Holiday lets has always been a popular activity among the British community living in France or those with a French holiday home.
There are several French tax regimes applicable to furnished lets. Comparing the final tax bill or even eligibility for each option remains a complex area. Below is an outline of the main options and of the obligations pertaining to this activity.
Activity Registration Obligations
All furnished letting activities (professional or non-professional) must be registered through the filing of form P0 with the local tax registry office. The landlord is provided with a business registration number known as SIRET. In the case of regular seasonal lettings, this often triggers a liability to the Contribution Economique Territoriale, a local business tax managed at the level of the council. This requires an online registration of the business on the government website “espace professionnel” - impôt.gouv.fr- in order to manage payments. Depending on turnover, it is possible to apply for this to be capped to the minimum CET charge.
Registration with the Mairie is also requested by communes for the levy of the Taxe de Séjour, a local tourist tax payable by visitors and based on the number of nights spent.
Tax Regimes : Micro-BIC, Régime Réel or Auto-Entrepreneur?
A two-tier set deduction regime => Micro-BIC regime
The Micro-BIC tax regime is the most straightforward regime. It offers a 50% set deduction to cover expenditure, provided the annual turnover is below €77,700. Registered hotel-like activities (para-hôtellerie), gîtes ruraux, meublés de tourisme classés, or chambres d’hôtes, are subject to a higher Micro-BIC limit of €188,700 and a more generous set deduction for expenses of 71%.
Micro businesses must still record income and expenditure details in a livre-journal.
The registration of the property as a meublé de tourisme classé is necessary to apply the 71% expense allowance. This requires the following steps and local estate agents may provide some assistance with these:
- Appointment of an accredited surveyor to inspect the property.
- Submission of the report and the completed application form to the local Préfecture.
- On reception of the agreement, the owner receives a rating to be displayed in the property. This is valid for five years.
It is important to note that, where there is more than one property owner, the Micro-BIC regime is not usually permitted but may still be tolerated for spouses if the activity is registered in one name only and depending on circumstances.
Itemised Regime => Régime Réel Simplifié
The régime réel may apply by default if the annual turnover exceeds €188,700, or if the property is jointly owned.
Indeed, a furnished letting activity carried out by two or more unrelated co-owners (unmarried or with no PACS) is normally treated as a société de fait (company-like arrangement) and will therefore be excluded from the Micro-BIC regime.
Activities which generate an annual turnover above the set Micro-BIC limits are automatically assessed under the régime réel – itemised regime.
Taxpayers who, by default, fall under the Micro BIC regime based on their annual turnover, may opt for the itemised regime. This option must be filed before the income tax return filing deadline (May to June) for the option to apply to the preceding tax year. For instance, to opt for the itemised regime for 2023, the option must be filed before May/June 2023.
Under the itemised regime, where a property is used privately during the tax year, deductible expenses and depreciation are prorated to the letting periods. Alternatively, the landlord must account for their use of the property at market value when computing the net taxable profit.
Auto-Entrepreneur Regime
Subject to specific turnover limits, French residents eligible to the Micro regime may elect to pay their income tax and all social charges at source under the Auto-entrepreneur regime. The application must be filed before 31 December for the following tax year, or within three months of the start of any new activity.
The levies known as the micro-fiscal (effectively the tax charge) and micro-social are handled by the local URSSAF office. The micro-social includes the social security charges and the extra 17.2% social contributions which include the CSG, CRDS and PS. The tax and social liabilities thus paid are final. Taxpayers still need to report this income on their tax return as it is included in the overall income tax computation (at barème/income tax scale) but subject to a credit to avoid a double tax charge.
The micro-fiscal (tax) and micro-social rates applicable on furnished lettings are as follows:
- For trading activities and hotel-like rentals: 1% tax and 12.8% social charges.
- For services and general furnished lettings (self- catering and not registered as meublé de tourisme classé): 1.7% tax and 22,2% social charges.
- 6% for certain meublés de tourisme classé
In summary, conditions to become an auto-entrepreneur and elect for the withholding tax and social charges are as follows:
- Respect a specific household’s annual taxable income limit updated every year by reference to the barème, the French income tax scale.
