NEWSLETTER JULY 2013: SUBJECT TAXES 

 

Taxes imposed on the rental income generated by properties owned by non residents.


For the majority of current and aspiring foreign home owners in France, the proposed taxation changes will not have much of an effect.

The social charge contributions now imposed on the rental income generated by properties which are owned by non-residents only applies to unfurnished rental properties, which fall into the Revenu Foncier system. Historically the Revenu Foncier taxation system is more relevant to French nationals, not overseas investors.

"Yet again, it is frustrating to see the facts so poorly misconstrued. The new proposed tax on French rental property is only applicable to non-furnished rental properties and very few British and international investors own one of these."

Today, non-resident owners of French property can still opt for the more tax-effective furnished letting tax system called BIC (Benefice Industriel et Commerciaux). This tax system allows you to amortise your property and offset the charges related to a property's rental income.

"The BIC system can considerably reduce an investor's liability and in some cases nullify it completely. "So despite what has been reported over the last 24 hours, from an investor's point of view very little has changed. French property still represents a secure and financially viable investment."


Capital Gain Tax

The French Government has announced a change to the country’s Capital Gains Tax. Hollande is set to make this new ruling applicable from the 1st of September this year and will shorten the length of time from 30 years to 22 years before homeowners are exempt from the charge on second home sales, a move that is hoped to encourage investment in the French property market.

The French government has also announced that that capital gains tax on foreign-owned second homes is also set to increase from 19% to 34.5%. Yet for the majority of UK and international buyers, this news does also not need to come as a shock,

"The capital gains tax has increased, but this tax reduces over time, just as it always has. More importantly, very few people invest in French property to then sell it on a few years later. Instead they have at least a 10 year game plan and if they keep their property long enough there will be no capital gains tax at all."


 
 
 
Newsletter 2013 
Please click here if you can not open this e mail correctly
 

 

Bonjour,

Apart from our  French collection (click to view) and our selection of the this month (click to view) we also have added a 

new listing of Swiss properties (click to view) to our portfolio. 

Have a look at our brief on Swiss regulations regarding purchasing a holiday house in Switzerland.

 

 

BYING A PROPERTY IN SWITZERLAND

 

With 26 independent cantons, buying a holiday home  in Switzerland is a different matter than in the rest of Europe. In Switzerland it is not that evident that as a foreigner one can buy anywhere. The market for vacation homes in Switzerland is regulated by the Lex Koller law and in addition there again plenty of cantonal and municipal regulations that can have a significantly impact on the purchase and sale of a (holiday) home in Switzerland.

 

Furthermore, there is also the Swiss Franc (SFr) to take into consideration, as a result of this local currency, the sale prices converted in Euros can fluctuate daily. 

 

 

ADVICE ON BUYING A HOLIDAY HOME IN SWITZERLAND

 

DID YOU KNOW:

 

THAT as a non-Swiss resident ("foreigner") you cannot buy a house in Switzerland everywhere?

 

THAT the number of licenses for houses for sale to foreigners is limited and numbers about 1,500 a year?

 

THAT for the sale of a holiday house owned by a foreigner to another foreigner No new license (Ausländerbewilligung) is required?

 

THAT a foreigner can only purchase up to 1,000 m2 of ground and 200 m2 of living space in Switzerland?

 

THAT every municipality in Switzerland can itself have their own regulations which can have direct impact on the buying and selling of a holiday home?

 

THAT in Switzerland there is no provisional deed to be signed?

 

THAT a Swiss deed usually contains no suspensive conditions as for example a mortgage or a building inspection?

 

THAT the only suspensive condition is if you do not getting the Ausländerbewilligung?

 

THAT in Switzerland a holiday house can be financed up to 60% of the purchase price? This may be increased if additional collateral  is provided to the bank.

 

THAT the mortgage rate in Switzerland on average is 2% lower than in most European countries?

