AboutFrenchProperty.com Blog

Tenancy agreements for French rentals

admin — Thu, 30 Oct 2008 20:29:32 +0000

The tenancy agreement in France is formally called a contrat de location but more commonly is called a bail. French law does recognize a verbal tenancy agreement so be careful what you say to prospective tenants. In the case of a verbal tenancy agreement, the courts only recognize the bare minimum of clauses. A clear and concise, written agreement is always preferable.

In France, there are two forms of written contracts: the privately signed contract or contrat sous seing prive and the officially recorded contract called the contrat authentique. The privately signed contract is drafted and signed directly between private individuals. A lease or tenancy agreement can be executed in this manner. The Officially recorded contract is drafted by a notaire and signed not only by the parties to the contract but also the notaire.

Enforcing an officially drafted tenancy agreement is easier than with a privately signed agreement. When a tenancy agreement is signed in the presence of a notaire it is enforceable as if it is a court ruling. A landlord who is owed rent can give their enforceable copy of the tenancy agreement directly to a bailiff to begin proceedings and collect the debt. Whereas a landlord in possession of a privately signed tenancy agreement must obtain a court order before they can collect from a defaulting tenant.

French law mandates certain text and clauses are included in various types of leases. The omission or infringement of some of those clauses is criminal offences. A landlord with an official tenancy agreement has less liability then one with a private, incomplete agreement.

If a notaire is used, it is common for the costs to be shared between the landlord and tenant.

Selecting a tenant in France

admin — Thu, 30 Oct 2008 20:28:01 +0000

French law provides a great deal of protection to tenants from eviction, so select your tenants carefully.

Obviously, you will want to gather as much information about your prospective tenant as possible to make an informed decision, but French law even restricts which documents and information you are allowed to ask for.

Items you are not allowed to demand:

Reference from a previous landlord.
Photo ID
Social Security Card
Bank statements or bank reference
Authorization to pay rent by direct debit
Medical records
Employer reference
Marriage or Divorce records

There is still plenty of information and supporting documents you can ask for such as pay stubs or salary slips, income tax return, employer references, etc. When you have these items, make sure you follow up, verify the document validity, and talk to all references.

If you are still concerned about a prospective tenant’s ability to pay you can either refuse them tenancy, ask them to provide a third party guarantor, or obtain insurance against the non-payment of rent.

Finding a tenant in France

admin — Thu, 30 Oct 2008 20:26:28 +0000

You have two options when it comes to finding a tenant, advertise the property yourself or hire a professional. As a foreign investor, hiring a professional is the easiest solution.

When it comes to professional help filling a vacancy, you have the choice between a property manager or an estate agent. If it is your intention to use a property manager, you might as well bring them into the equation immediately have them fill the vacancy then manage it. An estate agent will find a tenant for you, but does not offer all the additional services or expenses of a property manager. While it may be good business for you to pay the cost of the estate agent yourself, French law offers a provision for the cost of the estate agent to be shared between the landlord and tenant.

Advertising your property yourself to find renters must be well thought out. Depending on your market, you may only need to place a small ad in the local newspaper. Alternately, you may need to advertise nationally or internationally in multiple newspapers, websites, and magazines. Long term, unfurnished lets will obviously require advertisements less often for presumably less duration. Short term, holiday lets will require almost constant advertising in a variety of venues.

Long term vs. Short term lets

admin — Thu, 30 Oct 2008 20:25:18 +0000

French lets typically come in two types. The long term, unfurnished let and the short term, furnished let. Each type of let will come with its own unique type of renter.

With the long term let, you will generally find your prospective tenants to be individuals and families looking for a home. They are citizens and permanent residents of France and work somewhere nearby. They may or may not speak a second language, so if you are a foreign investor you will need to consider communication. Long term renters will be looking for a good home with the space and facilities for living daily life. Letting to this type of renter is a long term commitment and will require extensive background checks to ensure they are the type of people you want living in your property.

