France: Taxation of non-residents’ real estate

04 March 2015

The first quarter of 2015 seems to be favorable to individuals who are not French tax resident and own French real estate.

On one hand, transfer of a real estate asset by a non-EU resident is now treated the same was as transfer realized by an EU individual.

Indeed, non EU tax residents transferring a real estate asset used to be subject to a 33%-withholding tax on capital gains whereas EU tax residents were subject to a 19%-withholding tax. After the Conseil d’Etat ruled that on October 20th, 2014, on a matter concerning a Swiss tax resident, that the 33%-withholding tax was an infringement to free movement of capital, the French legislator voted that, as from January 1st, 2015, real estate capital gain realized by non-EU tax resident would be subject to a 19%- withholding tax

Consequently, as from January 1st, 2015, capital gains deriving from a transfer of French assets (real estate company shares, building, land…) realized by a non-French tax resident, whatever the country of residency, is subject to a 19%-withholding tax.

On the other hand, since January 1st, 2012, income from assets such as real estate income (e.g. deriving from rent or transfer), were subject to social contributions, currently at 15.5%.

In the de Ruyter case dated February 26th, 2015 (CJEU, aff. C-623/13, de Ruyter), CJEU, following the conclusions of its Advocate General, considered that  income from assets cannot be subject to social contributions of another country but the one where a professional activity is carried out.

Though the de Ruyter case concerned income from purchase life annuities paid by two Netherlands insurance companies, based on Regulation (EEC) No 1408/71, it is possible to challenge the wrong application of social contributions to real estate income.

Consequently, if you are (i) a non-EU tax resident having realized a real estate capital gain where the 33%-withholding was applied or (ii) an EU tax resident having received French real estate income, you can obtain the reimbursement of the unduly paid taxation.

The French tax team of Bird & Bird is at your disposal to assist you in writing your tax claim.

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