French leaseback & VAT
If you own a leaseback property, VAT will be charged on the rent you receive each year.
Some management companies will send you all the rental income collected (including VAT) and you will be responsible for paying the VAT to the government.
Below you will find the answers to your questions about French VAT returns in the case of a leaseback.
The leaseback scheme works on the principle that you purchase a newly built property on a freehold basis, fully furnished and ready to be rented out.
The properties are usually located in a “Résidence de Tourisme” (tourist residence) or “Résidence avec Services” (residence with services) which are designed for short-term rentals and offer a variety of services. They usually include reception, breakfast, laundry and linen service, cleaning… Most of the leasebacks offer high quality services and are rated from one to four stars – the higher the rating, the better the services offered at the resort, and the higher the guaranteed rental income.
These leaseback schemes where originally promoted by the French government to boost the tourist industry in different parts of France. They are therefore located in areas that can attract many tourists.
Leaseback properties have been around in France for two decades and were introduced by the French government to increase the amount of quality holiday accommodation available in areas that are able to attract more tourists.
When leaseback schemes are sold, there is a pre-selected property management company to whom you “lease” your property for a period, usually between 9 and 12 years. In return, you receive a guaranteed rental income between 3% and 6 % per year of your initial investment, which is increased each year by inflation. At the end of the initial lease period, the lease can be renewed with the management company.
Depending on the project, you will usually either be able to use your property for free for a certain number of weeks per year for holidays, or receive a 10 to 25% discount for use, instead.
• Stress-free purchase, especially for investors living abroad, as your have the peace of mind of owning a property and benefit from a guaranteed income without the hassle of renting 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 (total or partial) from property tax or land tax (“Taxe Foncière”);
• Lower security deposit than for a resale property (5% instead of 10%);
• Investments in real estate located in tourist growth areas (along the Mediterranean, the Atlantic coast and the Alps) in a stable political and economic environment;
• Lower notary fees (between 2 and 4 %) than for a resale property (between 6 and 8%);
Main rule of VAT:
You can only deduct the VAT if you have previously collected some!
4 important terms for VAT:
• Collected VAT (“TVA collectée”): it is the VAT that you collect on behalf of the French authorities whenever you are invoicing rents, and that must be refunded to the French authorities.
• Deductible VAT (“TVA déductible”): this 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 when the amount of deductible VAT is higher than the amount of VAT collected.
• VAT due (“TVA à payer”): this 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 newly build property intended to be rented out furnished within a residence with services, 7.0% VAT can be levied on the rent if the owner renounces to the tax exemption of € 76,300.
In France, certain activities are indeed subject to VAT and others are not. Furnished rentals are not subject to VAT as long as they benefit from a tax exemption (“franchise en base”) up to € 76,300 from the French government. However, the owner of the furnished rental property may decide to renounce to this tax exemption and then its activity becomes subject to VAT.
The main advantage of VAT liability is that you can claim back the VAT! And of course claim back the 19.6% VAT on your acquisition price!
• You only have 15 days from the the delivery date of the property or the signing of the deed of sale (whichever is later) to inform the French tax authorities that you renounce to the tax exemption on your furnished rental activity.
• You have two years to claim back your deductible VAT.
This means that, in theory, the tax authorities can refuse to reclaim the deductible VAT if you do not waive the tax exemption within the legal time limit. This is just theory, because in practice this is almost never the case!
• VAT recovery is done quarterly, before the 20th day after the end of the quarter.
You cannot claim the refund until the quarter has finished.
For example, the leaseback property you bought on April 15, 2006, was fully completed on May 15, 2006. If you decide to waive the tax exemption, you have to do it before May 30, 2006, and your claim for a VAT return must not be made until the end of the second quarter of 2006, no later than June 20, 2006.
There is one exception:
For the months of October, November and December, you will be able to apply for the VAT refund at the beginning of the following year, since in this case the VAT is reclaimed through the annual VAT return.
• It should be noted that the VAT refund on leaseback property is not fully acquired until the expiration of 10 or 20 years, depending on the development, as this is the number of years required for the total VAT to be settled.
If the property is sold before the expiry of this period, then a pro-rata of the VAT must be refunded to the French authorities.
Since you are receiving rent for a French property, you complete an annual French tax return, and make VAT (purchase tax) declarations.
Being a small business with a revenue lower than €763,000, you can choose the taxation scheme “réel simplifié” which is intended for annual declaration instead of quarterly. However, every quarter you will be asked to pay a certain amount of VAT, which will be deducted at the end of the year. If you have a VAT credit at the end of the year, you will be reimbursed by the tax authorities.
We will help you apply for the VAT credit owe to the French tax administration, following your leaseback acquisition. This includes the registration, the refund request, as well as the annual VAT returns:
You have to inform the French tax authorities that you have bought a leaseback property and that you decide to waive to the tax exemption (“franchise en base”).
We will prepare the registration documents on your behalf!
- Request for refund :
We will fill in the documents rfor the refund request on your behalf. In this way you can be entirely sure that the documents have been filled in correctly!
- Annual VAT returns:
We will prepare the annual VAT returns that need to be sent to the French tax authorities on your behalf.
- Follow-up of your French tax file:
Rest assured! Our team will follow up your file with the French tax administration for you!