In good company

Buying a property in France to use as a rental business is one way to get your foot in the market. But how easy is it to buy as a company, rather than an individual??Matthew Cameron offers his advice

Q. I am self-employed and work as a consultant through my own limited company (registered in the UK). I would like to be able to buy a property in France through my company to run as a rental business, making the company the legal owner of the property. There would be no finance or mortgage required to buy the property. Is this possible and do I need my business to be registered in France?

A. The first thing to note is that it is almost certainly possible for an English company to own a property in France. The question following this, though, is whether it is prudent or the right option. We shall consider the various implications arising from this proposition, to establish if it may be suitable.

To answer the last question first, if the company were to carry out as a rental business in France, then it would need to be registered there. Even if the company is registered in Britain and pays corporation tax to HMRC, the fact that its French income derives from French real property means that this income would need to be declared in France. In this instance it would be French corporation tax.

As may be expected, the rates of income tax and corporation tax differ in France, and the result of this is that the tax burden is likely to be greater for companies.

The company would then need to declare the income on its UK tax returns. It would be able to take into account the amount of tax paid already in France, by virtue of the double tax treaty in place between the two countries.

There are some other concerns as to organising the purchase through a UK company. There is a tax, that may often not be appreciated until the French tax authorities render a demand for unpaid taxes, applying to non-French companies that own properties in France. Such companies are obliged to confirm to the French tax authorities on demand the identity of all shareholders, their relative shareholdings and other related information. If they fail to undertake to supply this information, they can be subjected to an annual tax, calculated at 3% of the value of the French property. This tax can be avoided, but care needs to be taken to ensure that the relevant undertakings are lodged correctly.

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There are certain other taxation consequences that may arise from the proposed structure. There is a possibility that owning through a UK company would give rise to an adverse capital gains tax situation in France. Again, since the house is situated in France it will be subject to French tax, which would include capital gains tax. This is calculated differently for companies than for individuals, and the result is that a much higher charge can be applied.

There are some procedural steps to consider as well. The notaire dealing with the transaction in France will need to be satisfied that the company does actually have the power to complete a contract for the purchase of real property, and more particularly property located outside of England and Wales. It would of course be possible to produce for him the memorandum and articles of the company, although he will almost certainly (and understandably) want to see a translation of these. Since the translation would be referred to in his purchase deed, and therefore form part of the registered documentation, it would almost certainly be a requirement that this would be a formally legalised and duly certified translation. Thus this is likely to add a relatively high initial cost to the transaction.

It would be necessary to provide to the notaire the minutes of a board meeting authorising the transaction by the company, translated into French. This in itself should not be too difficult, although it would make the matter slightly more onerous.

Despite all of these potential burdens and disadvantages to structuring the purchase in the name of an English company, it may yet be a suitable option to purchase in this way. It is presumably after all this English company that holds the cash that will be used to fund the purchase. However in this case, it would be important to seek reassurance from the company’s accountants that there are no adverse implications. For example, while the stated aim is for the property to be used for rental purposes, consideration should be given as to whether, if the company owner is to use the property for personal occupation at any time, this occupation would give rise to an adverse UK tax consequence, such as a benefit in kind charge.

Depending on the company owner’s personal circumstances, and also on the memorandum and articles of association of the company, it might prove easier for the purchase in France to be in his own name, funded by a formally registered loan from the company, to be secured against the French property. This in itself would require a detailed analysis with specialist solicitors and accountants before this structure were set up, and indeed it may not be suitable for personal or other reasons anyway.

Overall, such purchase structuring should not be progressed without detailed advice first. When a person buys a property overseas, he is opening himself up to a whole new legal jurisdiction. It is just the same when the purchaser is a company. Company law and tax can be extremely complicated in the UK alone, so to expose the company to a second set of laws would not be for the faint-hearted. The first and most prudent advice, then, is that the reader should consider the specific proposition in detail with specialist solicitors and accountants, who have knowledge of English and French law and tax.

This article is for general information purposes only and does not constitute legal or other professional advice. You should not act or rely upon this information.

Ashton Graham is authorised and regulated by the Financial Services Authority. Ashton Graham Solicitors are regulated by the Solicitors Regulation Authority No. 50075.Living France February 2011