VAT Repayment

28 November 2009

We own a leaseback property, which was managed by Residhotel and then the lease was transferred to Quietude, before being cancelled/liquidated last month.

We are now going to rent out our property with a local agent (outside of the leaseback scheme).

IS THERE ANYWAY WE CAN AVOID HAVING TO REPAY THE VAT/TVA REFUND?

Submitted by srunner on

Hello


In France yes when you are renting your place you need to charge your tenants. However the common VAT is 19.6% and it has to appear on the bill you give them. But to keep the VAT and do not have to refund it to the state you need to declare a TVA at 5.5%. The best is to contact a "solicitor specialised in fiscal law", plus an accountant (and GEFI - they will explain you what to do) .

Submitted by ians on

Noel -


Could you contact me through Private Messenger - you should already have a message from me in your inbox.


Many thanks,


Ian.

Submitted by kazz on

Ian, We are in a similar situation to you. RH then Quietude etc. But we are in an association of co-owners. Our committe has managed to negociate a deal with another company to manage the appartments for us, but we have just less than 70% of owners agreeing to this - so we can't go ahead. We have been told we need 70% of owners in agreement. now we have no solution. Our electricity contract ends on the 31st of december, so we need something to happen soon. We have been advosed, that without the 70% managed by a single company, we will have to pay back the TVA.

Submitted by davey1 on

Kazz - have you spoken to the tax office regarding the TVA rebate?? Will you new management agent be keeping the para hotel services???


My understanding is that the 60% or 70% qualification is geared to keeping the development within the "Residence De Tourisme" TVA category. I believe this has benefits for French residents when making their income tax declarations.


However, even if you have not reached this % qualification, as long as your property is meeting the Para Hotel services criteria, it will simply be moved into a different TVA category - thus, meaning the TVA is not repayable.


From what I understand and I am sure Fabien can put me right here, the advantage of keeping within the Residence de Toursime structure is for benefits associated with income tax as a French resident.


Davey

Submitted by kazz on

Hi Ian, no PM there as yet.

Davey, I'm sure you're right, but I am not a french resident, but was still an incentive to invest in the business in the first place. To have it withdrawn is a real pain. Although even more so for the french residents.

We haven't actually transferred to another management company. Apparently we couldn't without the full 70%. So at the moment the future looks bleak.

No I haven't yet contacted the tax office - that sounds like it may be a positive step.
K

kazz40148.5305787037

Submitted by ians on

Can anyone clearly list what is required to maintain "Para Hotelier" status?


Here's what we have so far. You have to:



  • have a 'mandat de location' (rental contract) with an agent/operator. You have to show you're running your property as a rental, not (purely) for personal use. There seem to be limits on personal usage - 180 days max and mainly outside peak seasons.

  • provide cleaning, sheets and towels (and maybe laundry - is a washing machine in the property sufficient?)

  • provide reception services (not sure if this is anything more than a place to collect the keys).

  • I've also seen mention of breakfast services, but I can't confirm if this is really needed. ResidHotel certainly never offered this for our property.

We've contacted our local agent to see if they know. I will post back here if they do.


We've also contacted various other ex-RH/Q owners but they all have the same question. Most do NOT intend to re-enter the leaseback scheme and want to run their properties themselves. Obviously, retaining the VAT refund is crucial.


There's also LMP & LNMP status which seems related more to commercial leases. Although I'm wondering what is involved in maintaining this status too?

Submitted by davey1 on

Ians,


My understanding of para hotel services are pretty much as you have described, and it would be these services which owuld need to be offered in order to keep the VAT status.


With regards to LMP or LMNP you would need to check the P0 which would have been completed at outset when the property was registered. I would suggest that most would have been registered under LMNP.

Submitted by ians on

I thought I'd post the tentative result of my investigations. I say tentative because we've not fully completed the process, but it's looking good.


The Result: You CAN operate your property yourself (with a local management company) AND KEEP YOUR TVA REFUND!


I found an excellent British tax accountant, with offices in England and France, who understands both tax systems and has French associates should he need them. I sent all manner of documents to him which he assessed and came back with a 'No Problem' verdict.


He may be doing all sorts of things in the background, but it seems the key is in the contract with the local management company. Make sure they offer the services required to properly classify your property as a holiday rental. Make sure the contract clearly states those services and voila, you're set. You become the operator of the property with the aid of a local company. I had the luxury of finding a local management company who would actually draft the contract based on input from the tax accountant to ensure it stands up to scrutiny from the French tax authorities.


