Thorough Due Diligence: Knowing What You’re Buying

Before signing any binding agreement, a foreign investor should conduct due diligence on the French target business. Due diligence is the investigative process of reviewing the target’s legal, financial, tax, and operational situation. In France, as elsewhere, this typically includes examining corporate records, contracts, permits, employee arrangements, litigation, intellectual property rights, and financial statements of the target company.

Engage a French legal team and accountants to assist, since local expertise is key to spot issues (like checking that the company’s Kbis extract from the registry is clean, verifying property titles in the French land registry, etc.). Some items to focus on:

• Corporate structure and compliance: Review the company’s bylaws, cap table (shareholders), minutes of past meetings, any shareholders’ agreements, and outstanding securities. Verify that the target is duly incorporated and that the persons signing on its behalf have authority. Check for any pledges of shares or options that could affect your acquisition.
• Contracts and liabilities: Request material contracts – with customers, suppliers, leases, loans, etc. Pay attention to any change-of-control clauses that could allow termination if the company is sold. If you find such clauses (common in some contracts and licenses), you may need to get consents or structure around them. Investigate outstanding debt and whether any is personally guaranteed by the seller or needs refinancing. Look at any litigation or disputes; under French law, lawsuits stay with the company (if you buy shares, the company remains the defendant for any pending case). Tax liabilities should be checked – perhaps obtain recent tax clearance or see if any tax audits are in progress.
• Employment matters: France has protective labor laws, so ensure the target has properly documented employment contracts, that it’s up to date on social security contributions, and that there are no looming disputes with employees or unions. If the target has a works council (CSE), note that this body must be informed/consulted prior to the acquisition closing (in deals meeting certain size thresholds). Confirm whether any key employees have change-of-control bonuses or rights to resign with indemnity if the company is acquired.
• Intellectual Property and Regulatory: If the business relies on patents, trademarks, or software, confirm these IP assets are owned or licensed properly by the target. In some cases, past employees or founders might not have signed invention assignment deeds – this should be resolved before you proceed. Also verify if the business needs any licenses (for example, operating permits, GDPR data protection compliance, sector-specific authorizations). An issue in regulatory compliance can threaten the continuity of the business post-acquisition if not addressed.

By knowing the ins and outs of the target, you can either negotiate protections for any risks found or decide to walk away if the risks are too high. French sellers are used to due diligence processes, and they will often populate a data room for review. Keep in mind, if you discover a problem and still choose to proceed without getting it fixed or covered by warranty, you may have a hard time complaining about it later. So better to raise and resolve issues before signing.

The Negotiation: Letters of Intent and Key Terms

In many French transactions, the parties sign a letter of intent (LOI) or term sheet before the final contract. This LOI (sometimes called a protocole d’accord or offre d’achat when initiated by buyer) sets out the main agreed terms: price, what is being acquired (shares or assets), any conditions precedent, timeline, and often exclusivity (the seller agrees not to solicit other offers for a period). Typically, an LOI is stated to be non-binding except for certain clauses (like confidentiality and exclusivity). However, foreign investors should be cautious: while French courts will generally respect non-binding clauses, the duty of good faith in negotiations means that breaking off talks abruptly or reneging on key points could potentially incur liability in tort (Article 1112 of the Civil Code) if it causes unjustified harm to the other party. To be safe, clearly delineate which provisions are binding and consider including a governing law clause even at LOI stage if cross-border (though usually the final SPA will cover that).

Key terms to negotiate upfront include:

• Price and Adjustments: Determine if the price is fixed or subject to adjustment (e.g., based on closing accounts, or a net debt and working capital adjustment). In France, both locked-box (fixed price with interest if profits are drained pre-closing) and closing accounts mechanisms are used. Be clear on currency (Article 1343-3 of the Civil Code explicitly allows contracts between professionals to be in a foreign currency commonly used in the transaction – so you can price in USD or EUR as you prefer).
• Reps and Warranties: French deals usually involve the seller giving contractual representations and warranties about the company’s condition (since there is no extensive concept of implied warranties for business sales, aside from basic title guarantee). These will be later detailed in the SPA, but you can outline in the LOI that extensive warranties will be provided, and possibly that a warranty indemnity mechanism (garantie d’actif et de passif) will be included. Under French practice, reps & warranties are the tool to mitigate risks identified – essentially a contractual assurance from seller that if unknown liabilities crop up post-deal, the buyer can recover damages. Foreign investors should push for a solid set of warranties and possibly an escrow or purchase price retention to secure any indemnity claims.
• Conditions Precedent: Identify any regulatory approvals needed: for instance, merger control clearance if the companies are large. France has its own antitrust thresholds, and the EU has its thresholds – if your transaction meets the criteria (based on turnover of the parties), you must notify and get approval from either the French Competition Authority or the European Commission before closing. Also, FDI approval if applicable (discussed below) should be a condition. If you require financing or approval from your board or government (e.g., if you’re a state-owned foreign entity), include those conditions. French law allows conditions precedent as long as they are not potestative purely (i.e., one-sided arbitrary conditions).
• Timeline and Exclusivity: Lock in a timetable for due diligence, signing, and closing. If you’re committing resources to this deal, an exclusivity clause (seller won’t negotiate with others for some period) is advisable. Under French law, exclusivity agreements are generally enforceable according to their terms (with damages or even injunction possible for breach, though injunction is rare in practice).

Negotiating a French deal as a foreigner also means bridging cultural styles – French counterparts may expect more direct communication on points like employee integration or long-term strategy, as there is often a social angle to M&A in France (will you lay off staff? etc.). Being forthright and having a plan for the company can actually help in negotiations, especially if management or family sellers care about legacy.

Compliance with Legal and Regulatory Requirements

Foreign Investment Regulations: If you as a foreign investor (especially from outside the EU/EEA) are acquiring a significant stake in a French company, verify whether the foreign investment control applies. As detailed earlier, certain sectors require prior authorization from the Ministry of Economy for foreign investments beyond 25% or involving control. It is crucial to file the request in a timely manner; typically this is done as soon as the deal is sufficiently defined, and the deal can be signed “subject to FDI approval”. Do not skip this if it’s required – a closing without mandatory approval is voidable and can carry heavy fines. In recent times, areas like defense, cybersecurity, AI, energy, and even parts of healthcare are covered. If your deal triggers it, engage French counsel who specialize in FDI filings. The good news is that most requests get approved (often with conditions). The process takes up to 2 months (30 business days initial review + 45 additional if deep review). Plan that into your closing timetable.

Antitrust (Merger Control): As noted, if the companies have revenues above certain thresholds (e.g., roughly €150m France combined and €50m France each for French review, or higher EU-wide thresholds for EU review), you need to file for merger clearance. This is a suspensory condition – you must wait for the authority’s green light. The French Competition Authority typically gives a decision in phase 1 within 25 business days for straightforward cases. EU Commission can take longer. Ensure you prepare necessary information early. Also, even if below thresholds, if it’s a joint venture creation that might coordinate parents, consider antitrust compliance (Article 101 TFEU) – if two competitors form a JV, the joint venture should not be simply a cover for cartel-like behavior. The European Commission has guidelines on this. Essentially, the JV must be a genuine, autonomous full-function entity to escape Article 101 scrutiny, otherwise the cooperation agreement between parents might need to be analyzed under antitrust rules.

Employee Processes: In France, if the target has a works council (CSE), you must inform/consult it about the acquisition. This is separate from the Hamon law info to employees discussed earlier (that one is the seller’s obligation in small companies). For larger companies, the CSE consultation is a mandatory step before the decision to acquire is finalized. Failing to consult doesn’t void an acquisition but can lead to fines. So, coordinate with the seller on this process – often the seller organizes the consultation as it knows its employees best, but the buyer might attend some meetings to present plans.

Environmental and Other Specifics: Depending on the industry, check for environmental liabilities. France has strong environmental laws (some liabilities can follow property owners or operators). If acquiring an industrial site, environmental audits are prudent.

Data Protection: If part of the transaction involves transferring personal data (customer lists, etc.), comply with GDPR. Typically, during due diligence only anonymized data is shared, and upon closing you ensure data subjects are informed of the new controller if required.

In sum, foreign investors must navigate these compliance steps to “secure” the deal – meaning to ensure the deal is legally valid and won’t be later unwound or penalized by authorities. It’s wise to include clauses in the contract on what happens if an authority blocks the deal or requires divestitures, etc.

Crafting a Solid Purchase Agreement

The backbone of a secure transaction is a well-drafted Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA). Under French law, you have wide freedom to contract, so you can tailor the SPA to allocate risks as you see fit. Some points to get right:

