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Purchasing Abroad

Each country has a different process and you will be able to find the details thereafter on each country purchasing guide. Also please find usually what usually happen in most of countries:
1. Claim your territory
2. Wire the deposit.
3. Sign the preliminary contract
4. Step up your financing
5. Sign the final contract
6. Own your property
7. Manage your property

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FRANCE BUYER'S GUIDE

Buying Step by Step

Chances are you have never bought real estate in France before and have many questions regarding the process and legalities. The following text will help to understand the details in practical terms. As in most countries, the purchase usually takes place in two stages:

STEP ONE - THE CONTRACT

Reservation Deposit:
When you wish to reserve a particular property in your name, you will need to make a wire transfer deposit in the amount of 5% of the TTC price to the Notaire's escrow bank account. This deposit is fully refundable if we are unable to find sufficient financing for your purchase. At the time of closing, these funds are used towards your closing costs.
Preliminary Contract (Compromis de Vente):
This contract is used when purchasing a resale property (i.e. a property purchased from a private seller). It is a binding sales contract for both parties, conditional upon a mortgage approval from the bank.
Reservation Contract:
This contract is used when purchasing a new property (off plan or maximum 5 years old). On the day of reservation, you must sign:

The Reservation Contract.
The Building Specification Sheet.
The Block and Floor Plans.
And for Leaseback, the Lease Contract (Bail Commercial) and Accountant Documents (VAT pack).

STEP TWO - THE SIGNATURE AND FORMAL TRANSFER OF DEED

The Act of Sale (Acte de Vente), or closing procedure is carried out by a French Notaire who represents the French government as an impartial public officer. It is therefore common practice to have only one Notaire. The Notaire is responsible for checking the origin of the property, the parties identities, all legal and financial aspects related to the property, and preparing the title deed for both seller and buyer.
If the property being purchased is a resale, you can choose the Notaire if you wish. If it is a new property, a Notaire is assigned to your closing. As a foreigner you are entitled to a certified translator. Please keep in mind that from the day you sign, you must provide a basic insurance policy (fire, water damage and third part liability) to protect the property (paid by management for leaseback properties).
Following this compulsory deed, a transaction is registered by the Land Registry and Conservation de HypothÃ¨ques (if you contract a mortgage), which is a department of the Inland Revenue Service.

COSTS AND FEES

In the case of a resale property, the Notairial costs and fees (including transfer and stamp duties) amount to about 10% of the purchase price and must be paid by the buyer directly to the Notaireâ€™s bank account. The buyer receives a detailed statement of this transaction.
In the case of a new property (up to 5 years old) the Notarial fees amount to about 5% of the purchase price and adhere to the same procedures as above.
If you elect to complete the closing at your nearest French Consulate rather than in France itself, you will have to sign a proxy, which is also an authentic document.

Finance Your Property

As a foreigner buying property in France, we recommend obtaining the mortgage through a French bank for two very important reasons :

First, because our agency is in daily communication with several of the largest financial institutions in Europe and can therefore help you receive the credit you are looking for (which you could not necessarily obtain by your own devices).
Second, because in the case of a Leaseback program you will receive your rental income in â‚¬uros. In other words, it is advisable to open a bank account with the mortgaging bank into which you receive your rental income and also expense your mortgage payments, thereby avoiding transfer and currency exchange fees.

French banks insure the loan by mortgaging the property which is being purchased. French law also allows you to break the purchase contract and recover any deposits you have made should you fail to obtain the mortgage.

The information required by the bank aims at defining your actual income and thus your ability to repay the mortgage. Loans are granted as long as the payments do not increase your debts unreasonably. The basic rule of thumb is that annual mortgage payments cannot exceed 30% of your annual income. With the help of IMOINVEST, you can look forward to a mortgage amount of up to 80% of the purchase price as stated in the sale deed.

In the case of a Leaseback program, keep in mind that the bank will include your guaranteed net rental income percentage as part of your total income figure. Also with Leaseback, you can usually borrow up to 70% of the TTC price.

DOCUMENTS NEEDED FOR LOAN

In order to obtain financing, all financial institutions require specific information about you and your financial background in order to determine answers to the following questions:

WHO ARE YOU?

Two proofs of identification certified at French Consulate or at a bank agency (passport, driving licence, etc.)
Two proofs of your home address (electricity bill, phone bill, etc.)
Completed loan application (sent by us)
Completed insurance form (sent by us)

WHAT IS YOUR FINANCIAL SITUATION?

