Sale of Foreign Real Estate by a French Tax Resident:

Sale of Foreign Real Estate by a French Tax Resident: Is Tax Payable in France?

Do individuals who are tax residents of France have tax obligations in France when they sell foreign real estate? And is capital gains tax due in France?

This question is often overlooked, with many assuming that French taxation doesn't apply to the sale of foreign property. However, this is not true, and the tax treatment varies depending on the circumstances, which need to be assessed on a case-by-case basis.

The distinction hinges on whether or not France has signed a tax treaty with the country where the property is located.

Without a Tax Treaty

In the absence of a tax treaty between France and the foreign state or territory where the property is sold, any capital gains made by a French tax resident from the sale of foreign property are typically subject to tax in France.

French tax residents are, in principle, taxed on their global income, gains, and profits, regardless of where they are generated, unless a specific exemption applies under French law or a bilateral tax treaty aimed at avoiding double taxation.

With a Tax Treaty

In many instances, France will have signed a tax treaty with the country where the property is located, as France has a wide network of international tax treaties.

In such cases, it's important to check the specific rules outlined in the relevant tax treaty, especially regarding capital gains from foreign property sales.

Typically, bilateral tax treaties stipulate that capital gains from the sale of real estate are taxable in the state where the property is located. Therefore, the location of the property usually determines which country has the right to tax the capital gain.

If a French tax resident sells property located abroad, the primary right to tax the gain typically lies with the foreign country where the property is situated.

However, this does not mean that France loses the right to tax the capital gain. Since France taxes its residents on their worldwide income and gains, it retains a secondary right to impose tax on the foreign real estate capital gain.

To avoid double taxation, tax treaties often include mechanisms to determine how the foreign and French taxes interact. This is why a detailed analysis by a tax advisor is essential.

In some cases, the foreign capital gain may be fully exempt from French taxation. In other situations, the capital gain will be taxed according to French tax rules on real estate gains, but a tax credit will be applied to offset the French tax.

In other instances, the foreign capital gain must be declared in France following the French rules, but the credit is limited to the amount of tax actually paid abroad. This means that if the French capital gains tax exceeds the foreign tax, the difference must be paid in France.

Reporting and Filing Requirements

Any capital gains from the sale of foreign real estate must be reported in France if they are not exempt and must be calculated according to French tax regulations.

Losses on foreign real estate sales do not need to be declared since they cannot be offset against other gains or carried forward for future sales, whether in France or abroad.

It’s important to note that the capital gain to be declared in France is calculated using French tax rules, and this amount may differ significantly from the gain taxed abroad under local regulations. Additionally, any currency exchange gains or losses must be taken into account where applicable.

As the resident state of the taxpayer, France retains the right to tax foreign real estate gains, even if another country has primary taxing rights.

Thus, depending on the specific transaction and the applicable tax treaty, the following filings may be required:

• Form 2048-IMM, within 30 days of the sale if the capital gain is not exempt in France;
• The annual income tax return (form 2042), where the capital gain must be declared;
• Form 2047, summarizing all income earned outside of France.

CM-Tax, a tax advisory firm with an expert team of French and English-speaking tax advisors, operates from Lyon, Marseille, and Toulon but provides services throughout France. They are available to assist French tax residents with foreign assets by providing a thorough tax analysis of the planned transaction and, if necessary, completing the required calculations and filings mentioned above.