• Representations & Warranties and Indemnities: As mentioned, these clauses are critical. The seller’s reps should cover title to shares/assets, financial statements accuracy, absence of undisclosed liabilities, compliance with laws, etc. In France, it’s common to use a separate guarantee agreement (garantie d’actif et de passif) either as part of the SPA or a schedule, which spells out indemnification: if any of the guaranteed items (usually assets and liabilities as of closing) is inaccurate, the seller will indemnify the buyer. Negotiate the survival period of warranties (often 18–24 months for general, longer for tax and social security until expiration of government audit periods), any caps (liability cap maybe 10%–30% of price for general warranties, possibly up to full price for fundamental warranties like title), and a deductible or threshold to avoid trivial claims. If the seller is a foreign entity or one you worry about enforcing against, consider an escrow holdback of part of the price for the warranty period.
• Covenants and Interim Period: The SPA should have covenants, especially if there’s a gap between signing and closing (while waiting for approvals). Typically, the seller covenants to run the business in the ordinary course, not to do anything abnormal like new loans, firing key staff, etc., without buyer’s consent. Include a clause that seller will assist in obtaining any third-party consents needed.
• Termination rights: Specify what happens if conditions precedent (CPs) aren’t met by a deadline. Each party should have a right to terminate if, say, regulatory approval is denied or not obtained by X date. Also, if a material adverse event occurs to the target pre-closing, do you have the right to withdraw? French deals sometimes have MAC (Material Adverse Change) clauses, but French courts interpret them strictly (and if it’s too vague, they could consider it potestative and void). So if you want a MAC clause, define it clearly (e.g., revenue drop of Y% or loss of major customer, etc., can allow walk-away).
• Closing and Transfer Formalities: Outline the mechanics at closing. In a share deal, share transfer forms (ordre de mouvement) will be signed, the buyer will be registered in the company’s share register, and usually new directors may be appointed. In an asset deal, you’d have bills of sale, assignment deeds for contracts, etc. Make a closing checklist part of the SPA. Also, decide where closing happens – it can be anywhere, but often at a notary or lawyer’s office for formality (especially if any notarization is needed, like real estate transfer). For cross-border, consider using electronic signature if legally acceptable (France recognizes e-signatures, though certain corporate acts might still be done on paper for registration).
• Governing Law and Dispute Resolution: Many foreign investors might prefer their home law or a neutral law, but when acquiring a French company, it’s most common to use French law for the SPA (especially if it’s shares of an SAS or SARL, since the transfer procedures refer to French law concepts). French law is well-developed for M&A contracts, and you can choose an international arbitration (Paris is a major arbitration venue) or French courts for disputes. Arbitration can be faster and confidential, but more costly; French courts are an option since a foreign investor might trust the sophistication of, say, the Paris Commercial Court for business disputes. Also note, if the counterparty is French, they may insist on French law – it’s a reasonable ask given the subject matter. In any event, ensure a trustworthy dispute mechanism is in place.

By solidifying these contract terms, you legally secure your transaction – meaning you have recourse if things go wrong, and clarity on both sides’ obligations.

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Closing the Deal: Execution and Post-Closing Matters

On closing day, a few legal essentials:

• Funds transfer: typically done via wire transfer in euros (or agreed currency). Make sure to account for any escrow arrangement.
• Share transfer registration: If it’s a share deal, after closing the buyer’s ownership must be updated in the company’s official registers. And within 30 days, the transfer must be registered with the tax authorities with payment of stamp duty (0.1% for most shares of SAS/SARL). Often the notary or lawyer handles this formality by submitting the signed securities transfer forms (acte de cession) to the tax service.
• Public announcements: For asset deals (fonds de commerce sales), a closing triggers legal notices in a journal and a Bodacc announcement, and the purchase price might be sequestered for a period to allow creditors to claim (this is unique to fonds de commerce sales). For share deals, no public announcement is legally required (unless the company is listed or certain regulated sectors). However, if an acquisition pushes ownership above certain thresholds in a public company, the buyer must declare to the stock market regulator (AMF) and maybe launch a tender offer if crossing 30% (mandatory bid threshold in listed companies).
• Post-closing integration: Legally, ensure any changes in directors or address are filed with the RCS via the one-stop (within 30 days). If a foreign parent now indirectly controls a French company, that subsidiary might need to file annual consolidated accounts or declare a foreign parent for statistical purposes (e.g., INSEE economic surveys).

Finally, keep an eye on any earn-out or deferred price conditions if negotiated, and formalize employment of key persons post-acquisition (maybe you signed new contracts effective at closing).

Conclusion: Diligence and Good Counsel as Your Security

Securing a business transaction in France as a foreign investor boils down to rigorous preparation and adherence to French legal procedures. Conduct thorough due diligence so you fully understand the target and its risk profile. Negotiate a clear, comprehensive agreement that protects you through warranties and proper conditions. Comply with French and EU regulatory requirements – these are not optional, and early planning for them prevents last-minute hiccups. And always document everything meticulously, from the LOI stage to closing filings.

France has a reliable legal system for business transactions. Contracts are enforceable, and the courts or arbitration panels will generally uphold the written agreements, including foreign investor rights, provided procedures are followed. By engaging experienced French counsel and maintaining open communication with the seller about fulfilling legal obligations (like employee consultations or regulatory filings), you build trust and reduce risk on both sides.

In essence, a “secure” transaction is one where there are no loose ends: all parties know their rights and duties, all approvals are obtained, and the business changes hands smoothly. With the legal essentials covered, a foreign investor can focus on the strategic goal of the investment – growing and profiting from the newly acquired French business – rather than battling unforeseen legal troubles. As the saying goes, an ounce of prevention is worth a pound of cure: investing time and resources in securing the deal upfront will pay off enormously in peace of mind and in the long-term success of your French venture.

 

Getting your business legally ready for transfer

Corporate Housekeeping: Start by putting your corporate house in order. Ensure that the company’s bylaws (statuts) are up to date and reflect the current operations and shareholder arrangements. All past capital changes, shareholder decisions, and filings should be regularized. When a buyer or heir’s advisors examine the records (due diligence), they should find a clean book of minutes and registrations. If your company has undocumented shareholder loans, pending legal disputes, or non-compliance with filing obligations, address those issues proactively. For example, if there are intellectual property assets (trademarks, patents) used by the business but still held in the founder’s personal name, legally transfer those IP rights to the company before a sale. Any contracts critical to the business (leases, client or supplier agreements) should ideally be in the company’s name and valid for the future, so renew key contracts that might expire soon. These steps reassure successors or buyers that they’re acquiring a well-managed entity with clear title to its assets.

Deal with Liabilities: A vital part of succession preparation is handling liabilities. If there are outstanding litigations or regulatory non-compliance issues, try to resolve them or at least quantify and disclose them. Unknown or unquantified liabilities scare off buyers and complicate family successions (they could even cause rifts if heirs blame one another later). In France, some owners obtain an audit (by an accountant or lawyer) to identify hidden risks. Tax exposures are a common concern – e.g., if the company has had aggressive tax positions, consider requesting a tax ruling or at least make sure you have proper documentation, as any successor will inherit past tax risks. Remember, in a share sale, the buyer inherits all the company’s liabilities, even unknown ones. In a family transfer, your heirs step into your shoes regarding the business’s debts. French law does allow an heir who inherits a business to accept the inheritance “under benefit of inventory” (beneficium inventarii) to avoid unknowingly inheriting excessive debt, but in practice it’s far better to sort out the debts ahead of time.

Choosing the Transfer Method: Decide how you will transfer the business. There are two broad pathways: succession by way of inheritance/gift (if passing to family or relatives), or sale to a third party (could be external or even a management buy-out by your employees). Sometimes it’s a mix (you sell part to a partner, while grooming a family member for leadership). The legal preparation may differ slightly: for an inheritance or gift, you will focus on estate planning tools (wills, family pacts, life insurance) to align with French succession law. For a sale, you will focus on readying the company for due diligence and negotiating a sale contract.

In either case, ensure that the business structure is conducive to transfer. If you are operating as a sole proprietorship or under your own name, strongly consider incorporating it into a company before transfer. Transferring a going concern that’s not in a company is possible (French law allows selling a fonds de commerce, which is essentially the bundle of business assets and goodwill), but incorporating can simplify things. For instance, transferring shares of a company is usually simpler than assigning every asset and contract one by one. Moreover, incorporation can protect the successor from personal liability for old business debts. French tax law offers some neutrality for incorporating an existing business (you can carry over tax values, etc.), so it’s worth exploring before you transition out.

If you already have a company, consider whether the current shareholders and structure fit the succession plan. If you have multiple business lines, a split or reorganization might be wise so that a buyer can buy only what they want or so that different heirs can take different branches without conflict. French corporate law allows spin-offs, asset contributions, and mergers relatively flexibly, and many are tax-neutral under the EU Merger Directive or domestic rollover relief. For example, you might spin off real estate assets into a separate entity so that you can keep those and only sell the operating business. Or if two families co-own a company and want to go separate ways for succession, you could split the company into two via a demerger.

Employee Notification: One legal requirement not to overlook – if you are selling the business (share deal or asset deal) and you have a small or medium company (at most 249 employees), you must inform the employees of your intent to sell in advance. This rule aims to allow employees to make an offer to buy the business if they wish. The information must be given no later than 2 months before the sale contract is signed. There are various acceptable ways (in writing, in a meeting, etc., with proof of date). While employees do not have a veto or a right of first refusal, failure to inform them can lead to potential damages (up to 2% of the sale price) if they prove prejudice. Importantly, this obligation does not apply to transfers within a family (gifts or successions) – it’s only for sales to third parties. Also, it’s waived for larger companies with formal works councils since those have other consultation procedures. If you’re preparing a sale, factor in this timing – you’ll want to deliver the information and let the 2 months run (unless every employee waives the wait, which they can, allowing you to close sooner).

For a family succession, communication is still key even if not legally mandated. It may be wise to announce and discuss with employees the new leadership to maintain confidence and goodwill. France values worker relationships, and a sudden change at the top can be destabilizing if not managed transparently.

Tax planning for succession or sale

Taxes can take a big bite out of the value of a business transfer – but France offers several reliefs if you plan ahead:

Pacte Dutreil for Family Succession: As discussed in the previous article’s context, the Pacte Dutreil is arguably the most potent tool for reducing inheritance/gift tax on a business transfer to your descendants or relatives. By committing to keep the business in the family for the long term, your heirs can enjoy a 75% tax exemption on its value. To utilize this, you should put the pact in place at least 2 years before the transfer (so ideally, while you’re still actively running the company) and then follow through with the required holding period by your heirs (4 years after the transfer). The pact must cover at least 17% of the shares (if the company is listed) or 34% (if unlisted) collectively among the signatories, to show a significant stake is held. Many family businesses in France essentially institutionalize the succession by signing a Dutreil agreement between the older and younger generation well before the elder retires. If you have multiple children, the pact can include all of them as long as one of them (or another signatory) takes on the management role. This not only saves tax but also provides a framework for governance during the transition, which can be very valuable to avoid family disputes.

