Do you often think about investing in real estate, and have vaguely heard about VAT recovery? As tempting as it may sound, this scheme is subject to very demanding criterias, linked to the tax system of para-hotelier services. It is essential to fully understand these criterias before embarking on this process that might last years.
1. In which cases can I reclaim VAT on a real estate investment?
This is the first question you must ask yourself, and certainly the most important, since reclaiming the VAT is only possible under very specific circumstances.
First condition: even if it might seem obvious, it is important to remember that VAT recovery is only possible if your purchase was subject to VAT.
That’s the case if you bought or are about to buy a property that fits one of these categories:
Your property was sold off-plan (in French legal terms: VEFA - Vente en l’État Futur d’Achevement),
Your property is brand-new, or was completed less than 5 years before the moment it was sold to you by a professional (promoter, real estate agent…)
Your property is older than 5 years, but went under a heavy renovation to become a Morzine accommodation, for example, and the refurbishment was subject to VAT
Good to know :
A property sale between two individuals (not professionals) is never subject to VAT
The difference between light renovation (not subject to VAT) and heavy renovation (mandatorily subject to VAT) is sometimes hard to define. It is up to the professional in charge to justify this to the tax authorities.
Second condition: to be able to recover the VAT you paid upon purchase, you have to commit to rent this property for at least 20 years, respecing the para-hotelier requirements.
How much is the real estate VAT ?
In France, the VAT on sale of new properties is fixed at 20% and it is paid by both French and foreigner buyers. This means that if you are eligible for VAT recovery, you will cash back 20% of the price you paid for your property.
R Architecture
2. Furnished rental or para-hotelier rental, what is the difference?
For an accommodation to be considered a para-hotel, and to be subject to VAT recovery, it must:
be a furnished accommodation, rented on a regular basis for a fee
have available at least three of the following services: breakfast, linen provision, check-in services, and cleaning services.
This means that a para-hotelier rental is the short-term rental of a property that offers services similar to those of a hotel.
The para-hotelier activity is carried out professionally, which subjects it to VAT. You will then be eligible for VAT recovery of 20% of the amount you paid upon purchase. At the same time, you will need to apply 10% VAT at the rental income you receive.
3. When can I recover the VAT on my real estate investment?
If you buy your property off-plan and wish to pay the full price at once, it is possible to deduct the VAT directly from the amount to be paid. If you have planned to pay in installments, depending on the progress of the work for example, you will pay the VAT at the same time. You will then claim back 20% of the amount paid with each call for funds, by filling in the form provided for this purpose. The VAT is refunded to you between 15 days and 6 months after you send your request to the Treasury.
If the property you wish to purchase is completed, you will pay the full price, including VAT, and then claim back the 20% of the price corresponding to the VAT. The refund will be made within 6 months of the application.
Do you have a property, or plan to, and wish to know how much money it can generate? Fill in our form to get a rental simulation for your property.
Morzine rental by Emerald Stay - Chalet Nelcote
4. What happens if I stop renting my property ?
The tax system of para-hotels is based on strict requirements that demand the short-term rental of a property for at least 20 years. If you decide to sell your Alpe d'Huez accommodation, for example, or live in it/rent it out on a yearly basis before this deadline, you must give back the VAT recovered, on a pro rata basis according to how many years were left.
An example
You purchased a new chalet in the Alps, to be used as a Courchevel accommodation, that allowed you to recover 400.000 euros in VAT. You decided to sell this chalet 15 years after the purchase. Now, you must give back to the tax authorities one quarter of the amount you cashed back, that corresponds to the 5 years left of the 20 years you initially committed to.
This means a rembursement of 100.000 euros (400.000 euros X 5/20).
Important: this example doesn’t take into account interests that might come up from the amount recovered during the period the property was being rented, nor the property’s price of sale. The reality is actually more favorable!
5. How to put the VAT recovery in practice ?
You must start by requesting a VAT number from the tax authorities. You will then have to make sure that all the conditions are met, when you rent your property, to allow you to recover the VAT on your investment.
The safest thing for you to do is to entrust the rental management of your property to a third-party company that will take care of all the practical aspects, including the provision of para-hotel services. It is absolutely essential that this company masters the details of this process to protect you from any risk of tax reassessment in the event of an audit. Given the importance of the sums saved, these controls tend to be intense, which is why each criteria must be carefully met in order to avoid a very bad surprise at the end.
Emerald Stay, an expertise like no other
To date, Emerald Stay has assisted over 140 owners in their VAT recovery journey, which makes us experts in this field.
We are not tax lawyers, but we surround ourselves with the best French tax experts to secure our rental contracts and make them flawless in the context of this VAT recovery scheme.
When the situation requires it, we put our experts and owners in touch for a more in-depth and fully personalized consultation. We make sure that owners have absolutely all the necessary information regarding the treatment of their personal stays in their property. We draw up the invoices for them with the amount of VAT to be declared and provide them with proof of the para-hotel activity provided.
Our priority is to allow you to recover the VAT on your acquisition in all serenity, by ensuring that your assets are secured and your personal stays, correctly declared. This point is particularly critical and the majority of real estate agencies do not know how to manage it, preferring not to draw the attention of the owners on this sensitive subject.
For us, VAT recovery is not a matter to be avoided. On the contrary, it is a central issue for us and for our owners. It is an integral part of our know-how and our success, with a 100% success rate to our credit!
In summary: you are eligible for VAT recovery if…
You purchased, or will purchase, a property subject to VAT (property bought from a professional, off-plan, newly built, completed less than 5 years ago or completely renovated)
You commit to rent it furnished and regularly for at least 20 years
You provide at least 3 para-hotel services out of the 4 listed by the tax authorities
You apply VAT to the rent received (10% VAT)
You respect the requirements of the tax authorities concerning the treatment of your personal stays
Do you still have questions about VAT recovery and would like a personalized answer? Contact our team of experts, we will answer your request in less than 24 hours!
Geneva - Photo by Lukas Blaskevicius
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