 

THAT in Switzerland there is no transfer tax levied on the purchase of real estate

 

THAT the "buyer's costs" in Switzerland are 2 to 3% of the purchase price?

 

THAT a holiday house of a foreigner in Switzerland can only be resold after a holding period of five years?

 

THAT recently in Switzerland a new law was passed putting a ceiling to holiday houses to 20% of municipal ownership? This law is currently being finalized.

 

THAT in Switzerland the purchase and sale of a holiday home is different from elsewhere in Europe?

 

In summery, if you are seriously considering in buying or selling a house in Switzerland, make sure that you are well advised and informed. We will gladly assist you!

 

 

  ESTATEMENT -  conseil international real-estate  M :  +31 (0)6 418 050 67 -   F :  +31 (0)8 778 454 12  -  
Skype:  estatement  - www.real-estatement.com (click to view)

   

 Tax Proposals of President Hollande Thursday October 2012


A number of tax increases are contained in the recently published draft budget for 2013, including an increase in social security contributions for auto-entrepreneurs.

At this stage the government has released only the barest of information on the proposals, some of which are also likely to change during their passage through the French Parliament.

We set out below brief details of the main proposals in the Finance Bill 2013, as well as fiscal changes announced simultaneously in the Social Security Bill 2013.

Although not included amongst the budget proposals, there is widespread speculation that the government is also planning a gradual transfer of certain social security obligations from companies to households.

The aim of doing so is to improve the competitivity of the French economy; employers in France have some of the highest level of social security charges in the world.

It seems the transfer might take place via an increase in the CSG (Contribution Sociale Généralisée), a social charge imposed on most forms of income and capital.

However, at a time of economic recession there is concern about the impact such a transfer would have on household consumption, and the proportional rather than progressive nature of CSG does not appeal to many socialist parliamentarians. So we will need to wait and see just what, if anything, is finally announed.

 

For now, here is a summary of what the government has stated will be in the budget for 2013. It should be noted that a large number of these tax increases will apply for income earned in 2012.

  

Income Tax

The other existing bands and rates will remain unchanged.


Creation of a new rate of income tax of 45% for net incomes in excess of £150,000 pa.

Those earning over €1 million a year will be subject to a marginal income tax rate of 75% on income above this amount, which will apply 'exceptionally' for 2012 and 2013.

No cost of inflation increase on incomes, but an increase in the reduction of tax payable for those on modest incomes.

Abolition of the 10% allowance granted for ‘professional costs’ for majority shareholders of limited companies.

Dividends and interest earned to be taxed as part of the income tax system, with abolition of the optional taxation at source, although concessions likely for small investors. The fixed sum allowances for dividend income to be abolished although percentage allowances for dividend income to remain.

Capital gains on shares to be similarly taxed as part of income tax system, with relief for duration of ownership.

The maximum permitted tax relief will be reduced to €10,000 pa plus 4% of total income, down from €18,000 plus 4%.

A reduction in the maximum allowance under the quotient familial (which reduces your tax liability the larger the household) will be reduced from €2,300 to €2,000 for each dependant.

There is to be a new system of tax relief for newly constructed investment properties, granting a reduction in income tax of 18% over nine years. The scheme is geared to increasing the number of low rental properties on the market for those on modest incomes.

 

Social Charges

Pension income will be subject to an additional 0.15% in social charges in 2013, rising to 0.30% in 2014. Pensions already exempt from social charges will not be liable, ie those on a small pension and EU expat government service pensions.

An increase in the health contributions of self-employed persons earning over €14,500 pa, but only likely to impact on big earners, and with a reduction in the level of the contribution for those earning less than this sum.

Dividends payable to business owners to be subject to social security contributions where they exceed 10% of the capital employed in the business.

An increase in the social security contributions of auto-entrepreneurs to secure greater alignment with those of other types of business status. Few details are yet available, but it seems an increase of 2 to 3 percentage points is being proposed. So the rate payable would increase from 12% to 14% for sales based business, 21.3% to 24.6% for a service based business, and from 18.3% to 21.3% for the professions libérales.

