The sale or acquisition of real estate is always a special moment for a business. Get help from our experts to navigate tax complexities.
Particular care must be taken in the management of the real estate transaction, in particular in terms of transfer taxes for consideration (DMTO) and the induced real estate VAT. Each transaction has unique characteristics such as the nature and purpose (use) of the property, the quality of sales and purchase operators (businesses or individuals), as well as local fiscal variations. All of these elements must be carefully analyzed to choose the most beneficial solutions for your business.
Whether for a building plot or a building that is more than 5 years old, VAT and transfer duties can vary considerably. A thorough understanding of these variables is essential to minimize costs and optimize tax benefits. Our tax lawyers who specialize in VAT support you every step of the way to ensure that all regulations are met and that all tax savings opportunities are exploited. By working hand in hand with your team and your notary, we ensure that each transaction takes place smoothly and in accordance with the law.
Our tax law firm, expert in VAT, analyzes precisely the advantages and risks in terms of VAT but also in terms of transfer taxes.
Transfer taxes are taxes levied by the State when the ownership of real estate is transferred. They can vary depending on several factors such as the value of the property, its geographical location, or whether the property is new or old. It is important to note that transfer taxes may be reduced or not applied (exemption) in certain specific situations.
Since the 2010 reform, the tax administration has distinguished between individuals and professionals subject to VAT. In the case of a transfer between individuals, only the registration fees must be paid. For a real estate transaction carried out by a taxable person, VAT varies according to numerous criteria and the seller can choose to tax on the margin by renouncing VAT.
The qualification of the seller is therefore essential.
For building land, VAT is automatically subject to the total price or margin achieved. For other land, an exemption from VAT is possible. Buildings are treated differently depending on whether they are less than 5 years old or older. Transfer taxes and VAT can be influenced by various factors such as the nature of the asset, preferential arrangements following resale or construction, and the precise identification of the asset.
In addition, depending on the conditions of acquisition of the property, the property may be subject to a VAT regime on the margin.
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The sale or acquisition of real estate is always a special moment for a business. Particular care must be taken in managing the transaction, in particular in terms of transfer duties for consideration (DMTO) and induced real estate VAT. The nature and purpose (use) of the property, that of the sales and purchase operators (company or individual), local tax variations, etc.: there are many characteristics of the operation to take into account in order to choose the most advantageous solution (s) for your business. Our tax law firm specialized in VAT analyzes precisely the advantages and risks not only in terms of Value Added Tax but also on transfer taxes. Explanations.
The transfer of real estate simply refers to a change of owner following a sale, an inheritance or a gift. Taxes and taxes are levied on transactions and the variables to be taken into account are numerous.
When the purchase or sale of the property is made by a company, there are many criteria and regulations to take into account. Indeed, depending on the nature of the property, of the purchaser or of the seller, its final destination, its use, etc. Transfer tax and VAT may be exempt, have different rates, etc.
Our law firm provides advice, analysis and follow-up to ensure that the transaction takes place in the best possible fiscal and financial way.
But before looking in detail at what our VAT experts can offer you, let's specify the context a bit so you can see firsthand the difficulty of the exercise.
Transfer tax is a tax levied by the State when the ownership of a property is transferred from one person to another, but also when a company buys and sells it. This tax, integrated into what is known as “notary fees”, generally includes registration fees and, in some cases, a real estate security contribution. Depending on the case, it may also be called “registration right”.
The transfer tax is paid to the notary when the bill of sale is signed. The latter pays it in full to the Public Treasury: it is used to finance local authorities.
The amount of this tax varies depending on several factors, such as the value of the property, its geographic location, or whether the property is new or old.
It is important to note that the transfer tax may be reduced or exempted in certain specific situations, such as first real estate acquisitions, business restructuring operations or family transfers.
Transfer taxes are borne by the buyer in most real estate transactions (the seller can take care of these ancillary costs).
Since the 2010 reform (bringing it into line with Community law, during real estate sales transactions), the tax administration has distinguished between individuals - so-called non-taxable persons - and professionals, subject to VAT.
