French tax update the higher rate of capital gains tax 33% for non EU resident sellers looks like it is finished12th December 2014
Since François Hollande’s appointment as French President in May 2012 there have been a number of changes to French property taxes for non-resident owners. The president was quick to introduce a 15.5% social charge, equivalent to the standard social charge paid by French residents, on top of the Capital Gains Tax (CGT) of 19% for EU residents and 33% for Non EU residents.
The European Court has recently decided that the social charge of 15.5% charged for non-residents was illegal as non-residents were not benefiting from the French social system (healthcare, unemployment benefits etc.) so the non-resident buyers of French property who were taxed with these social charges over the past 2 years will receive a refund from the French tax administration.
This precedent means that France should have to change the CGT taxation rule as well and remove the 15.5% social charges included in addition to that basic rate. “There has recently been a case in the French courts on broadly this point which has been referred to the European Court. The Advocate General has recently given his opinion firmly siding with then tax payers and against France’s position. The EU Court decision is expected imminently and is very likely to find that France’s law imposing social charges on non-French residents is illegal. On the face of it this is good news and people across Europe who have paid the charge should be able to get a refund”. (David Anderson
Solicitor Advocate, Chartered Tax Adviser)
There has been even more good news as France has recently been ordered to refund the extra capital gains tax paid by a non-EU resident who complained about the different tax rate applied to EU (19%) and non EU resident (33%) which means that non-EU residents should also now be paying only 19% (and not 48%!)
Recent court case
The French Conseil d’Etat, which is the highest court for tax matters in France, decided on 20th October 2014 (Case N° 367234) that the higher rate of capital gains tax on non-residents is illegal in certain circumstances. In this case, Swiss residents owned a French property in the name of a French SCI. When they sold they paid at 33.3% on the basis they were non-EU residents. They claimed a repayment on basis that they should have been taxed at the lower rate in the same way as EU residents. The French Conseil d’Etat said this was correct and ordered that they should be refunded the difference between the higher and lower rates.
Source: David Anderson
Solicitor Advocate, Chartered Tax Adviser
The court decided the case on the basis that the higher rate of tax was a disincentive for non-residents to buy in France, and so was an illegal restriction on the movement of capital from another country, contrary EU law. They did not rely on the France- Swiss Double Tax treaty which means the case has wider significance.
Not only has the social charge been deemed illegal but the difference between the 19% for EU resident and 33% for non-EU resident should also be as well.
Thanks to a taper relief system (*) property in France is exempt from any CGT after 22 years of ownership. France should now become one of the most tax attractive countries in Europe to invest in property.
(*) 6% per year between year 6 and year 21 then 4% in year 22