Golden handshake termination payments will be subject to 20% minimum social security contributions.

 

Withholding Tax

 

The ability to opt for the withholding tax (prélèvement forfaitaire libératoire - PFL), where gains are taxed at source on dividends and investment income, is to be abolished.

The rate of this tax, including social charges, is up to 39%, so only those with the highest levels of income are likely to have opted to use it.

Such income and gains will be integrated into the income tax system.

 

Assurance-vie

The withdrawal of funds held under 8 years will be subject to income tax in the normal manner, although only for new contracts. Accordingly, existing policies will remain unaffected.

The existing tax regime for funds withdrawn over 8 years retention will remain unchanged.

 

Capital Gains Tax

Building land will cease to be eligible for an abatement based on duration of ownership. For 2013-14 all sales of building land will be subject to capital gains tax of 34.5% on the total net gain. From 2015, for sales in 2014, the capital gain will be integrated into the income tax system, again with no allowance for duration of ownership. Some transitional measures are envisaged.

An abatement of 20% will be granted on all capital gains arising on the sale of second homes in 2013, although the abatement will apply only to capital gains tax itself, and not to the social charges. The abatement will be in addition to the allowance for duration of ownership. The move is designed to give an impetus to the housing market.

There is as yet no proposal to change the current system of capital gains tax on residential property, despite being flagged as a promise during the presidential election campaign.

 

Wealth Tax 

The system of wealth tax in place prior to 2011 will be (broadly) reintroduced, although there will continue to be an allowance of 30% against the principal residence. 

The threshold for liability to wealth tax will be €1,310,000, but if this threshold is reached tax becomes payable on wealth in excess of €800,000.

 

Inheritance Tax

Under current rules, it is possible to leave or gift to children up to €159,325 each tax free. The amount is reduced to €100,000 per parent per child; with the time for making tax-free gifts increased to every 15 years from the current 10 years.

The current complete exemption from inheritance tax in favour of the spouse or civil partner will remain in place.

 

Gifts Tax

The gift tax allowances available for each child from each parent will be reduced in the same manner as that of inheritance tax ie, from €159,325 to €100,000. 

The period for which the gifts allowance can be used may also be increased from every 10 to every 15 years.

 

VAT

The increases in VAT (TVA) from 5.5% to 7% on the lower rate and from 19.9% to 21.2% on the higher rate will be abolished.

 

Local Property Taxes

Increase of 2% in the income threshold granting exemption, for eligible persons, from the local property taxes, the taxe d'habitation and the taxe foncière.

TV licence to increase from €125 to €129 pa.

A increase in the level of the taxe foncière on building land in urban areas with a population of at least 50,000, and where there is a housing shortage.

Tougher taxation of empty properties in urban areas with a population of at least 50,000, where there is a housing shortage.

 
 

French tax residents, an individual who fulfills one of the French tests for Residence: i.e. if your main home is in France; if you spend more than 183 days in a calendar year in France; if your centre of vital interests is in France, or if your principal activity is in France.

 

 

The above brief summary is not an exhaustive list and is  based on the initial proposals currently under discussion, which remain subject to formal adoption as therefore may be subject to change.

 

It is our recommendation that individuals should seek professional advice with respect to the impact the proposed changes may have on their specific personal situations.

 

ADVICE/INFORMATION FOR BUYERS

 

1) What makes the investment so attractive ?

The demand for self-catering accommodation continues to grow for foreign tourist.
You can rent your French home yearly, monthly, weedly, daily, whith excellent results, you can expect an annual net income of about 5-9% of the full value for most properties.
Since France is the world's top destination in terms of numbers, the French gorvernment has come up with a number of investment plans such as Lease Back.

 

2) Should I use a lawyer to purchase property in France ?

No, a notary (Notaire) is the authorized official who presides over the transaction and registration of new ownership. But it depends on your personal situation if you need a lawyer or not.