During a transfer between individuals, Value Added Tax is not collected. Only registration fees (varying by department from 5.09% to 5.80% depending on the department) need to be paid.
When a company enters into such an operation, things get complicated.
For a real estate transaction carried out by a taxable person, value added tax varies according to many criteria... And the seller can also, in some cases, choose to tax on the margin by renouncing VAT.
Finally, in many cases, these criteria also ultimately impact the transfer tax at a cost.
Here are the main areas that affect not only VAT but also DMTO.
Of course, a distinction must be made between building land and other land.
For building land, VAT is automatically subject to the total price or margin achieved. The DMTO rate will be reduced (0.715%) in the first case if VAT is collected at the total price, or at the normal rate (5.807% except some departments) if VAT is collected on the margin.
For other land, either an exemption from VAT is possible, or the seller renounces the exemption by choosing to subject the transaction to VAT, on the total price or the margin. In both cases, the transfer tax is subject to the normal rate.
The big difference comes from the age of the property being sold. A distinction is made on buildings that are less than 5 years old and the oldest.
In the first case, VAT is automatic and DMTO at a reduced price.
For buildings older than 5 years, as for land that is not intended to be built, the purchaser is exempt from VAT (excluding VAT option) and the transfer tax is at the normal rate, even in the event of an option for taxation (except in Île-de-France, where premises used for storage, offices or commercial purposes are subject to an additional tax of 0.6%).
Preferred regimes following resale or construction
An exemption from transfer tax exists if the taxable purchaser (company) carries out work within 4 years following the sale. A fixed fee of 125e125 € is collected in this case.
Likewise, if a resale within 5 years (or two years by exception) following the sale of the property is scheduled, the transfer tax will be at a reduced rate.
While the rules seem clear, identifying the asset itself is more difficult to insure in some cases.
Example: a piece of land should not necessarily have buildings. However, the very concept of “constructions” can vary. Pylons, power lines, roads, fence walls for example fall within the definition of construction.
Likewise, if the land has buildings that are unfit for any use (ruins, state of abandonment, unfinished construction site, etc.), it will be declared unbuilt land.
Since the 2010 reform, the fact that the purchaser intends to build or to obtain a building permit within 4 years after the sale of the property is no longer taken into account in the definition of “building land”. Only spaces identified as constructible by the PLU or other administrative document fall within this definition.
A new building must have been completed, at the date of transfer, less than 5 years ago.
On an ex-nihilo construction, no worries.
On the other hand, work on a so-called old building, raising or renovating it, can cause it to change category. So everything depends on the type of work. The General Tax Code includes several works that bring the property into new condition: repair of the majority of the foundations or facades (excluding renovations), work on the rigidity of the structure, etc.
Taxes when selling or buying a building (but also land) provide for differences depending on the final use.
Example: when the property is rented, and the rental activity is transmitted, VAT may not be collected.
Note: only a taxable person can benefit from a preferential regime on transfer taxes during the construction or resale of the property.
While the definition of the difference between a business and an individual in real estate transactions is clear, some situations complicate buying and selling.
Without going into details, determining the quality of an operator is still not easy. There are a number of exceptions.
A person who is not subject to VAT, but who is involved in an economic or marketing approach, will have to submit to Value Added Tax... If, for example, the number of real estate rentals that they manage is substantial and enters into competition with professionals in the sector.
On the other hand, a natural or legal person carrying out a taxable activity will be exempt if they act in a financial context.
Exemptions, special cases, identification of the property for sale and the status of taxable person of an operator, administrative rules that are sometimes not very explicit, etc.: you understand the interest in calling on tax lawyers specialized in VAT, such as those at our firm, to clarify things.
Our experts analyze legal complexities to:
• protect the interests of the buyer or seller,
• ensure compliance with tax requirements,
• ensure a transparent and legally compliant transaction.
Above all, they will help you choose the legal options that are most beneficial for your business or organization in advance.
And, if necessary, they will represent you in disputes, including for a real estate transaction that has already taken place.
If you are considering the acquisition of property, quickly contact our firm of tax lawyers who are experts in the workings of Value Added Tax and Transfer Tax so that your real estate transaction takes place as simply and efficiently as possible.
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