There are two types of letting income: revenus fonciers for unfurnished lettings and bénéfices industriels et commerciaux (BIC) for furnished lettings. Above certain income limits, these are both taxed in the same way: on income less actual expenses, known as the régime réel simplifié (RRS). The limits are currently €15,000 for revenus fonciers and €76,300 for BIC. Below these limits (unless your property is owned through an SCI) you’re entitled to a ‘micro’ tax regime which allows you to deduct a fixed amount to cover your expenses. In the case of revenus fonciers this is 30 per cent of your gross income and in the case of BIC 68 per cent, which is usually more than sufficient. In the unlikely event that your actual expenses exceed the relevant percentage, or if you make a loss, you can choose to be taxed under the RRS (for up to two years), in which case you must provide documentary evidence of your expenses, produce detailed accounts and complete complex tax forms.
Furnished property lettings are exempt from VAT, although you may need to charge clients VAT if you offer services such as bed and breakfast, a daily maid, linen or a reception service.
Residents
Resident property owners are eligible for deductions such as repairs, maintenance, security and cleaning costs, mortgage interest (French loans only), management and letting expenses (e.g. advertising), local taxes, and an allowance to cover depreciation and insurance, unless they’re claiming a fixed tax deduction (which should cover all the above). You should seek professional advice to ensure that you’re claiming everything to which you’re entitled. An additional tax called the contribution additionelle à la contribution représentative du droit de bail (CACRDB) is charged at 2.5 per cent. You should contact your local tax office to clarify your position (don’t rely on your accountant).
If your net letting income is over €23,000 or comprises more than half the income of your household, you’re considered to be a landlord and must make a business registration. This will also mean that you will pay higher social security contributions.
If you run a gîte or B&B, you will also normally be liable for taxe professionelle, although you may be granted exemption if you let for less than half the year and/or the property is also your principal residence.
Finally, if your property is over 15 years old, you may be liable for a letting tax called contribution sur les revenus locatifs (CRL).
Non-residents
Non-resident property owners who receive an income from a French source must file a tax return, Déclaration des Revenus (Cerfa 2042/2042C), available from local tax offices in France or French consulates abroad. Completed forms must be sent to the Centre des Impôts de Non-Résidents (9 rue d’Uzès, 75094 Paris Cedex 02, 01 44 76 18 00) before 30th April each year. It’s wise to keep a copy of your return and send it by registered post (so that there’s no dispute over whether it was received). Like residents, you can take advantage of various tax allowances, depending on the tax regime you choose or qualify for.
Some months after filing you will receive a tax assessment detailing the tax due. There are penalties for late filing and non-declaration, which can result in fines, high interest charges and even imprisonment. The tax authorities have many ways of detecting people letting homes and not paying tax and have been clamping down on tax evaders in recent years.
Non-residents must also declare any income received in France on their tax return in their country of residence, although tax on French letting income is normally paid only in France. However, if you pay less tax in France than you would have paid in your home country, you must usually pay the difference. On the other hand, if you pay more tax in France than you would have paid on the income in your home country, you aren’t entitled to a refund. In any case, you should keep detailed records of income and expenditure.
Note that if you’re a non-resident of France for tax purposes and own residential property there that’s available for your use, you’re liable for French income tax on the basis of a deemed rental income equal to three times the real rental value of the property (usually calculated to be 5 per cent of its capital value). There are, however, exceptions, e.g. if you have French source income that exceeds this level or when you’re protected by a double-taxation treaty. Consult a tax accountant to clarify your position.
There are severe penalties for failing to declare property income to the French tax authorities, who can impose tax on 52 weeks’ letting income and cancel your entitlement to tax deductions in future.
This article is an extract from Buying a home in France. Click here to get a copy now.