A) Buying Process
- The client signs with the promoter or vendor a reservation contract or promise of sale. The deposit in an off-plan purchase is 5% and 2 % when the signature of the title deed is forecasted more than two years after the reservation contract. The deposit for a resale is 10 % but can easily be decrease at 5 %.
- Once the contract is signed, it is sent to the buyer by registered mail. Following the day of reception of the contract, the buyer benefit from a 7 days cooling-off period allowing him to withdraw from the purchase without giving any reason and recovering the entire deposit paid.
- The buyer also benefit buy law of a withdrawal right in case of mortgage refusal. His only commitment is to submit a complete application to a French bank within a reasonable delay (usually within 15 to 30 days maximum).
- The buyer also benefit buy law of a withdrawal right in case of mortgage refusal. His only commitment is to submit a complete application to a French bank within a reasonable delay (usually within 15 to 30 days maximum.
- The transfer of ownership takes place by the signature of a public title deed, drafted and signed in front of a public notary ( public office). The signature of the property title deed takes place approximately 3 months after the signature of the reservation contract, unless in certain specific case in an off plan property. In case of a resale without mortgage the entire process can be completed in no more than two weeks.
- In case of off plan property, the transfer of ownership will not take place upon delivery of the property but upon granting of the mortgage from the buyer. The payment schedule will be stated in the reservation contract and property title deed. In the event the buyer obtained a French mortgage after payment of his down payment ( usually 20 / 30%) the bank will release the funds on his behalf upon reception of a statement from the developer that a specific stage of the works has been completed and approved by an architect. Consequently, the buyer will only start to repay is mortgage when the last portion of the loan has been released to the developer and the he is able to use the property.
B) Expences Arising From The Purchase Process
The buyer will have to pay the following expenses on top of the purchase price:
- Off-plan property: Notary and registration fees between 2% and 3,5% notary’s fees depending on the price of the property and also depending if the client will require a French loan.
- Resale: Notary and registration fees between 7% and 8%.
Resale properties or resale of new properties hold for more than five years are not subject to VAT.
Our fees will amount to 1% of the purchase price with a minimum of 1 800 €.
They are paid on the following manner: the first half upon reservation of the property and signature of the reservation contract, second half upon signature of the property title deed.
C) Income & Wealth Tax
Income tax: For individual or non commercial company it is 25% of the net income. Such income would benefit from a 30 % exemption as long as the annual declared income from this rent is lower than 15.000 Euros.
Wealth tax: This tax is due by non resident on their asset located in France. Here below the tax scale for 2009
Up to 790 000 € | 0,00 % |
From 790 000 € to 1 280 000 € | 0,55 % |
From De 1 280 000 € to 2 520 000 € | 0,75 % |
From 2 520 000 € to 3 960 000 € | 1,00 % |
From 3 960 000 € to 7 570 000 € | 1,30 % |
From 7 570 000 € to 16 480 000 € | 1,65 % |
Above 16 480 000 € | 1,80 % |
D) Capital Gains Tax
In case of sale during the first 5 years after the signature of the title deed (even in case of off plan properties), the CGT is due to be paid on the entire net profit (expenses of purchase and resale are deducted). The applicable rate is 16 % for the non resident as long as they are tax resident in EU. For non resident of the EU the CGT will be taxed at 33%.
From the 6th year after the signature of the title deed until the 15th year or ownership, it is possible to deduct every year 10 % of the profit made, the tax rate remaining obviously the same. For example if the property is sold after the 8th year only 70 % of the net profit will be taxed. No CGT being due anymore after the 15th year of ownership. Finally it is also important to know that no CGP is due if the said property is used as a main residence.
E) Inheritance Tax
In France, the inheritance system is quite complex and will usually require a specific study case by case. In any case the children will be considered as the heirs of the first rank. and, in absence of them, the parents. The spouse always hast a right to 25%. The quota of the parents is of 25% each, and that of the children depends on the number of children (1 will have 50%, 2 have 2/3 and 3 or more have 3/4). The spouse has this 25%, and can choose to have 25% in full ownership or the use over the 100%.
The way in which the surviving spouse can be protected is by means of the signature of an agreement between the spouses. It is an assumption of the French marital regime of universal community. The signature must be done in front of a French notary and the cost of publishing this agreement is approximately 400 to 500 euros. According to this regime, when dying the first spouse, the property of all the goods falls to the other, without probate proceeding and without inheritance tax being paid. This system is not applicable if one of them has children from other relations, since they will be able to challenge it.
Inheritance tax: There is no inheritance tax between husband and wife. There is a free-allowance of 150.000 euros for each one of the children. Over this amount, the rate is 20% approx.
Will: if the clients do not mind being subject to the French default rules of inheritance, it would not be important to grant a will. Should they wish to make specific dispositions, always within the limits of the compulsory heirs, they have the possibility of a handwritten will or a public will granted in front of a Notary public. The notary fees would be 100 and 250 euros respectively.
F) Company Set Up
Companies: there is a non-trading company in France called SCI (Société Civil Immobilière). It is advisable to purchase under that company as a way to avoid inheritance restrictions, as they limits for the compulsory heirs only apply to real estate property, and the shares of these companies are considered as movable assets. The tax consequences are not very relevant, as these are transparent companies, and the share-holders are taxed as if the company did not exist.
G) Consumer’s Guaranties
Guarantee of Achievement: At the moment of the signature of the title deed, the promoter must have obtained from a bank a guarantee of completion of the works. In agreement with that, the bank is committed to finish the complex in case that the promoter could not do it. For this reason, the instalments are paid into an account controlled by the bank that gives the guarantee, and it is only paid as they progress with the works.
The guarantees on the works are, basically: a month to inspect the property (snagging-list), a year for sound-proofing, one year for defects in the house in smaller constructive elements, two years for equipment (conditioned air, elevators…) and ten years for structure.
Other guarantees are the said seven days cooling-off period and the recovery of deposit in case of mortgage refusal.
H) Special Features
Lease-back: it is a parallel contract to the one of purchase on some properties, by means of which the client gives the possession of the house to a company that will manage it in exchange for a remuneration previously fixed. At the time of signing the reservation of the house, a promise of lease-back is signed. This is confirmed with the actual lease-back contract, signed at the same time as the deed of purchase. In agreement with this contract, the client gives the house to a company, that will be dedicated to the managing of the complex according to the use for which it was created. Usually they are student residencies, golf-resorts, etc. In return, the client receives income between 4% and 5% a year, normally and, sometimes, the use of the property during certain periods.
The contract has to be signed for a minimum of 9 years. The maximum duration is 20 years. During this time, the owner will have had to be registered in France as “professional lessor”. This way, the VAT (19.6%) of the purchase can be recovered. The total of the VAT is given back by tax office about six months after the completion of works. This VAT will be on account of the leasing during the 20 following years. In case of sale before the 20 years, or if the contract is not renewed up to 20 years, the owner will have to give back to the tax office the part of the VAT proportional to the years below 20.