2nd Oct 2024
The government has published new rules on the application of VAT on furnished lettings.
We reported last year on a ruling in the French courts which threw into question whether French law on VAT on furnished lettings complied with European law.
Under European law, if the furnished accommodation has the status of a hotel then VAT must be charged on all bookings and services.
In France, this has been interpreted in statute law to mean that where at least 3 of 4 services are being offered as part of the furnished rental, the letting is considered 'para-hôteliere', and VAT must apply.
The 4 services concerned are:
According to the French Supreme Administrative Court, the Conseil d’État, a rental property can give rise to liability only in the context of potential competition with the hotel business.
Until now, this concept had never been clearly defined by the tax authorities, although it has given rise to several interpretations in case law decisions both at the European level and in France.
The decision of the court has led to a revision of Article 261D of the General Tax Code.
The new wording now distinguishes between two forms of para-hotel rentals:
For seasonal rental activities to be considered as para-hotels, two cumulative conditions are now required:
For long term residential rentals, the law now states that at least three of the four ancillary services must actually be provided (and not merely offered) to customers.
The government has specified that the services can be included in the rental price or offered as an option.
In terms of the services to be provided:
The rate of VAT that applies is 10% on the rent and 20% on all services.
Whilst that might seem to impact on the competitiveness of the offer, and to be an administrative burden, it is attractive to many landlords, as they can recover VAT on their expenditure, notably that in relation to the property purchase and building works, as well as routine maintenance and management costs.
More generally, the fiscal status of rental properties has undergone other changes of late, and there is every prospect that there will be further changes in the near future. You can read more in Taxation of Rental Income in 2023/24.
If you seek professional advice concerning anything in this article contact our Property/Tax Clinic and one of our advisors will get back to you.