The VAT, a tax that is due to the French tax authorities at the time of the resale of a property that had undergone renovation in the past 5 years leading up to the sale, presents a major disadvantage.
To avoid paying the VAT to the French tax authorities, you must form a transparent corporation, SCI (Familia SARL), at the time of your purchase of the property, then at the time of the cession of the property, resell the entirety of the "company shares" of your corporation. In order to accomplish these acts, it is necessary to have an accountant and complete legal follow-up of your corporation, so as to assure a buyer preferring to directly purchase the property.
To help you understand the benefits of the formation of a transparent corporation, we provide you with an example:
If you resell the house for a value of 1,500,000 euros less than five years after terminating its renovation, and you did not form a transparent company at the time that you purchased the property, you will be required to pay :
The VAT on 1,500,000 euros, 246 000 euros minus the VAT on the renovation (deduction of 10,000 euros) = 236 000 euros.
The capital gains tax on the amount of the sale without tax. Selling price: 1 500 000 euros – 246 000 euros = 1 254 000 euros.
Your capital gains will be 1 254 000 – 1 000 000 = 254 000 euros
If you are French resident : 27% X 254 000 = 68 600 euros
If you are French resident : 16% X 254 000 : 40 600 euros
If you are non EU resident : 33,33 % X 254 000 : 84 600 euros
You will thus have paid on your « 500,000 euros » of capital gains :
If you are French resident : 236 000 + 68 600 = 304 600 euros
If you are French resident : 236 000 + 40 600 = 276 600 euros
If you are non EU resident : 236 000 + 84 600 = 320 600 euros
In this illustration, you resell your "company shares".
Your selling price of 1,500,000 euros will be decreased by the loan of 800,000 euros, bringing about a value of 700,000 euros.
You contributed a personal capital of 200,000 euros, which delivers you a total capital gains of 500,000 euros.
If you are French resident you will be taxed at 27%: 195,000 euros instead of 304,600 euros; money saved: 110 000 euros. (36% savings)
If you are EU resident you will be taxed at 16%: 149 000 euros instead of 276,600 euros; money saved: 127,600 euros. (46% savings)
If you are non-EU resident you will be taxed at 33,33%: 221000 euros instead of 320,600 euros; money saved: 99,000 euros. (31% savings)