Country - France
Corporate Vehicles
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A. DIRECT INVESTMENT
Direct investment in real estate in France can be carried out without a permanent establishment (établissement stable).
Minimum capital
Not applicable.
Set-up costs
Not applicable.
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
If VAT paid on investment activities is to be recovered, a VAT representative should be appointed to file regular VAT returns. Costs amount to EUR 5,000 per annum, but this may increase if more than 100 VAT invoices need to be registered in any year.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in France
If the investor is an individual:
Income tax ("IRPP") at tiered rates of up to 40%.
If the investor is a corporation:
Corporate income tax ("IS") is payable at a rate of 33.33%.
If the investor is non-resident:
French taxation applies but, depending on the applicable tax treaty, tax paid in France can be used as a credit against any tax payable in the owner's country of residence.
Taxation of capital gains on the sale of real estate assets
If the investor is a French or EU individual
Profit is subject to tax at 27% but there is a full exemption if the asset is sold 15 years or more after acquisition. Taxable profit reduces by 10% every year after the fifth year of ownership.
If the investor is a French company, a non-resident company or an individual who is not resident in the EU
Tax is payable at 33.33% but the individual benefits from the 10% allowance after the fifth year of ownership.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
There are six types of corporate vehicle which can be used for investment in real estate in France:
1. Société à responsabilité limitée (S.A.R.L.) (limited liability company)
Minimum capital
EUR 1.
Between one and 100 shareholders are required.
Set-up costs
Costs vary but are typically about EUR 420 if there are no unusual aspects to the structure (excluding legal fees).
Time required to become operative
15 days, but the business can trade immediately.
Costs per annum for corporate and accounting compliance
EUR 12,000 plus the cost of statutory auditors (EUR 10,000/20,000) although the latter are only required when two of the following three thresholds, relating to capital, turnover and the number of employees, are exceeded:
- the total value of the assets on the balance sheet is EUR 1,550,000 or more;
- the turnover (exclusive of tax) is EUR 3,100,000 or more;
- the average number of employees is 50 or more.
Corporate governance
The company is managed by at least one individual general manager. Additional general managers can be appointed. These may be legal entities or individuals. The general manager can be a shareholder or a third party.
One principal and one alternate statutory auditor must be appointed if two of the following three thresholds are exceeded:
- the total value of the assets on the balance sheet is EUR 1,550,000 or more;
- the turnover (exclusive of tax) is EUR 3,100,000 or more;
- the average number of employees is 50 or more.
Regulatory control
Not applicable.
Taxation of current income in France
Corporate income tax is payable at 33.33%.
Taxation of distributions of current income to investors
Tax-resident shareholders
For individuals: Income tax is payable at tiered rates of up to 40% with an allowance of 40% of the amount of the dividend, with a general tax allowance of EUR 1,525 for individuals and EUR 3,050 for couples and a tax credit of EUR 115 for individuals and EUR 230 for couples.
For companies: Corporate income tax is payable at 33.33%. If the dividends are distributed by a subsidiary to its parent company no tax is due, but 5% of the amount of the dividend is treated as taxable income of the parent and is subject to corporate income tax at 33.33%.
Non-tax-resident shareholders
There is a reduction in tax of 25% although most applicable tax treaties reduce this rate further to 5% for shareholders holding more than 10% of the share capital of a French company. There is no reduction in tax if the parent company (of the French company) is an EU company and owns more than 20% of its share capital.
Taxation of capital gains
Sale of a real estate asset
Corporate income tax is payable at 33.33%.
Sale of a participation in a company of which real estate represents more than 50% of its total asset value
If an investor is a French-resident individual or a resident of an EU member state, tax is payable at 27% if the aggregate gross proceeds from the sale of stock exceeds EUR 15,000 during any 12-month period.
If an investor is a foreign company or a non-EU resident, individual tax is payable at 33.33%.
If an investor is a French company subject to corporate income tax, corporate income tax is payable at 33.33%.
2. Société anonyme (S.A.) (stock corporation)
Minimum capital
EUR 37,000.
There must be a minimum of seven but there is no maximum number of shareholders.
Set-up costs
Costs vary but are typically about EUR 620 if there are no unusual aspects to the structure (exclusive of legal fees).
