More and more property sales are subjected to the VAT at the rate of 19,6% of the property value since the passing of the August 10th, 2006 law * (N 2006-1002 - Official Journal of August 11th, 2006). Indeed, before the law, only constructions of less than 5 years were subjected to this tax. However, the law now extends the VAT to also apply to older houses that have had renovation done on more than two thirds of their surface.
This decree stipulates that even having electricity work carried out throughout the building, is enough to make the property subjected to the VAT (19,6% of the total price of negotiation) at the time of the sale.
To recover the VAT, your property would need to be rented, generally by the week while being sure that the 3 of the 4 following services carried out :
Reception of the tenants.
Regular housecleaning.
Supply of the linen and bedclothes.
Possible provision of breakfast.
Under these conditions, the rental income that you accumulate will be subjected to the VAT at 5,5%, and the services to the VAT at 19.6%. Consequently, the possibility of recuperating the VAT at 19.6% on the totality of your charges will allow you not to pay this tax to the French tax authorities.
(The VAT deductible at 19.5% being superior than the TVA at 5.5%)
Thanks to the services rendered to your tenants, you will be able to request the French tax authorities to reimburse the VAT that you had paid in the purchase price of your property.
The rectifying finance law of 2005 introduced in article 88 and following, a series of criteria that defines the types of construction considered to produce a new building, thereby legally redefining the line between property VAT and the registration fees for transactions that are related to older buildings that undergo renovation.
The new criteria are based on specific elements :
The following types of construction are, from now on, considered to produce a new building:
-Construction applied to the majority of the foundation
-Construction applied to the majority of non-foundation elements that determine the resistance or rigidity of the building.
-Construction applied to the majority of the solidity of the exterior (except rough-casting)
-Construction on the whole subsidiary work.
The subsidiary work concerns:
Renovation work must be applied to at least two-thirds of the original works for each of the elements mentioned.
These criteria cover the principal elements in substantial renovation cases that are recognized to involve the property VAT. However, the law can allow the request of a re-examination of certain cases, namely those in which only 65% of each of the criteria are fulfilled.