Investing in luxury French real estate has become a very profitable and attractive action for foreign buyers. If the French real estate market is booming, it is because France has a very favorable tax regime for rental investments. However, the tax benefits depend on the status of foreign investors in terms of their tax residence.
Taxation of foreign investors with tax residence in France
The notion of tax residence in France
The taxation of investments made by foreigners in France depends closely on the notion of tax residence of the investor. The following are considered to have their tax domicile in France:
- Persons who have their main residence or place of stay in France;
- Those who carry out a professional activity, whether employed or self-employed, primarily in France;
- Those who have their economic interests centered in France.
Tax benefits for foreign investors with tax residence in France
Foreigners who have their tax residence in France according to the criteria of the General Tax Code can benefit from the same tax benefits as other French residents.
Example of tax-exempt rental investment: The Pinel Law
The Pinel Law offers a tax advantage of approximately 12 to 21% of the price of the property for the purchase of a new or renovated property. This reduction is proportional to the duration of the investment (6, 9, or 12 years). Starting from January 1, 2021, the Pinel Law will only be applicable to investments made in residential buildings, in accordance with Article 161 of the 2020 Finance Law. Attention: there is an exception for individuals residing in Monaco but with their tax residence in France; they cannot benefit from the Pinel Law (Article 7 of the Franco-Monegasque Convention of May 18, 1963).
Taxation of foreign investors without tax residence in France
Individuals tax resident outside of France have limited tax obligations under the General Tax Code: they will only be taxed on their income from French sources. For example, foreign investors can take advantage of the tax deficit system. Non-interest expenses resulting in tax deficits are deductible from the overall income, up to an annual limit of €10,700. To qualify, the property must be rented for 3 years. The portion of the deficit resulting from interest expenses or that exceeds €10,700 is deductible from future rental income. By applying this tax deficit system, foreign investors can acquire prestigious residences in highly sought-after areas at a lower price than the market value due to the necessary renovations. By carrying out more expensive renovations than rental income, they create a tax deficit and therefore pay little or no tax on rental income.
Michaël Zingraf Real Estate agents, professionals in rental property investment at your service
If you wish to invest in luxury rental real estate in the South of France, in Deauville or even in Paris, make an appointment with one of the experts at Michaël Zingraf Real Estate who will guide you through all the current tax benefits.