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Buying property that
is to be constructed (Part II)
Financial
aspects
and taxation issues
There
are some differences in terms of the financial aspects of purchasing
property that is to be constructed when compared to the re-sale of older
property. These concern VAT
and the notaire’s fees. In
Part 1 of this issue of the week, the differences in relation to the
payment of the price and the deposit were outlined.
VAT
VAT
is charged upon the sale of such properties.
It is, in principle, charged at a rate of 19.6% (it can be charged
at a lower rate for certain very specific properties where there is a
social interest in their acquisition i.e. properties for use by those on
low incomes). The VAT is
technically payable by the vendor but it will be factored into the
purchase price and will be paid by the purchaser as the next staged
payment is reached.
Notaire’s
fees
The
notaire’s fees are less than for the sale of older properties (around 3%
to 4% of the purchase price). This
is due to the fact that such
sales
do not attract the same transfer taxes.
Tax
saving schemes
These
are often referred to as ‘leasebacks’ and permit the recovery of the
VAT paid at the time of purchase. In
addition, for those that are tax resident in
France
there are other fiscal advantages in relation to the
income tax payable (tax reduction of 15% of the purchase price of the
property) provided that certain conditions are complied with.
In order to be eligible for the scheme, the purchaser must enter
into a commercial rental contract for a minimum 9 year period.
The property must be situated in a classified tourist residence in
a rural revitalisation area. To
recover the VAT, this scheme must include the provision of hotel type
services to those that stay in the property.
In relation to the recovery of VAT, it should be borne in mind that
if the purchaser sells the property within 20 years or if it is not leased
out for this period, he or she will be liable to repay the VAT pro rata
for the part of the 20 year period remaining.
This is the main scheme relating to property to be constructed and
its main interest for the overseas purchaser is the aforementioned VAT
recovery.
There
are a number of restrictions under such schemes such as the fact that the
purchaser can only occupy the property for a maximum 8 weeks over the year
and must pay rent (75% of that normally due).
Also, the purchaser must be an individual (the use of a specific
French property holding company, an SCI, can be envisaged but only where
it has not opted for the payment of company tax).
12/06/2003
- Issue of the week
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