Original Recommendation letter from your bank
Income tax papers from last three years
Last three months bank statements
Proof of actual assets (real estate, stock, etc.)
Your current loan situation:
Starting & final dates
Initial amount borrowed and outstanding balance
Annual repayment

WHAT IS YOUR EMPLOYMENT SITUATION?

If You Are Company Employed:
Employment letter
Last three salary slips, bonus statement, etc.
If other source of income, proof of it
If You Are Self Employed:
Last three years balance sheet
Letter from your accountant, certifying your income
Any documents that certify that you own the business
If other source of income, proof of it

ARE YOU PURCHASING WITH YOUR SPOUSE?**

Marriage Certificate

** All documents must be sent by both husband and wife if you are purchasing together

NOTE : After their initial perusal of your documents, the financial institution may request further documentation for proof of various aspects.

Tax Issues

If you are investing in France, as a non-resident property owner, you could be liable for the following taxes:

Tax On Rental Income:

There are a number of regimes for taxing the income from French rentals. For furnished property there is the MICRO-BIC. This tax offers a deduction of a flat 72% for expenses on incomes up to approximately Euro 76,000 with the remainder taxed at 25%. On REAL all costs are deductable, as well as the amortization of the property . Unfurnished property income up to Euro 15,000 can benefit from MICRO-FONCIERS that allows a 60% flat rate deduction and taxes the remainder at 25%. Above that sum the actual basis is used.

Wealth Tax:

If you have French assets over Euro 720,000 then there is an annual wealth tax at rates of .55% to 1.8%. This applies to all French assets of non-residents, including bank accounts and property. If this is an issue, there are planning measures to reduce this that can be taken especially by the creation of debts which are deductible

Land Tax (Taxe Fonciere):

This tax is paid yearly for each property. In the case of resales, the payments are expected the first year. In the case of new property (up to five years old) the tax is deferred for the first 2 years.

City Tax (Taxe d'Habitation):

This tax is paid by the occupant of the property, regardless of whether he is the owner or not. Therefore, in the case of a rental property, the tenant pays the City Tax. In the case of Leaseback, this is covered by the management company.

Annual Capital Tax

It is not advisable to use an offshore company to purchase a property in France because in most cases they are liable to pay a 3% annual capital tax based on the market value of the property owned (depending on the company's place of incorporation, mind, and management). However, if you choose to purchase the property either in your own name, through a French-resident company, or through a company resident in a treaty country (subject to certain conditions), this 3 % tax will not apply.

Wealth Tax

This tax will be payable if the net value of your French property, or the shares you hold in the company that purchased the property, exceed a certain figure (716543 EUR as of January 1999, net of any mortgage).

Inheritance Tax

French Inheritance Tax is levied in progressive bands. The Spouse exemption is a mere Euro 76,000. The rates then depend on who the property is left with, Spouses and close relatives paying at rates of up to 40%. If the property is left to an unmarried partner or friend, the rates go up to 60% with a tax-free allowance of only Euro 1,500! Subject to small reliefs, French inheritance tax will apply at rates from 5% to 6% (depending on your relationship with the transferee or beneficiary) upon transmission of the French property or shares in the property owning company. Below is an example of calculating inheritance tax.

DIRECT FAMILY MEMBERS SPOUSE (parents and children)

The first 46,000 EUR of inheritance are tax free for each beneficiary. After that the first 76,000 EUR of inheritance are tax free for the spouse. After that:

Up to 7,600 EUR   5%      Up to 7,600 EUR   5%
7,600 to 11,400 EUR   10%       7,600 to 15,000 EUR   10%
11,401 to 15,000 EUR   15%       15,001 to 30,000 EUR   15%
15,001 to 520,000 EUR   20%       30,001 to 520,000 EUR   20%
520,001 to 850,000 EUR   30%       520,001 to 850,000 EUR   30%
850,001 to 1,700,000 EUR   35%       850,001 to 1,700,000 EUR   35%
1,700,001 EUR and above   40%       1,700,001 EUR and above    40%

We will take a classic example:

A married couple with two children owns a property together. The wife dies. The property is evaluated and is stated to have a value of 200,000 EUR free of loan. This means there is a value of 100,000 EUR to be inherited. Property use automatically reverts to the surviving spouse.

