The "bénéfices industriels et commerciaux" (BIC)
Incomes generated from furnished rental properties are considered as «bénéfices industriels et commerciaux (BIC) », in comparison to incomes generated from unfurnished rental properties which are considered as “revenus fonciers”.
The amount taxed is calculated as follows: gross rental incomes excluding VAT from which is deducted the cost and fees listed below:
-fees linked to the property (repairs, maintenance …),
-Syndic’s fees (co-ownership association),
-Land tax (taxe foncière),
For incomes generated from furnished rental properties, it’s allowed to set off the purchase price of the property against the incomes, year by year during 30 years. Therefore, it is possible to deduct every year a certain amount of the property against the incomes generated in order to reduce the incomes taxed. The price of the furniture can also be set up against these incomes, but only during a 10 years period. The deduction is calculation as follows:
Price of the property – 10% corresponding to the price of the land (which is not deducted) = the result is divided by 30 (for 30 years). This amount can be deducted every year during 30 years.
Purchase price: 300 000€ + 10 000€ of furniture.
-For the property :
300 000 -10% = 300 000 – 30 000 = 270 000€
270 000 / 30 = 9000€ à Amount to deduce every year (during 30 years).
-For the furniture:
10 000 / 10 = 1000€ à Amount to deduce every year (during 10 years).
-Once these fees, cost and setting off deducted, the profit is taxed at 20% + 15.5% of social contributions (called CSG and CRDS).
Therefore if for example you rent out your property worth 300,000 Euros and receive say a 6% NET return per year (after maintenance costs, repairs and management fees) equivalent to 18,000 Euros then you can deduct the following assuming you take 80% finance at an interest rate of 3%:
-Mortgage interest of 7,200 Euros p/a
-Taxe fonciere of 700 Euros p/a
-Accountants fees of 300 Euros p/a
These costs add up to 8,200 Euros p/a which if you add to the 10,000 Euros p/a deductible for amortization the total to offset against income is 18,200 Euros p/a which in tax terms equates to a 200 Euros loss in that year meaning that no tax will be due.
In this way owning and renting out furnished property in France is a very tax efficient way of investing.