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Why must foreign property income be declared in France?
Tax residence is the starting point for the analysis.
→ Tax residence under domestic law and tax treaties
Pursuant to Article 4 B of the French General Tax Code, “an individual is considered to be domiciled for tax purposes in France in particular where their household or main place of abode is in France, where they carry on their main professional activity in France, or where the centre of their economic interests is located.”
Where several States may consider the same person to be tax resident, the criteria laid down by the applicable tax treaty must also be examined.
A situation involving several States must be examined under French domestic law and, where applicable, the relevant international tax treaty.
→ The principle of worldwide taxation
Pursuant to Article 4 A of the French General Tax Code, an individual domiciled in France for tax purposes is, in principle, taxable on all of their income, whether from French or foreign sources.
Rental income from a property located abroad must therefore, in principle, be declared in France.
The fact that this income has already been declared or taxed abroad does not remove the obligation to declare it in France.
- For a French tax resident, foreign property income falls, in principle, within the scope of French taxation;
- taxation abroad does not remove the obligation to declare it in France;
- the tax treaty then allocates taxing rights and eliminates any double taxation;
- the value of the property itself may, separately, fall within the scope of IFI.
How is the property income to be declared in France determined?
Once tax residence has been established, the nature and amount of the income to be declared must be determined under French tax rules.
This step is essential.
The taxable income determined in the country in which the property is located does not necessarily correspond to the income that must be declared in France.
→ Unfurnished letting: property income
Income from an unfurnished letting falls, in principle, within the category of property income (revenus fonciers), including where the property is located abroad.
Two regimes may apply:
→ The micro-foncier regime
This regime applies where annual gross rental income does not exceed €15,000.
The micro-foncier regime provides for a standard 30% allowance on gross rental income.
Taxable income therefore corresponds to 70% of the rental income declared, with no separate deduction for the expenses actually incurred.
→ The actual-expense regime (régime réel)
Under the actual-expense regime, expenses allowed by French tax law may be deducted, including certain loan interest, management fees, insurance premiums, taxes, and repair or maintenance expenditure.
Unlike furnished lettings, the property itself cannot be depreciated.
→ Furnished letting: industrial and commercial profits
Income from a furnished letting falls within the category of industrial and commercial profits (BIC).
Depending on the circumstances, it may fall within the micro-BIC regime, which applies a standard allowance for expenses, or the actual-expense regime.
Under the actual-expense regime, expenses relating to the activity may be deducted and, subject to certain conditions, the property and furniture may be depreciated.
The applicable rules differ in particular depending on whether the property is a standard furnished letting, a classified furnished tourist accommodation, or a non-classified furnished tourist accommodation.
Please note that applying the actual-expense regime to a furnished property may require the filing of annual accounts.
- The taxable income is determined in the country in which the property is located;
- The income to be declared in France is calculated under French tax rules.
- The two amounts may differ, in particular because of the rules governing deductible expenses, depreciation, or standard tax regimes. The amount shown on the foreign tax return should therefore not be copied automatically into the French tax return.
The United Kingdom determines the taxable result under its own rules.
For the purposes of the French tax return, the taxpayer must determine the corresponding income under the French rules applicable to property income.
This French amount will then be used to apply the mechanism provided for by the France–UK tax treaty.
How is double taxation of foreign rental income avoided?
Once the income has been characterised and determined under French rules, the tax treaty between France and the State in which the property is located must be examined.
Most treaties provide that property income is taxable in the State in which the property is located.
This does not, however, mean that the income does not have to be declared in France.
On the contrary, French tax residents must report this income correctly.
The treaty also specifies the method by which France, as the State of residence, eliminates double taxation.
→ Tax credit equal to the French tax
Some treaties provide that the property income is declared and taken into account in France, but that the corresponding French tax is neutralised through a tax credit.
Subject to the terms and precise analysis of each treaty, this mechanism applies in particular to property income arising in certain States such as the United Kingdom, Spain, Italy, or Germany.
Even where the French tax directly attributable to the foreign income is neutralised, that income may increase the tax rate applicable to the taxpayer’s other income.
→ Exemption with application of the effective tax rate
Other treaties provide for an exemption of the property income in France.
The foreign income is nevertheless taken into account when determining the tax rate applicable to the taxpayer’s other income taxable in France.
This mechanism applies in particular under certain treaties concluded with Belgium, the Netherlands, and Portugal.
In principle, the financial impact is very similar to the example above.
→ Tax credit equal to the foreign tax
Some treaties provide that France taxes the income and grants a tax credit corresponding to the amount actually paid abroad, generally capped at the corresponding French tax.
This mechanism is less common for property income than for certain other categories of income.
→ No tax treaty
Where France has not concluded an applicable treaty with the State in which the property is located, the income remains taxable in France under domestic law.
Actual double taxation may therefore arise, with taxation both abroad and in France.
This situation requires particular care, as corrective mechanisms are very limited in the absence of a tax treaty.
By way of illustration, and without this list being exhaustive, this may concern certain States such as Haiti, Costa Rica, Fiji, or the Bahamas.
⚠️ Since 2023, certain tax treaties have also been terminated, including those with Russia, Belarus, and Burkina Faso.
→ IN PRACTICEThat statement nevertheless requires qualification.
Indeed, even where no tax is effectively due in France on that income:
→ foreign property income is taken into account when calculating the overall tax rate applicable to the taxpayer’s other income taxable in France;→ it therefore contributes to maintaining the progressivity of the tax.This inclusion may have a significant impact on the taxpayer’s overall tax burden by increasing the rate applicable to French-source income.
Is foreign property income subject to social contributions?
Social contributions are a separate issue from income tax.
