The VAT tax rebate is now widely used by estate agents and developers to attract buyers into purchasing luxury homes in the French Alps. I wrote in a previous article on Para-Hotelier that, provided that certain conditions are met, the buyer will be eligible to claim back VAT. However, carrying a para-hotel activity for a non-resident must be planned carefully to avoid serious tax implications.
First of all, the VAT rebate may be challenged by the French Tax Administration if it appears that the property owner simply delegates the provision of hotel services to a local agent without maintaining responsibility towards his guests. The local agent must not act in his own name when providing the hotel services but must do so in the name of the property owner. The responsibility of each party must therefore be clearly defined in the mandate agreement in order to minimise the risks of challenge from the French Tax Administration.
In the short term, letting a property under a “para-hotel” regime provides a VAT tax incentive to investors looking for purchase a buy-to-let property in The Alps. However, in the long-term, for those who were also buying the property as retirement option, the exit could become costly. When selling a property in France, capital gains is subject to capital gains tax (19%) and social charges (17.2% for non-EU/EEA residents and 7.5% for EU/EEA residents). Taper reliefs apply for individuals letting their property furnished under the status LMNP (“location meublée non professionelle”) and tax exemptions apply under the status LMP (“location meublée professionelle”). In contrast, no taper reliefs or exemptions apply when carry-out a para-hotel letting activity on a non-professional basis. The professional status of a “para-hotel” activity will require that the property owner (the director of an SARL de famille for instance) is personally and directly involved in the running of the lettings. A non-resident who has simply delegated the responsibilities of the “para-hotel” activity to a third party may face the risk of non-benefiting of capital gains tax tapper reliefs or exemptions when selling.
I therefore highly recommend to whoever considers running a “para-hotel” letting activity in the Alps to take independent advice before signing your property purchase contract.
If you are considering the purchase of an off-plan property in the French Alps and doing a “Para-Hotelier”, please contact Loic Raboteau via email at loicr@bandmlaw.co.uk or tel on +44 (0) 207 356 0833.
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