Purchasing property in Paris as a non-resident offers an opportunity to invest in one of the world’s most sought-after real estate markets. However, it’s essential to understand the various taxes associated with property ownership in France to ensure compliance and effective financial planning.
1. Local Property Taxes
- Taxe Foncière (Property Tax): This annual tax is levied on property owners, regardless of whether the property is occupied or rented out. The amount is based on the notional rental value of the property, adjusted annually to account for inflation and regional differences. The rate varies depending on the location and type of property. On average, the property tax in Paris represents between 0.1% and 0.2% of the market value (valeur vénale) of an apartment. In 2024, there is a general increase of at least 3.9%, with some areas seeing additional hikes based on local council decisions.
- Taxe d’Habitation (Residence Tax): Historically, this tax was applied to all properties. However, starting in 2021, it was abolished for primary residences. For second homes, it still applies, and some regions may impose additional levies to address housing shortages. The “Taxe d’Habitation” for a secondary residence in Paris could represent between 0.6% and 1% of the market value of the property, depending on the cadastral rental values and surcharges.
2. Income Tax on Rental Income
- Rental Income Tax: Rental income is taxed at 20% for non-residents with income up to €27,478 and at 30% for income exceeding this threshold. Social charges (prélèvements sociaux) also apply: 7.5% for non-residents from the EU, EEA, or Switzerland, and 17.2% for residents of other countries.
- Allowed Deductions: Expenses such as maintenance, repairs, property management fees, and loan interest can be deducted from taxable income.
- Double Taxation Agreements: France has tax treaties with many countries to avoid double taxation (e.g., the U.S. or the United Kingdom).
3. Capital Gains Tax
When selling property, Capital Gains Tax (CGT) is applied to the profits obtained from the sale.
- Tax Rates: The standard rate for non-residents is 19%. An additional surcharge of 2% to 6% may apply to gains exceeding €50,000.
- Social Charges: These are set at 7.5% for non-residents from the EU, EEA, or Switzerland, and 17.2% for other non-residents.
- Exemptions: Long-term property ownership can reduce tax liability. Properties held for more than 22 years are exempt from basic CGT, while social charges are waived after 30 years.
- Double Taxation Agreements: Tax treaties can mitigate the tax burden by allowing credits in the country of residence for taxes paid in France.
4. Wealth Tax (Impôt sur la Fortune Immobilière – IFI)
- If the total value of real estate in France exceeds €1.3 million, it is subject to the French real estate wealth tax, known as IFI. The tax is progressive, starting at 0.5% and reaching up to 1.5% for properties valued at over €10 million.
- Deductions: Certain debts, such as outstanding loans on the property, can reduce the taxable base.
5. Double Taxation Agreements
- France has agreements with many countries to prevent double taxation. These treaties determine where taxes are payable and can influence the amount of tax owed. It’s advisable to consult these agreements or seek professional advice to understand your obligations fully.
6. Reporting Requirements
- Tax Declaration for Non-Residents: As a non-resident, rental income and capital gains must be declared to the French tax authorities.
- Appointment of a Tax Representative: Non-residents outside the EU/EEA may be required to appoint a tax representative for tax matters, especially when selling a property.
Conclusion
Owning property in Paris as a non-resident comes with specific tax obligations, including local property taxes, income tax on rental income, capital gains tax, and potentially wealth tax. Understanding these taxes and staying informed about any changes is crucial for compliance and effective financial planning. At CAYMA Real Estate, we help you navigate these complexities, providing clear guidance tailored to the unique needs of non-resident property owners.