With the short term let, you will generally find your prospective tenants to be business travelers or families on holiday. They may be residents of almost any country depending on where you have advertised. Short term renters will be looking for a great holiday location which is convenient to shopping, dinning and attractions. They will also be looking for amenities that provide all the comforts of home and maybe even some luxury. Letting to this type of renter requires very little commitment and risk on your part as they will not be in the property very long and may even be paying all of the rent in advance, but do not get lax in your background check. They will still have full access to your property and furnishings, so you will want renters who are respectful and trustworthy.

Rent insurance

admin — Thu, 30 Oct 2008 20:01:05 +0000

In France, a landlord can protect their rental income by taking out an insurance policy against non-payment of rent. This insurance is called l’assurance loyers impayes. The cost of the policy is generally between 3% and 5% of the rent amount and will not cover the first months rent. Some rent policies also cover the cost of legal proceedings against a tenant who is not paying, but this feature may cost extra. Additional options may include coverage for the loss of rent if the property is vacant, damage to the property by a tenant, and coverage in the event the tenant should die. The expense of rent insurance is tax deductible.

There are a number of sources which offer rent insurance in France. The main banks such as Credit Lyonnais, Credit Agricole and BNP/Paribas offer such coverage but might require that you open an account with them. You can also approach insurance companies directly. If you are using an estate agent or property manager, there may be additional insurance options available through their agencies. In fact, some insurers only offer policies to estate management companies while others will directly insure landlords too.

Like any insurance policy, there will be some restrictions and limitations. Probably the biggest restriction is the rent to income ratio. This ratio requires that the amount of the rent not exceed 33% of the tenant’s gross annual income. Of course, this means the insurance company will want to see proof of that income. The insurance company may also place cap on the maximum level of rent they will cover. The duration of payments will be limited to 18 to 36 months rent. An additional restriction, which will be important to keep in mind when screening tenants, is the primary residence restriction. The insurance policy may only provide coverage if the property is the tenant’s primary residence. It is very important to fully understand your insurance policy before letting your property lest you find out you are not covered when it is too late to change your mind.

Living in Paris

admin — Thu, 30 Oct 2008 19:31:51 +0000

When most people think of France, they immediately think of Paris. For centuries, Paris has been the capital of culture throughout the world, first in everything from fashion to art. Living in or near Paris is the reason many people decide to move to France. To live in Paris is to be in the heart of a country steeped in a rich historical heritage while living on the cutting edge of modern world.

Paris is one of the oldest and most fabled cities in Europe. For centuries it has been on the cutting edge of global change, including social reform, the arts, haute cuisine and the leader of the fashion world. It is an exciting vibrant city that continues to change while proudly maintaining its fascinating past.

Living in Paris is an experience that can be found in no other major city. Due to strict restrictions on new construction, beautiful historic buildings are rehabbed into condos, apartments and townhomes. From the luxurious to the moderately priced, there are a multitude of housing options in this beautiful city.

The climate in Paris is pleasant year-round with warm summers and mild winters. The temperate weather allows for an abundance of open air markets, sidewalk cafes and walks in some of the world’s most magnificent parks and gardens.

With one of the highest GND in Europe, the economy in Paris is always one of the strongest in the world, making it a smart location choice when opening a new business, relocating an established business or as a place to simply start fresh.

Paris holds the best that France has to offer. The city is home to some of the best schools in the world, a strong economy, a plethora of historic landmarks including the Louvre, Arc de Triomphe, Champs-Élysées and the Eiffel Tower; and a living history. Living in Paris is truly an experience that cannot be found anywhere else is the world.

A few of the advantages of living in France

admin — Thu, 30 Oct 2008 19:28:43 +0000

One of the perks that can come from buying property in France is living in France. There are many advantages when it comes to living in France as opposed to other countries around the world. From urban sophistication to charming country living, France has something for everyone. Breathtaking landscapes, historic buildings, quaint villages, bustling metropolises and a rich quality of life; France offers all this and more for anyone looking to escape the mundane and experience life at its fullest.

Weather – The weather in France can vary from the chill of the northern mountains to the sunny Mediterranean beaches, but overall the climate is moderate without the extremes found in other parts of the world.