It’s also advisable to evaluate your company early. Engaging a professional valuation a few years before the planned transfer can help identify ways to potentially freeze or reduce the taxable value. For instance, distributing excess cash or assets that are not needed in the business can lower the company’s value, thereby lowering future gift/estate tax. Under French tax rules, minority shareholdings can be valued with discounts – so one strategy is to start transferring minority stakes (perhaps to a trust-like vehicle or directly to heirs) so that when the time comes, no single heir is getting a large, highly valued block. France doesn’t have formal family trusts (they are not recognized except for the fiducie which is rarely used personally), but you can achieve some trust-like outcomes via holding companies or family LLCs that hold the business for multiple heirs jointly.

Retirement Relief and Capital Gains: If a sale is on the horizon, look at your timing vis-à-vis retirement. As mentioned, Article 151 septies A of the Tax Code provides up to €500,000 tax-free on a sale gain if you, as a qualifying business owner, retire around the time of sale. To use this, ensure you have the status of a company director (e.g., President, CEO, Manager) and have been so for at least 5 years, and that the company is indeed an SME (generally <250 employees, <€50m turnover). You will need to provide evidence of claiming your pension rights within 2 years after the sale. Planning wise, if you’re nearing that phase, you might delay or expedite the sale to fall within the window where you can claim this relief. Note that this relief can be combined with the flat tax or you can opt for the progressive tax regime with special abatements for holding period (if shares were owned >8 years, there used to be a 65% reduction for old shareholders under certain regimes, though this interacts with the flat tax introduction – specialized advice is needed as tax laws have evolved).

For those not retiring, consider if the company could distribute some dividends before sale, which might be taxed at the flat 30% but then reduce the sale price (and thus the gain). In some cases, owners pay themselves a one-time exceptional dividend or a bonus; however, be careful, because a buyer will notice if the company’s cash is stripped and it could affect negotiations. This is more of a tactic when you have a very cash-rich company – sometimes doing a pre-sale reorganization, like the company pays out surplus cash or sells a division and pays out proceeds, can make the remaining business leaner and easier to sell (and you’ve partially cashed out via the dividend at a known tax rate).

If selling assets (like a fonds de commerce sale by a company), note that the company will pay corporate tax on any capital gain (currently at 25% rate). You can often structure an asset sale to be followed by a liquidation of the company, which might qualify remaining liquidating distributions for a favorable tax (the liquidation bonus is treated as a capital gain for shareholders). It gets complex, but the point is: plan the sequence – asset sale, then perhaps a liquidation or a merger – to legally minimize tax. Under some circumstances, selling the shares outright is simpler and more tax-efficient for the seller because of the flat tax on individuals vs double taxation corporate then individual.

Preserving Continuity: From a legal standpoint, ensure the transfer instrument (will, gift deed, or sale contract) is carefully drafted. For sales, a share purchase agreement will include representations and warranties – as a seller, you want to limit your post-sale liability, but you also need to provide enough assurance to the buyer to close the deal. If you’ve done your preparation work (addressed liabilities and organized financials), you can comfortably give standard warranties with limited risk of surprises. Often, part of the sale price might be held in escrow or subject to an earn-out; plan how that will be managed, perhaps by also preparing management team to hit targets if you’re not going to be there.

In a family handover, consider signing a family shareholder agreement once the younger generation takes over. This can set rules on things like profit distribution, decision-making, and potential future buy-outs if one family member wants out. It’s not strictly required by law, but it can prevent conflict by aligning expectations. For example, siblings inheriting a company might agree on a policy that anyone who wants to sell shares must first offer them to the others (a right of first refusal), or that certain major decisions need a supermajority. These agreements (pactes d’associés) are binding and supplement the bylaws.

Case study: An example succession plan

To illustrate, imagine you founded a manufacturing company in France 30 years ago. You’re now 60 and want to retire at 65, hopefully leaving the company to your two children, who are involved in the business, and maybe partially cashing out some value for your retirement.

Five years before (age 60): You start discussions with your children about succession. You restructure the company by creating a holding company (HoldCo) that you own, and you swap your shares of the operating company for shares of HoldCo (tax-neutral under French rollover provisions). Now HoldCo owns the business. You and your children sign a Dutreil pact at the HoldCo level, committing to keep 100% of HoldCo in the family for at least 6 more years (2 years before transfer + 4 after). You gift each child, say, 10% of HoldCo now (valued with some discount because they’re minority stakes) using part of the €100k gift tax allowance. You also update your will to ensure the business goes to them (since French law will give each child a reserved share anyway, you might decide to use the available portion to equalize things if necessary).

You check that your company’s accounts are in good shape and resolve a longstanding commercial lawsuit with a settlement, rather than letting it drag on.

Two years before (age 63): The Dutreil pact two-year mark is reached. You formally retire as CEO, and one of your children takes that role (a requirement for the pact’s continuation). You gift the remaining shares of HoldCo to your children in equal parts. Because of the pact, the taxable value of those shares is cut by 75%. The gift uses up some tax allowance and possibly incurs a reduced gift tax on the remainder; the business passes to them with minimal tax. You have also perhaps taken some cash out of the company as dividend in prior years to fund your retirement (taxed at 30%), but you leave enough working capital for the business’s needs.

At transfer (age 63): Your children now own and run the business. They must hold it 4 more years to finalize the tax exemption. They keep the pact commitments. Down the line, if they decide to sell at say age 70, they can then do so without triggering the old conditions, though they’ll face their own considerations.

In this scenario, you achieved a tax-efficient succession (Dutreil saved 75% of hefty taxes, and you utilized allowances). Legally, you ensured continuity (one child was already managing, employees saw a smooth change, and contracts remained with the same company throughout).

For a sale scenario, one might adjust by instead grooming the company for an external sale: cleaning it up, then around retirement age, selling shares to a buyer and using the €500k retirement exemption and flat tax for the rest.

Conclusion

Preparing a business for succession or sale in France involves a combination of legal diligence and smart use of tax provisions. By addressing corporate, contractual, and regulatory matters ahead of time, you make the business more attractive to successors or buyers. By leveraging tools like the pacte Dutreil, retirement allowances, or favorable holding company regimes, you preserve more of the value that you worked hard to build. The French legal system, while detailed, ultimately provides pathways to facilitate these major transitions – recognizing the importance of business continuity for the economy and for families.

The main takeaway is to start early. A succession or sale is not an event on a single day; it’s the culmination of steps you can manage. Engage professionals (lawyers, notaries, accountants) who are experienced in French business transfers. They can help ensure you tick all the boxes – from employee notices to tax rulings if needed. With a solid legal and tax framework in place, you can hand over the keys of your enterprise with confidence, knowing that both you and your successor are protected and set up for future success.

Zoning and local restrictions.

The PLU may have surprises in store for the uninitiated: a plot of land in a natural (N) or agricultural (A) zone  will in principle be unbuildable (with exceptions for agricultural use or public facilities). Similarly, some municipalities classify sectors as protected areas for landscape or ecological heritage, where the possibilities of building are almost nil. A foreigner attracted to an isolated farmhouse should be aware that extensive renovation or extension may be limited if the area is protected. The rules may impose architectural constraints (e.g. a slate roof is compulsory in a certain village, a ban on masonry fences in a rural area, etc.). Urban planning in France is highly regulated, and any project must scrupulously comply with it.

Building permit and refusal for risk.

Carrying out major works (new construction, significant extension, change of use of a building, etc.) requires prior planning permission: generally a building permit. The permit file is examined by the town hall, which verifies compliance with the PLU and the various standards (accessibility, connections, fire safety, etc.). This process can be long (legal investigation period of 2 to 3 months minimum, more in the event of an investigation or opinion of the architect of the Bâtiments de France). Above all, the municipality can refuse the permit if the project contravenes the rules or presents risks. A common reason for refusal is the situation in  a flood zone: a plot of land located in a red flood risk zone is a legitimate reason for refusing a building permit. Case in point: a British investor had acquired a plot of land on the banks of a river in Provence to build a charming guest house. When the permit was filed, it was refused on the grounds of the risk of flooding: the risk prevention plan classified the area as a no-build zone after serious flooding in previous years. Even though he proposed improvements (building the house on stilts out of reach of the water), he had to give up, as the mayor was opposed to any new housing in this sensitive area. This case illustrates the primacy of public safety considerations over property rights: “Land located in a flood zone can be grounds for refusing a permit,” says a legal expert. Similarly, in mountain areas or areas of land movement, a project may be refused for natural risks.

Heritage and environmental protections.

France attaches great importance to the preservation of historical heritage and the environment, which translates into additional constraints. If the property is located within the perimeter of a historic monument or listed site, the architect of the Bâtiments de France will have to give his or her consent to any exterior change (façade colour, materials, height) – a process that may surprise a foreigner who discovers that he or she cannot freely modify his or her own listed house. Similarly, the Coastal Law prohibits practically all construction within 100 meters of the shore in coastal natural areas, and the Mountain Law limits dispersed urbanization at altitude. Some municipalities have subdivision regulations or green space protection regulations: for example, a remarkable tree on your plot may be protected, making it illegal to cut down. A foreign investor should therefore expect to have to deal with very meticulous local planning rules, whereas in his country of origin the regulations would be more flexible.

Illustration:

An American national buys a Provençal villa and wants to build a swimming pool and a pool-house on the land. However, the urban planning certificate reveals that the property is in  a landscape protected area due to a classified panorama. The town hall imposed strict conditions: the swimming pool had to be modest in size, the pool house had to be refused because it created a new visible built area, and trees had to be planted in return. Disconcerted, our owner realizes that even on his private land, the freedom to build is conditioned by the collective landscape interest. Tip: it is wise to call on a local architect or an urban planning lawyer to study the development potential of a property before acquisition, especially for extension or major renovation projects.

In summary

French urban planning law may seem restrictive, but it guarantees a planned development of the territory and the protection of the general interest. A foreign investor must prepare for this by collecting as much information as possible beforehand: urban planning certificate, consultation of the PLU, meeting with the town hall’s urban planning services. This will allow you to know exactly what is possible or forbidden on the coveted property, and to adjust your project accordingly. It is better to find out before buying that a plot of land is not buildable, than after signing and paying the price… The real-life examples of permits refused because of zoning or heritage show that in France, you can only build in strict compliance with local rules.

