Buying French Real Estate ?

[Roland Nelet]

Hi,

I'm a dual citizen US-FR, I will probably spend a lot of time in France in my old age, although not quite sure I will make it my primary residence. I own a few properties in the US, and started looking at diversifying into French assets. However, my research so far leads me to believe that the French market is far less appealing than the US market, mostly for tax reasons. In the US, the current tax code enables one to defer tax in perpetuity, through depreciation, 1031 exchanges, and cost basis reset when the assets are passed on to the next generation. In France, it seems like if you set up an SCI, you can defer also defer the tax, but sooner or later the distribution will be taxed (30% IIUC). Am I getting this right ? If so, I guess I will stay away from buying property in France.

[Cyril Soigneux]

Hello,

For French SCI, there are two options : 1) the company is subject to corporate tax and you can depreciate the asset but be cautious as the capital gains will be calculated on the sales price minus depreciated book value of the asset ; so it is used only in a few specific cases 2) most common taxation is integration in your personal income tax. Dividends are taxed separately in both cases.

SCI is great if you need to split ownership and/or for estate planning purposes, there is few or no tax advantages.

Keep in mind that in France, laws are more tenant friendly than in the US and that financing will be different (maximum loan duration is generally 15 years with fixed rate and depending on the bank, you may get 0% down-payment and even 110% LTV to cover for transaction taxes and minor fixes) ; so in one way it is easier to get property with no or low money down but it is harder to have cash flows.

Through direct ownership, you may get 18-year fixed rate loan and may find some cash flowing assets.

Regarding taxation of your French income in the US, you will get a tax credit in the US equal to the amount of taxes paid in France (French tax will be a fixed rate 20% up to €28k + social taxes of 17.2%).

Property taxes are also expected to rise in France as housing taxes have been removed. Social and fiscal policies may change fast (or not at all) as we have a hinge parliament and above all, a very high deficit.