What VAT must be applied by a real estate professional in France?
Must a real estate professional (developer or estate agent) apply VAT on profits or VAT on the total price?
The issue of VAT on the profits of building land disposals is a source of significant adjustments. It is therefore important to understand the specifics of the scheme. Roche & Cie can help you with these various issues.
VAT on profits is not necessarily a problem for an estate agent or developer if the land is not being sub-divided. However, agents may need to acquire land, divide it and resell it in smaller plots, in order to generate more profit. In that case, the authorities will interpret the legislation very strictly.
Supply of real estate or disposal of similar rights
The principle: taxation on the total price
In theory and pursuant to Articles 266 and 267 of the French Tax Code (‘the CGI’), the taxable amount of supplies of real estate consists of all sums, securities, goods or services received or receivable by the seller in return for those transactions on the part of the buyer, excluding the VAT itself.
For example, the following will be taxed on the total price, when they are made by a taxable person acting as such:
- supplies of building land the acquisition of which gave rise to a right of deduction
- supplies of buildings completed more than 5 years previously, the acquisition of which gave rise to a right of deduction
- supplies of land that are not categorised as building land and for which the transferor has exercised the option under Article 260 of the CGI (option for VAT).
The basis of taxation on the total price, under Article 266 of the CGI, is made up of the sale price, the amount of compensation or value of the social rights corresponding to the gain, plus expenses.
An exception: taxation on profits
By way of exception to the general principle above, under Article 268 of the CGI, where there is a supply of building land (taxable as of right), the basis for taxation will be the profit margin, if it can be shown that the acquisition by the transferor did not give rise to a right of deduction.
However, the tax authorities consider that VAT on profits will only apply when the land retains the same status between its acquisition and its resale. This provision is the source of numerous disputes, particularly in relation to the normal course of a sub-division of land.
In the event that land is sub-divided between the initial acquisition and the transfer, resulting in a change in status or a physical change, such as a change in the total area sold compared to that referred to in the deed of acquisition, VAT on profits will not apply (see cases Rép. Carré : AN 30-8-2016 n° 91143 ; Rép. Savary : AN 20-9-2016 n° 94538 ; Rép. Bussereau : AN 20-9-2016 n° 96679, confirmed by Rép. Giudicelli : Sén. 7-9-2017 n° 00904; but not followed in TA Grenoble 14-11-2016 n ° 1403397: RJF 4/17 n ° 314).
On the other hand, VAT on profits will apply if a certain number of prior transactions have taken place (please contact Roche & Cie for further details).
The taxable amount in the case of VAT on profits is different from that in the case of taxation on the total price, and will be subject to an internal calculation according to a specific formula.
The basis for taxation will be the difference between the price expressed (plus expenses) and the purchase price of the property sold.
Operative event and chargeability to VAT
The operative event and the chargeable date are in principle fixed, for immovable property as with other goods, on delivery, which corresponds to the time of transfer of the power to dispose of the property as an owner (Art. 269 1-a and 2-a of the CGI).
The operative event is independent of whether or not a deed was drawn up and formalities complied with. However, in practice, the delivery of land or buildings usually coincides with the date of the deed recording the transaction.
The date of payment of the price is irrelevant.
It is therefore also irrelevant whether the taxable person has been given authority to pay VAT only on receipt.
For supplies of buildings yet to be constructed (essentially, ‘sale before completion’ transactions), tax is payable at the time of each payment of the various instalments stipulated by the contract, according to progress of the work (Art. 269 2-aa of the CGI).
Specific exemptions and reductions on property acquisitions
There are specific exemptions and reduced rates for sales duties or VAT on the acquisition of real property.
- Purchase with obligation to build: exemption from registration fee
The acquisition of property by persons taxable for VAT is exempt from sales duties (registration fee), subject to a fixed fee of €125 under Article 691a of the CGI, provided that the purchaser agrees in the purchase deed to carry out, within a period of 4 years from the date of the deed, the work needed to create a new building or to complete an unfinished building.
A renewable annual extension to this four-year period may be granted upon application to the Public Finance Department relevant to the location of the property. If no refusal (stating reasons) is received within two months, the request will be deemed to be accepted.
- Obligation to resell: reduced registration fee
The acquisition of property by persons taxable for VAT benefits from a reduction in sales duties provided that the purchaser undertakes to resell the property within five years from the date of the purchase deed.
Specific exemption from VAT
There are also specific VAT exemptions in particular circumstances for supplies of land for value and supplies of buildings (Roche & Cie can advise further according to the property).
Cabinet Roche & Cie, Chartered english speaking accountant in Lyon, France.
Specialist in Real estate and non-résidents taxation.