A Game-Changer for Hosts and Travelers

The French government is considering a new amendment that would apply a 10% Value-Added Tax (VAT) to short-term rental properties listed on platforms like Airbnb. Proposed as part of the 2025 Finance Bill, this tax aims to create a more level playing field between Airbnb hosts and traditional hotels by imposing the same tax burden on both types of accommodations. Let’s break down what this change entails, why it’s been proposed, and its potential impacts on both the French tourism industry and the availability of local housing.

Current Tax Situation for Airbnb Hosts

Currently, short-term rental properties in France are generally exempt from VAT unless they meet specific service criteria, such as offering daily cleaning, breakfast, linen services, or in-person guest reception. These conditions are similar to hotel services, and only hosts providing at least three of these services must charge VAT. As such, most short-term rental hosts avoid VAT since they typically don’t offer the full range of these hotel-like services.

Why the Change?

The driving force behind this VAT proposal is to address a perceived imbalance in the hospitality market. Hotels, which are already subject to VAT, argue that the current system favors Airbnb hosts, giving them an unfair advantage due to the tax difference. In response, French lawmakers are pushing for VAT on short-term rentals as a means of creating fairer competition and potentially steering the market towards more sustainable, long-term rental options.

This new VAT charge would apply across all furnished tourist accommodations, regardless of the services they provide. According to Charles de Courson, an MP involved in the amendment, the goal is to ensure that short-term rentals don’t benefit from tax advantages that undermine the hotel industry.

Key Points of the VAT Proposal

The 10% VAT proposal includes some important provisions:

1. Standard 10% VAT Rate: If approved, the law will impose a 10% VAT on short-term rentals, directly impacting platforms like Airbnb, Abritel, and other popular vacation rental sites.
2. Fair Competition: Proponents argue that Airbnb hosts should adhere to the same tax obligations as hotels, promoting a fairer market landscape.
3. Encouragement for Long-Term Rentals: This amendment could shift more property owners toward long-term leases, addressing housing shortages in high-demand areas like the Basque Country and Paris. MPs behind the amendment believe that removing some of the financial allure of short-term rentals could help make more housing available to local residents.

Potential Impacts on Hosts and Travelers

1. Increased Costs for Travelers: The new VAT would likely result in higher nightly rates, making Airbnb stays less attractive, particularly in comparison to hotels. This could lead travelers to explore other lodging options, especially budget-conscious tourists.
2. Financial Strain on Hosts: For property owners and Airbnb hosts, the VAT charge could reduce their profit margins. Many hosts may find themselves at a crossroads, deciding between absorbing the tax or raising their rates, which could reduce their booking volume.
3. Shift in Rental Strategies: Hosts who are currently using their properties for short-term rentals might decide that long-term rentals offer more financial stability, especially with the tax benefits that long-term leases offer over short-term, VAT-heavy rental models. This could increase the availability of rental housing in local markets, benefiting communities in high-demand tourist areas.

Reactions from the Industry and Lawmakers

The proposal has sparked debate among various stakeholders:

• Support from Hotels: Many hotel owners support the amendment, claiming it levels the playing field by enforcing the same tax obligations on Airbnb hosts.
• Concerns from Hosts: Airbnb hosts argue that imposing a VAT on short-term rentals may lead to decreased bookings and make France a less attractive destination for tourists who rely on more affordable, homier lodging options.
• Proponents of Affordable Housing: Some lawmakers argue that Airbnb has reduced the availability of affordable housing in popular areas, as investors increasingly purchase properties to meet tourist demand rather than local needs. They see the VAT as a necessary move to encourage a shift toward longer-term housing solutions.

François Jolivet, a French MP who sponsored the amendment, highlights a crucial point: in areas such as the Basque Country, long-term rentals have dwindled due to the profitability of short-term rental investments. The VAT would likely reduce the appeal of short-term rentals in such regions, providing local residents with increased access to housing.

