FAQ

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 7.0% 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 is an exception:

For October, November and December, you will be able to request the VAT refund in the beginning of the following year as in this case the VAT reclaim is made through the annual VAT return.

• 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.

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