So, from May onwards, I handle the advertizing, take bookings and payments. The local company meets guests, hands over keys, takes care of linen, cleaning, maintenance, and anything else I want them to do.


So, after all this investigation and pain, it really is quite simple. Of course, this could vary based on the type of property. But, for my ski chalet, it was a smooth process once I found the right guy to work with.

Submitted by mutley on

Spoony


What development are you in where Odalys are not paying you? The reason why I ask is that Odalys have just taken over the development where I have a property (I have not signed with them). Have they given a reason for not paying?



The Dog

Submitted by ians on

Spoony,


That's my understanding - as long as you provide 3 of the 4 required "para hotel services" you're operating the property as intended, as a holiday rental, and it doesn't matter who operates the chalet. The contract with that company is key though.


You basically pay that company for 'services' for the operation of your property. You then declare the rental income in YOUR tax return as you are now the operator. This assumes you're handling the contract with your guests and taking their payment.

ians40268.1973958333

Submitted by ians on

I found out a little more about 'para hotel services'. I think we have to provide 3 of the following 4 services:



  1. breakfast

  2. room-cleaning

  3. managed reception

  4. sheet & towels

When run by ResidHotel there was never breakfast. They arranged for cleaners after each tenant. We picked up the key from a shack. The chalet had sheets and towels provided. So, we can certainly match that.


I also went through some paperwork from when we first bought the leaseback and signed up with ResidHotel. It seems I (and probably most others) are actually LNMP already.


The question now is how to retain this status. I think as long as we continue to operate the property in a manner similar to ResidHotel, then we should be OK. I just can't get anybody to confirm this.


As for LMP or LNMP - basically LMP is aimed at the professional property manager and you have to earn over 23,000 euros/year AND that must be >50% of the household income. What I don't know is if that's global or just French income. For LMNP (where the N means non-professional) you don’t have to make >23,000 euros and this is what most people operate under. There are additional tax benefits for LMP but I'm not sure what they are.


I think some of this hinges on the contract signed with your agent who will operate the property. I think there are points specifically called out in the ResidHotel contracts which clearly show we satisfied the criteria for LMNP.


Our tax accountants are particularly unhelpful and just tell us to repay the VAT. Not being a French speaker, calling the Tax Office isn't really an option. I've contacted Bertrand about this and am awaiting instructions on how to proceed. In the mean time, I'm operating the chalet myself with the help of a local agent.


ians40190.9239930556

Submitted by ians on

Just to bring another bit of information into this thread. It seems when charging tenants you need to charge them TVA (5.5% I believe). I'm sure this then somehow makes it's way to the government in your tax returns. I'm not sure how this works exactly, just that you need to charge TVA as part of retaining LMNP status. A good tax accountant will know all this.

cordiez's picture
Submitted by cordiez on

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Dear all,

Here is an article on latest legislative developements:

French leasebacks in trouble: What's changing in 2010. http://www.solicitor.fr/French_leasebacks_in_trouble.pdf.

Regards,

Fabien Cordiez

Avocat à la Cour, Solicitor

cordiez40198.4865972222

Submitted by mjpscott on

Dear All


One of our group has posted the following as a PDF but i think it has very valuable info for everyone


kind regards


Mike



Fabien CORDIEZ


AVOCAT A LA COUR & SOLICITOR*


19 RUE DE MONTIGNY


PLACE DES TROIS ORMEAUX


13100 AIX-EN-PROVENCE


FRANCE


____________________________________________________________ _______________


____________________________________________________________ _____________________________________________________


fabien.cordiez@solicitor.fr – Case Palais 227 – Car Park: Bellegarde


AVOCAT A LA COUR D'APPEL D'AIX-EN-PROVENCE - SIRET N° 442 975 991 00039


MEMBRE D'UNE ASSOCIATION AGREEE. LE REGLEMENT DES HONORAIRES PAR CHEQUE EST ACCEPTE.