A Possible Ripple Effect for Airbnb Policies in Other Countries

If France implements the VAT on short-term rentals, other countries may take note. Several regions worldwide, including cities in Spain, Portugal, and the United States, are grappling with similar issues. They face pressure from local housing advocates and hotel industries to address the impact of short-term rentals on housing availability and rental prices. France’s approach could serve as a model, and if successful, other nations might follow suit by imposing similar tax regulations on Airbnb rentals.

What’s Next?

This amendment is still under consideration and will be reviewed by the French Parliament. Should it pass, it would likely go into effect as part of the 2025 budget. While the move could benefit local housing markets and support the hotel industry, it remains to be seen whether the impact on tourism would be positive or negative. The prospect of higher accommodation costs might deter some travelers, yet it could simultaneously encourage more balanced tourism that benefits local communities.

For hosts, this potential change serves as a reminder to stay informed and consider alternative strategies, whether that means adjusting their pricing or shifting their focus toward longer-term rentals. As Airbnb and similar platforms continue to evolve under new regulations, property owners may need to adapt to a shifting legal landscape to maintain profitability.

If you’re buying a property in France, setting up an SCI could be a more thoughtful way to structure your ownership. SCI (Société Civile Immobilière) is a French company designed explicitly for owning and managing real estate, and it offers a ton of advantages—especially for foreigners. Whether you’re investing with family, friends, or business partners or want a better way to handle your property, an SCI can make ownership more flexible, tax-efficient, and straightforward in the long run. Let’s break it down!

What is an SCI?

An SCI isn’t like direct property ownership; it’s holding shares in a real estate company. You don’t own the property itself—you own shares of the SCI, which has the property. This structure gives you more flexibility when selling, transferring, or inheriting your property.

If you’re a non-resident and want to invest in French real estate, using an SCI can help you manage the property better, reduce potential tax liabilities, and make estate planning more straightforward. Contact us to make an appointment with our network of English-speaking and flexible French notaries, who can explain this in detail.

The Benefits of an SCI for Foreigners

1. Simplified Property Transfers
   One of the major perks of an SCI is how it simplifies property transfers. Instead of selling or passing down a physical portion of the property, you transfer shares in the SCI. This is especially helpful for non-residents who want to pass the property on to their children or other heirs without the headache of splitting up the actual real estate.

• Why It Matters: Selling or transferring shares is much easier and less expensive than selling a portion of a villa or apartment. Existing shareholders usually have pre-emption rights (right of first refusal), ensuring the group retains control.

• Pro Tip: An SCI also helps avoid forced sales if heirs disagree on what to do with the property. Instead of selling the actual home, they can sell their shares to one another, keeping the property in the family.

1. Capital Gains Tax Savings
   Capital gains tax can be high when selling property in France. Currently, it’s 19%, plus 17.2% in social charges, up to 36.2%. However, an SCI allows for significant capital gains tax reductions over time.

• Long-Term Benefits: If the property is held in the SCI for over 22 years, you are fully exempt from the 19% capital gains tax. After 30 years, you also become exempt from social charges. This makes SCIs particularly attractive for long-term investments.

1. Avoiding Disputes Among Co-Owners
   Owning property jointly with family or friends can lead to disagreements, especially regarding decisions like repairs or selling the property. An SCI helps avoid these conflicts because it operates like a business with clear statutes and rules for decision-making.

• Shareholder Agreements: With an SCI, everything is outlined upfront, from voting rights to decisions. This helps avoid the messiness of co-ownership and keeps relationships intact.

1. Wealth Tax Reduction (IFI)
   In France, the wealth tax (Impôt sur la Fortune Immobilière, IFI) applies to real estate assets worth over €1.3 million. This tax affects residents and non-residents but only applies to French property for non-residents. However, with an SCI, you can reduce your exposure to IFI in a few ways:

• Debt Deduction: The IFI is calculated on the net value of the property, meaning you can deduct any loans or debts attached to the property. If your SCI has a mortgage, the debt reduces the taxable amount.
• Splitting Ownership: By dividing the ownership among multiple shareholders (such as family members), each individual’s share may fall below the IFI threshold, helping reduce the overall tax burden.