Time required to become operative
15 days, but the business can trade immediately.
Costs per annum for corporate and accounting compliance
EUR 20,000 plus the cost of statutory auditors (EUR 20,000/25,000).
Corporate governance
There are two possible structures:
Société anonyme constituted with a board of directors
The board of directors must comprise at least three directors with a maximum of 18.
All directors must also be shareholders of the company. They are appointed in the by-laws when the company is set up, and thereafter by the shareholders. The chairman of the board of directors is appointed by the board. The board must also appoint a CEO to lead the management of the company.
A single individual can be both the chairman and the CEO.
Upon a proposal of the general manager, the board of directors can appoint up to five deputy CEOs to assist the CEO in the management of the company.
Société anonyme constituted with an executive board and a supervisory board
The executive board is typically composed of between two and five members. If the capital of the company is less than EUR 150,000, the executive board can be replaced by a single CEO. Members of the executive board are not required to be shareholders of the company. The members and the president of the executive board are appointed by the supervisory board. The executive board manages the company.
The supervisory board must contain at least three but no more than 18 members. All of them must be shareholders in the company. Members of the supervisory board are appointed in the by-laws when the company is set up, and thereafter by the shareholders.
The supervisory board supervises the executive board.
Principal and alternate statutory auditors are mandatory.
Regulatory control
Not applicable, unless the company acts in a specific regulated industry (for example, insurance).
Taxation of current income in France
Corporate income tax is payable at 33.33%.
Taxation of distribution of current income to investors
Tax-resident shareholders
For individuals: Income tax is payable at tiered rates of up to 40% with an allowance of 40% of the amount of the dividend, with a general tax allowance of EUR 1,525 for individuals and EUR 3,050 for couples and a tax credit of EUR 115 for individuals and EUR 230 for couples.
For companies: Corporate income tax is payable at 33.33%. If dividends are distributed by a subsidiary to its parent company the distribution is exempt from tax but 5% of the amount of the dividend is treated as taxable income of the parent company and is subject to corporate income tax at 33.33%.
Non-tax-resident shareholders
There is a reduction in tax of 25% but most applicable tax treaties reduce this rate to 5% for shareholders holding more than 10% of the share capital of a French company. There is no reduction in tax if the parent company of a French company is an EU company owning more than 20% of its share capital.
Taxation of capital gains
Sale of a real estate asset
Corporate income tax is payable at 33.33%.
Sale of a participation in a company of which more than 50% of the value of its assets are real estate
If the investor is a French-resident individual or is resident in an EU member state, tax is payable at 27% if the aggregate gross proceeds from the sale of stock exceed EUR 15,000 during any 12-month period. If the investor is a foreign company or a non EU-resident, individual tax is payable at 33.33%. If the investor is a French company subject to corporate income tax, corporate income tax is payable at 33.33%.
3. Société par actions simplifiée (SAS) (simplified stock corporation)
Minimum capital
EUR 37,000.
At least one shareholder is required.
Set-up costs
Variable, but typically about EUR 620 if there are no unusual aspects to the structure (exclusive of legal fees).
Time required to become operative
15 days, but the business can begin to trade immediately.
Costs per annum for corporate and accounting compliance
EUR 20,000 plus the cost of statutory auditors (EUR 20,000/25,000).
Corporate governance
Considerable flexibility about corporate governance can be granted in the by-laws. The company is typically managed by a president, who can be an individual or alternatively a legal entity. The by-laws can provide for the president to be assisted by one or more CEO(s) or by one or more deputy CEO(s) and can also provide for the appointment of a joint management body.
Principal and alternate statutory auditors are mandatory.
Regulatory control
Not applicable.
Taxation of current income in France
Corporate income tax is payable at 33.33%.
Taxation of distribution of current income to investors
Tax-resident shareholders
For individuals: Income tax is payable at progressive rates of up to 40% with an allowance of 40% of the amount of the dividend, with a general tax allowance of EUR 1,525 for individuals and EUR 3,050 for couples and a tax credit of EUR 115 for individuals and EUR 230 for couples.
For companies: Corporate income tax is payable at 33.33%. If the dividends are distributed by a subsidiary to its parent company no tax is payable; but 5% of the dividend is treated as taxable income of the parent company and is subject to corporate income tax at 33.33%.
