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Battery of good news for investors in French property market

Monday, 9 March, 2015

France legislative changes

The recent series of significant legislative changes in favour of property investors has prompted hopes of some recovery in France's real estate market.

The market has suffered from the succession of increases in capital gains tax (CGT) rates imposed during the Sarkozy and Hollande governments but French courts have now started to reverse the trend.

As of 1 January this year, the 33.33 per cent CGT rate for residents of countries outside the European Economic Area and Switzerland has been merged with the single 19 per cent rate for all EU taxpayers. Sellers who paid the higher rate should be able to ask for a rebate of the difference.

The only exception to the 19 per cent rate is in respect of residents of one of the few countries seen by France as 'uncooperative states or territories', says Frederic Mege TEP of law firm Wragge Lawrence Graham. In these cases the rate is 75 per cent – but this rate should decrease in the future, as the Constitutional Council has ruled it excessive.

Furthermore, the Hollande government's imposition of a 15.5 per cent social contribution levy on non-residents' rental income and capital gains has now been ruled illegal by the European Court of Justice. This too should now be reclaimable by those who have been forced to pay it since 2012 – which certainly includes residents of EU member states but probably also non-EU residents.

A further bonus is the removal of the obligation on non-residents to appoint a fiscal representative when selling French property. The official function of these representatives was to act as a guarantor for the seller's CGT liability, but they also charged the seller fees of between 0.4 per cent and 1 per cent of the sale price.

The relevant French legislation has now been modified. Since 1 January this year, sellers resident in one of the EEA states (excluding Liechtenstein) are no longer obliged to appoint a guarantor.

'We believe there is no reason why non-EEA residents should be treated less favourably than EEA residents [in this respect]', comments Mege. 'It could be seen as a restriction on the freedom of movement of capital, contrary to EU law.'