 

3) How much time does it take to close a sale and transfer the ownership title of a property in France ?

A notary generally takes 2/3 months to complete and register the change of ownership.

 

4) Must I have a French bank account to buy property in France ?

Yes.

 

5) How do I open a bank account in France ?

It is easy to open a bank account in France. A non-French citizen must fill out an application form and present a valid passport.

 

6) What is the "loi Carrez" ?

Since 1996, most preliminary agreements relating to the purchase of a property must state the exact square meters of the property being sold. This measurement is calculated in a national law, "loi Carrez", wich defines what is livable surface and what is not.
For example, space under a ceiling (180 cm), typical in roof top apartments, cannot be measured as livable space. To measure a property, a real estate agent or a certified expert is required.
If there is a difference between the stated surface in the contract and the actual surface of the property, the buyer has up to one year to contest. In this case the seller is legally bound to pay the difference in purchase price.

 

7) Is it possible for me to get a loan from a French bank to buy property in France ?

Yes, once you have a bank account with a French bank it is a very straightforward process to obtain a loan... but the rates are very interesting (around 4%)

 

8) How long does it take to approve a loan ?

3 to 4 weeks.

 

9) What is a hypotheque ?

A French "hypotheque" is similar to a mortgage. It is a form of legal charge over French realty.
It is registered at the French land registry as a guarantee against third party challenges

THE PURCHASE AND CONTRACT

 

10) What is the "compromis de vente" ? (preliminary agreement or promise of sale).

Before the purchase of French property can be legally binding, a document is signed "avant contrat".
This preliminary agreement is called a "compromis de vente".
This step is most important, as all the legal aspects of the sales agreement are fixed at this time.
If you require financing, it must be shown when making the "promesse de vente".
This financing requirement can be included as a safeguard, or "get-out" clause.

Legal Protection :
A law passed in France in June 2001, gives protection to all individuals buying a residential property.
This law offers a protected period of seven days in which the buyer can withdraw from the acquisition of a residential property.
During this time period, only a certifide agent or a notary is authorized to receive funds before the legal delay expires.

The signed contract is sent by registered mail or by the equivalent to the buyer. The seven-day withdrawal period starts on the day after reception of the signed contract.

 

11) Is there a deposit ?

When you sign the promise of sale, the buyer generally pays between 5 to 10% deposit, which is kept by the notary during the legal and financial transaction.
This security deposit guarantees the buyer's commitment. The deposit is restitued if their is no sale.

 

12) Who prepares the "compromis de vente" ?

A notary or a real estate agent prepares the preliminary agreement, but only a notary is qualified to counsel the clients and prepare contracts, at no extra-charge.
The buyer and the seller both sign it.

 

13) The final sales agreement : "acte authentique"

Once the promise of sale has been signed, the notary must the collect various documents, such as property titles and mortgage documents to verify that all the paper work is in order.
Collecting the documents and verifying them may take between two and three months.
After the notary has collected all the documents, the final sales agreempent (deed) is signed. It is called "acte authentique" and is virtually indisputable in court.

 

14) Can a contract be written in English ?

All the contracts in real estate must be drafted in French, the use of a foreign language is illegal.
However, some notaries with an international practice may translate the agreements for their clients.

 

15) How much do you have to add on top of the selling price for closing costs ?

After the purchase price, the buyer must also pay the notary fees.

This amount includes :

The registration tax.

The cost of different documents necesary to complete the transaction (mortgage statement, survey (cadastre)...)

The norary's fee.
In France, the law fixes these fees.
Neither the notary nor the clients may modify these specific fees.
The fees for the purchase of an apartment in Paris is about 0,8%.
If there are two notaries, the fees are shared.

The total amount cost about 6,5% of the purchase price.

 

16) What laws apply to French property ?

French law and only French law can be used for the buying and selling and or any questions pertaining to French real estate.

French property laws are based on the "Code Civil " and on Case law.

 

17) What is the cost of real estate ownership taxes ?

