Posted by FindHomeAbroad on April 14, 2023 Blog Findhomeabroad, Tax & Regulations 0
Taxes on French property rental income for foreign owners
By living abroad for more than six months per year (whether you are French or not), you are considered a non-resident taxpayer. If this applies to you, and you own a property in France, directly or through shares in a non-trading property company (SCI) or a limited company, you are liable for specific taxes. This first article will cover rental income but you can also read our complementary articles about local taxes, capital gains, and wealth tax for non-resident property owners.
The Essential Role of International Tax Treaties
Before assessing the taxes applicable to your situation, you need to determine whether a tax treaty exists between France and the country you reside in.
The tax treaty has two objectives:
To avoid double taxation;
To combat tax evasion.
Thus, you must pay tax in France as this is where the income-generating property is located (e.g., rent, capital gains).
💡 Example: Rent generated by a property located in France will be taxed in France (“impôt à la source” in French). You also need to report this rental income when filing your tax return in your country of residence, which will apply a deduction (equivalent to the tax paid in France) to avoid double taxation.
If no tax treaty exists between France and your host country, you may be taxed twice on the same income. This is extremely rare.
Do not forget that tax regimes can change so it is always best to consult with a tax professional ultimately. We are happy to put you in the right hands.
Taxation of Rental Income on a French property for non-residents
Taxation of rental income for non-residents: what remains unchanged
Similar to French residents, the tax treatment of your rental income in France varies according to two scenarios:
Unfurnished rental, taxed in the category of property income;
Furnished rental, falling under the category of industrial and commercial profits (BIC). As a non-resident, you benefit from the non-professional furnished rental (LMNP) regime, just like a French resident.
In both cases, and as for French residents, you can choose between the micro and the real regimes.
The micro regime offers a flat-rate allowance of 30% on taxable rental income for unfurnished rentals, 50% for furnished rentals, and 71% for classified furnished tourist rentals.
The real regime allows you to deduct certain expenses related to the operation of your rented property.
In the case of an unfurnished rental, a deficit can be deducted from your global income, provided these revenues are generated and taxed in France.
💡 Good to know: If the income from your furnished rental exceeds €23,000 per year or is higher than the other income of the tax household (including your household income from your country of residence), you fall under the professional furnished rental (LMP) status.
Taxation of rental income: what is the tax rate for non-residents?
Although the allowances on rental income generated in France are the same for a resident French citizen and a non-resident French citizen, the difference lies in the calculation of the tax after the allowance.
In principle, as a French resident, your rental income is part of your taxable income, subject to the progressive income tax scale and an additional 17.2% social security contribution.
As a non-resident French citizen and owner of a rented property in France, you have two options:
- A minimum average rate of 20% applied to French source income below €26,070*, then 30% above, or the application of the progressive scale if it is more advantageous for you;
- An average tax rate, if it is more favorable: the rate is applied to all your income on an international scale. Thus, if you are a non-resident French citizen earning €150,000 per year in your expatriation country, these €150,000 will be taken into account to apply the effective tax rate (which will likely be less favorable than the 20% flat rate).
📌 Let’s take an example of tax to pay on French rental income
A co-owner has generated €20,000 of furnished rental income through the SCI shares they hold. They opted for the LMNP regime under the micro BIC. Thus, they benefit from a 50% allowance on taxable rental income, which amounts to €10,000. Therefore, they are only taxed on half of the reported income.
According to the progressive tax scale related to their French income, they would fall within a 0% Marginal Tax Bracket (TMI). However, considering the mandatory minimum rate, they must pay a 20% tax on the €10,000.
They can also choose the average tax rate, which considers their global income. If they do not have any other income, this is the most advantageous option. But if they have international income and their average tax rate turns out to be higher than 20%, opting for the minimum rate is more beneficial for them
How to Declare Non-Resident Rental Income on your French property?
Your French property rental income must be declared using form 2042 at French Revenue. Your French accountant would provide it to you. expect around 300€/year for a French accounting firm to deal with your French property income. Check a renowned firm in France here.
If you choose the paper format, remember that this declaration must be sent to the non-resident tax centre at the following address:
10 rue du Centre
TSA 10 010
93 465 Noisy-Le-Grand Cedex
However, it is recommended and much simpler to file your tax return online through your personal space on the www.impots.gouv.fr website.
Boxes to complete for declaring rental income
To declare your rental income, the boxes to be completed are as follows:
- Unfurnished rental income (micro property income): 4BE
- Unfurnished rental income (real regime): declaration 2044 + declaration 2042 box 4BA (if profit) or 4BB (if deficit)
- Furnished rental income (micro BIC):
- Non-professional (LMNP): 5ND for regular furnished rentals, 5NG for classified furnished rentals (form 2042 C Pro)
- Professional (LMP): 5KP or 5KO of form 2042 C Pro
- Furnished rental income (real regime): tax bundle 2031 + form 2042 C Pro in box 50 A (if profit) or 5HY (if deficit) or 5KC / 5KF depending on your situation.
What tax declaration for managers or partners of an SCI or limited company (property company)?
As non-residents, when the SCI is transparent (i.e., the tax declaration takes place at the partner level), the share of rent due to you must be declared as follows:
- For managers: form 2072;
- For partners: form 2072-S;
- For SCIs with a property eligible for a tax exemption scheme or bare ownership: form 2072-C.
In all cases, boxes related to the deficit or profit must be declared in form 2042.
Q: As a non-resident French property owner, what taxes am I subject to in France? A: You are subject to specific taxes, including rental income tax, local taxes, capital gains tax, and wealth tax (IFI).
Q: How do international tax treaties affect my tax situation as a non-resident French property owner? A: Tax treaties help avoid double taxation and combat tax evasion. You must pay tax in France, where the income-generating property is located.
Q: How do I declare rental income in France as a non-resident property owner? A: You need to file your tax return using form 2042.
Q: What are the differences between the micro and real tax regimes for non-resident property owners in France? A: The micro regime offers a flat allowance on taxable rental income (30% for unfurnished rentals, 50% for furnished rentals, and 71% for classified tourist rentals (leasebacks)), while the real regime allows you to deduct certain expenses related to the rented property.
Q: As a non-resident partner or manager of an SCI, how do I file taxes in France? A: Managers must use form 2072, partners should use form 2072-S, and for SCIs with tax-eligible properties or bare ownership, use form 2072-C. In all cases, declare deficits or profits in form 2042.
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