What taxes are payable on the sale of real estate and can these be reduced or offset in any way?
Profits (other than usual profits derived by asset dealers) on the sale of a French property by a non-resident company are subject to a 25% tax in France (although certain treaty exemptions may apply).
Profits on the sale of a property by a French resident individual or an individual residing either in or outside the European Union are subject to a 19% tax, plus 17.2% of social contributions, giving a total charge of 36.2% (although certain treaty exemptions apply). Please note that, the social contributions’ rate can be reduced to 7.5% for European Union residents under certain conditions.
Furthermore, a progressive 2% to 6% tax applies on real estate capital gains on sales of property. This tax applies indifferently on real estate rights or assets, other than building lands. This tax applies to, (i) transfers made by individuals and pass through entities in the scope of article 8 to 8 ter of the FTC (eg SCI) and, (ii) transfers made by non-French tax residents who are subject to taxes levied on the basis of the article 244 bis A of the FTC.
Allowances increasing with the holding period can be deducted from the taxable gain, leading to a full exemption of individual income tax after 22 years of holding and social contributions after 30 years of holding.
Capital gains realized on the sale of French real estate assets by a French permanent establishment or a French company are subject to corporate income tax at the rate of 25% on top of which miscellaneous contributions are added. The effective tax rate is 25.83% for corporate taxpayers whose turnover exceeds €7,630,000.
If participation shares are registered as such in the accounts, and are held for more than two years, a participation exemption applies on any capital gains so that only 12% of their value is subject to French corporate tax at the rate of 25% on top of which miscellaneous contributions are added for an effective tax rate of up to 25.83%, provided the company whose shares are held by the French permanent establishment does not qualify as a predominantly French real estate company from a French capital gain tax perspective (for capital gain tax purposes, a predominantly French real estate company is a company that owns, directly or indirectly, French real estate assets that represent more than 50% of the fair market value of its total assets, without taking into account those that are allocated by the company to run its own business, at the closing of the three tax years preceding the sale, irrespective of the fact that this company has its respective head offices in France or not).
The Finance Law for 2018 provided that ISF is repealed and replaced, with effect from 1 January 2018, by a new real estate wealth tax (IFI). IFI is assessed on the real estate owned by the taxpayer to the extent that the value of the taxpayer's real estate net assets exceeds €1.3m.
The definition of the taxpayers, the triggering event as well as the tax threshold and the tax scale as regards IFI are similar to those that were applicable to the previous wealth tax.
The main change concerns the IFI's tax base, which is defined as all the real estate owned directly or indirectly by the taxpayer via companies or collective investment vehicles when it is not allocated to the business of the relevant entities. Taxation is not limited to shares in real estate companies.
Measures are designed to exclude from the taxable fraction, on the one hand, professional real estate owned by companies and, on the other hand, real estate held by taxpayers through operating companies in which their shareholding is less than 10%. Tax-exempt status may be granted to taxpayers holding less than 10% interest in non-operating companies if they establish that they are not in a position to obtain the information necessary for the assessment of the taxable portion of their shares. A similar exclusion applies in the case of holding less than 10% of the rights in an investment fund or in a collective investment vehicle, provided that these funds hold (directly or indirectly) less than 20% of their assets in property and real estate rights taxable to the IFI. Finally, goods of a professional nature are, under certain conditions, also excluded from the IFI's tax base.
French law sets out the list of deductible debts (in particular, expenditure on the acquisition of taxable property or real estate rights and shares, in proportion to the value of taxable real estate assets) and provides for a deduction cap for large heritage assets. The Finance Law for 2024 specified that, for the purposes of valuing real estate company shares, the debts that are not related to a taxable real estate asset should not be taken into account. French law also lays down special deduction rules for "in fine" loans designed to take account of theoretical amortisation. An anti-abuse clause is also provided for the deduction of intra-group loans limiting the deduction of the debt, except in the event that the borrower is able to justify the normal nature of the loan terms and conditions (ie on an arm's length basis), in particular compliance with due dates, the amount and the actual effectiveness of repayments.
In this respect, it should be noted that the provisions exempting financial investments of non-residents from ISF have been repealed, so that, subject to tax treaties, non-residents holding corporate securities will henceforth be liable to the IFI for the part of the value of such shares corresponding to real estate, whereas they were previously subject to ISF only on shares in real estate companies and shares in companies held more than 50% by the family group.