Non-tax-resident shareholders
There is a 25% reduction in tax although most applicable tax treaties reduce this rate to 5% for shareholders holding more than 10% of the share capital of a French company. There is no reduction in tax if the parent company of the French company is an EU company owning more than 20% of its share capital.
Taxation of capital gains
Sale of a real estate assets
Corporate income tax is payable at 33.33%.
Sale of a participation in a company of which more than 50% of the value of its assets are real estate
If the investor is an individual resident in France or elsewhere in the EU, tax is payable at 27% if the aggregate gross proceeds from the sale of stock exceed EUR 15,000 during one 12-month period. If the investor is a foreign company or a non-EU resident, individual tax is payable at 33.33%. If the investor is a French company, it is subject to corporate income tax at the rate of 33.33%.
4. Société civile immobilière (SCI) (real estate civil company)
Minimum capital
There is no minimum capital requirement.
At least two shareholders are required.
Set-up costs
Costs vary but are typically about EUR 420 if there are no unusual aspects to the structure (exclusive of legal fees).
Time required to become operative
15 days, but the business can begin to trade immediately.
Costs per annum for corporate and accounting compliance
EUR 12,000 plus the cost of internal auditors (EUR 10,000/20,000). Auditors are only required when two of the three following thresholds, relating to the capital, turnover, and number of employees, are exceeded:
- the total value of the assets on the balance sheet is EUR 1,550,000 or more;
- the turnover (exclusive of tax) is EUR 3,100,000 or more;
- the average number of employees is 50 or more.
Corporate governance
The company is managed by one or more general manager(s) who can be individuals or companies. The by-laws determine whether the general manager must also be a shareholder of the company.
One principal and one alternate statutory auditor must be appointed if two of the following three thresholds are exceeded:
- the total value of the assets on the balance sheet is EUR 1,550,000 or more;
- the turnover (exclusive of tax) is EUR 3,100,000 or more;
- the average number of employees is 50 or more.
Regulatory control
Not applicable.
Taxation of current income in France
The shareholders are taxed on their personal income.
Taxation of distribution of current income to investors
There is no taxation of the distribution: the income is simply distributed to partners and taxed at the level of the individual partner.
Taxation of capital gains
Sale of a real estate asset
Individuals resident in France pay tax at 27% but a 10% allowance applies each year after the fifth year of ownership.
Individuals resident in another EU member state, Iceland or Norway pay tax at 16%.
All companies and individuals resident outside the EU, Iceland and Norway pay tax at 33.33%.
Sale of a participation
If the investor is a French-or EU-resident individual, a sale of shares is considered to amount to a sale of the property itself.
Individuals resident in France pay tax at 27% but a 10% allowance applies each year after the fifth year of ownership.
Individuals resident in another EU member state, Iceland or Norway pay tax at 16%.
All companies and individuals resident outside the EU, Iceland and Norway pay tax at 33.33%.
5. Société civile de placement immobilier (SCPI) (real estate civil investment company)
The purpose of a SCPI is to acquire and hold rental property.
Minimum capital
EUR 760,000 (each share must have a minimum face value of EUR 150). The total value of the shares held by the founding shareholders must at least equal the amount of share capital. The by-laws set a maximum share capital value. At least 15% of the maximum share capital must be held by the public within one year of the first public offering of shares.
Set-up costs
Costs vary but include Euronext admission fees (EUR 10,000) and charges (EUR 10,000 per annum), plus typical costs of about EUR 420 (exclusive of legal fees).
Time required to become operative
15 days, but the business can begin to trade immediately. Timing is subject to French Securities and Exchange Commission (Autorité des Marchés Financiers, ("AMF")) control and requirements.
Costs per annum for corporate and accounting compliance
EUR 12,000 plus the cost of internal auditors (EUR 10,000/20,000).
Corporate governance
The SCPI is managed by a management company which must be either a stock corporation (société anonyme) with a minimum share capital of at least EUR 225,000, or a partnership (société en nom collectif) of which at least one shareholder is a stock corporation with the same minimum amount of share capital.
