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The last few months have seen significant changes in the area of VAT applied to real estate rentals. In this edition, we explore substantive topics that could directly affect your rental activities or those of your customers. We offer you an overview of recent reforms and the implications to be expected for real estate players, with a particular focus on digital short-term rental platforms.
From 2025, furnished tourist rental companies, especially those using platforms such as Airbnb or Booking, could be subject to VAT. This measure, adopted at first reading in the National Assembly, could change before its final adoption.
MEPs want to reduce competition between short-term and long-term rentals, whether bare or furnished.
The aim is to make the market fairer, especially in areas where the rental supply is becoming scarce. However, the impact of this measure would be limited, as many small renters could be exempt from VAT thanks to the franchise in base.
The amendment imposes VAT only on “furnished tourist accommodation”, as defined restrictively by law: furnished villas, apartments or studios, offered to visiting customers for a limited time (per day, week, or month), without choosing a place of residence. This definition excludes guest rooms and private rooms, which are therefore not affected by this new measure.
If the measure were to become final, only renters exceeding the basic franchise thresholds would necessarily be subject to VAT. These thresholds are set at:
Thus, operators below these ceilings could benefit from VAT exemption. The measure would therefore only have an impact on operators whose turnover, within the same structure, is significant. However, the latter were often already looking for VAT liability through measures in the area of para-hotels to deduct VAT on the acquisition of the property and the works.
For operators operating in the para-hotel business, this measure would simplify tax obligations in terms of VAT.
They would no longer have to worry about providing additional services to be subject to VAT. This framework would therefore subject the activity according to the amount of turnover achieved, securing the fiscal practices of operators.
This would further broaden the scope of application of VAT on furnished rentals, in line with the administrative doctrine of this summer (link), which specified the legislative changes necessary to align the French text with the European Directive.
In practice, this amendment thus has a limited fiscal impact. There are two scenarios:
In the tourist and hotel rental sector, the management of VAT on amounts collected in the event of a no-show by the customer (no-show) requires particular attention. The distinction between deposits and installments is crucial in determining the appropriate tax treatment.
Deposits are amounts paid when booking, offering a possibility of withdrawal to both parties. If the customer cancels, the hotelier keeps the deposit as compensation. Conversely, if the hotelier cannot honor the reservation, he must return double the deposit to the customer. According to case law, deposits are considered to be compensatory allowances and are therefore not subject to VAT.
On the other hand, deposits represent a firm commitment by both parties. In the event of cancellation by the customer or a no-show, the hotelier keeps the deposit, or even the entire amount of the reservation. Recent case law of the CJEU and the Council of State has established that the amounts retained by the provider for services not consumed are subject to VAT. Thus, the deposits retained in the event of a no-show are considered as the consideration for a service provided (the provision of the property) and are therefore subject to VAT.
On October 9, 2024, the Council of State issued two important decisions confirming the VAT liability of amounts collected in the event of a no-show in the hotel sector. The decisions specify that the amounts retained by the hotelier, even if they concern only part of the price of the stay, constitute consideration for the provision of the accommodation service when the customer does not show up without prior cancellation, regardless of the actual use of the service.
However, the Council of State specifies that if the customer has made use of the right of withdrawal provided for by contract, the amounts retained may be considered as lump-sum cancellation benefits not subject to VAT. This distinction highlights the importance of drafting the general conditions of sale and the nature of the amounts collected when booking.
It is essential for hoteliers and property renters to correctly qualify the amounts received when making reservations. A poor qualification can lead to significant tax adjustments.
As part of the initiative “VAT in the Digital Age” (ViDA), the Council of the European Union recently approved major measures to modernise the tax regime for short-term rental platforms. These reforms, which will have a significant impact on the real estate rental sector, in particular for digital platforms that facilitate renting, have yet to be discussed and validated in Parliament.
Increased role of digital platforms
One of ViDA's key measures concerns digital platforms that facilitate the rental of real estate. Henceforth, these platforms would be considered as a “buyer and seller” for short-term rentals, making them responsible for collecting and paying VAT on these transactions instead of the renters.
This provision aims to minimise the risks of fraud and avoid distortions of competition between the real estate rental sector and hotels.
This regime will be optional for states between 2028 and 2030.
Exemption possible for certain operators
Member States maintain some flexibility thanks to an “opt-out” option. This provision would allow countries to exclude certain operators from the obligation to collect VAT, in particular small service providers or those providing a VAT number in order to limit the administrative burden on platforms.
In the absence of this option, transactions carried out by franchised rental companies through platforms could be subject to VAT, even if the lessor himself benefits from a VAT franchise. This means that transactions made through the platforms could be subject to taxation, regardless of the franchise status of the individual lessor.
Treating short-term rentals as hotel services
The text, which will have to be validated by the European Parliament in the next steps, also provides that Member States will have to deal with short-term rentals (less than 30 days) in a manner similar to hotel services in terms of VAT, thus recognizing the competition between these two types of accommodation.
This measure aims to restore tax fairness between rental platforms and the hotel sector, which is often subject to stricter tax rules. However, the text allows states to exclude certain operators.
This may have no impact for states like France.
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