Buying and Selling Property in France - Marchand de Biens

Many people have had the idea of making a living by buying, doing up and reselling property in France. It seems a easy way of making a relatively large amount of money over a year or so. However it is not as simple as buying the house, working on it, selling for twice as much and pocketing the profit for yourself.

The tax man will want his part. You can possibly get away from any tax implications once, if it is the house that you reside in and you only do it once. However, if this is how you want to earn money or you have another permanent home, you will have to declare to the tax office your activity.

This type of activity is seen as a dealer in assets – ‘marchand de biens’. The ‘marchands de biens’ are the people, who usually buy property, assets, goods, businesses, actions, shares or shares in SCI with the view to resell them (art 35- I-1° of the French Code of general tax).

This relates to all types of resale of goods, such as second hand cars or brocantes as well as of course the resale of property. I will now briefly go through some of the rules and obligations.

How are the revenues taxed ?

The profits (or the losses) from a ‘marchand de bien’ are determined following the rules of common law applicable to industrial or commercial profits (BIC). Thus the taxable profit is the equal difference between the sale price of the property less the costs due and the initial purchase price.

The company can be set up under the following different forms :

sole trader – Entreprise Individuelle : the profits come under the regime of personal income tax ‘impôt sur le revenu’ in the catagory BIC. The ‘Marchand de Bien’ is however excluded for the micro-entreprise system.

Limited companies – Société Commericale soumise à l’impôt sur les sociétés – with company tax (SA, SARL etc. ). This profit is taxed at different levels – profits upto 38 120 € at a company level at a rate of 15% (under conditions) and at a rate of 33. 33% above 38 120 euros;

Société de personnes (SNC, SCS etc) – having not opted for company tax: in this case, it is the members of the ‘société’ (shareholders) who are taxable on their personal revenue (impôt sur le revenu) in the BIC (Bénéfice Industrielle et Commerciale) catagory – their part of the profit is equalivant to their number of shares.

What are the rules concerning VAT?

The peculiarity of the status of the ‘Marchands de Biens’ is the tax base refers to the brut margins and not the sales price of the asset. This margin corresponds to the difference between firstly the sale price and secondly the sums paid out by the seller no matter what for the acquisition of the asset ( sum paid to previous owner, legal fees, inscription fees etc.)

What VAT tax regime does it come under?

The ‘marchands de biens’ are allowed to come under the ‘réel normal’ regime and so can not benefit from a VAT franchise system or from the ‘réel simplié’ regime. So they have to declare and pay their VAT by means of a CA3 declaration form following the conditions of common law ‘droit commun’.

Obligations

The ‘marchand de biens’ has to satisfy the following obligations:

To be inscribed with the register of ‘commerce et des sociétés’. This means that you must establish a ‘déclaration d’existence’ within one month of starting up your activities, to the local tax office or at the ‘Centre de Formalités des Entreprises’ at the Chamber of Commerce in your ‘département’ (form M0 or P0);

Keep a daily transaction repertoire (répertoire à colonnes non sujet à timbre) of all the mandates, promesses de vente, actes translatifs of property and in a general manner, all legal transactions attached to this profession

Register all the legal transactions previously mentioned in a delay of ten days, if they have not been conducted by a notaire.

Submit the ‘répertoire à colonnes’, the accounts and accounting documents for the tax office - 'agent des impôts'

Registration Rights

At the moment of the purchase Only the purchase of property requires registration rights. These acquisitions can not otherwise benefit from a ‘régime de faveur’ and thus fall under a reduced tax rate of 0.715%. In order that you can use the ‘régime de faveur’, two conditions must imperatively be met

The marchand de biens must conform to the above obligations.

He must produce a purchase act - ‘acte d’acquisition’, the engagement to resell the property within a delay of four years. Since 1st January 2005, this delay is two years for property sold by lots declenching the right to presumption for renting tenants on a habitation. If you do not respect this engagement to resell in the four years, you will be subject ‘droits de mutation’ which will give you interest of 0.40% per month.

At the moment of the sale of the asset

The resale is subject to taxes ‘droits de mutation’ in the conditions of common law. These taxes are therefore at the charge of the new purchaser.

If you are considering to undertake this type of activity, it is best to talk to an accountant or a notaire beforehand. Treat this as any business and draw up a business plan and evaluate your risks. There are lots of obligations in this type of activity and it is controlled closely