French Property Tax Hike May Hit Legal Barrier

By Editorial 18 July, 2012

The new proposal by the French socialist government to assess non-resident holdings of French property to general social contributions (CSG), currently at a rate of 15.5%, could face a legal challenge from disgruntled owners of second homes in France.

Under the existing law, non-residents are only liable to a withholding tax of 20% on rental income and 19% on capital gains arising directly or indirectly from French property. The liability to CSG would result in an increase to 35.5% and 34.5% respectively.

The new taxes could, however, fall foul of European laws designed to ensure a level playing field for investors across the European Union. These laws stipulate that member states must treat residents and non-residents equally with regard to tax and other laws.

A similar proposal had been made a year ago by the then President Nicolas Sarkozy, which had encountered fierce opposition from Britain. UK Prime Minister David Cameron, however, said he was "reassured" by the French President François Hollande’s recent comments during his visit to Britain that British property owners would not be discriminated against.

Mr Cameron's dovish stance is also aimed at easing the tensions between the UK and France over tax matters, in particular as Cameron had said in June he would roll out the red carpet for French tax exiles.

Nevertheless, this move by the French government does not allow any room for manoeuver to the non-resident property owners. The tax hike for rental income is to apply retrospectively from January 1 2012, and by the end of July 2012 for capital gains.

Tags: Expatriates | Tax | Investment | Real-estate Investment | Property Tax | Law | Real-estate | Withholding Tax | Social Security | France |


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