- The taxpayer must register for the micro-social.
- In the absence of any income for 24 months or 8 quarters consecutively the Auto-entrepreneur status is forfeited.
The Auto-entrepreneur withholding tax triggers the loss of the deductible portion of CSG on the rental income.
Professional versus Non-Professional Landlord Status
Landlords are treated as professional landlords (loueurs en meublé professionnels or LMP) if their furnished letting activity meet the following criteria:
- The annual turnover exceeds €23,000, and
- also exceeds the household’s other total net earnings (including pensions and annuities). For non-residents of France, this is only considered by reference to their French source income. This means that when their French furnished rentals exceed €23,000 they are treated de facto as professional landlords.
If the property is rented on a furnished basis to tenants who use it for short terms daily, weekly or monthly stays, the landlord must register for mainstream French social security contributions.
The professional status may offer the following benefits:
- Rental losses and pre-letting charges may be set against the rest of the household’s taxable income. Pre-letting expenditure may be spread over the first three years of activity.
- A capital gains tax exemption on any gain arising from the disposal of the rented property is granted to professional landlords whose turnover is below €90,000. There is a partial exemption if the activity’s turnover average over the two preceding years is between €90,000 and €126,000.
- Wealth tax business asset exemption may apply to the rented properties under certain strict conditions.
Where the property has been accounted for as a business asset, it is subject to capital gains tax upon the termination of the letting activity.
All other furnished letting activities are treated as non-professional but if assessed under an itemised regime, losses may be set against the same type of income for up to ten years.
Non-Residents of France
When not assessed under the Micro fiscal, the net taxable rental income is subject to a minimum rate of 20% up to €27,478 (2022 income) and 30% thereafter.
Non-residents may claim a lower effective rate if they can evidence by annually disclosing their worldwide income to the French tax authorities, that the resulting effective rate by application of the French income tax scale rates is lower.
Non-residents landlords with an annual turnover exceeding €23,000 and who let their property to short-term visitors, could potentially fall within the scope of mainstream French social security charges as per the rules outlined above. However, this is an area that remains uncertain.
Although, currently, the French social security authorities (“URSSAF”) do not seem to be actively assessing non-residents, we cannot rule out that this may not happen one day.
Our understanding is that non-residents may still be able to claim an exemption from these levies provided they are covered under an EEA or UK social regime. This may require the presentation of an A1 certificate. Residents of other countries may also claim an exemption depending on the specific terms of any existing social security agreement with France.
Non-Residents are liable to the French social charges known as CSG, CRS and PS and which total 17.2% on net income. However, if affiliated under an EEA or UK social security regime they only pay the 7.5% PS charge.
If assessed under the French mainstream social security regime, the CSG, CRDS and PS levies would already be included.
Payment of Liability
Under the French pay as you go system, income tax is payable through monthly direct debits. These are calculated on the previous year’s liability and updated every September, after the income tax return submitted in May each year has been processed.
Lettings through Online Platforms
Letting platforms are required to provide their user landlords with a summary of the details they disclose to the French Tax Authorities by 31 January in respect of the previous tax year. Such details must include the platform details, the user’s name and professional or non-professional status and ID details, the number and value of the transactions and bank where the income is paid. Omissions or incomplete disclosure can attract a €50,000 penalty.
Conclusion
With so many options and ensuing social & tax regime, the French system has, over time, become very complex when it comes to furnished lettings. Although it is possible to swap regimes if a particular one is not optimum, the reality is that changes can be time-consuming and create extra administration. It is therefore important, whenever possible, to weigh up all the consequences beforehand. The above is only a summary of the main issues so it is strongly recommended to obtain full advice before renting a French property furnished.
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Contacts
If you would like further advice or information in relation to the issues outlined within this document, please do not hesitate to get in touch with Virginie Deflassieux or Catherine Le Pelley.
This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only. It cannot be relied upon to cover specific situations without obtaining professional advice.
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