Making Your Property In France Free Of Vat The Vat Refund Structure Explained

Summer 2020

VAT applies on all new built properties in France but you have the possibility to get it refunded to you from the tax administration if you are planning to rent your property furnished on a short term basis with services.
This letting activity is considered as commercial activity allowing you therefore to claim the VAT.

The conditions are quite easy:

• -you need to rent your property furnished
• -on a short term basis
• -at least 3 para-hotel services have to be offered to the tenants: reception (handover of the keys), bed and linen, cleaning, breakfast (it can be breakfast delivery).

Many rental agencies propose those lease options to owner especially in the French Alps. You just need to sign a flexible commercial lease agreement with them.

The rental agency will manage, maintain and rent your property on your behalf. You will be of course free to use your property whenever you want (you’ll just need to tell the agency before the beginning of the ski season when you are planning to occupy your property).
The rental agency takes care of everything and propose those services to the tenants.

This VAT refund structure is very advantageous as it make you save 19.6% on the purchase price.
If you are buying a new built property already completed, you pay the price including VAT and then get the VAT back 3 to 6 months after the signature

If you buy off plan, you pay the property by stage payments. You pay the stage payment including VAT and then get refunded the VAT accordingly on each stage payments.

The VAT is being rebate on the rental activity over 20 years so it means that you have to rent your property over that period.
If you decide to stop your rental activity after 10years, it is absolutely possible but you may have 10/20th of the VAT you got back to refund to the Tax administration.

It is absolutely possible to resell your property before the end of the 20 years period:

-If you resell the property and the new purchaser carry on with the rental activity there won’t be any VAT to repay as the VAT will keep on being rebated on the new purchaser.

-If you resell the property for example in year 10 and the new purchaser does not want to carry on with the lease activity. You may have to repay 50% of the VAT that you initially got back.

But it is not a problem as the price including VAT when you acquired the property was the actual value of the asset so when you resell the property the valuation of your property is price of acquisition including VAT+ capital appreciation over 10 years so if you have acquired it at the price excl VAT, the VAT reclaim structure would have still help you saved 10% at the beginning