micro-Bic regime. The owner has to switch to the “regime réel”. This new regime has a higher threshold and allows for many expense deductions.
However, the “regime réel” imposes more obligations on the owner and is more restrictive in terms of accounting requirements. As a property owner, you must register as an independent worker and may have to deal with the CFE (Company Real Estate Contribution).
Tax declaration obligations
If you opt for the micro-BIC regime, you have to report the amount of your furnished rental revenue (rents received, including charges and additional receipts).
The French tax authorities will automatically apply the 50% or 71% deduction, depending on your situation.
Social contributions are automatically levied from furnished rentals.
What is of your responsibility?
A peculiarity of the tax regime applicable to furnished rentals is that the owner is exempt from many obligations.
The priority is to set up an accounting of all rents collected during the year. Next, he must keep an accounting of all the expenses spent on his property. This may include the cost of work performed, that of equipment and moveable, as well as other expenses.
It is important to keep these accounts up to date to facilitate the process of regime switching. Indeed, at the “regime reel” the new accounting standards will have to be applied more strictly.
Finally, if the owner rents out a furnished property, it must include a list of equipment relative to the comfort of the tenants. This list consists of 11 compulsory equipment items:
- Baking trays
- An oven and a microwave
- A table and chairs
- A complete bed set (bed, sofa + blankets and bedding material…)
- Crockery and cutlery
- Housekeeping staff
- A refrigerator and a freezer
- Laying out kitchen utensils
- Roll up flaps at bedrooms windows
- Storage shelf
Advantages and disadvantages of the micro-BIC regime
The micro-BIC regime offers simple reporting formalities; however, the 50% deduction can be less interesting than expense deduction and tax-deductible depreciation of the “régime réel simplifié”.