International real estate taxation
International real estate investment is attracting more and more actors: individuals, business leaders, expatriates, family funds or institutional investors. But beyond promises of profitability or wealth diversification, there is a central question: taxation.
International property taxation is a complex and evolving area. It requires a rigorous approach, at the crossroads of local legislation, tax treaties and the rules of French law. Anticipating these challenges not only optimizes the net profitability of an investment, but also secures ownership and transmission.
A multi-level legal framework
Local taxation
Each country applies its own tax rules to real estate situated in its territory. These rules include:
- Taxation of rental income
- Any taxes on possession of property
- Taxation in the event of resale
- Local reporting formalities
Some jurisdictions have a very favourable tax system for foreign investors, while others have a more stringent framework for property taxation.
Tax residence and global taxation
Individuals who are taxed in France are subject to tax on their world income, including those derived from buildings located abroad. This implies:
- Foreign Real Property Income Return
- Potential integration into the real estate tax base (IFI)
- Compliance with specific reporting obligations
International tax treaties
France has signed numerous tax treaties aimed at avoiding double taxation. These generally specify:
- Country competent to tax land income or capital gains
- Mechanisms for eliminating double taxation (tax credit, exemption)
Modes of holding a property abroad
Live detention
Investing in a property located abroad in its own name is legally simple but may prove to be tax-effective. This method of holding offers little leverage for optimisation and directly exposes the investor to the taxation of the country concerned, as well as that of his country of residence.
Detention via a foreign company
It is common to use a local company to own real estate located in the same country. This type of structure can:
- Better tax control
- Limiting legal liability
- Facilitate transfer or transfer
However, it must be ensured that the company is recognised as such by the French tax administration, and that it is not considered a company. « transparent » This could result in a requalification.
Detention via a French company
In some cases, a French company (e.g. SCI, heritage holding company) can be used to invest abroad. This solution has the advantage of better accounting and legal monitoring from France, but it must be linked with the rules of the country of investment.
Main tax issues
Rental income
Rents received abroad are generally taxable in the country where the property is situated. In France, they must also be declared and are subject to specific rules according to the applicable tax convention. Deductible expenses, tax rates and depreciation mechanisms vary from country to country.
Gains on disposal
The tax on capital gains depends on both the location of the property and the tax residence of the transferor. Some tax treaties attribute exclusive jurisdiction to the country of the property, others allow double taxation offset by a tax credit.
Property Tax (IFI)
Real property located outside France is included in the IFI base if the taxpayer is a French tax resident. The valuation modalities, deductible liabilities and reporting obligations should be carefully assessed.
Transmission and succession
The transfer of real estate abroad can raise important tax and civil issues. Depending on the country, inheritance taxes can be very high or almost non-existent. It is therefore essential to anticipate the applicable rules:
- Place of duty
- Rates and reductions applicable
- Cross-effects of foreign and French inheritance laws
Precautions and good practices
- Analyse the bilateral tax convention between France and the country of investment
- Choose a legal structure adapted to the heritage strategy and the local legal framework
- Accurately comply with reporting obligations
- Have each transaction audited by a professional with both international taxation and French tax law
- Anticipating exit: divestment, succession or reorganization must be thought up to avoid excessive fiscal friction
Contact our firm specialized in international real estate taxation
International real estate taxation is both a strategic and a technical area. It requires a clear view of local and transnational issues, a rigorous legal anticipation, and full knowledge of the applicable tax treaties.
Whether it is to acquire a secondary residence abroad, diversify an investment portfolio or structure a family heritage, the fiscal dimension cannot be relegated to the background. It must be integrated from the reflection stage, in conjunction with specialist advice.
To receive advice on international real estate taxation, contact the Cabinet.
