a wealth tax in some cases, a rental income contribution, and, of course, social deductions.

The explanation results from the logic of fiscal administration:  If you rent out a furnished apartment, it is considered that you exercise a commercial, therefore, professional activity.  You are said to be a kind of "seller of overnight stays", and, consequently, falls under the common law tax code.

Contrary to renting out a non-furnished apartment, an activity which is considered to be civil resulting from the taxation of property revenues, renting out a furnished apartment is subjected to the entire commercial tax code, including the business tax  and before tax rental income, which are considered as commercial and industrial benefits (BIC - benefices industriels et commerciaux.

The tax administration makes the distinction between the "professional" and the "non-professional" landlord when dealing with furnished apartment.  The difference between the two is determined by the rent level and the inclusion or non-inclusion in the registry of the commercial court (tribunal de commerce).

Paradoxically, whether you are considered to be in the professional category or not, you are still liable for the business tax.

How is this tax calculated?

The tax is composed of concurrent contributions to the commune, the department, the region, and even the board of trade where the property is located.  These contributions are base on the rental value of the rented property, or they are even the result of the cadastral value, resulting from complicated calculations that are rather opaque to the private individual.  Even the administration finds it difficult to clearly explain these calculations when they are required.

In practice, this business tax is often close to the amount of the property tax  (ad valorem tax) in Paris.

Can it be avoided?

In a few, precise cases it can be avoided:

- If you momentarily rent out part of or all of your personal, furnished residence. Ex: a secondary residence rented out a few week of the year.

- If you rent out "by chance", non periodically, a part of your primary residence.

- If you rent a part of your principle residence for a modest sum (max 163 €/m2) to somebody who considers it as their principle residence.

This is also the case for people who invest in new programs intended for tourist and student residences, and, for which they sign a long-term lease with a management society.
In that case it's management society that subleases to tourists or students, who pay the business tax.

Unfortunately these special cases don't correspond to most people who would like to rent out an older, furnished, Parisian, apartment.  They must pay this tax.

When must it be paid?    

In general, the property tax notification (property tax declaration) is sent in the fourth quarter of the year and must be paid before the end of the year.

Is there a tax ceiling?  

Not for physical persons.

On the other hand, if the apartment or the house is owned by a business or a society (a family owed LLC for example), the business tax can have a ceiling, which is 3,5 % of the business' or society's profit resulting from this activity.  Sometimes it is opportune to ask for a partial reimbursement

In conclusion,

The true tenant of furnished apartments does not escape this business tax.  None the less, the numerous fiscal advantages that renting a furnished apartment allows him to have in relation to renting a non-furnished are very beneficial, there is no hesitation: the business tax is almost a necessary evil.

Further information

The Tax Service - Service des impôts (IRS, etc.) which the rented property relies on prepares the taxation notice (property tax declaration), in other words it is the location of the property that dictates the tax service which tax service office that must be located (Paris, Lyon, etc.) and not that of the owner.  Therefore, it is this department that will help you with all questions, claims, or reimbursements.

Patrick AZAN

Aid'Patrimoine Conseil

aidpatrimoine@wanadoo.fr

The 21/07/2008