The ownership is divided as follows :

The surviving spouse keeps 50% of the total value as a partial owner. The other 50% is divided equally into thirds between the surviving spouse and two children, resulting in the following distribution of inheritance:

Surviving Spouse: 50% + (33% of 50%) = 66.67% = 133,333 EUR
First Child: (33% of 50%) = 16.67% = 33,333 EUR
Second Child: (33% of 50%) = 16.67% = 33,333 EUR

Taxes :

Taxes are now paid on this inheritance, calculated at :

Surviving Spouse : (100,000 EUR x 33%) 33,333 EUR tax apply only above 76,000 EUR, resulting in zero tax
First Child : (100,000 EUR x 33%) 33,333 EUR tax apply only above 46,000 EUR, resulting in zero tax
Second Child : (100,000 EUR x 33%) 33,333 EUR tax apply only above 46,000 EUR, resulting in zero tax

Upon the death of the second spouse : Remember, the percentage of this spouse's ownership was 66.67% of 200,000 EUR = 133,333 EUR. This is now divided equally between the two surviving children. The calculations are as follows:

Ownership : Each child will receive 50% of 133,333 EUR = 66,670 EUR
Taxes : Each child will have to pay tax on their inherited share. Since the first 46,000 EUR are not taxable (see table above), this leaves a remainder of 20,670 EUR to be taxed. The tax paid by each child will be :

Up to 7,600 EUR                        380 EUR
7,600 to 11,400 EUR      380 EUR
11,401 to 15,000 EUR      540 EUR
15,001 to 520,000 EUR      1,134 EUR

Total inheritance tax:      2,434 EUR

IMPORTANT: This projection is made as default in case no will have been given by any parties.

Capital Gains Tax

For EU Residents capital gains are chargeable at 16% for property held for 2 years or more. For property held for less than 2 years, there is usually income tax chargeable at the normal rates which for 2004 go up to approximately 47%. For property held for 5 years or more, there is a further annual deduction of 10% of the gain until after 15 years or more of ownership. After that, there are no Capital Gains to pay whatsoever. It is also important to note that a Professional Landlord of furnished property taxable under the MICRO-BIC or on an actual basis is not subject to capital gains after 5 years of ownership. It must be emphasized that your initial purchase will be modified to your advantage (that is to say, raised) in order to take into account possible expenses you have had, as well as inflation if you have owned this property for more than 2 years.

This tax is paid to French Inland Revenue when the bill of sale is registered.
The "Plus-Value" (Capital Gain Tax) thus calculated, will be reduced by 5% for each year of ownership after the second year.
There is a tax reduction of 1000 EUR granted to all vendors, plus a reduction of 3500 EUR per spouse, plus 1500 EUR per child, for the sale of a first taxable second home.

Example: A family with 2 children.

PURCHASE PRICE IN 1980                 100,000 EUR
COST OF IMPROVEMENTS IN 1983                  10,000 EUR
INTEREST ON LOAN                  500 EUR
SALE PRICE IN 1989                  300,000 EUR
* 10% maximum increase allowed

Calculate the Cost Price: Purchase Price (100000 EUR) + Cost of Improvements (10000 EUR) = Cost Price (110000 EUR)
Calculate Inflation for Year of Purchase: Cost Price (110000 EUR) + Coefficient for 1980 (1.78) = Inflation for Year of Purchase (195800 EUR)
Calculate Inflation for Improvements: Repairs (if you do the work yourself, multiply material price by three): 10000 EUR x 3 = 30000 EUR
Repair Price (30000 EUR) + Coefficient for 1983 (1.28) = Inflation on Improvements (38400 EUR)
Determine Interest on Loans: Interest paid on loan with no coefficient applied (5000 EUR)

Calculate Gross Capital Gains: (Plus Value Brute)

SALE PRICE         300,000 EUR
LESS INFLATION VALUE FOR YEAR OF PURCHASE          - 195,800 EUR
LESS INFLATION VALUE FOR IMPROVEMENTS          - 38,400 EUR
LESS INTEREST PAID ON LOANS          - 5,000 EUR
EQUALS GROSS CAPITAL GAINS          = 60,800 EUR

Calculate Tax Allowance: Determine 5% for each year of ownership, less the first two years and year of sale
(7 years x 5% = 35%) >> 60800 EUR - 65% = 39520 EUR
Calculate Tax Reductions: Vendor (1000 EUR) + Spouse (7000 EUR) + Child (3000 EUR) = Total Tax Reduction (11000 EUR)
>> 60800 EUR - 11000 EUR = 28520 EUR
Determine Capital Gains Tax: Capital Gains Tax at a rate of 15% = 28 520 EUR >> TOTAL TAX = 28520 EUR x 15% = 4278 EUR
Determine Net Capital Gain: >> 30000 EUR - 100000 EUR - 10000 EUR - 5000 EUR - 4 278 EUR = 180722 EUR

* PLEASE NOTE: The above information represents only a simplistic overview of the tax implications involved in acquiring French real estate. We suggest that you seek professional advice through the Notaire or IMOINVEST. In terms of French Inheritance Tax, Notaire advice should be taken in order to optimize your legal status.