Being a real estate owner in France requires the annual payment of several taxes :

The real estate tax (TAXE FONCIERE) :
It has to be paid by all owners whether they are private individuals or companies.

The local taxes or residential tax (TAXE D'HABITATION) :
It has to be paid by whoever lives in the property.

 

18) Do I have to be present at the annual general meeting for the co-owner cooperative management ?

The owner can ve represented for a vote by another co-owner. A simple proxy with the owner's signature must be sent ahead of time to the management.

 

19) SAFER what is that?

 

The French land agency 'SAFER' has a right of first purchase on a great deal of rural property in France, so what are the rules that apply?

SAFER (Société d'aménagement foncier et d'établissement rural) is a body you will certainly come across if you are seeking to buy property in the French countryside.

This government agency has the right of first purchase on most rural property that comes onto the market in France.

So although you may think you have sealed the deal when you sign the sale contract with your seller, in fact the property is not quite yours until SAFER have had their say.

The right of first refusal by SAFER is called the droit de pre-emption.

This is effectively a right of substitution, in which the original buyer of the property is obliged to give way to the public agency.

In the process of purchase of the property, ‘purging’ of the rights of SAFER is carried out by the notaire, whose responsibility it is to write to SAFER asking them if they want to buy the property.

SAFER have two months from the date they are notified of the details of the prospective sale to make up their mind. If you are in a hurry, there is an ‘express’ service to get their response, provided you are prepared to pay extra for it.

Within each department there is a minimal land area determined by the prefecture below which SAFER does not have the right of pre-emption.

However, in some areas of the country this threshold is very low, so a small house in the country with an acre of land may still be subject to the pre-emption process!

In practice, although SAFER are omnipresent in the sale of strictly agricultural land and buildings, the vast majority of other rural property sales go through without them showing any interest.

 

 

 

Mortgage

 

 You will need to contact a mortgage broker who specialises in mortgages for French properties or a French bank direct in order to apply for a mortgage, you may have already be in contact and possibly have received an agreement in principal for a loan subject to the property you purchase. However you will not have been able to put in a formal application for a mortgage until you have signed your first contract and it will be necessary to send a copy of this with your application.

{mosbanner right}If you have stated that you will require a loan in order to purchase then this will be made a condition of the contract that you sign and will give you the possibility of pulling out should your application for a mortgage be reused. Hence the vendor will have to wait perhaps two to three months before knowing that the property will definitely be sold. This condition within the contract will make it subject to mortgage and will usually have a limited period of around two to three months for you to either get a mortgage offer or a refusal from a bank. Once you have your offer it will be confirmed to the notaire and the contract will become unconditional. If you get a refusal from the bank and you are not therefore ale to proceed to purchase then this letter must be sent with a letter of retraction from you by recorded delivery to the notaire within the period given on the contract. The notaire will then be in a position to refund your deposit to you.

If you are not intending taking out a mortgage then you will have had to write a particular paragraph within the contract to confirm this. You can see that an offer that is not subject to mortgage is more appealing to a vendor as he does not have to wait the two to three months to know if you can proceed, ie the contract is unconditional.

 

At this point in time you also need to make sure that your personal contribution, or the full amount if you are not applying for a mortgage, is available in Euros. It is a good idea to contact some currency exchange companies as well as your own bank to see what rates they can offer. Currency companies also offer the possibility of fixing a future rate for you so that you know exactly what your property will cost and wont have any nasty surprises before completion when you find out that the rate has got worse. In my opinion it is essential to fix the rate or buy the Euros as the point that you agree the price of your property so that you don’t find that you need more Sterling than you thought to buy your Euros. 

 

 

 

 

 

 

 

 

What are the differences between these 3 options when selling your French property through a real estate agent, you’re being offered a choice between simple, semi-exclusive or exclusive sales agreements.