Lack of urban planning compliance (building permit):

A risk that is often underestimated is the discovery, by the buyer or notary, of work carried out without authorization or not in accordance with the permits obtained. For example, a house extension, the transformation of an attic into living space, the addition of a swimming pool or a veranda without prior declaration, etc. If the property has such irregularities, the sale may be compromised or the buyer may demand guarantees. It is therefore crucial to anticipate: carry out an audit of the history of the property. Check that all the work carried out has been subject to the required planning authorisations and that a certificate of conformity has been issued by the town hall, if applicable. In the absence of a certificate (for old works), it is possible to request a retrospective regularisation (regularisation permit) or to provide all the information to the buyer in advance. Do not conceal this information: any intentional concealment can be qualified as fraud and lead to the cancellation of the sale or damages in favour of the buyer. It is better to play fair, even if it means negotiating a price reduction or having the upgrades carried out before the sale. A lawyer will be able to advise you on whether to reveal or regularise a particular point. Note that some minor non-conformities (for example, a fence a little higher than allowed) do not prevent the sale, but must still be reported in the deed to avoid future remedies. In addition, if there is a risk of pre-emption by the municipality (urban project areas), the notary will take care of it by requesting the certificate of absence of pre-emption. Obtaining this certificate is a legal condition: failure to issue it within the deadline would render the sale null and void. It is therefore a point to watch out for (the notary usually does it automatically).

Lack of mandatory technical diagnostics:

As mentioned, the seller must provide a  complete Technical Diagnosis File (DDT) (lead, asbestos, termites, DPE, electricity, gas, sanitation, natural risks, dry rot, noise, public buildings, etc. as the case may be). The absence of a diagnosis when signing the deed exposes the seller to serious consequences. On the one hand, he will not be able to exempt himself from the warranty against latent defects corresponding. This means that if a problem covered by a missing diagnosis is discovered after the sale (for example, presence of asbestos, lead, termites, dangerous gas installation), the buyer may turn against the seller, even if the latter was unaware of the problem, because the clause exonerating latent defects will be deemed unenforceable. On the other hand, the buyer could, in some cases, have the sale cancelled or obtain a reduction in the price if he demonstrates that the lack of information has prejudiced him. For example, the absence of Carrez Law footage (in co-ownership) allows the buyer to request a reduction in the price proportional to the surface area error discovered (action within 1 year). Similarly, the absence of a State of Risks and Pollution (ERP) or DPE can theoretically justify an action for nullity or a reduction in the price. Criminal sanctions are even provided for certain breaches (fines of up to €37,500 and one year in prison in the event of deliberate non-compliance with diagnostic obligations, although prosecutions are rare). Solution: Have all the diagnostics carried out by certified professionals even before they are put on sale. This way, if a problem is revealed, you will know about it as soon as the negotiations are held (and you can either remedy it, adjust your price, or fairly inform the buyer). Also check their validity dates (some are valid for 1 year, others 10 years). Append them to the compromise and the deed. This proactive approach protects you and inspires confidence in the buyer.

Latent defects and post-sale litigation:

A latent defect is a serious, non-apparent defect that precedes the sale, which renders the property unfit for its use or greatly reduces its value. The buyer has 2 years from the discovery to bring a warranty action. The private seller can be exempted from this warranty in the deed (which is the usual clause), unless he has acted in bad faith (if he knew of the defect). Despite this clause, as we have seen, it will not apply if a mandatory diagnosis is missing for this defect. Typical post-sales litigation includes: unstable foundations, concealed water infiltrations, undeclared pest infestation, etc. To avoid these problems: do not knowingly hide an important defect. If your home has a weak point (a roof to be redone, a questionable underpinning room), it is better to either repair it before the sale, or report it and sell it “as is” in complete transparency (which will allow the defect to be included in the price). Total transparency accompanied by a clause “the property is sold in the condition in which it is, the buyer acknowledges having gone through it completely with a professional…” will reduce the chances of litigation. In the event of a dispute, however, having provided all the information can protect the seller against an accusation of fraud. Fraud (fraudulent tactics to deceive the buyer) is even more serious: it can lead to the cancellation of the sale or to heavy damages if the buyer proves that the seller has deliberately concealed decisive information from him. Thus, avoiding fraud goes hand in hand with our recommendation: to communicate sincerely about the property.

Problems related to the occupants or the rental situation:

If the property is rented, there are specific rules to be respected: the tenant’s right of pre-emption (if the sale of an occupied dwelling is empty or sold in pieces), leave for sale given in the form (with 6 months’ notice before the end of the lease, offer to the tenant),  etc. Failure to follow these procedures makes the sale challengeable. A non-resident must therefore ensure that he or she has issued the notice correctly or informs the buyer of the presence of a tenant (the sale will then be occupied). If it is a rented main residence, the existing tenant has a right of first refusal over any other offer. Another point: if it is a second home and the seller has lent it to a third party or if an occupant without right or title is there, the situation must be regularized before the sale. A buyer will not agree to acquire a property without the guarantee of peaceful enjoyment. The notary will in any case require a sworn statement from the seller indicating whether there is a tenant or not, and the conditions.

Unresolved tax and administrative issues:

A risk that is often ignored is that of  the seller’s tax debts in France. Of course, capital gains tax will be levied, but the seller must also have paid, for example, the property tax until the day of the sale. In principle, the deed provides for a pro rata temporis and sometimes a clause for the escrow of part of the price to pay the property tax when the due date arrives (in the autumn). If the seller owes other taxes in France (for example, if he had previously undeclared rental income), the tax authorities could possibly register a legal hypothec. It is therefore advisable to be up to date with your French tax obligations. In addition, since 2021, the French tax authorities may ask non-residents for a certificate of non-taxation (or certificate of tax regularity) before releasing the funds abroad, especially if the seller leaves France leaving arrears. Check with your non-resident tax office to make sure there are no outstanding notices. The notary also checks that there is no opposition from the Treasury (Article 244 of the French Tax Code) before paying the price.

Errors or delays in formalities:

Finally, a very concrete risk is a delay in the provision of a document or the completion of a formality, which can delay the sale or even cause the deal to fail if the buyer becomes impatient. For example, in a co-ownership, you must obtain a dated statement (accounting document of charges) from the property manager – a delay or a refusal by the property manager can be problematic. The notary takes care of this, but it is better to authorize him to do so quickly. Similarly, if the seller has lost a warranty document (e.g. the ten-year warranty of a recent extension) or a certificate of inspection (individual sanitation), the time to reproduce it can be long. The precaution is to  prepare a complete file as soon as the offer is accepted, with the help of the notary and/or the lawyer, to gather everything that is necessary. This avoids extensions of time and penalties for late payment.

 

In summary

The risks for a seller are often due to forgetfulness or lack of information. The golden rule is to be proactive and transparent: provide all the required legal documents, inform about the defects of the property, and regularize as much as possible before the sale. The support of professionals (notary, lawyer, real estate agent) makes it possible to cover all these points of vigilance. For a non-resident, even if the distance makes it more difficult to manage, these details should not be neglected: a one-off trip to France to settle an administrative problem can avoid a costly dispute later. By avoiding these pitfalls, the sale will be made serenely, without fear that a claim will disturb the achievement of your wealth objectives.

 

Conclusion: The sale of a property in France by a non-resident is an operation involving a specific legal and tax environment. By following the formal steps (from the mandate to the authentic deed) seriously, by taking the appropriate precautions (tax representative, declarations, powers of attorney, etc.), by optimizing if possible via legal strategies (company, donation, dismemberment) adapted to your situation, and by surrounding yourself with a competent team (notary, specialized lawyer), the non-resident seller will be able to carry out this transaction in complete security. French law offers a protective but demanding framework: it is necessary to comply strictly with it to avoid pitfalls and get the most out of your real estate investment in France. An expatriate or wise investor will thus be able  to secure his real estate divestment while minimizing costs and risks, in order to fully enjoy the proceeds of the sale.

Ownership of the property via a company (SCI):

Many foreign investors choose to acquire and hold their French property via a Société Civile Immobilière (SCI). In terms of sale, selling the property from an SCI can have several indirect advantages. Firstly, if several people or members of a family own a property together, the SCI facilitates the management and resale (it is simpler to transfer shares or organise the transfer to the heirs). In terms of capital gains tax, a transparent SCI  (subject to income tax) does not provide an immediate tax advantage: the capital gain is calculated and taxed as if the partners were selling directly, at a rate of 19% (if partners are natural persons) and with the same allowances for the duration of the company. The fact of being a non-resident does not worsen the rate thanks to the alignment made in 2015. In other words, there is no overtaxation solely because of the SCI or the foreign status. On the other hand, holding via an SCI can allow you to choose to be subject to corporate income tax (CIT), if you are an option. In this case, the capital gains regime is that of professionals: there is no longer an allowance for duration, but the capital gain (or the result of disposal) is subject to corporate income tax at the rate of 25% (in 2025) on the net accounting capital gain. This option is generally only interesting in specific schemes, because at the CIT the taxable base can be increased by the depreciation applied to the property and the taxation does not disappear over time (unlike the exemption after 22/30 years for individuals). Nevertheless, a company with corporate income tax could allow  the proceeds of the sale to be reinvested in another real estate project by avoiding immediate taxation at the personal level (the company keeps the net corporate income tax funds, and the partner will only be taxed if he distributes a dividend or in the event of a withdrawal of funds). For a non-resident investor who plans to pass on the property to his or her children, the SCI also offers advantages: the possibility of gradually giving away shares (which can be tax-optimised thanks to the allowances on gifts every 15 years, by splitting the value). In short, the primary purpose of creating an SCI is not to reduce the tax on the capital gain of the sale, but it is a legal tool that facilitates management and transmission. From a purely tax point of view on the sale, it should be noted that an SCI not subject to corporate income tax does not penalise the non-resident seller (taxation at 19% identical to a direct holding), while an SCI subject to corporate income tax may, in certain cases, allow a tax deferral strategy (at the cost of the loss of allowances for duration). Any decision to hold a company must be carefully considered with advice (notary or tax lawyer), depending on the value of the property, the time horizon of ownership and family objectives.