FAQ

Q : Is the conveyancing process in France Similar to that in England?
A : Yes and No. For instance, title deeds must be signed in front of a Notary Public ("Notaire"). As in England the purchase of a property in France is divided into two stages. First there is a preliminary contract called the "contrat de vente sous conditions suspensives" or "compromis de vente" or "promesse de vente". This may be prepared either by a Notary Public ("Notaire") or by an estate agent. In France Notaries often themselves act as estate agents. Secondly there is a formal deed of sale called the "Acte de Vente". This is signed in front of a Notary Public or "Notaire". The two documents are normally separated by about 10 to 12 weeks.

Q : What if I change my mind about the purchase?
A : The French have introduced a 'cooling off period' of 7 days during which you can, without giving any reason, simply cancel the contract you have signed.

Q : In whose name should I buy the property?
A : There are a number of ways to purchase the property : in your own name, in the joint names of you and your wife or copurchaser(s), in the name of your adult children or in the name of somebody who will eventually inherit the property from you, in the name of a special type of French company called an SCI (these exist mainly to own and manage properties in France), in the name of an ordinary limited company, whether English or French. Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. We shall be pleased to discuss the various ways of buying with you and to advise as to the most advantageous method for you. It is worth paying careful attention to this point because of the potential tax and other savings that can be made at a later stage. These tax savings arise because of the French system of inheritance tax under which gifts on death can still attract very high rates of taxation. It is possible to pay 60% tax on inherited wealth. The tax savings also arise because of the way that each time a property changes hands, certain taxes and fees become payable. If, therefore, you can prevent the property being inherited and minimise the number of times it changes hands, you can greatly reduce your tax liabilities. As is always the case with tax savings schemes, there is a danger that the Government can come along and close the loopholes that allow the schemes to operate and, as always, there are disadvantages to them as well as advantages. In each individual case, you will have to weigh up the advantages and the disadvantages and decide how you wish to deal with the transaction.

Q : What is the Preliminary Contract?
A : This is a binding written agreement between you and the seller of the property by which you agree to buy it. It is made subject to conditions known as "conditions suspensives" or "clauses suspensives". These state that the contract will only become binding if certain things happen, for example, if the Buyer obtains a mortgage within a stated time. It is very important to be accurate when drafting these conditions and to make sure that they cover all of the points that are important to you. The Buyer will be released from the contract if the conditions are not fulfilled. On the signature of the preliminary contract a deposit, normally of 10%, is paid either to the Notaire or to the estate agent. Not all estate agents are legally entitled to receive a deposit.

Q : What do I need to know about loans and mortgages?
A : If the buyer intends to obtain a loan to buy the property he needs to say so in the preliminary contract. The contract will be cancelled if he is unable to obtain a loan specified in the conditions. While the Notaire is dealing with the drafting of the title deeds etc., the buyer will be busy arranging the finance for the purchase. Financing the purchase of the property may take several forms depending on the circumstances : a first (or second) mortgage on your existing property, a mortgage in Euros on the French property from a French lender, or a mortgage from one of the main French banks made in Sterling and secured by a charge over the French property. French mortgages or British mortgages organised by French banks operating in the UK do not follow the same pattern as UK mortgages secured on UK properties. The loan is usually limited to 80% of the assessed value of the property: our experience is that it is usually nearer 60% and by the capacity of the borrower to repay the loan. No survey of the property is usually required to obtain a mortgage. Be careful. The rule "caveat emptor" or "buyer beware" applies in France.

Q : What is the Acte de Vente?
A : This is the title deed proving who is the owner of the property and containing a detailed description of the property itself. Whereas the preliminary contract can be prepared by us or by an estate agent, the Deed of Sale has, by French law, to be prepared by and signed in front of a Notaire.

