You are a French expatriate and you are wondering how capital gains on property are taxed for non-residents. As a general rule, you are subject to the usual income tax and social security contributions. However, in certain cases, you may qualify for an exemption.
What are the capital gains tax rules for non-residents?
In France, making a capital gain is generally subject to taxation, unless you sell your principal residence. This rule also applies to the sale of shares or property held through a “société civile immobilière” (SCI) or shares in a “fonds de placement immobilier” (FPI). Being a non-resident does not automatically exempt you from paying capital gains tax, but it does mean that specific rules apply.
France has signed international tax treaties with many countries to combat tax evasion. Under these agreements, gains from the sale of a property are taxed in the country where the property is located. As a result, your capital gains will be subject to income tax in France. In addition, you will have to pay social security contributions.
How do you calculate a non-resident’s capital gains?
Once determined, a non-resident’s capital gain is subject to tax, which is degressive according to the length of time the property has been held.
Calculating a non-resident’s capital gains :
The capital gain is the difference between the sale price and the purchase price of the property.
You must use the sale price amount stated in the deed of sale. However, you can deduct certain costs, such as the cost of compulsory surveys, VAT, commissions paid to an intermediary (e.g. an estate agent), architects’ fees and the cost of releasing a mortgage on the property. On the other hand, you must increase the sale price by any sums paid by the buyer, such as eviction compensation to the tenant.
The purchase price is also the amount stated in the deed of purchase. However, you can increase it, on presentation of supporting documents, by including the acquisition costs (notary’s fees, registration fees) and the charges and indemnities paid to the vendor. If the property is more than 5 years old, you can deduct the actual cost of any works or, in the absence of supporting documents, deduct 15% of the purchase price. You can also include the cost of roads, networks and utilities.
Capital gains for non-residents are calculated by applying a sliding scale of allowances depending on the length of time the property has been held. An allowance of 6% per year of ownership applies from the 6th to the 21st year, then an allowance of 4% for the 22nd year. A total exemption from taxation is possible after 22 years of ownership.
When are capital gains tax exemptions available to non-residents?
Non-residents are exempt from capital gains tax in two cases: for their principal residence and for another property, subject to certain conditions. In both cases, the expatriate must be a national of the European Union or have elected to live in a European Economic Area (EEA) country that has signed a tax treaty with France.
- Exemption from capital gains tax for non-residents on their main residence:
According to a ministerial response, your principal residence is defined as the home where you usually live and where your professional and material interests are located. To benefit from the exemption provided for in the General Tax Code, you must sell your principal residence no later than December 31 of the year following your departure and the transfer of your tax residence to your host country. However, you will not be able to claim the exemption if you have rented or lent your home to a third party free of charge during this period. In the event you generate a capital gain of more than €50,000, you will still be subject to tax, the rate of which varies according to the amount of the capital gain.
- Exemption under certain conditions for capital gains on a non-resident’s home:
This exemption applies to a property located in France that was not the non-resident’s principal residence. It can be claimed for a single property and for a maximum net taxable capital gain of €150,000. The exemption ceiling varies according to the non-resident’s marital status.
When should I appoint a tax representative?
If you do not live in France, you may need to appoint an accredited tax representative. Their role is to calculate your capital gains tax and certify your declarations. You must comply with this obligation if you have elected domicile in a country outside the EU, the EEA or Liechtenstein, if you realise a capital gain of more than €150,000, or if you have owned the property for less than 30 years.
What social security contributions are levied on non-resident property gains?
In addition to income tax, your capital gain is subject to social security contributions at a rate of 17.2%. Deductions are applicable from the fifth year of ownership, but you must hold the property for at least 30 years to qualify for full exemption from social security contributions. If you are affiliated to an EEA or EU social security scheme, you are exempt from CSG and CRDS (9,7%).
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MFL registered lawyers remain at your disposal should you have any queries regarding your property capital gain tax treatment. MFL will provide you with the best lawyers to handle your situation and secure your interest.