The management company must:
- be approved by the French Securities and Exchange Commission;
- present sufficient guarantees regarding its organisation, its technical and financial strength, and the suitability and experience of its managers;
- take steps to secure the transactions it enters into; and
- have sufficient financial means to conduct its business and meet its liabilities.
The management company is assisted by a supervisory board comprising at least seven shareholders who are appointed at a shareholders' meeting.
The shareholders of the SCPI must appoint one or more statutory auditors.
Regulatory control
The French Securities and Exchange Commission verifies that the SCPI and its management company comply with their obligations and that the share transactions of the SCPI are valid.
Taxation of current income in France
The SCPI is a transparent entity and therefore shareholders are taxed on their personal income at the corporate income tax rate of 33.33% or the income tax tiered rates of up to 40%.
Taxation of distribution of current income to investors
There is no taxation on a distribution: income is simply distributed to investors and then taxed at the level of the individual investor.
Taxation of capital gains
Sale of a real estate asset
In order to be exempt from corporate tax on capital gains, the SCPI must retain a property for six years after purchase or of the completion of works to enlarge or rebuild the property.
The value of the sale must not exceed 15% of the value of the SCPI's properties.
Gains are taxable at the level of the investor at the rate of 33.33% if the investor is a company or an individual who is not EU resident, or 27% if the investor is a French individual with a full exemption after 15 years of ownership.
Sale of a participation
If the investor is a French or EU resident individual, the sale of shares is considered to amount to a sale of the property itself. Tax is payable at 27% but a 10% allowance applies each year after the fifth year. If the investor is a company or a non-EU resident individual, tax is payable at 33.33%.
6. Société d’investissement immobilier cotée (SIIC) (listed real estate investment company)
Special tax exemption arrangements are available for a stock corporation listed on a regulated French stock market, with a minimum share capital of EUR 15,000,000 whose main purpose is the acquisition or construction of property for rent, or which has direct or indirect holdings in corporate entities with the same purpose.
Minimum capital
EUR 15,000,000.
Set-up costs
Costs vary but include Euronext admission fees (EUR 10,000) and charges (EUR 10,000 per annum) plus typical costs of about EUR 620 (exclusive of legal fees).
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
EUR 20,000 plus the cost of statutory auditors (EUR 20,000/25,000).
Corporate governance
The SIIC is managed by a management company which must be either a stock corporation (société anonyme) with a minimum share capital of at least EUR 225,000, or a partnership (société en nom collectif) of which at least one shareholder is a stock corporation with same minimum amount of share capital.
The management company must:
- be approved by the French Securities and Exchange Commission;
- present sufficient guarantees regarding its organisation, its technical and financial strength, and the suitability and experience of its managers;
- take steps to secure the transactions it enters into; and
- have sufficient financial means to conduct its business and meet its liabilities.
The management company is assisted by a supervisory board comprising at least seven shareholders who are appointed at a shareholders' meeting.
The shareholders of the SIIC must appoint one or more statutory auditors.
Regulatory control
Subject to control by the French Securities and Exchange Commission.
Taxation of current income in France
The SIIC and its elected subsidiaries (held directly or indirectly at 95% with the same business purpose) are exempt from tax on renting or subletting real estate under finance lease agreements, provided that at least 85% of the income is distributed to shareholders by the end of the first tax year following the year the income was generated. The dividends received from electing subsidiaries are exempt provided they are distributed by the SIIC before the end of the following tax year.
Taxation of distribution of current income to investors
Resident shareholders
For individuals: Income tax is payable at tiered rates of up to 40% with an allowance of 40% of the amount of the dividend, with a general tax allowance of EUR 1,525 for individuals and EUR 3,050 for couples and a tax credit of EUR 115 for individuals and EUR 230 for couples.
For companies: Corporate income tax is payable at 33.33%. Even if a parent/subsidiary relationship exists, no tax exemption applies because the profits are exempt from tax at the level of the SIIC.
Non-tax-resident shareholders
25% withholding tax is payable but most tax treaties reduce this rate to 5% for shareholders holding more than 10% of the share capital of the French company.
Taxation of capital gains
Sale of a real estate asset
Capital gains derived from the sale of real estate, and interests in real estate, through controlled partnerships, or subsidiaries which have elected for SIIC status, are exempt from tax, provided that at least 50% is distributed to shareholders by the end of the second fiscal year following that during which the gains were made.