Countryside – France’s provincial countryside contains everything, from the country’s famous vineyards to farms, villages, forests, Gothic cathedrals and ancient Roman ruins. In terms of area, France is a moderate sized country, thus no matter where you reside a quiet drive in the country is only a few hours away.

Urban Areas – France’s cities have been major tourist attractions for centuries, and with good reason. Paris, Versailles, Nice, and Lyon are but a few of the 22 major regional cities located in France. Shopping, dining, museums and cultural events are within everyone’s reach, no matter where they live.

Cuisine – The one thing that France is renowned for is its unforgettable cuisine. If you love award winning wine, good food and a culture centered on the art of fine dining, then France is the country for you.

Location – France is at the hub of Europe. The United Kingdom, Italy, Germany, Austria, Switzerland and Spain border the country making travel for business of leisure easy and affordable.

For centuries, France has been the chosen home for expatriates from around the globe. Queens and kings, heads of state, actors, artists, writers and regular people, like you and I, have chosen France for their home away from home for the myriad of advantages that can’t be found anywhere else.

Income taxation in France

admin — Thu, 30 Oct 2008 19:21:43 +0000

The French income tax system is complex, and foreigners in France are subject to a relatively heavy tax burden. In certain circumstances, foreigners may elect to become French citizens to gain tax relief.

Tax residents in France are required to pay tax on income earned worldwide (impot sur le revenue). They declare income earned during a calendar year before March 1 of the following year. Tax declarations are made to the tax inspector (Inspecteur des Impots) and the appropriate tax is paid to the public treasury, the Tresor Public, or to the local Centre des Impots.

French income tax is assessed on a family basis in accordance with a progressive schedule that ranges from 0% to more than 40%. Income of married couples is divided into two parts. If they have children, an additional half-part is assigned to each of the first and second children, and a whole part for the third child—as well as each subsequent child.

In France the husband is responsible for filing the tax return. The return must include the income of his wife and all children who are still in the educational system or in military service. Depending on personal circumstances, tax reductions (abatements) may be allowed.

Taxable income is determined by deducting allowances from total income and then dividing the net amount by 1 for single and no children; 2 for married with no children; 2.5 for married with one child; and by 0.5 for each additional child. For example, a married couple with 6 children would divide the net amount by 5 to determine taxable income.

Divorced, separated or widowed persons receive allowances for the following expenditures: major property repairs; certain ‘green projects’; support of dependent adult family members and relatives; certain donations; Securite Sociale contributions; approved life insurance premiums; interest payments on certain loans; and, special arrangements for single parents with young children.

Suspected tax fraud is investigated in France by authorities who use harsh methods. As deemed appropriate, certain complex tax declarations are assessed according to the punitive regime de d’ imposition forfaiture. By this method, income is assessed by arbitrary means. Authorities can ascribe a letting value or rental to all properties the taxpayer owns and multiply that value by, say, three or five. Cars can be taxed at 75% of the new showroom value. Servants are presumed to have large incomes, and race horses are assumed to be winners. Earnings, pensions, rental incomes, and various forms of interest and capital gains are taxed at a fixed ratio of 18%. Although used infrequently, this punitive system provides a means for authorities to discourage tax abuse while dealing with tax residents who try to beat the system.

A taxpayer who has already filed a previous return will be sent the necessary forms with personal details and figures for French earnings included. Many tax forms can be involved, such as the following ones that cater to the expatriate community:

2042–A main form that shall include all income, worldwide.
2042 C–For those who have a personal business and/or those who are paying taxes to the United Kingdom.
2047–For foreign income–must be used by anyone receiving money from abroad.
3916–Used by those with bank accounts outside of France.

Tax when selling French property

admin — Thu, 30 Oct 2008 19:17:46 +0000

Generally, a French tax agent’s fees are calculated by a percentage of the sale price for a property, rather than the gain. Fees start at 0.5% of the sales price and oftentimes increase another 0.4%, so typically fees are 0.9% plus VAT.

When a property is sold, capital gains tax applies at a fixed rate of 16% for those who are residents of another EU member state, 27% for those who reside in France, and 33.33% for those residing outside of the EU, unless a tax treaty stipulates otherwise.