Renting Out Property via an SCI: Is It Possible?

While an SCI is excellent for owning and managing property, it’s not designed for commercial activities, like renting out properties regularly. You must set up a separate business structure if you plan to rent your property (especially for short-term vacation rentals).

Most foreign investors use a two-company setup. You keep the property under the SCI but create an SARL (Société à Responsabilité Limitée) to handle the rental income. Essentially, the SARL rents the property from the SCI, keeping everything compliant with French regulations and avoiding legal issues.

Global Wealth Tax and SCIs: What Foreigners Should Know

If your net real estate holdings exceed €1.3 million, you’re subject to France’s global wealth tax (IFI). The IFI applies to French residents on their worldwide real estate, but for non-residents, it only applies to property located in France.

Key Tax Rates (IFI):

• Up to €800,000: 0%
• €800,001 to €1.3 million: 0.5%
• €1.3 million to €2.57 million: 0.7%
• €2.57 million to €5 million: 1%
• €5 million to €10 million: 1.25%
• Over €10 million: 1.5%

Conclusion: Should You Use an SCI?

An SCI offers many flexibility and tax advantages for foreigners looking to buy and manage property in France. Whether you’re thinking about long-term investments, inheritance planning, or reducing your wealth tax exposure, an SCI can simplify the process and save you money.

An SCI can significantly reduce capital gains and inheritance taxes. Plus, with the option to use a dual structure (SCI + SARL), you can still profit from legally renting out the property. It’s a smart, flexible way to own and manage real estate in France, especially for non-residents.

Autumn on the French Riviera is far from quiet, offering a lively calendar of activities and events. From cultural workshops to local markets, there’s always something happening to engage both locals and visitors. This season continues to showcase the vibrant spirit of the Côte d’Azur, even after the summer crowds have gone.

Photo Workshop

23 October to 25 October 2024

 Monaco

The Scenography artist Ahmad Reshad is proposing a photo workshop using the Afghan Box Camera. Join him for a really cool learning experience from the 23rd to the 25th of October from 10am to 1pm and from 2 to 5pm at the Pavillon Bosio in Monaco.

You must register on site or online at https://pavillonbosio.com/

Beauté Convulsive

18 October to 28 November 2024

 Nice

A new exhibition called ‘Beauté convulsive’ will open on Friday the 18th of Ocotbre at 6pm and will last until the 28th of November in the Galerie Eva Garnier in Nice.

Halloween in Valberg

2 rue Vernier, 06000 Nice

16 October to 31 October 2024

 Valberg

For the rest of the month and in light of the Halloween season, the city of Valberg will host a whole sweep of events for children and adults alike!

Find them all on valberg.com

Valberg Petit Messager vacances d’automne 2024 (calameo.com)

The Grande Braderie des Commerçants

25 October to 27 October 2024

 Saint-Tropez

The most anticipated event of the year will soon happen! The Grande Braderie des Commerçants in Saint tropez will transform the city into a shopping paradise with incredible discounts of up to 70%. Go and get some amazing deals from luxury brands while admiring the wonderful scenery of Saint-Tropez from the 25th to the 27th of October!

Association France Grande Bretagne Cannes

12 October to 28 December 2024

 Cannes

Are you English Speaking? Have you an hour or two to spare on an occasional Saturday afternoon? Then why not participate in an English conversation with the France Grande Bretagne Association of Cannes to help French members learn English? Your input would be greatly appreciated and would be rewarded with tea and biscuits. And if you’d fancy getting some help with French, the association will also offer optional French conversations.

4 Rue General Ferrie, Cannes.

[email protected] or phone 04 93 97 86 32.