Stamp Duty and VAT on French Property
The French stamp duty and TVA (VAT) rules on property transactions always raise questions for people buying French property with or without a French mortgage.
Since 2008, we have seen most European Governments implementing radical austerity plans to save the Euro and the Eurozone. For a government, one of the simplest and lest politically difficult ways of raising tax is to raise taxes affecting property purchase.
France has not dramatically changed the tax regime regarding stamp duty or VAT on property purchase though the rates of tax have changed.
Under the principle ‘formalité fusionnée’ any deed signed by a Notaire is deemed to be registered not only at the Land Registry but also at the Tax Administration for tax purposes. The property deed transfer will be registered at the same time at the Land Registry and the Tax Administration so that records can be updated, notably regarding payment of local taxes such as ‘taxe foncière’ and ‘taxe d’habitation’.
When a Notaire registers a deed at the Land Registry he also has the duty to collect the stamp duty on the transaction. In addition to his duty of care to clients, the Notaire is a tax collector. He will collect stamp duty, VAT or any other tax that must be paid on the property sale. It is for this reason that he includes the taxes that have to be paid in his provision of fees.
French Stamp Duty
Stamp Duty and VAT on French Property
Three different stamp duties are payable depending on the nature of the transaction. The rate of tax changes over time according to the current years Loi de Finance and the latest rates can be found on the French Notaires website.
The first and most common rate applies to property transactions such as the sale of property built more than five years ago, a property resold by a vendor who originally purchased a plot of land and built the property himself and any sale of plot of a land or agricultural land (except if you are a farmer for the latter). The rate is divided into three different percentages payable to the ‘Departement’, the ‘commune’ and the ‘Government’.
The second rate concerns property transactions made by a professional trader called ‘marchand de biens’ or in several cases where the price already includes VAT. The reason for them to benefit from a reduced stamp duty is the commitment to resell the property within a fixed period. The rate will also apply to farmers who wish to acquire lands that they rent providing that they comply with the Rural Code.
The third rate is payable when a property is transferred as part of a divorce proceeding to one of the spouses, when parents wish to give their all interest in land or buildings to their children who share them (‘partage’) or in the case where a person buys his co-owner out when a property was purchased ‘en indivision’.
The legislation covering the rates and scope of TVA is amended regularly and normally comes into force immediately. The main provision relates to the purchase and resale of new properties built by an individual without the intervention of a developer.
The regulations are complex, as shown in the schedules enacted in 2010, and because the rates change, it is important to check on the legifrance.gouv.fr website for the latest rates and scope.
It is common to have clients buying off-plan properties with a resale within five years from completion. In that case, both purchase and selling price will be subject to the VAT and the reason results from the nature of the transaction. Developers register their activity for VAT purposes and are therefore subject to VAT on property transactions. An individual buying from a developer will pay VAT when he buys the property but will also have to consider VAT on the selling price within five years from completion of the building.
Calculating French Fees and Taxes
The French Notaires association provides a useful calculator in English to help you estimate the likely taxes accruing to a French property purchase here.