Donation of the property before sale:

The gift before sale is a classic strategy for “purging” the unrealised capital gain. It consists of the owner giving the property to a relative (usually an heir: child, grandchild, etc.) then that the beneficiary of the gift makes the sale to the final buyer. The tax advantage lies in the fact that the gift does not entail taxation on the capital gain (since there is no sale for consideration, the transfer is free of charge) and that the beneficiary (donee) will be deemed to have acquired the property at market value on the day of the gift. Thus, when the donee resells, the taxable capital gain will be calculated in relation to the value of the property at the time of the donation, and not in relation to the initial acquisition price of the donor. If the sale takes place shortly after the gift and at the same price as the value declared in the deed of gift, the capital gain will be very low or even zero, thus avoiding the 19% tax (+ social security contributions). Example: a non-resident bought an apartment for €200,000 20 years ago, he can sell it for €500,000 today (unrealised capital gain €300,000). If he sells directly, his taxable capital gain after allowances will still be significant (20 years of ownership ≈ 60% of income tax allowance, so taxation on ~€120,000, i.e. ~€23,000 of tax + 17.2% of PS on ~€210,000 remaining, etc.). If he decides instead to give the property to his two children before the sale, valuing it at €500,000 in the deed of gift (real market value), no capital gain is due by the father. The children become owners and can sell for €500,000 without capital gain (€500,000 – €500,000 base = 0). As a result, capital gains tax is saved. However, several precautions and costs must be considered:

• • The gift itself can trigger gift tax if it exceeds the legal allowances (€100,000 per parent and per child every 15 years, for example). In our example, €500,000 to two children = €250,000 each, so after deduction of €100,000, there is still €150,000 taxable for each, resulting in about €30,000 in rights per child (on the scale of 2025). In total ~€60,000 in gift tax. Admittedly, this is less than the ~€23,000 in capital gains tax + ~€36,000 in PS that the father would have paid (total ~€59,000), but the saving is small here. If the property was held for a short time (i.e. a large taxable capital gain) and/or if the gift allowances are sufficient to cover the value, the operation is much more advantageous.
  • The gift must not be made on the condition of resale or for the indirect benefit of the former owner, otherwise the tax authorities could reclassify the transaction as a taxable direct sale. This is called a “donation-transfer” arrangement. Legally, to be valid, the gift must be irrevocable and made before signing a commitment with a buyer. In practice, the risk of reclassification is eliminated if the gift is made without the property being under a firm promise of sale. Timing is crucial: for example, you can receive an offer to purchase, but it is better to sign the donation before concluding a sales agreement with the final buyer.
  • The donor must accept that he or she will not receive the sale price directly: it is the children (donees) who will receive the proceeds of the sale, since they have become owners in the meantime. However, it is possible to optimize the use of these funds as a family (the children can help financially afterwards, but be careful not to violate the spirit of the donation).
  • Despite these constraints, the gift before sale is a powerful and legal tool  for tax optimization on capital gains, which is very popular in wealth planning. According to notaries, this is a “surprisingly effective strategy for purging latent capital gains” according to a report by the Congress of Notaries of France (2016). The key is to calculate the net gain, taking into account any gift tax and costs (deed of gift, etc.), and to check that it is consistent with the family objectives. For a non-resident, it will also be necessary to consider the tax law of his country of residence (some countries tax gifts received or have rules for remittance of funds after sale).

Dismemberment of ownership (usufruct/bare ownership):

Dismemberment consists of splitting full ownership into bare ownership (holding the substance of the property) and usufruct (right of use and to receive income). It is first and foremost a lever for estate optimisation (for example, giving the bare ownership of a property to one’s children while retaining the life usufruct makes it possible to reduce the taxable base of gifts and to transfer the property at a lower tax cost). Regarding the sale of a dismembered property, several strategies exist:

• If the non-resident seller dismembered the property before the sale (for example, he or she donated the bare ownership to his or her children a few years earlier, keeping the usufruct), the sale of the property requires the joint participation of the usufructuary and the bare owners. For tax purposes, the capital gain is calculated by dividing the sale price between the usufruct and the bare ownership, according to their respective value on the day of the sale, and comparing it with the acquisition values of each fraction. Each party (usufructuary and bare owner) is taxed on its share of the gain. The tax authorities consider that the purchase price of each right corresponds to the value that was used when the dismemberment was set up. Thus, if the usufruct has been retained by the parent (donor) and the bare ownership has been transferred, the values appearing in the deed of gift will be referred to to determine the taxable gain of each person. This can be complex, but often interesting: part of the overall capital gain may have already been purged at the time of the gift (as seen above) since the bare ownership transferred has a more recent base value. In addition, the starting point of the holding period is taken on the date of entry into possession of each right (e.g. the bare owner calculates his allowance for the period since the gift). This configuration, although advanced, shows that dismemberment and early donation can combine their effects to reduce taxation.

 

• A seller may also consider partially selling the property in dismemberment. For example, an elderly owner wishing to optimize can sell the bare ownership of the property to an investor, while retaining the life usufruct. He thus immediately obtains a sum of money (the price of the bare ownership, which is a fraction of the total price of the property according to his age: the younger he is, the more the bare ownership is worth, since the life usufruct has a lower value; at the age of 70 the usufruct is worth 30% of the property, so the bare ownership ≈70% of the total value). The taxable capital gain will then be calculated solely on the price of the bare ownership transferred, which is lower than the price of full ownership, which reduces the immediate tax by the same amount. The usufructuary will not be taxed on the operation (he has not sold anything). Upon his death, the usufruct will be extinguished and the bare owner will become the full owner without tax (the extinction of the usufruct is not a taxable event in itself). This arrangement is similar to a form of life annuity without annuity or dismemberment-transfer. Please note: it must be financially balanced (the price of the bare ownership must correspond to the tax scales or a realistic economic value) in order not to be reclassified. In addition, the seller definitively renounces any share of the property for his heirs, since the buyer will eventually recover full ownership. It is therefore a strategy with a rather patrimonial aim (ensuring capital during one’s lifetime) and fiscal (reducing the taxable base).

 

• Finally, it should be noted that if a property has been held in dismemberment (e.g. inheritance where the surviving spouse has the usufruct and the children the bare ownership, then they sell jointly), the notary will be able to apply the appropriate tax regime. This is not a priori optimization, but it is good to know that the law has provided for these cases to avoid double taxation.

 

Summary on tax optimization:

A non-resident has legal levers to reduce the tax on the sale, but each option must be handled with care. The SCI is above all a management and transmission tool, to be considered only if it brings a civil gain (it does not reduce the capital gain itself to the income tax, except for the choice of the corporate tax which has other counterparts). The gift before sale can drastically reduce or cancel the taxable capital gain by raising the acquisition value to the current value, possibly at the cost of gift tax and family planning. Dismemberment can be integrated into the strategy (transferring the bare ownership in advance, or selling only part of the rights) to fragment the tax base. These arrangements require expert advice (notary or tax lawyer) in order to measure all the legal, tax and financial effects, including with regard to the tax authorities of the country of residence. Anticipation is key: it is often too late to optimize when you are already engaged in sales, hence the importance of consulting a professional beforehand.

Calculation of the taxable capital gain:

The real estate capital gain is the difference between the sale price and the purchase price (plus acquisition costs and eligible works). The calculation method for a non-resident is identical to that for a resident: the seller can thus deduct from the sale price the notary fees and transfer taxes that he paid at the time of purchase (flat rate of 7.5% of the purchase price if the actual detail is not justified), as well as the construction, renovation or improvement work that he has financed (either for their actual amount on receipts,  i.e. a flat rate of 15% of the purchase price if the property has been held for more than 5 years, even without invoices). After calculating the gross capital gain, any allowances for the holding period apply  : from the 6th year of ownership, the seller benefits from a progressive allowance each year on the gross capital gain, leading to a total exemption from income tax after 22 years and social security contributions after 30 years. In 2025, the allowance is broken down as follows: 6% per year between the 6th and 21st year, then 4% in the 22nd year (which is 100% over 22 years) for income tax, and 1.65% per year from the 6th to the 21st year, 1.60% in the 22nd, then 9% per year from the 23rd to the 30th year (100% at 30 years) for social security contributions. In practice, a non-resident who sells a property that has been held for, for example, 10 years will benefit from the same allowances as a French person to calculate his taxable capital gain.

Capital gains tax rate:

Once the net capital gain has been calculated, the applicable tax rate depends on the tax status of the seller (natural or legal person). For a non-resident natural person, the tax rate on real estate capital gains is 19%, regardless of their country of residence. This flat rate, aligned with that of residents, has applied uniformly since 2015 (previously, non-EU residents were taxed at 33.33% but this difference has been removed to ensure equal treatment). The 19% deduction made at the time of the sale is dischargeable: the seller has no other tax to pay on this gain in France or to declare it afterwards. As a reminder, this rate applies after any allowances, which greatly reduces the tax burden in the event of long holdings. It should be noted that if the seller is a  non-resident legal entity (e.g. a foreign company directly owning the property), the tax rate differs: capital companies (for corporate income tax) are subject to a levy of 25% (corporate income tax rate in 2025) or 33.33% depending on the case, while transparent partnerships (e.g. SCI not subject to corporate tax) are taxed in the name of the partners. In the case of an SCI owned by non-resident natural persons, the Conseil d’État confirmed that it is subject to the 19% rate on the capital gain, regardless of the country of residence of its partners (in practice, taxation is made in the name of each partner on his or her share of the gain, via form 2048-IMM).