Depending on their circumstances and the nature of the income, a French tax resident may be subject to social contributions at a rate of 17.2% on foreign property income where there is no tax treaty with the country in which the property is located.
→ Impact of the tax treaty
Where the tax treaty provides for the elimination of double taxation in France, whether through the effective tax rate method or a tax credit equal to the French tax, French social contributions are not due on the income concerned.
This is a common error by tax offices and requires particular care when reviewing the tax assessment notice.
Where social contributions have been assessed incorrectly, a formal tax claim may be filed to obtain their cancellation and repayment.
I can assist you with reviewing your tax assessment notice, preparing the claim, and following it up with the French tax authorities.
Must foreign property be declared for IFI purposes?
The ownership of the property itself may also have consequences in France for French real estate wealth tax (IFI).
→ A tax on real estate wealth
An individual domiciled in France for tax purposes is, in principle, subject to IFI on real estate assets located in France and abroad where the net taxable value of their real estate wealth exceeds €1.3 million on 1 January.
IFI does not depend on whether the property generates rental income.
A vacant apartment, a second home located abroad, or a property made available free of charge may therefore fall within the IFI tax base.
→ Which assets must be taken into account?
The assets listed below may in particular fall within the tax base. Debts relating to taxable assets may, subject to certain conditions, be deducted. In principle, the value used is the property’s market value on 1 January of the tax year.
- property held directly;
- second homes;
- rental property;
- certain real estate rights;
- the real estate fraction of certain French or foreign companies or entities.
→ The temporary regime for new residents
A particularly important rule applies to certain individuals who move to France. Where a taxpayer transfers their tax residence to France after having been domiciled for tax purposes outside France during the five preceding calendar years, they generally benefit from a limited territorial scope for IFI.
During this temporary period, only their real estate assets located in France are taken into account. This rule applies until 31 December of the fifth year following the year in which they moved to France.
The temporary IFI exemption for foreign real estate is not conditional on the application of the impatriate tax regime provided for by Article 155 B of the French General Tax Code.
An individual may therefore benefit from this temporary territorial limitation for IFI purposes without benefiting from the impatriate tax regime in respect of their professional income. For further information on that regime, please see my guide to the French impatriate tax regime.
→ Tax treaties and IFI
Some tax treaties contain provisions concerning wealth or capital taxation. Their impact on IFI must be examined on a case-by-case basis, particularly where significant real estate wealth is located abroad.
The French domestic rules should therefore not be applied automatically without checking any applicable tax treaty.
How should foreign property income and assets be declared?
Once the tax treatment has been determined, the analysis must be reflected correctly in the French tax return.
→ Reporting foreign income
As explained above, French tax residents must declare in France the rental income they receive from abroad.
Form no. 2047 is the standard form used to report foreign-source income. The reporting method then depends on the mechanism for eliminating double taxation provided for by the applicable tax treaty: a tax credit or an exemption with inclusion for the purpose of calculating the effective tax rate.
The sections to be completed therefore differ depending on the method provided for by the treaty.
This income must also be reported on the main French tax return: on Form no. 2042 for property income from an unfurnished letting and on Form no. 2042-C-PRO for income from a furnished letting.
→ Conversion of foreign income
Where rental income is received in a foreign currency, it must be converted into euros in accordance with the applicable French tax rules.
→ IFI return
Where a taxpayer is subject to IFI, the real estate assets and related debts are reported on Form no. 2042-IFI.
Frequently asked questions
The main questions concerning income and property located abroad.
→ Do I have to declare foreign rental income if it is already taxed abroad?
Yes. Where an individual is a French tax resident, foreign property income must, in principle, be declared in France. The tax treaty then determines the mechanism for avoiding double taxation.
→ Should I use the taxable income shown on my foreign tax return in my French tax return?
The income to be declared in France must be determined under French tax rules. The amount may therefore differ.
→ Does a furnished letting located abroad fall within the property income category?
No. Under French tax law, income from a furnished letting falls, in principle, within the category of industrial and commercial profits.
→ Do I have to pay social contributions in France?
This depends on the nature of the income, your social security position, and the mechanism provided for by the applicable tax treaty. The treatment must therefore be determined on a case-by-case basis.
→ What should I do if I have paid social contributions on my foreign income?
If the foreign rental income qualifies for a tax credit in France under the applicable tax treaty, social contributions should not apply.
However, the French tax authorities generally subject this income to social contributions by mistake.
In that situation, it may be necessary to file a claim with the French tax authorities in order to enforce this right.
→ Do I have to declare the value of my foreign property every year?
Merely owning a property abroad does not, in itself, require its value to be declared annually. Its value must, however, be taken into account where the property falls within the scope of IFI and the taxpayer is liable to that tax.
→ I have just moved to France: are my foreign properties immediately subject to IFI?
Not necessarily. Individuals who transfer their tax residence to France after having been domiciled outside France during the five preceding calendar years may benefit from a temporary regime limiting IFI to French real estate assets.
How can the firm assist you?
→ Tax analysis and advice
The taxation of property located abroad requires the French rules to be coordinated with those of the country in which the property is located and with the provisions of the applicable tax treaty.
I assist clients in particular with:
- determining their tax residence;
- characterising foreign property income;
- identifying the applicable tax treaty;
- determining the method for eliminating double taxation;
- analysing the applicable social contributions treatment;
- checking whether IFI applies and whether the temporary regime for new residents is available.
→ Tax returns
I can also determine the amounts to be declared and prepare the corresponding French tax returns, particularly in relation to foreign income and IFI.
→ Compliance and regularisation
Where a past situation has not been reported correctly, I can also analyse the tax risk, prepare a voluntary disclosure or tax claim and, where appropriate, seek a formal ruling from the French tax authorities.
→ Do you need to secure your international property tax position?
For any question or consultation request, please contact me.
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