Claiming back TVA (VAT) on properties in France
We are often asked about the potential of getting the TVA back on the purchase of a new property in France which is, of course, a very attractive proposition. This is the case for all of the “leaseback” schemes, where the buyer enters into a commercial lease with a professional operator, but it is also available on a more flexible, commission-based structure that allows the owner greater control and use of the property.
When is the TVA rebate available?
It is often thought that all new properties are subject to TVA but that is not correct, it is only available in the following circumstances:
- A new build property being sold off plan (known as a VEFA) or by a professional, TVA-rated company or individual (a “promoteur”).
- The first resale of a property less than 5 years old and being bought from a company or individual already subject to TVA.
Please note that the prices of properties subject to TVA will be quoted as inclusive of TVA (TTC, Toutes Taxes Comprises). For instance, a property priced at €600.000 will include €100.000 of TVA making the net price €500,000 HT (hors taxes, without taxes).
Who can reclaim the TVA?
To be able to reclaim the TVA, the buyer must operate the property commercially with a registered management business, operating as a “para-hotellier”, ie. a certain number of services must be provided akin to a hotel. The rule of thumb is that 3 of the following 4 services must be provided, but there appears to be flexibility if a number of other services are at least offered:
- reception of guests at the property (i.e. an AirBnB keysafe, let yourself in system doesn’t suffice)
- linen included
- regular cleaning and housekeeping
The buyer is also obliged to rent out the property for a period of 20 years. Should he stop renting, or sell, within that time then a proportion of the TVA must be repaid to the tax authorities. Within the first 5 years, 100% of the TVA reclaimed must be repaid if the buyer stops renting. If, however, the property is sold within the first 5 years, then the sale itself is subject to TVA, ie. if the value has risen, the TVA to be repaid will be more than claimed back in the first place. These para-hotellier services are to be provided from the outset. If you use the property privately, even for a short time, then the TVA reclaim is not possible.
Can I use the property myself?
Yes, to an extent. Any personal use should be declared in the tax return, but a few weeks use a year are not a problem. For greater use than that, then please discuss with an advisor.
When do I get the TVA back?
With some leaseback schemes, the TVA reclaim is organised by the developer so that only the net price is actually paid by the buyer. For the vast majority of other situations though, the property must be bought and then the application made to reclaim the TVA. This process takes around 3 months.
Please note, if a TVA reclaim is being made, the banks will only lend on the net price, rather than the full price. For example, if the maximum loan-to-value is 80%, then in the example above the maximum loan would be 80% of €500.000, not €600.000. IN some cases, the bank would lend 80% of the full amount subject to being refunded the 20% TVA once received.
How about tax returns and TVA on running costs?
You will need to prepare formal profit/loss accounts (a Bilan) as well as a TVA return. For a single property, this should be around €1000 per year. Of course, being TVA registered, you will be able to reclaim the 20% on all relevant expenses but you will pay TVA on the rental income, although at the lower rate of 10%. Within the accounts, the asset/property will be depreciated creating a loss against which rental income/profit can be offset. As such, the tax return will not show a large profit and thus income tax will be minimal.
TVA relevant properties for sale
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