INCOME FROM REAL ESTATE IN

FRANCE

Administrative and fiscal position for

Italians

Studio Mauro MICHELINI

4th Edition

May 2013

TABLE OF CONTENTS

1. COMPANIES (FRENCH)

1.1. SCI

A. Uses of the real estate

1. Not let out. At the disposal of the partners

2. Unfurnished let

3. Furnished let and Bed&Breakfast

4. Hotel trade

B. Income categories

1. Not let out. At the disposal of the partners

2. Unfurnished let

2. a – Régime Foncier (2072)

2. b- Régime Micro-foncier

3. Furnished let and Bed&Breakfast

3. a- Régime BIC Réel (2065)

3. b- Hôtellerie (2065 simplifiée)

C. What income has to be declared

1. The receipts

1. a- Rental income

1. b- Expenses refunded by the tenant

2. Expenses

2. a- Condominium charges, loan interest, notary’s fees and costs, chartered accountant’s

fees and costs

2. b – Writing off

D. How to declare income

1. Tax return 2072

2. Tax return 2065

E. Where to declare income

1. Tax return 2072

2. Tax return 2065

F. What has to be paid

G. How to pay tax

1. Tax notification

1. a – For companies liable to IR (income tax) 2072

1. b – For companies liable to IS (corporate tax) (2065) : 2571/2572

2. Methods of payment

1.2. OTHER TAXES

1. « La taxe foncière » and « la Taxe sur les ordures ménagères » (property tax and tax for

household waste disposal)

2. « La taxe d’habitation » (rates)

3. « La Redevance audiovisuelle » (radio/television licence)

4. « Taxe sur les logements vacants » (tax on unoccupied accommodation)

5. « TVA » (VAT)

1.3. CAPITAL GAINS

A. Capital gains for companies liable to IR (2072)

1. How it is calculated

2. Tax rate

3. How to pay (the fiscal representative)

B. The authorized agent

1.4. IMPACT ON THE « MODELLO UNICO » AND ON THE « MODELLO

730 »

A. The impact on the « Modello Unico »

1. « Modulo RW Sezione II »

2. « Quadro RL »

3. « Quadro CR »

1. COMPANIES

1.1 SCI

For the SCI balance-sheet, see www.michelinimauro.it Library Category : Real estate

taxation for non-residents

10 reasons for drawing up an SCI balance-sheet, document of 13/12/11

1.1.A. Uses of the real estate

1.1. A.1- Not let out. At the disposal of the partners

Real estate put at the disposal of the owners (partners).

“Taxe foncière” and taxe d’habitation” (property tax and rates) are payable by the Company.

1.1. A.2- Unfurnished let

Unfurnished let (the property can contain a kitchen and non-essential items of furnishing). “Taxe foncière” is payable by the Company and the “taxe d’habitation” by the tenant.

1.1. A.3- Furnished let and Bed&Breakfast

Furnished let, furnished by the owners (partners).

“Taxe foncière” is payable by the Company and “taxe d’habitation” by the tenant.

Bed&Breakfast : when part of the main residence is let furnished.

“Taxe foncière” and “taxe d’habitation” are payable by the Company.

1.1. A.4- Hotel trade

Letting of apartments as « aparthotels » (e.g. “Pierre et Vacances”), offering at least 3 out of the 4 services

below:

- cleaning of the bedroom;

- breakfast;

- providing of linen;

- caretaker.

B. Income categories

1.1. B.1-Not let out. At the disposal of the partners

No rental income to declare on the tax return form in Italy. (No income statement in France except 0 € for

the first year; it is sufficient to accompany this first statement with a letter to inform the tax authorities that

the property is merely at the disposal of the partners).

1.1. B.2-Unfurnished let

Income to be declared in France and in Italy (with tax credit, see 2.4.A points 3 and 4).

1.1. B.2. a – Régime Foncier

Real system: the taxable income is equal to the difference between receipts and the fiscally deductible

expenses.

1.1. B.2. b- Régime Micro Foncier

A flat rate system for annual lets under € 15 000.

1.1. B.3- Furnished lets and Bed&Breakfast

Income to be declared in France (any dividends distributed should be declared in Italy).

1.1. B.3. a- Régime BIC Réel (2065)

Real system: the taxable income is equal to the difference between the receipts and the fiscally taxable

expenses.

1.1. B.3. b- Hotel trade (2065 simplifié)

Income to be declared in France (any dividends distributed should be declared in Italy).

Lets are subject to VAT at a rate of 7%.

Simplified accounts should be kept.