Social security contributions:

In addition to capital gains tax, France applies social security contributions on the capital gains of real estate of individuals. Their overall rate is 17.2% (CSG, CRDS, solidarity levy, etc.) for French tax residents. For non-residents, the situation has changed in recent years. Since a ruling by the CJEU and legislative changes, non-residents affiliated to a social security scheme of an EU/EEA country or Switzerland are no longer subject to the CSG and CRDS on their real estate income in France. They remain liable for a solidarity levy  of 7.5%. In other words, a seller residing in an EU country (or Switzerland) will pay 7.5% in social security contributions on his capital gain, instead of 17.2%. On the other hand, sellers residing outside the EEA (e.g. in the United States, Asia, etc.) remain subject to full social security contributions at the rate of 17.2%. These deductions are also deducted by the notary at the time of the sale, at the same time as the 19% tax. They do not give rise to a refund even if the seller’s country of residence has its own social protection, because it is legally a sui generis tax (in particular the solidarity levy). However, there is one notable exception: if the non-resident is affiliated to a European social security scheme, he or she will be able to claim the refund of the CSG/CRDS share (9.2%+0.5%) unduly deducted, even if there was only 7.5% solidarity left to be paid – this mechanism is now normally taken into account directly at the time of the sale.

Surtax on high capital gains:

France applies an additional tax on net real estate capital gains  exceeding €50,000 (this surcharge concerns the portion of the real estate gain that is taxable, after allowances for duration, excluding building land). It is calculated by bracket: 2% from €50,000 to €100,000 of capital gain, 3% up to €150,000, 4% up to €200,000, 5% up to €250,000 and 6% above €260,000 (with a sliding scale allowance mechanism at the start of the bracket). This tax applies to non-residents as well as residents, in addition to the 19% + social security contributions, and is also retained by the notary when. For example, for a net taxable capital gain of €300,000, the surcharge would be around 6% of €300,000 = €18,000. The seller must take this into account in its net gain calculations.

Exemptions and special tax regimes:

In addition to the general exemption after 30 years of ownership, there are specific measures from which a non-resident may benefit:

• • “Former residents” exemption (Article 150 U II-2° of the French Tax Code): This is a measure intended to favour expatriates who sell their former residence in France. It allows a non-resident to benefit from an exemption from capital gains tax, up to a limit of €150,000 of net capital gain, when selling a home in France. To be eligible, several conditions must be met:  (1) the seller must be a national of the EU, Iceland, Norway, or Liechtenstein (note that the United Kingdom, since Brexit, is no longer included in this list, nor is a national of a country without an administrative assistance agreement); (2) the seller must have been a tax resident in France continuously for at least 2 years at a time prior to the sale (e.g. a French expatriate who lived and paid taxes in France for several years prior to his departure); (3) The transfer must take place no later than 31 December of the 10th year following the year in which France placement.meilleurtaux.com leaves for tax purposes. Beyond this 10-year period, the exemption is no longer granted, unless the property sold has remained at the disposal of the seller since his departure and has not been rented or occupied by third parties (in this case, there is no time limit to benefit from the exemption, which is intended to cover the case of a second home that the expatriate keeps for his use and that he sells more than 10 years after his departure). This exemption is limited to a single property per taxpayer and to €150,000 in capital gains. In concrete terms, if the capital gain realised exceeds €150,000, the fraction above that exceeds it remains taxable. The property sold must also have been the seller’s residence at some point in time (this arrangement is sometimes referred to as the “residence in France of non-residents” exemption). Please note: this exemption does not apply if the property is held via a company (SCI or other), the sale must be carried out directly by the natural person. A non-resident seller who meets these criteria will have an interest in providing the notary with the necessary supporting documents (residence permit in France, French tax notice for years of residence, etc.) to obtain this very advantageous partial exemption.
  • Other exemptions: Of course, certain exemptions under ordinary law also apply to non-residents. For example, the exemption for the sale of a property < €15,000 if it is an isolated sale (which is not common for an entire property, this threshold is more aimed at the sale of undivided shares or isolated parking lots); the exemption for elderly or disabled people with modest incomes (subject to very restrictive conditions of tax income and ownership,  this is a rare case for international investors); or exemption in the event of expropriation under certain conditions, etc. These cases remain marginal for a typical foreign investor, but they should be aware of.

Conclusion :

Ultimately, the standard tax regime for a non-resident who sells a property in France is as follows: 19% capital gains tax (after allowances for duration), + 17.2% social security contributions (unless reduced to 7.5% for EU/EEA/Swiss residents), + possible surcharge if there is a significant capital gain, all of which is deducted by the notary. This regime can be lightened by exemption schemes (30 years, expatriates <=10 years, etc.) or optimised by a good use of the rules (maximum deduction of work, etc.). To avoid any unpleasant surprises, a non-resident seller should have his unrealised capital gain estimated before the sale and to simulate the applicable tax, in order to include this tax cost in his calculation of the net proceeds of the sale.

Legal steps in selling real estate for a non-resident in France

Selling a property in France involves several key phases, similar for a resident or a non-resident, with some practical adjustments if the seller is abroad. The main legal steps are: the sales mandate, the preliminary sales agreement (or promise of sale) and the final deed of sale.

Mandate to sell (sale):

The seller can entrust a mandate to a professional (real estate agent or lawyer in real estate transaction) for the sale of his property. The mandate, whether exclusive or simple, authorises this agent to look for buyers and to negotiate on his behalf. The non-resident seller will have an interest in defining the conditions (minimum price, fees) and choosing a trusted agent who masters the seller’s language and understands his objectives. An attorney can, for example, legally secure the transaction while managing the marketing.

Preliminary sales agreement:

Once a buyer has been found and agreed on the price, a preliminary contract is signed. The most common is the sales agreement, which is firmly binding on both parties (synallagmatic promise). Under this contract, the seller undertakes to sell and the buyer to buy on the agreed terms, subject to any suspensive clauses (for example, the buyer obtaining a loan). A sum of about 5 to 10% of the price (security deposit or immobilization indemnity) is generally paid by the buyer when the agreement is signed. The preliminary agreement specifies the deadline for completing the final sale (often 2 to 3 months) and lists the mandatory documents attached (technical diagnostics, urban planning documents, etc.).

Important: after signing, the non-professional buyer benefits from a legal withdrawal period of 10 days during which he can renounce without penalty (SRU Law). After this period, if the conditions precedent are lifted, the sale becomes firm. In the event of an unjustified default by the buyer, the seller may retain the security deposit as compensation (unless otherwise stipulated).

Authentic deed of sale (final):

This is the final conclusion of the transaction, which must be received by a French notary. The authentic deed of sale is signed in person or by power of attorney by the seller and the buyer, usually before the notary of the buyer’s choice (the seller may, however, be assisted by his own notary, the two notaries sharing the fees at no additional cost). The notary, a public officer, prepared the deed in advance by gathering all the necessary documents: the seller’s title deed, civil status, urban planning documents, mortgage situation, technical diagnostics,  the municipality’s right of pre-emption, etc. On the day of signing, the notary reads the deed and verifies the identities, then collects payment of the price. The non-resident seller must ensure that he or she has provided an international bank account number for the transfer of funds (the sale being in euros, and if applicable, provide for the time required for conversion and transfer abroad). If the seller cannot be physically present, he or she should have provided for an  authentic power of attorney authorizing a third party (a notary’s clerk, for example) to sign on his or her behalf. This power of attorney must be drawn up either by a local notary and then apostilled, or via the France consulate in the country of residence. Once the deed has been signed and the price paid, the notary hands over the keys to the buyer, publishes the sale with the Land Registry Service and pays any creditors (for example, repayment of a mortgage from the seller). The seller then receives a  detailed sales account and, subsequently, a copy of the registered authentic deed.

Each step must be carried out rigorously. For a non-resident, remote coordination with the agent, lawyer and notary is essential. It is recommended to anticipate the specific formalities (power of attorney, certified translation of civil status documents if necessary, etc.) in order to avoid any delay in the sales schedule.

Specific precautions for the non-resident seller

Selling a property in France while residing abroad requires some additional precautions, particularly on the tax and administrative front, to comply with French obligations and secure the transaction.

Mandatory tax representation:

French law requires certain non-resident sellers to appoint an accredited tax representative who will be the intermediary with the tax authorities for the calculation and payment of capital gains tax. In practice, any non-resident who sells real estate in France must appoint such a representative, subject to exceptions for exemption.

The automatic exemption cases are: 1) the seller resides in an EU or EEA country that has an administrative assistance agreement with the France (e.g. a resident of the European Union, Iceland or Norway does not have this obligation); 2) the sale price is ≤ €150,000 per seller; 3) the sale is exempt from capital gains because of the length of time the property has been held (more than 22 years for income tax and 30 years for social security contributions). Apart from these situations, the seller must call on a tax representative before the sale: this can be a specialised company approved by the tax authorities, a bank in France, the buyer (if the latter is tax domiciled in France), or any other person domiciled in France and approved, excluding notaries and lawyers (who cannot be tax representatives themselves). In practice, notaries frequently collaborate with tax representation companies (such as SARF, TEVEA, etc.) to complete this formality. The tax representative is liable to the Treasury: he verifies the calculation of the taxable capital gain and guarantees the payment of the corresponding tax. Its fees (generally a few hundred euros, varying according to the complexity and the sale price) are paid by the seller. It is prudent to contact the tax representative as soon as the agreement is signed to prepare the file (collection of deductible work invoices, proof of the purchase price, etc.).

Reporting obligations and tax formalities:

Being a non-resident does not exempt you from filing tax returns related to the sale. On the day of the signing of the authentic deed, the notary (or the tax representative) draws up a real estate capital gains declaration (form 2048-IMM) in the name of the seller and pays the corresponding tax. This declaration must in principle be filed within one month of the placement.meilleurtaux.com transfer, but the intervention of the notary guarantees compliance with this legal deadline. If the capital gain realised is fully exempt (for example, property held for more than 30 years, or other reason for exemption), or if the sale price is less than €15,000, no capital gain declaration is required. On the other hand, in the event of a taxable capital gain, the deduction made by the notary is dischargeable: the non-resident seller does not have to report this capital gain on his annual French tax return. In other words, the tax is deducted at source at the time of the sale and definitively settles the tax due in France on this gain. However, all supporting documents should be kept in case the French tax authorities carry out an a posteriori audit (the tax representative also keeps a copy of the file).

