Reclassification of furnished rentals as para-hotellerie: a risk of VAT liability

10 July 2023

The para-hotellerie regime is quite technical to understand. Let’s make a quick reminder. 

Reclassification of furnished rentals as para-hotellerie: a risk of VAT liability

Article 261 D 4° of the French General Tax Code (CGI) establishes the principle that furnished rental activities are exempt from value-added tax (VAT), with no option available. Since the para-hotel business is not covered by the exemption set out in the above-mentioned article, it will naturally be subject to VAT.

You need to be careful, because if your rental activity tends to get closer to a para-hotel activity, due to the provision of certain services, it is possible that your activity will be requalified: you will then be obliged to collect VAT on the rents received.

More precisely, for a rental activity to qualify as para-hotel, within the meaning of 4°-b of article 261 D of the CGI, at least 3 of the 4 services listed below must be provided in addition to the hosting service:

  • Breakfast ;
  • Regular cleaning of the premises;
  • Provision of household linen;
  • Customer reception.

furnished rentals as para-hotellerie

Reclassification of furnished rentals as para-hotellerie: what you need to know !

However, the system is tending to evolve towards a questioning of the strict effective application of these 3 criteria. A decision handed down by the Grenoble Administrative Court on October 14, 2022 seems to put forward a more subjective approach. Indeed, the assessment would be made on a global approach to the facts, aiming to put into perspective a possible competition to the hotel sector. The direction of this shift was confirmed in a more recent decision, handed down by the same court on March 17, 2023.

Indeed, this interpretation would suggest that classification as a para-hotel is no longer systematically based on verification of at least 3 of the 4 services listed above. Caution is therefore advised, as the subjective nature of the interpretation considerably increases the risk of requalification, and therefore of VAT liability.

In addition, the Douai Administrative Court of Appeal was requested to rule on a case relating to this issue, and decided to stay proceedings in order to obtain an opinion from the Conseil d’Etat on two questions:

  • Does the requirement to supply at least 3 out of 4 para-hotel services comply with the relevant provisions of the VAT Directive?
  • If the answer is negative, whether it is possible to escape exclusion from VAT liability by supplying 1 or 2 of the services.

Furnished rentals as para-hotellerie : keep in mind the following information !

For now, the Conseil d’Etat has 3 months to rule on this request for an opinion, subject to a stay of proceedings to submit a preliminary question to the Court of Justice of the European Union.

In conclusion, it is important to be vigilant when it comes to your furnished rental business. It’s preferable to limit your activity to the provision of “furnished accommodation”, and to exclude any additional services from the basic package. Many landlords offer to include cleaning or linen in the rental price… While the desire to provide extra comfort for tenants is entirely laudable, this approach is unfortunately risky from a tax point of view…

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