Transfer duties
What are transfer taxes?
Transfer taxes are collected by the government when ownership of property is transferred from one individual to another. The total tax amount is based on the total value of the property sold.
Transfer taxes and purchase of the property:
In all cases (purchaser, natural or legal person), the sale of the property is subject to:
- Transfer tax payable by the purchaser at the rate of 5.81% (in particular in the Alpes Maritimes department) of the price,
OR, rarely at:
- VAT at the rate of 20.00%, included in the sale price and at the expense of the seller, in the case where the property has been completed for less than 5 years (purchase on plan), or in the case of building land (seller being subject to VAT or professional), or in the case of goods sold by professionals who have opted for VAT: This regime is in fact today quite complex due to recent regulations, and it now depends because the seller may or may not be subject to VAT himself. Also, to take into account, how the seller made his own purchase (sale on plan or already fully built)
There may be various other VAT/transfer tax regimes in the event that the purchaser carries out a commercial activity in France and is already subject to VAT.
In case VAT applies, then transfer duties may be limited to 0.715% (instead of the 5.81% mentioned above).
Transfer taxes and purchase of shares in a company that owns the property:
- French company: the sale is subject to a rate of 5% at the expense of the purchaser, at a price based on the value of the building minus the company's justified liabilities, including shareholder loan accounts, Foreign company (for example SCI de Monaco): Same as above, except that depending on the regulations of the country of the company, other tax duties or additional formality fees may be necessary (as with the SCI of Monaco): Same as above except that depending on the regulations of the country of the company, other tax duties or additional formalities fees may be necessary (as with the SCI of Monaco) where there is a 1% tax on share prices).
Transfer rights — deeper definition
The term transfer right can be used in a variety of situations:
It can be a tax imposed on the legal transfer of any type of property. For example, inheritance tax and gift tax are two types of transfer tax. Inheritance tax involves the right to transfer assets from the estate to a natural or legal person after death.
Capital gains tax is another example of a transfer tax involving a transfer of ownership.
Transfer taxes are most often used in reference to the transfer of real estate title from one person or entity to another.
In general, a transfer tax is a specified percentage of the total sales price.
The person responsible for paying the transfer tax also varies according to location as well as circumstances. In many cases, it's a matter for the buyer and seller to agree on who pays the tax.
Example of transfer tax
Transfer tax must be paid before the transaction is considered complete and the ownership is transferred to the new owner. Without this tax, documents cannot be filed to finalize the transaction.
Like transfer fees and other costs associated with the purchase and sale of real estate, transfer taxes are an integral part of a real estate transaction. Before signing papers or concluding a transaction, determine how much transfer tax is in your area and who should pay it. If you don't plan this step, you could be caught off guard and without the funds to cover it, which could stall a real estate transaction.
Transfer taxes and other fees on purchases of real estate built more than five years before the sale (i.e. existing buildings for VAT purposes) are as follows:
- transfer duties: 5.81%; 2- additional tax of 0.6% on transfers of offices, commercial premises and storage premises located in the Ile-de-France region; - notary fees: 0.799% excluding tax (and before negotiation).
The acquisition of building land and real estate built less than five years ago benefits from a reduced transfer tax rate of 0.715% and is exempt from the additional tax of 0.6% if the total sales price (and not only the margin) is subject to VAT.
In addition, investors can also benefit from the following preferential tax regimes (instead of the transfer tax of 5.81% and the additional tax of 0.6% depending on the case):
- Commitment to build: fixed registration fee of €125 when a purchaser subject to VAT undertakes in the act of sale to carry out work similar to the construction of a new building for the purposes of VAT within 4 years; - Commitment to resell: transfer duties are reduced to 0.715% when a purchaser subject to VAT undertakes in the act of sale to resell the property real estate within five years.
Non-resident corporations are treated in the same way as resident corporations. However, the non-resident company is subject to limited taxation in France in respect of income generated in France.
A foreign company cannot constitute a tax group with regard to French tax. But it can be indirectly a member of the group allowance (via a French permanent establishment).
The transfer of French real estate to an EU company is equivalent to the transfer of French real estate to a French company. This transfer is fiscally equivalent to a sale, so it triggers all of the tax due by such an operation.
