Non-residents with French rental income- which tax returns to file ?

For further help and advice, please visit our website www.franceaccountants.com .

The time for filing the 2014 annual French tax returns (i.e. for the year 2013) is approaching !

Here’s a guide which should help you decide which tax regime you should use to declare your rental income and which forms need to be completed.

Firstly, the French tax system distinguishes between furnished and unfurnished property.

In general, the system allows for higher deductibility of expenditure on furnished property; this follows the line of thinking that property rented out unfurnished is normally a long-term rental where most costs are covered by the tenant.

Let’s look at furnished property first.  Around 75% of our non-resident clients come under this category, with property in France that they let out for holiday rentals as well as for their own personal use.   If your property produces rental income of less than 32,900 Euros in a year, then you can opt to declare under a special tax regime called Micro-BIC. Under this regime, you need only declare the gross rental income in Declaration 2042C, and the Tax Office gives you a 50% allowance for expenditure.

So, for instance, if the rental income from your French property in 2013, before any expenditure, was 20,000 Euros, then:

Your taxable income is 10,000 Euros. This is subject to income tax at 20% and Contributions Sociales at 15.5%. The total tax payable is therefore 3,550 Euros.

Of course, the Micro-BIC regime is optional and if your actual expenditure is higher than 50% of your rental income, then you will save tax by declaring your actual expenditure under the regular tax regime, for which you should complete Declaration 2044. Pleasesee the section below on unfurnished property income for further details.

Note that if your property is run as full-time accommodation such as a gîte rural, meublé de tourisme or chambres d’hôtes then the tax treatment under the Micro-BIC regime is even more favourable, with a deduction of 71% for expenditure and a maximum allowable income of 82,200 Euros per year.  Note that in order to be eligible for this, it is necessary to register your rental business formally at the nearest Chamber of Commerce and pay the corresponding local taxes due.

Now onto unfurnished property.  If you rent out your property unfurnished and you have annual rental income of less than 15,000 Euros, then you can opt to declare your gross income under the Micro-foncier tax regime, in Declaration 2042. This gives you a 30% allowance for expenditure.

So, for instance, if the rental income from your French property in 2013, before any expenditure, was 20,000 Euros, then:

Your taxable income is 14,000 Euros. This is subject to income tax at 20% and Contributions Sociales at 15.5%. The total tax payable is therefore 4,970 Euros Euros.

This regime is optional and if your actual allowable expenditure is greater than 30% of your income, then you will save tax by declaring under the normal tax regime. As with furnished lettings, the additional form to complete is Declaration 2044 and the following expenditure is allowable:

• Management and agency costs;
• Accountancy charges;
• A fixed allowance of 20 Euros per property;
• Maintenance, repairs and improvement costs;
• Property tax paid;
• Insurance costs;
• Mortgage interest paid. Mortgages with foreign banks are also eligible.

Note that certain tax regimes cannot be changed within a fixed period, so it is important to plan ahead.  For further help and advice, please visit our website www.franceaccountants.com .