In addition, depending on the seller’s country of tax residence and the applicable tax treaty, the seller will have to check whether he must declare this gain in his country and whether he will benefit from a tax credit equal to the French tax paid, in order to avoid double taxation. Most bilateral tax treaties follow the OECD model, which provides that capital gains on real estate are taxable in the country where the property is located, in this case the France, and that the country of residence eliminates double taxation (via a tax credit or exemption). Thus, a non-resident who has paid capital gains tax in France generally does not have any additional tax on this gain in his country, or can obtain a deduction equivalent to the French tax. It is recommended to consult a tax professional to ensure the specific treatment according to the country of residence.

Power of attorney and signing logistics:

As mentioned, if the seller cannot travel for the signing of the compromise or the final deed, he must anticipate the establishment of powers. A power of attorney for the compromise can usually be under private signature, but for the authentic deed, it must be authenticated (by a local notary + apostille, or made before a consul of France). Similarly, provide for the translation of legal documents if the seller is not French-speaking, in order to understand the exact content before signing or mandating someone. It is possible to ask the notary for a draft deed in advance and an unofficial translation if necessary.

Coordination of the transfer of funds:

A non-resident seller must inform the notary public of how he or she wishes to receive the proceeds of the sale. In general, the notary can transfer the funds to a foreign bank account (SEPA zone or non-SEPA). An IBAN/BIC must be provided and possibly additional information for transfers outside the euro area. Check with your foreign bank for any fees or delays. In the event of an exchange control in the country of residence, make sure that you have the repatriation formalities. In France, capital transfers are free but subject to anti-money laundering regulations: the notary will have to identify the beneficial owner of the funds and ensure the lawful origin of the funds (which, in the case of a sale, is obvious since the funds come from the buyer). For large amounts, an administrative transfer declaration is no longer required above a certain threshold but it remains prudent to be able to justify the receipt of large sums in your country (in particular with regard to your own tax authorities).

Personal documentation:

The non-resident seller must provide the notary with various civil and tax documents. For example, a copy of their passport, proof of address abroad, the marriage contract or matrimonial regime if applicable (to verify the spouse’s agreement if necessary), and their French tax identification number. If he does not have one (because he has never been taxed in France), the notary will be able to obtain one (form for non-residents) in order to register the capital gain. You will also have to provide the supporting documents related to the property: title deed (previous deed of purchase or inheritance), latest property tax notices and housing tax, and if it is a condominium dwelling, the documents relating to the co-ownership (co-ownership regulations, latest minutes of the general meeting, etc.). Preparing these elements well in advance facilitates the notary’s work and avoids delays.

In summary, the specific precautions of the non-resident consist mainly of complying with French tax obligations (tax representative, capital gains declaration) and anticipating the practical constraints of distance (mandating representatives to sign and receive the funds). With good support (notary, lawyer, tax representative) and meticulous preparation, a real estate sale in France can take place smoothly even from abroad.

Acquisition costs (“notary fees”).

The buyer, whether French or foreign, must pay the purchase costs when signing the authentic deed. These fees mainly include registration fees (taxes paid to the State and local authorities) and notary fees. For an old property, the total represents about 7 to 8% of the purchase price (compared to ~2 to 3% for a new home subject to VAT). No mark-up is applied because the buyer is a foreigner. In practice, on €100,000 in prices for example, you have to plan for ~€7,500 in additional fees to cover taxes and notary. These fees are paid by the buyer to the notary who pays them for the tax part to the Public Treasury. It is important to note that the notary may take charge  of other disbursements on behalf of the buyer (cadastral extract, mortgage statement, etc.) but their budgetary impact is marginal. Foreign investors simply have to integrate these percentages into their financing plan (sometimes forgotten due to lack of knowledge).

Annual taxation: local taxes and wealth taxes.

Owning a property in France means paying property taxes (local tax on built and unbuilt properties) every year. This annual tax, payable by the owner on 1 January of the year, varies according to the municipality and the surface area/consistency of the property. Historically, a housing tax was added, but this has been abolished for primary residences – however, a foreigner who owns a second home continues to pay the housing tax in many municipalities, sometimes with a surcharge on vacant or occasional housing (especially in large cities). There is no differentiation in rates between residents and non-residents for these local taxes. On the other hand, the France has instituted a real estate wealth tax (IFI) that can concern wealthy investors: if the net value of all the real estate held in France by the household exceeds €1.3 million, a progressive tax is due each year. Non-residents are not exempt (the only difference is that they only count France property). Example: a foreign resident owning two apartments in Paris with a total value of €2 million will have an IFI to pay in France each year, calculated on the share above €1.3 million. It is therefore crucial to assess your overall assets and possibly seek optimisation advice (life insurance, dismemberment of ownership, etc. can reduce the IFI base). In short, real estate investment in France comes with recurring tax charges that should be included in the profitability of the project.

Rental income and tax treaties.

Many foreign buyers buy to rent (rental investment). Rents derived from a property in France by a non-resident are taxable in France, according to the income tax scale (with a minimum rate of 20% for non-residents on the taxable bracket) unless tax treaties apply. Most double taxation treaties stipulate that real estate income is taxed in the country where the property is located, i.e. in France, often with a tax credit in the investor’s country of residence to avoid double taxation. It is therefore important to declare your rental income in France every year, even if you live abroad. In practice, an expatriate owner will have to file a French tax return (non-resident form) for his rents, and he will be able to benefit from the same deductions as residents (loan interest, works, etc. in the real regime) in order to pay tax only on the net income. Please note that a withholding tax (non-resident deduction) is often made by the tenant or the agency on the rent, which constitutes a tax instalment. It is better to be accompanied by a chartered accountant familiar with non-residents to optimize these obligations.

Taxation of capital gains in the event of resale.

When a foreigner sells a French property with a capital gain, he or she is subject to  French real estate capital gains taxation, in the same way as a resident. The basic tax rate is 19% on the net capital gain, with allowances for the period of holding (total exemption after 22 years for tax, and 30 years for social security contributions). In addition, there are social security contributions (17.2%) – however, since 2015, residents of the EU, EEA or Switzerland have only paid 7.5% of social security contributions (instead of 17.2%) thanks to the abolition of the CSG/CRDS for French non-affiliates. Non-EU nationals remain subject to 17.2%. In addition, sellers who are not residents outside the European Union must use an accredited tax representative at the time of the sale, responsible for guaranteeing the payment of the tax to the notaires.fr Treasury. This obligation entails costs (fees of the representative, often a specialised body), but is waived for EU residents. Due to the complexity, many non-residents ask their notary to calculate and declare the capital gain. International tax treaties generally provide that the capital gain on real estate is taxable in the country where the property is located – the investor will then have to declare the capital gain in his country of residence but benefiting from a tax credit equal to the French tax (according to the treaties). A concrete example: a Canadian investor sells an apartment in Lyon with a capital gain of €100,000 after 10 years of ownership. He will pay about 19% + 17.2% in France on part of this capital gain (30% allowance acquired in 10 years), while he will receive an equivalent tax credit on his return in Canada to avoid double taxation, in accordance with the French-Canadian tax treaty.

Choice of legal structure: direct purchase or via company (SCI).

Acquiring “directly” (in one’s own name) is not the only way for a foreigner. In France, it is common to create a Société Civile Immobilière (SCI) to hold a property. The SCI is a civil company under French law, fiscally transparent (by default to income tax) and dedicated to the management of real estate assets. For an international investor, the SCI has several specific legal and tax advantages:

• Facilitate joint ownership and family transmission. An SCI allows several people (for example members of an expatriate family) to hold a property together via company shares rather than in joint ownership. The articles of association organise the powers of management, avoiding the blockages of traditional joint ownership. Above all, it is possible  to gradually give or transfer SCI shares to your children, taking advantage of tax allowances on credit-international.com gifts every 15 years. This encourages a spread over time, optimising gift tax. Control of the property can be retained by the managing parents while preparing the succession. For a foreign family, the SCI is often an international wealth planning tool.
• Easing of the constraint of the French reserved share. Under French law, the children of the deceased are in principle entitled to a reserved share of any real estate located in France, which can contradict the testamentary dispositions of a foreigner (whose country of origin would allow him to bequeath freely to his or her spouse, for example). However, holding the property via an SCI changes the legal nature of the asset: it is no longer directly buildings, but shares (movable property). For a non-resident, this can make it possible to avoid the application of French inheritance rules and to transfer the property to the beneficiary of his choice. Indeed, “buying a property via an SCI avoids French laws on inheritance tax, which do not allow complete freedom to dispose of one’s assets”. As SCI shares are movable property, the estate may be governed by the law of the deceased’s last domicile (or the law chosen by him via the European Succession Regulation), offering greater testamentary freedom. Case in point: an expatriate couple living outside Europe buys a house in France via an SCI. Years later, one dies, leaving his sole spouse as heir, in accordance with their national law. Thanks to the SCI, the house is held via shares that are passed on to the widow – escaping the constraints of the French reserve that would have imposed a share on the children eventually. Thus, the property could be freely transferred to the surviving wife. In addition, in some cases, international inheritance tax treaties provide that company shares are taxable only in the country of residence of the deceased. If this country does not apply inheritance tax, the transfer of the French property via the SCI can be done without any inheritance tax in France. However, this optimisation is not universal and depends on each bilateral agreement.
• Taxation of capital gains and income identical to direct purchase. Contrary to some preconceived ideas, the SCI does not provide an immediate tax advantage on rents or capital gains: being translucent, the taxation is done in the hands of the partners according to their own situation (resident or non-resident). The capital gains regime in the event of the sale of SCI shares is calculated on the underlying fraction of the building, with no loophole. On the other hand, the SCI may allow you to choose corporate income tax (corporate income tax option), but this option is rarely favourable for a foreign individual unless there is a very specific project, because it complicates taxation (capital gain heavily taxed on exit).

