Generally, the purchase of property is subject to transfer taxes or value added tax (VAT) at the standard rate (20%) depending on whether the seller and the buyer are VAT taxpayers or not.
The VAT tax regime complies with EU directives. As a general rule, real estate properties are placed within the scope of the VAT standard regime and no longer subject to a specific regime.
The following rules apply to transactions entered into by a French SPV (registered for French VAT) and a seller registered for VAT:
- · Transactions involving non-developable land are exempt from VAT (unless an election for VAT to be payable is filed in which case the VAT is due on the total purchase price) and are subject to transfer tax at a rate between 5.09% and 6.40%, depending on the type and location of the land. A reduced rate of 0.715% applies if an undertaking to re-sell the land within five years is made by the buyer.
- Transactions involving developable land are subject to VAT on the total price where VAT on the acquisition cost was deducted when the land was acquired by the seller and are subject to transfer tax at a rate of 0.715 % (or a fixed fee of €125 if the buyer intends to erect a building on the land, provided that the buyer undertakes to complete the construction works within four years and complies with the undertaking). Where VAT on the acquisition cost was not deducted when the land was acquired by the seller VAT is payable by the seller on any capital gain realized. In addition, transfer tax is payable at a rate between 5.09% and 6.40%, depending on the type and location of the relevant property (or a reduced rate of 0.715% if a commitment to re-sell the land within five years is made by the buyer, or a €125 fixed fee if the buyer intends to erect a building on the land, provided that the buyer undertakes to complete the construction works within four years and complies with the undertaking).
- · Transactions involving new buildings for VAT purposes (ie a building is considered as "new" for VAT purposes when it is acquired less than five years after its completion from a VAT-liable entity acting as such. Moreover, pursuant to Article 257-I-2-2° of the French Tax Code, works carried-out on an existing building consisting of an increase in height (surélévation) or a refurbishment (remise à l'état neuf) is assimilated to the delivery of a new building, subject to certain conditions), including transaction involving a new property known as a ‘sale before completion’ (Vente en l’état futur d’achèvement), are subject to VAT on the total purchase price and to transfer tax at 0.715% (or a fixed fee of €125 if the buyer intends to erect a building on the land, provided that the buyer undertakes to complete the construction works within four years and complies with such undertaking).
- Transactions involving other properties are exempt from VAT (unless an election for VAT to be payable is filed, in which case the VAT is due (i) on the total purchase price if the VAT incurred by the seller on the initial acquisition was deducted or, (ii) on the margin if the VAT incurred by the seller on the initial acquisition was not deducted and are subject to transfer tax at a rate between 5.09% and 6.40%, depending on the type and location of the relevant property (or a reduced rate of 0.715% if the buyer commits to re-selling the property within a five-year period, or a fixed fee of €125 if the buyer commits to erect a building within a certain period).
Please note that, regardless of the buyer's registration in France for VAT, if the seller is not registered for French VAT, the transaction is not subject to VAT. Transfer taxes are due at the 5.09% to 6.40% normal rates specified above, unless the buyer is indeed registered for French VAT and undertakes either to re-sell or to erect a building (see the specifics above about these undertakings).
The transfer tax regime also differs if the seller is registered for VAT in France but the buyer is not: in this case, the benefit of the reduced rates of transfer taxes subject to the above mentioned undertakings are not available.
Furthermore, notary fees are due at a rate of 0.799% on the sale's price. It is generally due by the buyer.
The sale of shares in a company holding real estate (where the value of the real estate represents more than 50% of the company’s assets) is subject to a transfer tax of 5% of the price paid for the shares or the fair market value if higher.
Moreover, transactions involving real estates or rights on real estates are subject to a real estate security contribution (contribution de sécurité immobilière) of 0.10% of the price paid for the real estate or for the rights on real estates.