C. What income has to be declared

1.1. C.1 The receipts

1.1. C.1. a- Rental income

Régime foncier : gross rent collected (including provisions) during the tax period

Régime Micro-Foncier : net rent collected (excluding provisions) during the tax period; 30%

deduction applied directly by the CINR.

Régime BIC (2065) : gross rent (including provisions) retained on the basis of the criterion of debts

acquired and debts invested in during the tax period concerned. The declared rental income is

subject to the “CRL” tax (« Contribution sur les Revenus Locatifs2) equal to 2.5%.

1.1. C.1. b- Expenses refunded by the tenant

These are the amounts advanced by the tenant (provisions), stipulated in the rental contract.

These amounts should be declared with the rent in the case of point C.1.a (Régime foncier and Régime

BIC) when they are deducted on the tax return.

1.1. C.2. Expenses

1.1. C.2. a- Condominium charges, loan interest, notary’s fees and costs, chartered

accountant’s fees and costs

are only deductible for the Régime Foncier and BIC.

1.1. C.2. b – Writing off

Deductible only in the case of the régime BIC.

D. How to declare income

1.1. D.1. Tax return 2072

- Régime foncier : the rents and the expenses set out in points C.1. and C.1.b respectively should be

declared on form 2072. The taxable income should be declared on form 2042 (line 4BA in the case of a

profit and line 4BB in the case of a loss)

- Régime Micro-Foncier : the rents under point C.1.a should be declared directly on form 2072 (line 1).

1.1. D.2. Tax return 2065

- Régime BIC Réel : the rents and the expenses under point C should be declared in the tables in the tax

return

(From 2050 to 2059). The taxable income should be declared in frame C of tax return 2065.

Profits are subject to the following rates:

15% up to 38,120€ (*)

33.1/3% for the part over 38,120€

If the tax due is above 3000 € quarterly deposits should also be made.

(*) To benefit from the reduced rate, 75 % of the capital must be held by an individual, not by a legal

entity.

E. Where to declare income

1.1. E.1. Tax return 2072

At the competent tax office where the Company’s head office is located before 3 May (2013) if declared

on paper or before 18 May (2013) by Internet.

The partners of the SCI should submit tax return 2042 on the basis of the pro rata income already declared

on tax return 2072 (see D.1) before 17 June (2013).

1.1. E.2. Tax return 2065

At the competent tax office where the Company’s head office is located before 3 May (2013) if declared

on paper or before 18 May (2013) by Internet. The partners do not declare anything except in the case of

distribution of dividends.

F. What has to be paid

If the Company submits tax return 2072, the partners must submit tax return 2042 to the CINR ; income

tax (IR) to be paid in France cannot be under 20% of the net taxable income declared. (Art. 197A CGI).

As of the year 2012 (i.e. for income tax returns submitted in 2013) the obligation for non-residents to pay

CSG (Contribution Sociale Généralisée) and CRDS (Contribution au Remboursement de la Dette Sociale)

was introduced ; these two taxes together (CSG + CRDS) amount to 15.5% of the declared net taxable

income.

In total, IR + CSG + CRDS is on average equal to 35.5% of the declared net taxable income.

When these taxes on the declared net taxable income in France have been paid, they constitute a tax credit

in Italy on the same income and should be declared on the « modello UNICO » or on the « modello 730 »

(see Art. 70.2° of the T.U.I.R.) (and Art. 165.1° of the T.U.I.R. : tax credits for income earned abroad).

If the Company submits tax return 2065, the partners need not submit tax return 2042 to the “CINR”, only

a declaration on the « modello UNICO » or on « 730 » in Italy if dividends have been distributed.

Only the Company pays the taxes directly, see D.2.

G. How to pay tax

1.1. G.1. Tax notification

1.1. G.1. a- Tax notification for companies subject to IR (2072)

Only the partners receive it (after submitting tax return 2042).

Contrary to what happens in Italy, it is the “CINR” (tax office for non-residents) that calculates the tax to

be paid on the declared net taxable income and that sends a tax notification for the “IR” and for the “CSG-

CRDS”.

Generally the tax notification is received 3 or 4 months after submission of the income tax return, in

September/October, except for the first income tax return in France: in the latter case, because of the time

needed for data input by the CINR’s computer system, the tax notification is sent a few months late,

usually in February/March of the following year.

1.1. G.1. b- For companies subject to “IS” (2065) : Tax return 2572/2571

The balance of the IS, and that of the CRL (2.5%) (for buildings of over 15 years), must be paid with tax

return 2572 before 15 April of the year N+1.

