The para-hotel system is particularly technical and investors deserve to be fully enlightened on the social and fiscal consequences before starting this activity. Terms, VAT, taxation: we detail below all the aspects to know about this real estate scheme.
The parahotel is characterized by the provision of furnished accommodation and the supply of at least 3 of the 4 following services:
- Regular cleaning of the premises: a simple cleaning at the beginning and end of the stay is insufficient;
- Breakfast: directly in the rooms or in a dedicated room;
- The supply of household linen;
- Reception of customers, even if not personalized: a simple electronic reception system is sufficient.
For all these services, it is possible to delegate certain services to a concierge. The para-hotel industry is therefore ideal for seasonal rentals.
Para-hotel: what are the differences with furnished rentals?
The main difference between furnished rentals and para-hotel is the nature of the services provided: furnished rentals consist of renting out furnished accommodation, while para-hotels consist of renting out furnished accommodation with the addition of significant hotel services (below).The rental is no longer a secondary activity, but a professional and commercial activity: you rent a property and services.
What about VAT?
As a para-hotelier, you benefit from the VAT regime and have the possibility to recover the VAT on the services and on the real estate purchase itself. This is a godsend for buyers of new properties or properties requiring major work.
The VAT rate applicable in the para-hotel industry is 10% in metropolitan France.
By collecting the VAT, you commit yourself to carry out the para-hotel activity for a minimum of 20 years. If you sell the property before the deadline, you will have to pay back a part of the VAT, in proportion to the missing years. But if the new buyer continues the seasonal rental with the tax regime of the para-hotel business, then you will not have to give back the recovered VAT.
Example: 6 years after starting your para-hotel activity, you decide to resell your apartment. In this case, you will have to pay back 14/20ths of the VAT initially recovered, i.e. 250,000 € (VAT initially recovered) x 14/20ths = 175,000 €.
You have to keep in mind that the administration carries out quasi systematic controls in case of request for VAT refund. Beyond the respect of the formalism of the invoices, it is important to be able to demonstrate that the expenses were indeed engaged for the exercise of a parahotel activity, and that this activity is real.Finally, the operator who invests in an “old” property and who does not have any possibility of reimbursement of the VAT, can ask to benefit from the VAT exemption system provided that the amount does not exceed 85,800 € of turnover.
What are the tax advantages?
Like furnished rental, para-hotel rental activity is considered, for tax purposes, as industrial and commercial profit (BIC). Therefore, the property can be depreciated. As seen previously, a part of the VAT is recoverable. Moreover, the generated deficit is chargeable on your global income. If the activity is carried out on a principal basis, it will also be possible to benefit from the exemption of tax on real estate wealth (IFI). Finally, it will be possible to benefit from the exemption on capital gains (under the conditions of not exceeding 250,000 of turnover and respecting the conditions of article 151 septies of the CGI).
Para-hotel system: more attractive than the Pinel Law?
Many investors are looking to the Pinel Law to reduce their tax burden. As a reminder, this scheme offers a tax reduction up to 21% of the price of the property (capped at €300,000), i.e. a maximum saving of €63,000 over 12 years. In this case, you must commit to renting the property year-round for a period of 6, 9 or 12 consecutive years. The para-hotel tax regime can give you much more advantages, notably with no ceiling on rents, or a higher tax reduction with a deficit that can be charged to your income.