Para-Hotel Scheme (para-hôtellerie)
At a time when the furnished rental sector is constantly evolving, para-hotel businesses are emerging as an innovative solution that combines the flexibility of seasonal rentals with traditional hotel services. But what does this concept really entail, and what are its regulatory and tax specifics? On this page, we’ll guide you through the essentials of the para-hotel business, explaining the required services, how income is taxed, VAT obligations, and the pros and cons of reselling property under this regime. Discover how this form of rental offers interesting opportunities while adhering to specific obligations.
What is para-hotel business ?
A para-hotel is a hybrid version of seasonal furnished rental, characterized by the provision of at least three of the following four services:
Customer reception:
Owners or managers must provide a physical reception for guests upon arrival. The regulations are relatively flexible on this criterion, as the reception can take place in a different location from the rental premises (for instance, in a rental agency). Additionally, tax authorities allow electronic reception systems to fulfill this requirement.
Regular cleaning of premises:
Cleaning services must be provided regularly during the guest’s stay. Initial and final cleaning is insufficient; at a minimum, the operator must have the capacity to offer cleaning services at regular intervals during the stay.
Provision of household linen:
Para-hotel services must include the supply of household linen, such as sheets and towels, for all guests.
Breakfast:
Operators must provide breakfast to guests under conditions similar to those in hotels. This can be done either in the rental unit or in a dedicated area (for example, with a buffet). Merely offering a vending machine or a coffee maker does not meet this requirement.
New for 2024: The French Finance Law for 2024 introduces a modification specifying that this accommodation service must be offered for a period not exceeding 30 nights (renewals are possible).
Taxation of para-hotel income
How is taxable profit calculated?
Income from para-hotel operations is considered “industrial and commercial profits” and is typically declared under the “régime réel d’imposition” (actual tax regime), requiring commercial bookkeeping. All expenses incurred in the interest of the business (electricity, water, heating, maintenance, loan interest, depreciation, etc.) are deductible from taxable income, often resulting in a low or negative tax base.
What tax rate?
Positive taxable income is subject to the standard French income tax scale (see below) and, under certain conditions, to social security contributions at 17.2%.
French income tax scale 2024
| Income bracket (per tax unit) | Applicable rate |
| Up to €11,294 | 0% |
| From €11,295 to €28,797 | 11% |
| From €28,798 to €82,341 | 30% |
| From €82,342 to €177,106 | 41% |
| More than €177,106 | 45% |
Non-resident owners: Non-residents face a minimum tax rate of 20%. However, individuals contributing to another European healthcare system (EU, UK, Switzerland) benefit from a reduced social security contribution rate of 7.5%, leading to an overall tax rate of approximately 27.5%. For residents of non-EU countries, social security contributions remain at 17.2%, resulting in an overall rate of 37.2%.
VAT
An activity subject to VAT
Unlike traditional furnished rentals, para-hotel operations are subject to VAT. This allows operators who invest in new properties to claim a refund of VAT on the purchase, as well as on related expenses (e.g., furniture, renovations). In return, rents collected are subject to VAT, which in France is reduced to 10% for accommodation services.
Regularization of real estate VAT
The VAT refund involves a tacit commitment to operate the property and collect VAT for 20 years. If the property is sold before that period, the unearned portion of the VAT must be repaid.
For example, if Mr. Xavier was reimbursed €300,000 in VAT in 2014 and sells his property in 2024, he must repay 10/20ths of the reclaimed VAT, or €150,000.
Resale of property: taxation of capital gains
The gain realized on the resale of a property operated under the para-hotel system is taxed according to the rules governing capital gains for professionals.
Calculating capital gains under the para-hotel regime
Business capital gains are calculated as the difference between the sale price and the net book value of the asset, i.e. its balance sheet value less depreciation.
When the property has been held for more than two years, this capital gain is broken down into a short-term capital gain and a long-term capital gain for the remainder:
Short-term: up to the amount of depreciation deducted
Long-term: Total capital gain – depreciation deducted
Tax treatment
There is a distinction between short-term and long-term capital gains, as each is treated separately for tax purposes.
Short-term capital gains: these are added to the company’s current income and are subject to income tax at the progressive rate.
Long-term capital gains: these are subject to the 30% flat-rate withholding tax.
Possible exemptions
There are two possible mechanisms for benefiting from total or partial exemption from capital gains tax.
- Exemption for capital gains based on years of ownership (151 septies B of the French Tax Code) :
From the 5th year of ownership, an allowance of 10% is applied to the long-term capital gain, resulting in full exemption after 15 years of ownership. - Exemption based on turnover and professional status (article 151 septies of the French Tax Code):
Professional capital gains (both short-term and long-term) may qualify for a revenue-based exemption under Article 151 septies of the French Tax Code, which applies to capital gains realized in the course of professional activities.
To benefit from this exemption, the following two conditions must be met:
- The activity must have been carried out (whether as a principal activity or not) for at least five years on a professional basis. This requires that the operator (or a partner in a tax-transparent company) be personally and continuously involved in the management of the business and able to demonstrate effective diligence. It is not necessary for the para-hotel business to constitute the operator’s principal activity.
- Average rental revenues (excluding VAT) for the two years preceding the year of sale must not exceed €250,000 to qualify for full exemption. Partial exemption is possible when sales revenues fall between €250,000 and €350,000.
This system can be more advantageous than the allowance for length of ownership, but its application is also more subjective, particularly when it comes to assessing the professional nature of the business.
Real estate wealth tax (IFI)
Possible exemption from property wealth tax
Under certain conditions, related either to the ownership of the property or to the fact that the para-hotel business is the operator’s main activity (a rarer case), the operator may qualify for an exemption from the real estate wealth tax (IFI).
Social consequences
Subject to the social security system for “self-employed workers”
If you run your own business or are the majority manager of a commercial company (such as a family-owned SARL), you are liable for social security contributions. On average, these contributions represent 40% of the company’s net income.
If the company’s profit is zero or negative, which is relatively common, a minimum contribution of between €1,100 and €1,600 per year is required.
Special provisions must be considered for operators not domiciled in France.
Short-term capital gains subject to social security contributions
When the property is resold, part of the capital gain is subject to social security contributions. Specifically, the “short-term” capital gain, which reflects the depreciation accumulated up to the date of sale, must be included in the calculation of social security contributions for the sole proprietor or majority manager, in proportion to their ownership stake in the company’s capital.
The setting up of this activity requires a good knowledge of the system, and the use of competent professionals is essential in order to avoid any disappointment.
Contact us to find out more about how we work and to discuss your specific needs.
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