Q : Who is the Notaire
A : The Notaire is a public official who is there to prepare title deeds relating to the sale and purchase of land and to put on the public record the fact that the deed has been signed in his presence and understood by the parties concerned. They enjoy a very privileged and highly respected position in French society. The Notaire does not represent or look after the interests of any one party. You should also note that, in the countryside, very often there is only one Notaire available and he works on a monopoly basis in respect of the district covered. Often one Notaire deals with both parties to the transaction. The Notaire will also make various title checks about the property and make sure that the property to be sold matches the title deeds and registry documents, establish the identity of both parties (with the help of birth and marriage/divorce certificates), make sure that the seller is indeed the owner of the property to be sold, make sure that there are no covenants other than those already mentioned in the preliminary contract which might adversely affect the property, search the Land Registry with a view to establishing whether or not there exist any restrictions to the right of disposal of the property, such as easements or mortgages over the property, if the property is mortgaged he will ensure that the purchase price will be sufficient to redeem the mortgage completely, and obtain from the local Town Hall a planning certificate showing the planning rules relevant to the property. Finally, he will inform any people entitled to preemption rights of the impending sale, giving them two months within which to decide whether or not to take advantage of their rights.

Q : Do I have to be in France to complete the transaction?
A : The person buying the house may attend in person before the Notaire, but, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf. Prior to completion at the Notaire's office, he will have sent the Buyer a completion statement showing the balance of the purchase price of the land and all other registration fees for the purchase which are the responsibility of the Buyer. Once the deed of sale has been signed by both parties, the Notaire will register the transfer (as well as the mortgage if applicable) at the Land Registry (Conservation des Hypotheques). This procedure is similar to that in the UK but the original deed will remain with the Notaire who will give a certified copy to the buyer.

Q : Can I take money into and out of France freely?
A : Yes.

Q : How do I pay the money?
A : When the Acte de Vente has been signed the purchase price is handed over by the Notaire to the Seller. The purchase price must be in the hands of the Notaire by the day of completion, unless other specific arrangements have been signed with the Notaire. The Notaire then pays the money to the seller. The important things to remember are that transferring money to France does take time and that is not as reliable as transfers in the UK.

Q : What does all this cost?
A : This will depend upon if your property is existing, new, or leaseback. With existing properties, the Buyer should normally expect to pay fees and taxes of about 8-9% of the purchase price. These break down, roughly, as follows : Land Registry taxes (known as TPF), comprised of a departmental tax @ 3.6%, a communal tax @ 1.2%, and a further tax of 2.5% calculated on the amount of the Departmental tax is also required @ 0.09%. Stamp Duty fees vary according to the size and importance of the Deed of Sale. Normally one should expect to pay typically £200. Miscellaneous expenses are calculated according to various documents that the Notaire would have had to search in order to draft the Deed of Sale. They usually amount to less than £500. The Notaire's fees charged on the conveyance (and on the mortgage if applicable). They are calculated according to the value of the property and the size of the mortgage. On the conveyance, the fees are calculated as follows: for a property worth up to 3050 euro - 5%, between 3050 and 6100 eur - 3.3%, between 6100 and 16800 eur - 1.65%, over 16800 euro - 0.825%. On the mortgage, the fees amount to two thirds of the rates mentioned above. The whole fee is subject to VAT at 19.60%. If the property is new (defined by law as a property built within the last 5 years and now sold for the first time since built), the other fees and expenses are, broadly speaking, set out as above but there is an additional tax payable. VAT is charged on the price of the property at 19.6%. This tax is often included in the price of the property as quoted to you. As some small compensation Land Registry Taxes (TPF) are paid at a reduced rate of 0.60% calculated on the price exclusive of VAT. In the case of Leaseback, this VAT is fully refundable to the foreign investor.

Q : After I have settled in, what are my continuing obligations?
A : If you spend less than 184 days a year in France then you are generally speaking classed as a "non-resident" and you must name a fiscal representative, pay your local rates, make a declaration of all your capital assets in France and, where appropriate, pay tax on them, pay income tax on any income deriving from your activities in France, if you have a car, you must pay car tax and arrange suitable insurance cover, you must pay your electricity, water and other bills.

Q : What happens if either I or my Co-owner dies?
A : Jointly owned property does not automatically pass to the survivor. It will (subject to certain limitation imposed by French law) be dealt with according to any instructions which you leave in your Will (either English or French) or, if you do not leave a Will, under the rules relating to intestacy.

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