Installments, if due, are paid with tax return 2571; the basis of the calculation of the installments is tax

year N-1.

1.1. G.2. Method of payment

The payment must be made by:

- TIP (for partners who have a bank account in France): prefilled-in stub at the bottom of the first page of

the tax notification to sign and send in its original format to the tax office with bank details (« RIB »). The

latter can be detached directly from the cheque book or a copy printed via Internet for those who have

direct access to their bank).

- automatic transfer from the bank account (for partners who have a bank account in France): similar to the

Italian RID, that can be put in place via a request sent to the “CINR” a few months before the deadline.

Remember that usually you should, as in Italy, pay tax installments; normally, the deposit is paid in three

installments: the first two (calculated on the basis of the previous tax year) with deadlines on 15 February

and 15 May, and the third is the balance, generally with the deadline of 15 September.

It is also possible to pay these tax deposits (calculated on the basis of the previous tax year) in 10 monthly

installments of the same amount, from 15 January to 15 October.

The latter procedure is strongly advised as it will enable you to leave the payment of the deposits and

balances in the hands of the competent tax office. Also, by dividing the tax deposits into 10 payments, you

are free to almost forget your French bank account as you only need to pay in sufficient to cover the

payments.

- cheque: to be sent to the tax office together with a copy of the tax notification or with forms 2571/2572.

- bank transfer : by indicating the tax reference number in the reason for payment grid, at least 10 days

before the deadline, so as not to incur late payment charges (10%). The tax office takes into account the

arrival date of the transfer and not the sending date, as in Italy.

1.2. OTHER TAXES

1.2.1. « La taxe foncière » and « la taxe sur les ordures ménagères » (property tax and

household waste tax

The property tax is calculated by the tax office on the basis of the cadastral values that vary from one town

to another and from one year to the next. It is due by the Company that owns the property and is paid with

the tax notification.

The tax notification also stipulates the amount of the tax on household waste disposal; the latter can be

passed on to the tenant when the property is let out.

1.2.2. “Taxe d’habitation”(rates)

This tax is due by the person living in the property (Company or tenant) and is paid via a separate tax

notification.

It is calculated by the tax authorities on the same basis as the “taxe d’habitation”.

1.2.3. “Redevance audiovisuelle” (radio and TV licence)

This is due by the person who pays the “taxe d’habitation” and is also paid via a tax notification. Usually,

it is inserted in the same tax notification as the “taxe d’habitation”.

1.2.4. “Taxe sur les logements vacants”(tax on unoccupied accommodation)

This is due for property not let out for more than 2 consecutive years, usually in towns of more than

200,000 inhabitants.

Holiday homes are not subject to this tax, providing they are furnished.

1.2.5. “TVA” (VAT)

This applies to Bed&Breakfast and hotel trade (example “Pierre et Vacances”).

The rate on rentals is 7%; VAT must be paid before 30 April of the consecutive tax year via form CA12.

Above certain limits, 4 quarterly deposits are also due.

Form CA12 must be sent to the competent tax office (*).

(*)In cases where there are more than one real estate property, the competent tax office is the one on

which the property that generates the most income depends.

1.3. CAPITAL GAINS FOR INDIVIDUALS (modified as of 01/09/2013

A. Capital gains for companies subject to IR (2072)

For Italians who are not fiscal residents in France, capital gains is calculated at the moment of the sale for

all property, whatever the use (main residence, holiday home, let out).

For Italians who are fiscal residents in France, the main residence is not subject to capital gains tax at the

moment of the sale, whereas the sale of holiday homes or property that is let out is subject to this tax.

1.3. A.1. How it is calculated

Capital gains is equal to the difference between the sales price and the purchase price; as an example, sales

commissions, cancellation of a mortgage, architect’s fees, renovation costs (with supporting documents) or

as an alternative a flat rate percentage that can go up to a maximum of 7.5% of the purchase price and up

to a maximum of 15% of the improvement costs, as well as a fixed allowance of € 1 000, etc. are

deductible from the sales price.

Until 31.01.2012 : An allowance of 10% was applied from the 5th year of ownership of the property;

thanks to this allowance from the 15th year of ownership, the same property was exonerated from

capital gains tax, independently of the other conditions mentioned above.

Since 01.02.2012 : From the 5th year of ownership the allowance is now calculated as follows :

2% from the 6th to the 17th year

4% from the 18th to the 24th year

8% from the 25th to the 30th year.

The property will be exonerated as of the 30th year of ownership.

Example

Property acquired by inheritance on 01.02.1982 (date of decease) and sold on 01.02.2012, generates

capital gains of € 450 000.