Sale of a participation in a company of which real estate represents more than 50% of its assets
If the investor is an individual or company located in France or elsewhere in the EU, tax is payable at 27% if the aggregate gross proceeds from the sale of stock exceed EUR 15,000 during any 12-month period. If the investor is a foreign company or non-EU resident individual, tax is payable at 33.33%. If the investor is a French company, corporate income tax is payable at 33.33%.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
The most common partnership under French law is the société en nom collectif (SNC).
Minimum capital
There is no minimum capital requirement.
At least two partners are required.
Set-up costs
Costs vary but are typically about EUR 470 if there are no unusual aspects to the structure (exclusive of legal fees).
Time required to become operative
15 days, but the business can begin to trade immediately.
Costs per annum for corporate and accounting compliance
EUR 10,000 plus the cost of statutory auditors (EUR 10,000/20,000). Auditors are only required when two of the three following thresholds, relating to the capital, turnover, and number of employees, are exceeded:
- the total value of the assets on the balance sheet is EUR 1,550,000 or more;
- the turnover (exclusive of tax) is EUR 3,100,000 or more;
- the average number of employees is 50 or more.
Corporate governance
A partnership is managed by one or more general managers. The general manager need not be a partner and may also be a company.
All partnerships must have at least two partners and both have unlimited liability.
One principal and one alternate statutory auditor must be appointed if two of the following three thresholds are exceeded:
- the total value of the assets on the balance sheet is EUR 1,550,000 or more;
- the turnover (exclusive of tax) is EUR 3,100,000 or more;
- the average number of employees is 50 or more.
Regulatory control
Not applicable.
Taxation of current income in France
The partners are taxed on their personal income.
Taxation of distribution of current income to investors
There is no taxation of a distribution: income is simply distributed to partners and then taxed at the level of the partners.
Taxation of capital gains
Sale of a real estate asset
Tax is payable at 27% but a 10% allowance applies each year after the fifth year of ownership if the shareholder is a French or EU resident individual. Tax is payable at 33.33% if the shareholder is a company or a non-EU resident individual.
Sale of a participation
If the investor is a French or EU resident individual, a sale of shares is considered to amount to a sale of the property itself. Tax is payable at 27% but a 10% allowance applies each year after the fifth year. Tax is payable at 33.33% if the shareholder is a company or a non-EU resident individual.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
A new real estate investment vehicle (organisme de placement collectif dans l'immobilier, OPCI) was introduced under French law on 13 October 2005. This was presented as the successor of the SCPI (real estate investment civil company). The main purpose of an OPCI is investment in real estate, or in the construction of new properties, with a view to generating rental income.
Minimum capital
Not applicable.
Set-up costs
Not applicable.
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
Not applicable.
Corporate governance
Under an OPCI, two types of fund can be set up:
- Fonds de placement immobilier (FPI) (real estate investment fund);
- Sociétés de placement à préponderance immobilière à capital variable (SPPICV) (investment company with a majority of real estate assets and with a variable share capital).
Both of these are subject to approval by the French Securities and Exchange Commission.
Neither structure needs to be listed on a stock market.
An OPCI is managed by a management company (société de gestion) licensed by the AMF. The OPCI's assets are held and managed by a custodian (dépositaire). The management company is in charge of the financial and administrative management of the OPCI.
Internal control of an OPCI rests with the board of directors and the general shareholders' meeting of the SPPICV or the supervisory board of the FPI.
The OPCI's accounts are controlled by a statutory auditor who is appointed by the management company.
Regulatory control
A licence must be obtained from the French Securities and Exchange Commission for the creation, conversion, merger, demerger or liquidation of an OPCI.
Taxation
Investors are subject to income tax only on distributed dividends.
E. RULES ON LEVERAGE
1. Thin capitalisation rules
There is no mandatory debt to equity ratio (except in the case of loans from direct controlling shareholders) which affects the deductibility of interest, but the tax authorities may disallow any interest deductions exceeding the borrower's repayment capacity.
2. Withholding tax on interest
No reduction of tax on loans by non-tax-resident shareholders is permitted under most tax treaties.
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