In short:

The structuring of an SCI appears to be a wise choice for many international investors seeking legal flexibility and estate preparation. However, it is necessary to be aware of the associated obligations (articles of association, simplified accounting, annual declaration of results, etc.). The support of an advisor (notary or lawyer) is essential to create the SCI and optimize it according to the personal situation and the applicable tax treaty. Finally, it should be noted that it is not mandatory to go through an SCI: a foreigner can buy directly. But in the case of a purchase by several people or a transfer objective, the question deserves to be asked from the start. An indirect advantage: the resale of a property held by an SCI can be done by transfer of shares, avoiding the need to re-enter into an expensive real estate deed, even if the administration is careful to tax the “disguised real estate sale” despite everything.

Legal framework for the acquisition of real estate

France does not impose any nationality restrictions on real estate ownership. Foreigners, whether they are residents or not, are free to buy real estate in France (housing, commercial premises, land, etc.). Unlike in some countries, the purchase of a home in France does not automatically entitle you to a visa or a residence permit – a foreign owner does not have any particular privilege to reside on French territory. On the other hand, the French law of the place where the property is located applies to the transaction: if the property is located in France, it is French law that determines the ownership, the legal conditions of the sale and the tax regime applicable. French property rights, protected by the Civil Code, give the buyer full control of the property (usus, fructus, abusus), subject to public order laws (town planning, environment, etc.).

Role of the notary.

In France, any real estate sale must be finalized by a notarial deed. The deed of sale must be signed by the seller and the buyer before a notary – only this public professional is authorised to give legal force and enforceability to the transaction. The notary plays a central and surprising role for many foreigners: he is mandatory, impartial (he does not represent a party but the State), and his mission goes far beyond the simple signature. He advises the parties, verifies the legal validity of the sale, gathers the documents (seller’s title deed, land registry, technical diagnostics, etc.) and publishes the deed at the Land Registry Service to formalize the transfer of ownership. He is also responsible for collecting taxes (registration fees) and ensuring the legal origin of the funds – anti-money laundering legislation requires him to do so (Tracfin declaration if necessary). For example, the notary will have to verify the origin of a foreign buyer’s funds and may require bank receipts, in accordance with Tracfin. This importance of the notary, a public officer who guarantees the security of transactions, may surprise an Anglo-Saxon investor who is used to dealing through private lawyers.

Preliminary contracts and withdrawal period.

The acquisition usually involves a preliminary contract signed a few months before the final notarial deed. There are two main forms: Unilateral promise of sale, whereby the seller (or buyer) grants the other an option to buy, and the preliminary sales agreement, which is firmly binding on both parties (firm sale subject to conditions). In both cases, the signing of this preliminary contract is often accompanied by the payment of a Locked-in allowance or security deposit (usually around 5 to 10% of the price) deposited with the notary or real estate agent. Above all, the law offers The non-professional buyer one 10-day right of withdrawal after signing the preliminary contractparis.notaires.frparis.notaires.fr. This mandatory period (SRU period) allows the buyer to change his mind without reason, by simple registered letter, and to recover the deposit paid, all within 10 days of the notification of the contratparis.notaires.frparis.notaires.fr. This right, which does not exist in some countries, is a consumer-investor protection in France. For example, a foreign buyer who hastily signed a sales agreement has the option to withdraw within 10 days without penalty – a welcome flexibility in case of doubt or discovery of a major problem. After this period, the preliminary contract is definitively binding: failure to carry out the contract for another reason (refusal of a bank loan, etc.) may result in the loss of the deposit or legal proceedings, unless there is a condition precedent clause.

Checks and due diligence.

Between the preliminary agreement and the final deed (generally a period of 2 to 3 months), the notary carries out extensive legal due diligence. He ensures the “security” of the title: verification that the seller is the owner, that there is no mortgage or undeclared charge, or  hidden easement encumbering the property. He obtains a mortgage statement and the  informative urban planning certificate to find out about the applicable urban planning rules (see section 2). The notary purges any pre-emption rights: if the property is located in an area where the municipality has an urban right of pre-emption (often in the city centre or an area to be renovated) or if it is agricultural land where the SAFER can intervene, he must notify the proposed sale to these authorities. During a period of time (generally 2 months), the town hall or the SAFER may decide to buy the buyer instead at the price agreed. A foreign investor may be confused to learn that a municipality can thus interfere in its transaction – for example, the sale of land to an American buyer could be cancelled if the SAFER exercises its right of first refusal to install a young local farmer. This is a particularity of French law aimed at the general interest (social housing, protection of agricultural land, etc.). In addition, the seller must provide a file of technical diagnoses annexed to the deed: state of the presence of lead, asbestos, termites, energy performance, sanitation, natural risks, etc. These diagnoses alert the buyer to possible defects or environmental constraints. The foreign buyer will be well advised to have these reports analysed by a technical adviser to avoid unpleasant surprises (for example, discovery after the fact that the house is in a seismic or flood zone – points discussed below).

 

In short, the French legal framework offers a high level of protection in real estate transactions, via the essential role of the notary and a strict legal framework (regulated preliminary contract, legal deadlines, multiple controls). Specificities such as the notarial profession or the right of withdrawal distinguish the French system and must be well understood by non-residents. Surrounding yourself with an experienced notary (and possibly a bilingual lawyer) is strongly recommended to navigate this process safely

Registration Duties (Transfer Taxes):

France imposes a transfer tax on the sale of company shares or real estate assets. In share deals, the tax is modest for ordinary companies (0.1% for shares of an SAS/SA, or 3% for an SARL interest beyond a small allowance)​. However, if the target is a real estate-rich company, French law levies a 5% tax on the share transfer​ to align with the tax that would apply if the real estate were sold directly. This 5% rate generally applies to non-listed companies whose assets consist of >50% French real estate. Buyers should thus evaluate the proportion of real estate on the target’s balance sheet: if it crosses that threshold, the acquisition of shares will be taxed at 5% of the share price. In an asset deal, transferring real property incurs a similar duty — typically 5.80% (in most départements) or 5.09% (in a few areas with lower departmental tax) of the property’s price​, plus roughly 0.8% in notary fees. Notably, if the property is less than 5 years old (new building) and sold by a VAT-registered seller, the sale might be subject to VAT (20%) instead of transfer tax, but in practice VAT on real estate can often be recovered by the buyer if structured properly, and a reduced transfer tax (0.715%) applies in that scenario. The SPA should specify who bears these transfer taxes (usually the buyer by law, though parties can agree otherwise​).

Corporate Tax on Capital Gains:

The seller’s tax situation will differ between share and asset deals, which can influence negotiations. In a share deal, the target company’s assets remain with it, so there is no immediate tax on any appreciation of the real estate at the corporate level. The selling shareholders might owe tax on any gain from selling shares – for corporate sellers, France has a participation exemption regime that effectively taxes only 12% of the gain at the normal rate (25% CIT), resulting in about 3% effective tax on the gain​ (provided the seller owned at least 5% of the shares for >2 years). Many foreign corporate sellers also benefit from double tax treaties that exempt them from French capital gains tax on share sales (except if the company is predominantly real estate; France often reserves the right to tax those under treaties)​. In an asset sale, however, the target company (the seller of the assets) will realize taxable gains on any assets sold. Any latent gains in the real estate (or other assets) are thus crystallized and taxed at the standard French corporate tax rate (25%) immediately​. This is generally less favorable to the seller​, especially if the properties have significantly appreciated or if the company has tax loss carryforwards that could be jeopardized by the transaction (French rules may disallow losses if the company’s activity changes due to an asset sale). As a result, sellers often demand a higher price in asset deals to offset their tax hit, or they may prefer a share deal. Buyers need to factor this into price negotiations.

Ongoing Real Estate Taxes:

Once the acquisition is complete, the new owner (via the company or directly) will be subject to France’s ongoing real estate taxes. The primary one is taxe foncière (annual property tax) on owned real estate, which will now effectively burden the new group. Additionally, if the company leases property from others, taxe foncière is often contractually recharged to the tenant. There are also local taxes like the CFE (cotisation foncière des entreprises) and CVAE that are part of local business taxation, typically not deal-breakers but part of the company’s tax profile. If the transaction is structured as an asset deal or triggers a legal reorganization, the buyer should be aware of a special 0.6% tax called the “taxe de publicité foncière” or a 3% contribution on certain real estate transfers in company restructurings, but these usually dovetail with the standard transfer taxes already discussed.

VAT Considerations:

Share sales are exempt from VAT in France​. Asset deals may involve VAT if they constitute a sale of goods (e.g. a building sold by a developer within 5 years of completion is subject to VAT). However, many M&A asset transactions qualify as a transfer of a going concern (transmission d’une universalité d’actifs) which can be outside the scope of VAT if the business is carried on. Proper tax structuring can often avoid unrecoverable VAT.

Structuring for Tax Efficiency:

Foreign investors might structure the acquisition through a French holding company to optimize tax treatment (for example, interest on acquisition debt may be deductible in France under certain conditions, and dividends from the target can pass to the parent with participation exemption). If the target’s real estate is highly valuable, post-acquisition the group might consider restructuring ownership of those assets (e.g. an intra-group sale or contribution of properties to a specialized real estate affiliate). France allows tax-neutral reorganization under the EU Merger Directive (for instance, a merger or spin-off can be done without immediate tax on gains, if certain conditions are met). But caution: transferring real estate within the group post-acquisition may still trigger transfer taxes (the 5% duty) unless done via a merger or specific exceptions. There is an exemption for restructuring within a 100% controlled group, but it can be subject to clawback if the new owner is sold outside the group within a set period. Tax advisors should be involved in any such planning.

 

In summary:

Tax costs like transfer duties and capital gains can significantly impact the net price of a deal. They often tilt the choice toward share deals for real-estate rich targets, but each deal should be modeled for optimal outcomes.