First let me be clear – I am not a tax expert and any complicated financial transactions will need the advice of a qualified accountant. In this section I have outlined some of the main areas that you might like to consider about tax and VAT in France.
VAT is known as TVA in France, and has a standard rate of 19.6%
Currently, although it is under constant review, most renovation work, building work and material purchases (as part of a renovation through a registered builder) are subject to VAT at only 5.5% This makes a significant difference to the total cost of work.
The reduced TVA rate came about for a couple of reasons – both to defend jobs in the building profession in France, and to reduce the number of people working on the black economy. There is now a lot of resistance in France among the building profession to the suggestion that this special low VAT rate be cancelled.
The primary restriction is that the reduced rate only applies to work that is performed by a registered tradesperson. If you buy the materials and do the work yourself you will pay 19.6% VAT.
This can sometimes give rise to the situation where it is actually cheaper to pay someone to do the work than to do it yourself. As an example: windows for your house may cost 3,000 euros excluding VAT. So you will pay almost 3,600 euros including tax at 19.6% to buy them yourself. But if you pay the same supplier to install them as well, you might pay 3,220 euros (VAT at 5.5%) for the windows and 350 euros for the installation. Hence you will have saved 20 euros (and a week of work) by getting them installed for you. If materials and supplies represents a large proportion of the total costof the project this is worth checking. Doors, windows, shutters and certain forms of insulation particularly are expensive in relation to the cost 0f fitting.
The main cases where the reduced rate of VAT DOES NOT apply are:
- new buildings
- extensions (aggrandisements) to an existing property
- ‘luxury’ additions, such as a swimming pool
Contrary to what you might be told the reduced TVA rate DOES usually apply to the renovation of an existing building, even if it has not previously been inhabited, or to the conversion of a farm building that has never been inhabited. A building does not need to be a principal residence for the reduced rate to apply. If your project is unusual in some respect I advise you to speak to the tax office about your specific circumstances, and seek official verification that the lower rate should apply.
The builders working on your property quite possibly do not know the up to date tax position, but may perhaps think they do.
There is another time that VAT on buildings might affect you. If you sell a new-build property or a complete restoration property (i.e. it was completely uninhabitable when you bought it) you will have to pay VAT of 19.6% if you sell the property within 5 years of purchase. Your notaire will know if this apples to your property. You may need to seek professional advice in this situation since the financial amounts concerned are large, and there is a link with capital gains tax payable (not discussed here).
If you live full time in your property in France, and pay income taxes in France, you will find that certain expenses can be offset against your tax bill. These include certain central heating systems and certain insulation materials.
Precise details are beyond the scope of this site but leaflets and details are available at your local tax office.