Fractional Ownership in France and rentals

For over a year now I have been working on the structure for a specialist Internet community for people wanting to buy Fractional Ownership property in France - as ever, delays and frustrations have hindered the work, but this is proving to be a strong advantage as we are benefitting from the serious mistakes being made in the few Fractional Ownership offers that there are in France.

With twenty years experience of being a stranger in this strange land, I am acutely aware of the strength and efficiency of the vast French beaurocratic machine - I have tasted the sting of the tax-mans lash and seen at first hand how this awesome (but fair) system works.

If you buy a property in France, you can rent it out simply and openly, there are no restrictions and it is straightforward. You must make a tax return on the income in France - there are fair allowances and it is profitable - there are tax agreements with most countries so you are not likely to pay tax twice.

However, (there is always a “but” in this sort of thing) if you buy a property in Fractional Ownership, this will be in the structure of a company, if the company is seen by the French tax authorities to be trading (that is to be making charges for a profit) then you will be liable for a tax of 3 percent of the value of the property per annum. This is in addition to any other taxes which will be liable.

The more complex the ownership of the Fractionally Owned property is, then the more the tax authorities in France will consider this as a “device” and persue the taxes due.

Our advice in all these situations is to keep the structure simple - use only a French registered company for the property shares, do not use the device of an overseas LLC, Ltd or Homeowners Associations - if you do it could be seen as a trading company.

But most importantly, make sure that the company rules do not permit any renting out of the property. If anyone rents the property to a third party then this will beconsidered by the French tax assessors as commercial use of the property and the annual taxation on the value of the property will apply.

You, your family and your personal friends can use your home of course, but avoid any Fractionally owned property where any income is shown or it is advertised for rental.

Do not risk taking the advice of anyone who tells you this is not the case - it is very simple, if a company rents out any property then this is considered a commercial activity and therefore tax is liable. The taxman can wait years and then claim all the back taxes and interest and you have lost all your money and your home in France.