MEMBER OF THE LAW SOCIETY OF ENGLAND & WALES – LAW SOCIETY NUMBER 331485 – *SOLELY PRACTISING AS AVOCAT


France


Tel. +33 (0)486-688-968


Fax +33 (0)486-688-660


UK


Tel. 0207-148-5563


Fax 0207-148-5564


Ireland


Tel. (01)-431-1301


1-800-930-132


Fax (01)-431-1302


1-800-930-133


www.solicitor.fr


Member of The Law Society


of England & Wales


French Leasebacks in trouble: What's changing in 2010


20 January 2010


The year 2010 may bring some relief to some 600 investors in one of the 70


French leaseback resorts that are in financial turmoil. Indeed, to attempt to break


the deadlock, 3 provisions were enacted in the Finance Act 2010. Here is a


summary of the main changes.


1. 1. Re-paying the Vat rebate over three years.


Investment in French leaseback schemes entitles owners to recoup VAT on the


purchase price. The tax benefit is given to owners in exchange for a commitment


to rent their property to a management company for at least 20 years. In case of


non-compliance, investors must return their tax benefit. Until now, investors had


a twelve months 'grace' period to find another manager, failing which they


became liable to repay VAT, in one go, to the French taxman. Under the 2010


Finance Act, investors are allowed to spread repayment over three years. This


facility applies when leases are broken for a period exceeding twelve months as a


result of the management company's liquidation, or at the initiative of owners for


breach of contract (default of payment of rent by the management company).


Regrettably, these new measures come too late and will obviously be of very


little relief to foreign investors. Many of them have already lost years of rent and


are now forced to accept lesser rental income from unknown leaseback


companies.


2. 2. Eligibility to VAT recoupment of leases that offer a variable rate.


Investment in French leasebacks is based on a menage a trois: the developer,


investor and manager. Essentially, individuals acquire a home from a developer


and conclude a commercial lease with a management company who pays rent.


Until now, rents were 'guaranteed', that is to say fixed. For example, for a


purchase of 100,000 Euros, the management company pays a rent of 4%, which


corresponds to an annual rent of 4,000 Euros. To avoid unpleasant surprises and


take greater account of market conditions, leaseback companies now tend to


introduce a sliding scale in their leases. Instead of a fixed or guaranteed rent of


4% for nine years, operators often guarantee a minimum basis of say 2.5% for


____________________________________________________________ _____________________________________________________


cordiez@solicitor.fr – Case Palais 227 – Car Park: Bellegarde


AVOCAT A LA COUR D'APPEL D'AIX-EN-PROVENCE - SIRET N° 442 975 991 00039


MEMBRE D'UNE ASSOCIATION AGREEE. LE REGLEMENT DES HONORAIRES PAR CHEQUE EST ACCEPTE.


MEMBER OF THE LAW SOCIETY OF ENGLAND & WALES – LAW SOCIETY NUMBER 331485 – *SOLELY PRACTISING AS AVOCAT


nine years and pay back each year a given percentage of their income. Payment


of rent becomes "mixed", i.e. composed of a fixed and a variable part. In the past,


such "mixed" rent composed of a fixed and a variable element posed a tax


problem. There was a risk of re-qualification of such income as industrial and


commercial profits, which took away the tax advantage to the owner. This risk


disappears as from 2010.


3. 3. Owners can now sign a management proxy/mandate instead of signing


a commercial lease


The 2010 Budget Act introduces a new flexibility. In the past, where a


management company experienced difficulties, investors had no other option but


to sign a new commercial lease with another operator. Under the new regulations,


investors are no longer obliged to sign a commercial lease with a new leaseback


company. They can, without jeopardizing their tax advantages, give a


management mandate to professional, such as a specialist hotel management


company for example, unless they prefer to manage the resort themselves.


This new possibility is subject to two conditions. On one hand, the "selfmanagement"


entity must manage at least 50% of the apartments or villas. On


the other hand, this self-management is only allowed where no other


management company has been retained after a period of one year.


The above measures are insufficient. Most leaseback owners, especially foreign


investors, need to find a solution much faster. This alternative might nevertheless


be of interest to investors who had contracted with Résidhotel. Some of these


investors, who have already been dealing with two leaseback companies


(including the Quietude Group and subsidiaries…), face having to negotiate new


leases with a third management company, if they continue to opt for a


commercial lease! The possibility to give a management proxy instead of signing


a lease could represent an attractive option for them. The fact that, unlike with a


commercial lease, no compensation is due to the manager in case of non-renewal


by owners, makes this new possibility even more attractive to investors.


Fabien Cordiez