The period of reference for the calculation of the allowance is between the 01.01.1987 and 01.02.2012.

The capital gains subject to tax is equal to € 360 000. As can be seen, with the former system the property

was totally exonerated. Currently, with the new system, the allowance on the capital gains is only 20% for

the same period.

Year of

ownership

of the

property

%

allowance reduction

Net capital

gains

Year of

ownership

of the

property

%

allowance reduction

Net capital

gains

1 0 0 450 000 16 22% 99 000 351 000

2 0 0 450 000 17 24% 108 000 342 000

3 0 0 450 000 18 28% 126 000 324 000

4 0 0 450 000 19 32% 144000 306 000

5 0 0 450 000 20 36% 162 000 288 000

6 2% 9 000 441 000 21 40% 180 000 270 000

7 4% 18 000 432 000 22 44% 198 000 252 000

8 6% 27 000 423 000 23 48% 216 000 234 000

9 8% 36 000 414 000 24 52% 234 000 216 000

10 10% 45 000 405 000 25 60% 270 000 180 000

11 12% 54 000 396 000 26 68% 306 000 144 000

12 14% 63 000 387 000 27 76% 342 000 108 000

13 16% 72 000 378 000 28 84% 378 000 72 000

14 18% 81 000 369 000 29 92% 414 000 36 000

15 20% 90 000 360 000 30 100% 450 000 0

1.3. A.2. Tax rate

19% for IR (income tax)

15.5% for CSG + CRDS (Contribution Sociale Généralisée et Contribution au Remboursement de la Dette

Sociale) as of 17/08/2012 (Law 2012-958 of 16/08/12, JO (official journal) of 17/08/2012). These taxes

can be considered as additional taxes to income tax.

Making a total of: 34.5%.

As of 01/01/2013 disposal of real estate (and shares in real estate companies) against payment is subject to

capital gains tax according to the same rules as for IR. This new tax is applicable to real estate capital

gains over 50 000 €.

Amount of the taxable capital gains in € Tax amount

from 50 001 to 60 000 2% PV - (60 000 - PV) x 1/20

from 60 001 to 100 000 2 % PV

from 100 001 to 110 000 3% PV - (110 000 - PV) x 1/10

from 110 001 to 150 000 3 % PV

from 150 001 to 160 000 4% PV - (160 000 - PV) x 15/100

from 160 001 to 200 000 4 % PV

from 200 001 to 210.000 5% PV - (210 000 - PV) x 20/100

from 210 001 to 250 000 5 % PV

from 250 001 to 260 000 6% PV - (260 000 - PV) x 25/100

over 260 000 6 % PV

PV : taxable capital gains

Example

For a debtor whose taxable capital gains on 01/01/2013 is equal to 50 001 €, the tax will be € 500 [2% ×

50 001 – (60 000 – 50 000) × 1/20] instead of €1000 [50.000 × 2%].

In Italy capital gains are exonerated after five years from the date of purchase of the property or the

acquisition of it by inheritance (Art. 67.1° letter b TUIR)

Taxation in this frame of 5 years is nevertheless debatable because art.70 of the TUIR stipulates that

« income from land and constructions abroad is taxable » while art.67 makes a generic reference to capital

gains from disposal against payment. Therefore, although the legislator has not omitted anything, the

standard has not been adapted to the evolution of the times, and so the taxpayer could contest taxation

within the 5 year period.

1.3. A.3. How to pay (the tax representative)

During the sale of real estate in France, the notary appoints a tax representative approved by the tax office

(Trésor Public), who carries out the payment of the taxes for the seller who is not a fiscal resident in

France; the seller can choose his own tax representative if he is less expensive and inform the notary

directly.

The appointment of a tax representative approved by the tax office is mandatory in order to guarantee the

payment of the taxes due. If this is not the case, the deed of sale will not be published and the sale will not

go through.

A tax representative need not be appointed in the following cases:

1- The sales price is under € 150 000 per seller;

2- If the taxpayer has owned the property for more than 30 years.

SARFAZUR and MPS are among the better known tax representatives.

See « Tavola rotonda » http://www.michelinimauro.fr/4-4-fr-0-0-mauro-michelini-publications-library-

articles-videos-franco-italian fiscality.html

For comments on the profile of the tax representative see « Risposta del CRIDON » on

http://www.michelinimauro.fr/4-4-fr-0-0-mauro-michelini-publications-library-articles-videos-franco-

italian fiscality.html

B. The authorized agent

The authorized agent is the person who, in the interest of the principal (mandate without representation),

agrees by contract to carry out steps in the interest of the principal.

