Pay zero income tax on French holiday home rentals

News & Guides / Pay zero income tax on French holiday home rentals

France offers some highly attractive tax advantages to property investors buying off-plan and renting the property out to holiday makers. You do this by signing a specific type of rental mandate with a French professional, registered property management company who provides hotel services and follows the strict accounting rules set in place under this agreement. It is a specialized area, so not a service that the majority of French estate agents or French management companies would offer so you have to do your research to find a company that does offer it such as Avecoeur. Listed below are the expenses you can offset against rental under this tax system:

1) Amortization of about 90% of the property price spread over 30 years (3% per year)
2) Mortgage interest (typically 2% per year)
3) Maintenance & running costs of the property & local annual property taxes (typically 1.5%)
4) Accounting fees
5) Cost of travel to visit the property

With a typical rental income of 5% NET per annum it is clear to see that this rental profit will not be subject to any income tax since from a taxable point of view it will be earning less than zero. You would have to be earning a rental yield significantly above the norm before any tax on rental income would be due. As such most people would pay no tax under this set up.

In order to qualify for this system, in addition to the points highlighted above, you will need to be renting your property for at least a few weeks each year to show that you are making an effort to earn a rental income from it. You can use it as much as you like up to 6 months a year which for most people is more than enough and if you wish to cancel the agreement you can do so on a yearly basis. Another big benefit of this system is the 20% VAT rebate on the purchase price.

So why does the French government offer such generous tax advantages? They do so for a number of reasons listed below:

1) More rental accommodation in the area means more tourists spending money in the local area on activities, restaurants, shops etc.
2) Every tourist pays a nightly stay tax equal to roughly 2.3 Euros per person per night
3) 10% VAT is added to the rental tariff charged to the tourist (included in the price they see)
4) It leads to increased employment of cleaners and concierge providers which leads to more income tax and also corporation tax paid by the French management company.

Ultimately it is a win-win situation for both the French tax authorities and the property owners which is no wonder that it is becoming so popular. It is important to note here that what is described here is NOT a leaseback system. The set up described here is simply a rental mandate where the owner retains complete control over their property which is why Avecoeur offers this arrangement since it ensures that the service we provide both to paying guests and property owners is of the utmost quality.