Here comes the ski season and you might be thinking: finished renting, I have been coming every year with my family to this beautiful French ski resort. This year I am buying my own little dream property in a ski-in/ski-out location.
Why not. The French Alpine property market has plenty to offer with a large stock of properties sold as off-plan or resale.
If you are considering buying off-plan, you will notice that the purchase price will be subject to VAT (20%). In a classic freehold purchase, the purchase price will be advertised TTC (inclusive of VAT) and stage payments will be made throughout the construction phase until handover of your keys.
If you are considering renting out your property and buy it as an investment as well as a holiday home, you will come across property advertisements from property developers or estate agents stating that you can claim back the VAT of your purchase price.
Many would be probably familiar with the French “leaseback scheme”, where you buy a property in a fully managed tourist resort. To qualify for a refund of VAT, the property must be leased back to a management company (your tenant) for a certain number of years via the signature of a commercial lease agreement. This type of investment is not for everyone and you are tied down to your tenant throughout the term of the lease (minimum 9 years) and your tenant has the right to be compensated if you do not renew it.
A less known tax scheme, which gives you more control over your investment is the “Para-Hotelier”. In this type of investment, you are purchasing a classic freehold off-plan property inclusive of VAT and you are claiming the VAT back by carrying out your own letting activity. You are not bound to sign a commercial lease on completion with a management company. You are basically in charge of your investment.
In order for the rents to be subject to VAT and to be able to recover the VAT of the purchase price of the property, three of the four following hotel services must be provided to the clients/guests staying in your property:
- Breakfast service to be provided within the property or within the building in an area designated for the consumption of food ;
- Cleaning of the premises : the cleaning must be provided on a regular basis. This condition would not be satisfied if for instance the premises had been only cleaned at the beginning and the end of your clients’s stay;
- Provision of household linen to guests;
- Concierge service: this service can be provided to a third party to whom you can give mandate and in a different premise. A virtual hotel reception service would be permitted.
Please note that if you are planning to use third parties to provide the above services, it is important that you remain in charge of your “para-hotel activity” and remain responsible towards your guests for the provision of these services. If the subcontractors you are using ensure accountability towards your guests for the provisions of the above services and the payment of rents, your rents may not be subject to VAT and you may not be able to recover the VAT of the purchase price.
Your property must be furnished to enable a normal occupancy of your guests.
It is not required that you register at the Trade Registry (“Registre du Commerce et des Sociétés”, equivalent in the UK to Companies House) unless you decide to create a company.
There is no minimum number of annual weeks during which the property must be let but the French Tax Administration may reconsider the recovery of the VAT if your annual personal use of the property exceeds the number of weeks of letting activities.
You will need to notify the French Tax Office that you wish to opt for VAT. The VAT option would take effect from the start of your activity provided that you have exercised this option during the month when your activity started, at the latest. This formality could be done via your accountant prior the start of your activity.
The refund application process of a property to be let furnished can start as soon as the deed of sale is signed. The VAT reimbursement requests may be done quarterly via your accountant to the French Tax Office as and when stage payments are made to the property developer.
The use of a French accountant would be recommended to carry out your VAT reimbursement requests.
The refund of the VAT of the purchase price requires that you carry out your buy-to-let activity with the provision of hotel services for a duration of 20 years. If for instance your stop your activity or sell your property before this time, then a part of the VAT would need to be re-paid to the French Tax Office on a pro-rata basis. This works out at being 1/20th per year. If for example after 10 years you decide not to continue your buy to let activity or sell your property, then you will have to pay back 10/20th of the VAT reimbursed initially (this corresponds to the remaining 10 years).
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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