CLAIMING VAT BACK ON PROPERTY PURCHASE
Category: Finance > Finance | 13th Apr, 2021
This article is one of a series that has been provided to France Property Angels by SAREG. SAREG provides bi-lingual services in accountancy, international businesses and investments and has team of English-speaking staff to assist with your needs. Please visit sareg.com to find out more.
CLAIMING VAT BACK ON PROPERTY PURCHASE
If you are purchasing a new or recent property in France as an investment, to use for a furnished rental activity, it may be possible to claim back the VAT paid at the time of purchase. However, there are a number of strict conditions applied to this procedure and in some cases it will not even be possible.
SUMMARY OF PRINCIPAL CRITERIA FOR VAT RECLAIMS
You only pay VAT on a property purchase in the following cases :
- either the property is being purchased off-plan via a developer
- or you purchase from an individual who is selling a property that is less than 5 years old, who is himself subject to VAT (eg, someone providing hotel-type services selling their property used for these hotel-type services).
If no VAT is paid on your purchase, you cannot claim any VAT back!
However, you may purchase a plot of land and THEN build a new property (or an old property where you start renovations from just the walls and everything else is new). In this case, there would be no VAT paid at the time of purchase but you may be able to reclaim the VAT for the construction, as long as it is paid at the rate of 20% and you fulfil the same conditions below.
If one of the above conditions is fulfilled, you can only make a claim if you can prove that the property will be used for running a business providing HOTEL-TYPE services – this is not a self-catered rental activity, it is an activity of hotel-type services, which means you have to supply at least 3 out of the following 4 services included in the rental package :
- reception of guests (preferably on-site, otherwise within a few hundred meters)
- providing and cleaning linen
- cleaning rooms on a daily basis (minimum 3 times a week)
- serving breakfast
These are services assimilated to those you would receive in a hotel. You can provide these services directly or sign a lease for a classified tourist residence with a tour operator, or sign a contract with a third party (usually a management agency).
Finally, in order to receive reimbursement of the 20% VAT paid at purchase, you are effectively promising to run an activity of hotel-type services from that property for a period of 20 years. This means that should you decide to stop the activity beforehand, or sell the property to a private individual who does not take on the same conditions, you will be obliged to repay the French tax authorities the remaining number of 20ths in VAT (ie 5% per annum of the 20% VAT you originally received)!
So if you sold after 9 years, you would have 11/20ths of the VAT to pay back (=55%).
You need proof of intent to provide these hotel-type services from the very day the property is available for rental – the VAT reclaim will not be accepted if you have used the property privately even for a short time before putting it up for tourist rental. Also, the above services are not “optional” and must be included in the service package, and the establishment providing the services must be able to prove they have the tools available to provide these.
Be aware that if you do carry out the services directly, OR in the case of signing a services mandate (mandat de prestations de services para-hoteliers) with a local agency, you will be classed as running a “professional” activity in France and will then have to contribute into the French welfare system (social charges). This is a para-hotel activity, and not simply a self- catered furnished rental activity.
Welfare charges can be quite high in France but in some cases, where there is no profit showing on the financial accounts (thanks to depreciation, for example), a minimum healthcare contribution is charged instead. This is usually in the region of 1,500€ per person, so you should budget for this as a minimum.
NB : Since 31/12/2020, the bilateral social security agreement between the UK and the EU no longer exists; however we are waiting to see whether the UK and France will sign a new bilateral agreement. From 01/01/2021 British residents will currently be obliged to pay these French welfare contributions. However, should there be a new bilateral social security agreement in place between the two countries, it may be possible in certain circumstances, to cancel out the French welfare contributions.
If you fulfil all the relevant conditions, you will be charging VAT on the rentals (or the agent will) – VAT on accommodation is charged at a reduced rate of 10% - and therefore you can deduct the VAT on any costs you have for running that business (more often than not at 20%).
In this type of activity you will need to draw up profit and loss accounts, VAT declarations and submit various tax declarations to the authorities on a regular basis. If you have staff to carry out the services, you will need French employment contracts and payroll.
FISCAL REPRESENTATIVE – OBLIGATION for NON-EU RESIDENTS
In general, non-EU residents are obliged to use a fiscal representative to reclaim VAT. This is a service outside of usual accounting services, carried out by government-accredited organisations, to whom the property owner is obliged to pay a fee. Fees appear to vary amongst fiscal representatives but are generally a percentage of the amount of VAT to be reclaimed (anything from 1.5% to 8% depending on the amount claimed), plus an annual fee for using the services.
However, the French tax authorities have reassured us that this obligation should not apply to British residents post-Brexit, as there is a specific money-laundering and financial assistance agreement in place that enables UK residents to take advantage of an exemption from this restrictive and costly obligation.
ACCOUNTING SERVICES including VAT RETURNS
As French chartered accountants, we can of course provide all the above services for you, including the application for the VAT reclaim, liaison with the tax authorities and on-going VAT declarations. We can look after your annual accounts and payroll, if you have salaried staff, including drawing up contracts (either long-term or seasonal) and all the social declarations that have to be made in this respect.
If you wish to run an activity offering hotel-type services, please contact us for more information about your individual circumstances and to get an idea of annual accountancy fees. Generally, our fees are charged on an hourly rate basis according to who is dealing with your file but when we know more about your particular project, we should be able to give you an indication of annual fees for the pure accountancy and social declarations side of our services. As there are so many options relating to this type of activity, it is difficult to give an annual idea of budget prior to individual discussions.
However, the one-off VAT reclaim of the 20% paid on purchase will carry an additional fee in your first financial accounting period (around 1,000€ + VAT, according to time spent). On-going accounting fees should then remain the same as your estimated budget year-on, unless your circumstances change, or in the event our fees should increase in the future.
Any additional consultations, research or queries outside of the general running of your accounts will be invoiced on top of the annual fee and there are also one-off registration fees to get the business registered at the beginning of the activity. These fees will vary according to the type of business structure required in your individual case. Again, this can all be confirmed once we know your individual situation and the type of business structure that will be created for this activity.
LEASEBACK PROPERTIES & ACCOUNTS
In the event you purchase a property via a particular leaseback agreement, where you are obliged to sign a commercial lease with the tour operator and receive an annual rent for the use of your property, fees would be less than for a para-hotel activity.
Effectively, in these circumstances, you are classed as a self-catered furnished rental landlord with a long-term lease to a TO, who provides the hotel-type services and charges the VAT to the guests. You simply have to file VAT declarations via a special system known as auto-liquidation. This is the only circumstance where the self-catered furnished rental activity is liable to VAT (otherwise, that activity is outside of the VAT regime).
Please note that the details provided in this information sheet are correct at the time of drawing up this document but that you are advised to check whether they are still valid at the time you wish to invest or make a VAT reclaim.
We at France Property Angels hope that you found this information useful. While you are here why not take a look at our Property For Sale in the Alps and the South of France.
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