Generally the mandate is a written one (see examples on www.michelinimauro.com → Studio →

Organization and functioning of the studio→ mandate for tax returns) and enables the authorized agent

to send tax returns 2042, 2044, 2031, etc., to receive tax notifications and to contact the tax office; in

substance, to produce all the documents and to carry out all the steps in the name of and for the principal.

(See also the notary’s mandate: « mandat pour le notaire » on the site www.michelinimauro.com →

Studio → L'organisation et le fonctionnement du studio)

1.4. IMPACT ON THE « MODELLO UNICO » AND ON THE

« MODELLO 730 »

A. Impact on the « modello UNICO »

1.4. A.1. « Modulo RW - Sezione II »

How to declare income?: The “ modulo RW” should be filled in and filed together with the “modello

UNICO”, or with the “modello 730”, or, in case of exoneration from filing a tax return, attached to the

face side of the “ modello UNICO”, within the set deadline. *

* See « Circolare n°45E - Pagg. 5-6-21-24-30 »

Who should declare income? : Resident taxpayers who own real estate or shares in an SCI,

independently of the terms of acquisition, even if they were inherited or donated. Consequently, when

several real rights on the property or the shares exist, for example bare ownership or usufruct, either the

holder of the usufruct or the holder of the bare ownership should file the tax return.*

If the real estate is jointly or severally owned, each owner who is subject to tax should fill in this section

on a prorata basis *

* See « Circolare n°45E - Pagg. 5-6-21-24-30 »

What should be declared? The purchase price of the real estate as stipulated in the deed of property,

together with any notary’s fees and costs, as well as purchase commissions, but excluding loan interest. *

The total purchase price should be declared, even if a loan has been taken out.*

SCIs should declare the value of each partner’s share as stipulated in the memorandum and articles of

association, as well as the amounts of each partner’s capital investment in the company.

1.4. A.2. « Quadro RL »

To be filled in by the partners of the SCI who are subject to “IR” (income tax) (2072).

What should be declared? The real estate held at the partners’ personal disposal, not let out or put at the

free disposal of relatives or friends. As it is not subject to tax, it should not be declared in this « Quadro »

because it does not produce income.

Real estate owned by SCIs that is let out is subject to tax and should be declared in « Quadro RL » line 12

(modello UNICO), with the same net amount as declared in France in proportion to each partner’s shares

(art.70, 2°, TUIR), on form 2042.

In this case, a tax credit is due for taxes paid abroad (art.165, 1°, TUIR). (See the next paragraph).

1.4. A.3. « Quadro CR »

The tax credit in «Quadro CR » allows for a deduction of taxes effectively taxes paid locally on real estate

income abroad (Art.165, 1°, TUIR). These taxes, once definitive, can be deducted from the global income

tax due in Italy.

Consequently, refunding of taxes paid abroad via tax credits takes place about one year later ; income from

year N, declared in France in the year N+, is declared in Italy in the « modello UNICO » in the year N+1,

but the tax credit related to this income produced abroad (in year N) will be refunded in Italy in the year

N+1 if the definitive tax payment has been made in France in the year N+1 (at the latest by 30/09 of the

same year), but it could also be refunded in Italy in the year N+2 when the definitive tax payment has been

made in France in the year N+1 but after 30/09.

This situation is quite current and usually happens in two typical cases: in the case of the first tax return in

France and in the more frequent case of late processing of tax returns filed in France to the “CINR”.

For instance, for the tax year 2012, the Italian taxpayers should file their declaration of French income on

form 2042 to the “CINR” before 17/06/2013; taxes concerning the « modello UNICO » in Italy should be

paid before 16/06/2013/ and the tax return should be filed before 30/09/2013.

It would be difficult for Italian taxpayers to have paid the French “ IR”, and now also “CSG”+”CRDS”,

before the latter date. There are, therefore, two solutions: if the taxpayer is in time to file the

complementary declaration, he could do it before 30/09/2014, see www.michelinimauro.fr library

real estate fiscality for non-residens Request for information of 15/04/2013 ;

If the deadline has expired, he will be obliged to request re-liquidation at the competent local contribution

agency that would result in a refund request.

1.4. A.4. « Quadro RM »

IVAFE (Impôt sur la Valeur des Activités Financières Étrangères)(tax on the value of foreign financial

activities) was introduced in 2011 by the Monti government with the « Decreto Salva Italia ».

SCIs have to declare the value of each partner’s share as stipulated in the memorandum and articles of

association, as well as the amount of each partner’s contribution to the company.