Calculation of the capital gains tax for non-resident individuals
Because calculation rules have often evolved in recent years, we suggest you a complete update on the current rules of calculation and taxation of real estate capital gains realized by non-residents.
Calculation of the sale price
The sale price is the price mentioned in the deed of sale or the market value mentioned in the deed of transfer (certificate of ownership after death, donation…)
The following amounts can reduce the sale price, if relative proof is provided (1):
- The VAT paid by the seller for this sale,
- Expenses for a thirdsman or an agent (commission for an estate agency, tax representation costs),
- Costs relative to certifications and diagnostics became compulsory by law,
- Compensation for eviction paid to the buyer by the owner who sales the rented property free of occupation,
- Fees paid to an architect by reason of works which allows obtaining prior approval to a building permit
- Costs supported by the seller of a building with the aim of obtaining from a debtholder the release of mortgage charging the property.
A tax representative has to be appointed for a non-resident individual whether the sale price is higher than 150.000 € and the property has been owned for less than 30 years. (You can contact us if you need a fiscal representative)
From January 1st 2015, individuals domiciled in an European Union country or a State of the European Economic Area which signed with France a convention on administrative assistance to combat tax avoidance and evasion as well as a convention on mutual assistance for tax collection (Germany, Austria, Belgium, Bulgaria, Cyprus, Croatia, Denmark, Spain, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Czech Republic, Romania, the United-Kingdom, Slovakia, Slovenia and Sweden + Norway and Iceland), are not obliged anymore to appoint a tax representative.
Calculation of the acquisition price
The acquisition price is increased by
· (2) costs relative to the acquisition either for a lump sum representing 7,5% if the property has been acquired in return for payment, either for their actual amount by providing the relative proof. (costs of deed and declaration (declaration of succession, identity, real estate certificate), the notary fees, registration and advertisement fees, transfer costs, contract costs (notary fees, real estate commission payable by the buyer), registration fees or VAT actually supported by the taxpayer)
· (3) expenses for works carried out on a built property since its completion or its acquisition:
o either for a lump sum equal to 15% of the acquisition price, provided that the taxpayer sells his property more than 5 years after its purchase,
o either, under certain conditions, for their actual amount. It must represent expenses of construction, reconstruction, extension or improvement done by a company since the completion or the acquisition of the building if the acquisition has been done subsequently. These costs have to be actually supported by the seller and justified by producing evidences (invoices and bank statements). Are excluded :
- works done by the taxpayer himself or by a third person other than a company (salaried workforce)
- purchase of materials, even if they have been installed by a company. By contrast, expenses relative to the installation of materials, carried out by a company, will be able to be deducted.
The works of reconstruction and extension must have the effect of an important change to the shell of existing premises or an increase of the volume or the living space of existing premises (attic fitting out for living, complete restructuring after interior demolition of a housing unit).
The aim of the improvement expenses is to bring to the property a new equipment or o new element of comfort or better suited for the modern lifestyle without changing the structure of the building (Installation of an air-conditioning).
Conversely, works the aim of which is maintaining or restoring a building and allowing its normal use, in accordance with its destination, without modifying the consistency, the layout or the initial facilities (shell of building (roof, housefront, etc…), the pipe or the electrical installation) are not deductible.
Calculation of the taxable capital gains
The gross capital gains realized on goods or property rights is diminished by a discount for each year of ownership beyond the fifth year of ownership (4).
The rate and the rhythm of the discount for duration of ownership differ for the calculation of the taxable base of the real estate capital gains liable to the income tax and to social charges.
So, for the calculation of the taxable amount of the real estate capital gains liable to the income tax, the discount for duration of ownership is of :
- 6 % for each year of ownership beyond the fifth year and until the twenty-first year;
- 4 % at the end of the twenty-second year of ownership.
In all, the exemption from income tax is acquired beyond a twenty-two years duration of ownership.
For the calculation of the taxable amount of the real estate capital gains liable to social charges, the discount for duration of ownership is of:
- 1,65 % for each year of ownership beyond the fifth year and until the twenty-first year ;
- 1,60 % at the end of the twenty-second year of ownership;
- 9 % for each year beyond the twenty-second year.
In all, the exemption from social charges is acquired beyond a thirty years duration of ownership.
A particular exemption (5) is provided for the capital gains realized when selling properties which represent the accommodation of non-resident individuals in France.
In order to benefit from this exemption, the following cumulative conditions have to be met:
- The seller has to be a not residing in France individual, and a national of an European Union member State,
- The seller must have been fiscally domiciled in France in a continuous manner during at least two years at any time before the sale,
- The exemption is applied, within the limits of 150 000 € of net taxable capital gains, to the sales carried out :
a) At the latest on 31 December of the fifth year following the year of the transfer by the seller of his tax domicile outside France ;
b) Without conditions of delay, when the seller has the full disposal of the property since at least the 1st January of the year following the year of the sale
- This sale has to be the first one carried out since the 1st January 2006,
From the 1st January 2015, the tax rate is the same for everyone no matter what their place of residence is. (19%) (6).
Since 2012, social charges are applicable to individuals not residing in France at a global rate of 15,5%. (7)
Physical persons not domiciled in France fiscally, and subject to the social security law of another European Union member state, shouldn’t be subject to social charges (CSG and CRDS) on the property income as this double taxation is opposite to the European principle of free movement. In case France will be condemned, it would be supposed to cancel the legal disposal on the non-residents’ liability to social charges CSG-CRDS on their immovable income and refund the social charges already paid.
This tax is payable at the moment of the sale and it’s due at the rate of net taxable capital gains for an amount higher than 50.000 € in accordance with the following scale (8). The assessment of the threshold of 50 000 € is done individually as concerns the share of the total capital gains which goes to each member of the couple.
Surtax scale (euros)
Capital gains amount Tax amount
From 50.001 to 60.000 2 % PV – (60 000 – PV) x 1/20
From 60.001 to 100.000 2 % PV
From 100.001 to 110.000 3 % PV – (110 000 – PV) x 1/10
From 110.001 to 150.000 3 % PV
From 150.001 to 160.000 4 % PV – (160 000 – PV) x 15/100
From 160.001 to 200.000 4 % PV
From 200.001 to 210.000 5 % PV – (210 000 – PV) x 20/100
From 210.001 to 250.000 5 % PV
From 250.001 to 260.000 6 % PV – (260 000 – PV) x 25/100
Higher than 260.000 6 % PV
Contact us for more information.
Cabinet Roche & Cie, Chartered Accountant in Lyon, France.
Experts in Non-Residents Taxation.