Almost every foreign investor who owns French property through a company meets the three per cent tax eventually, and a striking number of them meet it for the first time in a letter from the administration covering several years at once. The charge is unusual in that it is designed not to be paid. It exists to make ownership transparent, and an entity that explains who stands behind it will owe nothing at all.
That design is what makes it dangerous. A tax nobody expects to pay is a tax nobody sets up a process for, and the exemption that removes it is not automatic. It is conditional on an annual act. Miss the act and the charge arises on the full value of the property, every year, regardless of whether the structure was ever opaque and regardless of whether any French tax was avoided.
What the charge is, and what it is not
Article 990 D of the Code général des impôts imposes an annual tax equal to 3 per cent on legal entities, including bodies without legal personality, trusts and comparable institutions, which directly or through an interposed entity own one or more buildings situated in France or hold rights in rem over them.
Three features distinguish it from the taxes investors usually have in mind. The base is the market value of the property, not income from it and not any gain on it. The rate applies to that value in full each year, so the charge does not depend on whether the property is let, whether it produces a profit, or whether it is mortgaged. And it is assessed by reference to the position at 1 January, with an exception for property held as trading stock by entities carrying on a property dealing or development business.
Three per cent of capital value every year is not a nuisance charge. On a property worth several million euros it exceeds what a normal rental yield produces after costs, and left unaddressed across an open assessment period it can approach the value of the asset. It is a wealth tax on opacity, and it is calibrated to be intolerable.
Who is liable, and how a chain is read
The tax follows the chain of ownership rather than stopping at the registered owner. Where the property is held through a series of entities, the tax is due from the entity or entities in the chain that are closest to the property and are not exempt under article 990 E. Everything above that point is looked through.
This produces results that surprise people who assume a foreign parent is beyond the reach of a French charge. If the French holding company qualifies for exemption and the entity above it does not, the exemption of the lower company does not protect the structure. The liability simply moves up one level to the first entity that cannot satisfy the conditions, and that entity is assessed on the value of the French property held below it.
Any interposed legal entity between the person liable and the property is jointly and severally liable for payment. The administration therefore has more than one debtor to pursue, and in practice it pursues the one within reach. Where a property is sold, the accredited representative designated for the sale carries personal responsibility for the unpaid tax on that property, which is why French notaries and their correspondents take the point seriously at completion even when nobody has raised it during the holding period.
The entities outside the charge altogether
Article 990 E removes several categories without conditions attached to disclosure.
International organizations, sovereign states and their political and territorial subdivisions are outside the charge, together with legal persons they predominantly control. So are entities whose French immovable assets represent less than 50 per cent of their French assets, disregarding property that the entity or the entities in which it holds an interest allocate to their own professional activity other than property dealing. This is the provision that takes ordinary operating businesses out of the tax: a manufacturer that happens to own its French factory is not the target and is not caught.
Entities whose securities are traded in significant and regular volume on a regulated market are likewise outside the charge. The rationale in each case is the same. The tax is aimed at structures in which ownership cannot be traced, and where ownership is either public, governmental or incidental to a trade, there is nothing to trace.
The seat condition, and what sits behind it
The remaining exemptions, which are the ones that matter for private investment structures, are available only to entities that have their seat in France, in a member state of the European Union, or in a country or territory that has concluded with France a convention on administrative assistance for combating fraud and tax evasion, or a treaty containing a clause of non-discrimination under which the entity must not be taxed more heavily than a French entity.
This is a real constraint and it is the first thing to check on any existing structure. An entity established outside that perimeter cannot reach the disclosure exemptions at all, however willing it may be to disclose. The condition is about where the entity sits, not about what it is prepared to tell the administration.
For structures using a Netherlands or Luxembourg company the condition is satisfied by membership of the Union. For structures using a company in a jurisdiction without the relevant convention, no amount of transparency cures the position, and the only answer is to change where the entity is established or to change how the property is held.
The two ways to keep the exemption open
For entities that clear the seat condition, article 990 E offers a set of exits. Two of them are threshold based and require nothing further: the entity is exempt where the property it holds, or its share of it, is worth less than 100,000 euros or less than 5 per cent of the value of the property concerned. Pension funds and organizations of a public utility character carrying on an activity justifying the ownership are exempt, as are certain regulated real estate investment vehicles.
The general route is disclosure, and it comes in two forms. The entity may declare each year, no later than 15 May, the location, composition and value of the property and rights in rem held at 1 January, together with the identity and address of its members holding more than 1 per cent of the shares, and the number of shares held by each. Alternatively, the entity may give the administration an undertaking to communicate that information on request.
Members holding less than 1 per cent need not be identified. In a structure with a genuinely dispersed register that materially reduces the exercise. In the typical private structure, where a handful of persons hold everything, the disclosure is complete and is exactly what the provision intends.
The 15 May declaration in practice
The declaration is made on form 2746-SD, and electronic filing has been compulsory for tax due on property held from 1 January 2021, with the online service operating from 1 April 2021. Entities that file certain other returns are relieved of the separate filing.
The mechanics are simple; the failure mode is administrative. The obligation is annual, it falls on a date that has no relationship to any other filing in the group calendar, and it attaches to an entity that frequently has no French adviser of its own and no French accounting function. Where the property is managed by an agent and the shares by a family office in another country, the filing sits between the two and is done by neither.
The value declared is the market value at 1 January. Where the property has been held for a long period and never revalued, producing a defensible figure takes time, and it takes more time in the year the administration challenges it. Building the valuation once a year while the file is current is a great deal cheaper than reconstructing five of them under a formal notice.
Where structures fail, and how they are repaired
There is a tolerance and it is worth knowing precisely. Where an entity that would have qualified for exemption has failed to file, the administration may issue a formal notice requiring it to comply within thirty days. If the entity complies within that period, the tax is not demanded, and the relief covers all years not time barred. Voluntary regularization before any notice is treated in the same way. The tolerance applies only to the first regularization request.
That is a single opportunity, not a standing arrangement. An entity that has already been regularized once and lapses again is exposed on the ordinary terms, which means 3 per cent of value for each open year with no discretion to be argued about. The commercial consequence is that the compliance failure becomes a real liability at exactly the moment the file is being examined by somebody else, usually a buyer’s counsel in a share sale.
The repair, where a structure is outside the seat condition, is not a filing question. It is a question of where the top of the chain sits, and it is resolved by interposing or substituting an entity within the perimeter, with the transfer tax and capital gains consequences of doing so assessed before anything moves.
What this means for how French property is held
The three per cent tax does not make corporate ownership of French property unattractive. It makes untraceable corporate ownership unattractive, which is a different proposition and a deliberate one. A structure that is prepared to say who owns it, and that sits in a jurisdiction France exchanges information with, pays nothing.
The practical conclusion is that the charge should be treated as a governance item rather than a tax item. Somebody has to own the 15 May date, the register of members has to be current enough to be reported by then, and the seat of every entity in the chain has to be tested against the perimeter whenever the chain changes. Those are cheap disciplines. The alternative is a charge computed on capital value, running annually, discovered late and payable by whichever entity in the chain the administration can reach.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.