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Para-hotellerie – Real estate VAT recovery- Chartered Accountants

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The Para-hotellerie (Para-Hotel) Scheme

Often confused with the regime of furnished rentals, the para-hotel business is in fact an activity on its own.


The para-hotel scheme: an advanced version of furnished rentals

It is defined by article 261 D 4°-b of the General Tax Code (CGI):


Définition

« b. Services for the provision of furnished premises carried out for a consideration and in a usual manner, including in addition to accommodation at least three of the following services, rendered under conditions similar to those offered by accommodation establishments of a hotel nature operated in a professional manner: breakfast, regular cleaning of the premises, supply of household linen and reception, even if not personalised, of customers. » […]

Thus, the para-hotel scheme is characterized by the presence of :

  • the provision of a furnished accommodation, AND
  • the provision of at least 3 of the following 4 services, in a professional manner and under conditions similar to the hotel business: breakfast, regular cleaning of the premises, supply of linen and reception, even if not personalized, of the clientele.

Contrary to the activity of furnished rentals, the para-hotel business is presumed to be professional when the operator participates “in a personal, direct and continuous manner in the accomplishment of the acts necessary for this activity” (Cf. art. 155-IV-1 of the CGI).

The advantages of this scheme

It is an activity subject to VAT.

An advantage? Yes, it is indeed a one for buyers of new goods or goods requiring major renovation works because they can obtain a refund of the credit of the VAT paid.

Example: Mr. Xavier wishes to invest in a new real estate project in the French Alps. The value of the apartment is 1.5 million euros. If he develops a para hotel rental activity subject to VAT, he will be able to obtain a refund of the VAT paid at the time of acquisition: 1,500,000 / 1.2 x 20% = €250,000.

Numerous deductible expenses

Like the furnished rental activity, the para-hospitality business falls under the category of “Industrial and Commercial Benefits”. All expenses incurred in the direct interest of the activity and supported by documentary evidence are deductible for the calculation of taxable income: electricity, water, heating, condominium charges, various subscriptions, interest on loans, depreciation of the property/furniture, etc…

Moreover, when the operator is considered professional (above), any deficit that may be generated by this activity is deducted from his overall income.

An exemption from real estate wealth tax under the following conditions

For professionals whose main activity is this, the goods used in the context of this activity are exempt from Real Estate Wealth Tax (IFI). The methods of taxation depend on the legal nature of the operator: individual operator, fiscally transparent company, company subject to corporation tax…

An exemption of capital gains after 5 years of activity

In the event of the sale of the property, the capital gain on disposal falls under the professional capital gains regime.

When the activity is carried on professionally within the meaning of article 155-IV-1 of the CGI (supra), the capital gain on disposal may be completely exempt from tax and CSG CRDS. The activity must have been carried on for at least 5 years, and the annual revenue for the last two years preceding the sale must be less than €250,000.

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.


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Cabinet Roche & Cie, Expert-comptable à Lyon
Spécialiste de l‘immobilier et de la fiscalité des non-résidents