In France, sales tax (known as VAT in the UK or sales tax in the USA) is called TVA, which stands for Tax on Value Added (or in the original French: Taxe sur la Valeur Ajoutée). It is set to 19.6% (applicable to most goods and services) or 5.5% (applicable to some goods and services).
TVA (VAT) on French Property Renovations & Extensions
If you are buying a property in France, you should take into account that materials and labour costs for renovations or minor extensions is taxed at 5.5% instead of 19.6% provided that the following three conditions are met:
- The house is at least 2 years old. If you house is just under 2 years old, you may wish to wait a few months until it crosses the 2 year threshold, lowering your tax rate from 19.6% to 5.5%.
- The renovations are minor to medium in size. If your property needs major renovations, it may be worth staging this into separate smaller renovations over time, in order to benefit from the reduced tax rate. Individual jobs performed within a 2 year period can be considered as a single item, so major items may need to be staged to occur more than 2 years apart to avoid the 'major renovation' threshold.
- The work is done by a registered trades person. It is advisable to have the person doing the work provide a written estimate (known in French as a 'devis'), which should show their TVA registration number. This way you have a written document in advance showing that they can and will charge the work at 5.5%.
Note that the reduced rate of 5.5% is only applicable if all 3 conditions are met. If, for example, you buy the materials yourself instead of having the tradesman buy them, you will end up paying 19.6%. Of course, you can still pick up and pay for the materials yourself (for example, if you don't want a workman to leave the job just to get some more materials) but make sure that it is purchased under the tradesman's account so that you can benefit from the lower tax rate.
Certain additions (such as a swimming pool or a tennis court) are considered 'luxury items' and are specifically excluded from the reduced rate. If you are unsure if the planned work qualifies or not, ensure that the tradespeople doing the work provide a written estimate showing the reduced rate (as described above) or confirm with your local tax office.
As an example of the value of the reduced tax rate, I recently had a plumber charge me 20 euros to install a 200 euro radiator. If I had purchased the radiators and installed them myself it would have cost 239.2 euros (200 euros at 19.6% tax) whereas having a professional plumber do the work it was only 232.1 euros (220 euros at 5.5%). It was cheaper to have a professional do the work than to do it myself!
When the work is completed, the tradesperson must provide you a document certifying that the work was done at the reduced rate of 5.5%. All such documents should be saved until the end of the fifth year following completion of the work, as you are legally required to provide such documents should the French tax office request it. In practice, this is extremely rare, but it is worth filing the paperwork just in case.
Although a written estimate from a professional tradesman quoting 5.5% means that he can only charge you this amount, if the tax office should investigate (unlikely, but possible) and decide that 19.6% is due, it is you rather than the tradesman that will be responsible for paying the additional tax to the tax office. Of course, you can try reclaiming the additional costs from the tradesman that misquoted but success in this action would depend on the specific circumstances.
TVA (VAT) on French Property Sales & Purchases
If you buy a new build property (i.e. under 5 years old) or a property which has had a complete renovation (e.g. it was uninhabitable before the renovation) then the sale of the property is liable to taxes at 19.6%. Consequently, before making an offer on a property or signing any contract, you should either be prepared to pay these taxes or ensure that they are not applicable (either by having a notaire confirm it, or having a clause in the contract where the seller agrees to accept any such costs should they be applicable). If you are buying a property which is almost 5 years old, it may be worth delaying the purchase of the property until you cross the 5-year threshold, thereby removing the need to pay TVA taxes.
If you are selling a property which is subject to TVA at 19.6%, be aware that informed purchasers will factor this cost into the price negotiations. Consequently, if you have a property which is close to the 5-year threshold, it may be worth delaying the sale until this tax is no longer applicable, so that you can secure a better price.
VAT (TVA) Reimbursement & Reclaiming
You may be able to reclaim TVA (rembursement France VAT) if:
- You have bought goods which you take outside France, or
- You have a business which is registered in both France and another country.
If you choose to reclaim TVA, you should be aware that you will then probably be liable for sales tax (VAT) in your destination country. For example:
- If you buy goods in France which you take out of the country to the USA, although you may reclaim the French tax you may then be liable to the USA equivalent sales tax.
- If you have a business which is registered abroad and buy goods or services in France, while you may reclaim French TVA you may then be liable to VAT (sales tax) in your country of registration.
Consequently, reclaiming TVA may not be a worthwhile process, if you then have to pay it in another country. The main benefit of this is if the tax rate in France is higher than the other country (in which case you gain from paying a lower rate of tax) and the amount of tax involved is sufficient to justify the effort and paperwork of making a claim.
Applications for a refund require the original paid invoice. Due to attempts to defraud the French tax office by multiple claims on one VAT item (i.e. trying to have the taxes refunded two or more times), the tax office insists on original documents rather than copies.
There are a number of specialist firms that will do the paperwork and reclaim VAT for you (if you do a Google search on relevant terms). Alternatively, if you contact the French tax office, they can provide the appropriate form so that you can reclaim yourself. Better yet, contact your local tax office and request a copy of the new European form (in English) for VAT refunds.
For related information, click on French Taxes.
France TVA regulations are complex, dependent on individual circumstances and subject to change. Consequently, the above is provided only as a general discussion on an 'as is' basis, and should not be taken as advice (professional or otherwise). You are advised to take professional advice on any of the above information before taking any decision or refraining from any decision related to this article.