After the fifth year a reduction of 10% per annum is applied, which means that once the property has been owned for 15 years, no CGT is payable. (See Rules and Regulations for Property Ownership in France as regards the first five years.)

Non residents are required to appoint a tax representative if their property is subject to CGT. Tax representative fees are approximately 1% of the property sale price; however, the fees are deducted from capital gains.

For non-French residents a French fiscal agent must be appointed and is appointed routinely by the notaire. Fiscal agents are tax accountants working as private companies for the French Inland Revenue and their fees are paid by non-French property owners selling their property. Their job is to calculate the amount of French capital gains tax payable on the sale of any property exceeding 150,000 pounds. They ensure that invoices are made out to the seller and that the invoices relate to work that is deductible. Usually deductible work is of a capital nature. Repairs are not deductible.

Notaires use fiscal agents to protect themselves in case there is a tax shortfall. Therefore, a notaire will not complete a property sales transaction involving a non French resident owner without the proper clearance from a fiscal agent. Few fiscal agents both calculate the amount of capital gains tax due and guarantee the French government that the correct amount of tax has been deducted. Consequently, fiscal agents are cautious and err in favor of the French taxman.

The UK-France double tax treaty prohibits any form of tax discrimination against nationals of the other country. However, a UK national has to pay 3% more capital gains tax than a French national. And property of higher value sold with a lower gain will cost a UK national more than a Frenchman because the French agent’s fee will always be worked out according to the sales price rather than the gain.

Rules and regulations regarding property ownership in France

admin — Thu, 30 Oct 2008 18:40:02 +0000

Latest Laws for French Tax Residents.

Tax credit is available for the first five years of property ownership to French tax residents who paid interest on mortgages for primary French residences in 2007, whereby the compromise was signed after August 22, 2007. Credit is currently 20% of the loan amount and is limited to 750 pounds per year for a single, disabled person, also widows and divorcees, or 1500 pounds for married couples and PACS partners, wherein one of the partners is disabled. Those who have no tax liability receive a refund from French tax authorities.

The Finance Bill for 2008 will include debate over a governmental proposal for all French tax residents to receive double the credit and ceilings to 40% of the loan amount for the first year. For the first year, credit would increase to 1500 pounds for a single, disabled person; 3000 pounds for a couple; 100 pounds increase per dependent and 50 pounds increase per child who lives in alternate parental households. The bill would backdate credit to instances where the “acte authentique” was signed before May 6, 2007.

Those who are French tax residents or have other French sourced income, but who live in countries that have not signed a tax treaty with France are obligated to file tax returns and pay French personal income tax at three times the annual rental value of their properties. If an individual’s French income exceeds this amount, he must pay French income tax on all of his French income.

One cost effective way for those who own French property to offset high taxes is to rent their properties as furnished rentals (LMP), so that the loss generated by interest payments on loans offsets their income.

French tax residents pay a progressive rate of 5.5% to 40% on their net income. Non French residents are subject to the same progressive rate; however, their rates are a minimum 20% of their net income.

Wealth Tax for French tax residents. If, as of January 1, 2007, a French tax resident’s property was valued at more than 760,000 pounds, a wealth tax form must be filed with the tax center, and taxes will range from .55% to 1.8%. The wealth tax base takes into account market value of all worldwide assets, as well as all of the individual’s debts.

For non-French tax residents, the wealth tax base takes into account the market value of an individual’s French assets only and deducts only debts related to French assets from the calculation of the individual’s net wealth.

Upon the demise of a an owner with taxable property in France and depending upon their biological link to the deceased, surviving heirs can benefit substantially from certain allowances. These allowances are subject to an inheritance tax. A surviving spouse and children receive a general allowance of 50,000 pounds. An additional 76,000 pounds is applied to the surviving spouse’s taxable portion, and an additional 50,000 pounds is applied to a surviving child’s taxable portion. Heirs pay inheritance tax that ranges between 5% -40%, depending upon the net value of each portion. When the net value of the transfer exceeds 1,700,000 pounds, the higher fee or 40% fee is applied.