Different types of sales agreements

Non-exclusive agency sales agreement:  this is the agreement giving you the most freedom. It can be signed with as many real estate agents as you want as there is no exclusivity attached to it, while leaving you free to try and sell it by yourself in the meantime. The downside of this type of agreement is an overexposure of your property, not always sending the good signal to a potential buyer seeing your property everywhere. On top of it, estate agents tend to advertise more easily properties they have been given with some sort of exclusivity (such as semi-exclusive or exclusive sales mandates)


Exclusive agency sales agreement: This agreement can be signed with only one estate agent, giving him the exclusivity of the sale of your property.  There is a fixed period attached to it, generally 3 months. During that time, you are not allowed to sell the property by yourself. The interesting part of this agreement is the following: as one and only agency has your property on its books, it will most of the time do its best in terms of advertising as well as introducing it in priority to its potential clients in order to sell it during the time of the exclusivity. It results in a better promotion of your property compare to non-exclusive sales agreements. The most important point is to choose carefully the estate agent you’re going to use.


Semi-exclusive agency sales agreement: This one is the same as the exclusive sales agreement, with a major difference: you have the option to sell it directly by yourself. This is the best option for a seller as you get both of best worlds as long as you are ready to spend some money on advertising the property by yourself.


Who’s paying the agency fees?
Most of the times agency fees are being paid by the seller, as he’s the one signing the agreement with the agency. You will need to agree on how much you would like to get from the sale of your property with your agent (this amount is called the “net vendeur”). The agency fees will then be added to the asking price to create what is called “Prix Frais d’Agence Inclus” (Price Including Agency Fees).

What if I manage to sell the property myself?
As long as you haven’t signed an Exclusive agreement, you are entitled to sell the property by yourself. If you manage to do so, you won’t have to pay anything to the estate agent(s) you’ve signed an agreement with. In this case, you will have to let the estate agent know as it would need to be removed from his portfolio and tell to whom you sold the property.

 

Retire Overseas: Why You Should Consider It 

 

With retirement savings dwindling, more and more of us are wondering if we’ll be able to retire as planned. Many baby boomers, especially, will have to keep working long past traditional retirement age just to make up for the beating their retirement plans have taken in recent years.

Or maybe not.

It’s quite possible that you can still retire as planned and maybe even retire earlier than expected. How? By retiring overseas.

A foreign retirement isn’t for everyone, of course. Family obligations may be an issue for some people. Others might not be comfortable in a place where they don’t speak the language. But if you’re the adventuresome type or if you’ve dreamed of living in an exotic location–maybe on the beach, in a pristine mountain hideaway, or in a sophisticated, culturally rich city–with better weather and a lower cost of living, retirement overseas may be for you.

In many places around the world e.g. you can enjoy a wonderful high-quality lifestyle for a fraction of what it costs at home. A week’s worth of groceries, dinner at a fine restaurant, a night at the symphony, even full-time household help–like a maid or a gardener–can be yours for pennies on the dollar. A house on the beach, a mountain villa, or a super-modern city condo can cost you 25 to 50% less than it might at home.

Is living abroad or offshore retirement for you? Here are some questions to ask yourself to determine if you’re cut out for overseas living.

• Do you thrive on change?

• Are you comfortable in new situations and with making new friends?

• Are you okay with not living close to family?

• Can you speak (or learn) a new language?

• Are you intrigued by foreign cultures and customs?

• Are you single, or if not, is your spouse or partner amenable to moving overseas?

• Are you looking for a way to improve your quality of life while spending less money than you currently do?

 

If you answered yes to the majority of these questions, then living abroad may be for you. Of course, if you’ve already had the opportunity to live overseas in the military or because of a career assignment, you know how.

Use any and all of these resources in your research. Soon, you’ll be well prepared to join other English, Americans, Canadians, and others who have discovered that simply by changing your latitude, you can change your attitude about retirement. And because the cost of living is lower in many of these places, you may well find that you can afford to retire long before you ever thought possible.

 

Prices of real estate in France are favourable, a buyers market!

 

 

 

 

Logon