Understand the VAT applicable to rentals of movable and immovable property
VAT on property rentals: the general rules
Considered as supplies of services, the rentals of goods are, by nature, within the scope of VAT. This rule is specified in section IV of article 256 of the French Tax Code (FTC).
French Tax Authorities' doctrine distinguishes between the applicable regime depending on whether it is a rental of movable or immovable property (French Tax Authorities' doctrine - BOI-TVA-CHAMP-10-10-40-30, § 10) since the rentals of buildings may be exempt from VAT.
The rental of tangible personal property
In general, any rental of tangible personal property is a transaction subject to VAT. This applies to new equipment as well as to used equipment.
Unless an exemption is explicitly provided for by law, all rentals of things are taxable. As an example, we can cite the rentals of:
- tank cars and tank cars;
- Equipment for cafes or construction companies (glassware, cranes);
- Medical or orthopedic equipment;
- Linen, books or movies;
- Theater or movie sets;
- Habitable pleasure boats.
Renting animals is also an activity subject to VAT. This concerns, for example, the rental of bulls for bullfighting, cows for Landes races, cattle for research laboratories or horses by equestrian centers (Administrative Doctrine - BOI-TVA-CHAMP-10-10-60-40 and Administrative Doctrine - BOI-TVA-CHAMP-30-10-60-40 and Administrative Doctrine - BOI-TVA-CHAMP-30-10-30-10).
The rental of furnished buildings for professional use
The VAT regime applicable to the rentals of buildings varies whether the property is rented naked or furnished. Only rentals of converted buildings are automatically subject to VAT, in accordance with article 261-D-2° of the FTC.
This applies to all rentals of premises for professional use that are equipped with furniture, equipment or facilities allowing the exercise of an activity. These transactions are taxable even if the other elements of the business are not included in the lease.
In particular, rentals are concerned:
- furnished meeting rooms;
- Equipped theaters or casinos;
- tennis courts;
- A building used as a clinic with its specific facilities;
- Stands at fairs and exhibitions;
- Of windows by hotels or theaters.
A company that leases bare offices while requiring its tenant to sign a service contract with a third party for furniture and personnel is considered to be renting furnished premises, and is therefore subject to VAT.
On the other hand, the rental of premises equipped only with real estate installations (sealed tanks, water installations), without the provision of operating equipment, is not taxable.
Rentals exempt from VAT: bare premises and undeveloped land
Unlike furnished rentals, The rentals of undeveloped land and bare premises are in principle exempt from VAT, as stipulated in article 261 D of the FTC. This exemption also applies to rentals of land and buildings for agricultural use. These transactions are considered to be part of the management of civil real estate assets, even if the lessor is a commercial company.
Exceptions to exemptions
A. Commercial nature
However, the exemption does not apply in several specific cases where the rental is commercial in nature:
- When the lessor Participate in the results of the tenant company (association with profits and hazards).
- When renting is a way for the lessor to continue to operate a commercial asset (for example, renting the building to the company to which its business was transferred).
- When renting allows the lessor to increase its opportunities (case of a department store renting bare premises to complementary businesses to create an “integrated commercial complex”).
Note: Section c of 4° of article 261 D of the FTC provides for a final case of taxation by operation of law. If you rent premises (even naked) to a person who, in turn, uses it for a taxable accommodation activity (hotel, parahotel or residential with services), your own rental is automatically subject to VAT.
B. Parking space rental
In addition, the car parking space rentals are obligatorily subject to VAT. This concerns garages, boxes or car parks, regardless of the duration. However, this taxation does not apply if the location is closely linked to the rental of a main premises that is itself exempt (for example, a garage rented with a residential apartment by the same landlord).
C. The VAT option
It is important to note that for rentals that are normally exempt (agricultural land, empty premises for professional use), the lessor can opt for the application of VAT. In particular, this option makes it possible to deduct VAT on expenses incurred (Administrative doctrine - BOI-TVA-CHAMP-10-10-50-20).
The rental of developed land
The rental of equipped land, such as campgrounds that have sanitary facilities and delimited locations, is an activity subject to VAT. It cannot be equated to simple land income.
The rental of converted buildings for residential use
In terms of VAT, the general rule for rentals of furnished accommodation intended for housing is exemption. This is what Article 261 D of the General Tax Code (FTC) provides. This exemption, which aims at not taxing the basic need for housing, applies without the possibility of opting for taxation (Administrative Doctrine - BOI-TVA-CHAMP-30-10-50).
However, there are important exceptions to this principle. Some accommodation services, due to their commercial nature and the services that accompany them, are obligatorily subject to VAT. It is therefore essential to clearly distinguish between situations in order to secure your operations.
These points are detailed in the dedicated chapter.
Frequently asked questions (FAQ)
1. Is all rentals always subject to VAT?
In principle, yes, because renting is considered to be a provision of services. However, the exact tax regime depends on the nature of the leased property. While most rentals of movable property are taxable, rentals of bare buildings for professional use are, for example, generally exempt (unless there is an option).
2. Is renting an office still subject to VAT?
No, it depends on its nature. A rental of furnished offices, that is to say equipped with the furniture and equipment necessary for the exercise of the activity, is obligatorily subject to VAT. On the other hand, the rental of bare offices is in principle exempt.
3. What is a “furnished building” from a fiscal point of view?
A building is considered “furnished” when it is rented with facilities, furniture, or equipment essential for professional exploitation. For example, it can be a clinic with its specialized equipment or a theater with its seats and its stage.
4. Is renting a campsite subject to VAT?
Yes, renting a landscaped campground (with sanitary facilities, delimited locations, etc.) is an operation taxable for VAT. The tax authorities do not consider this activity as simple property income, but as a service provision.
5. Is the rental of animals subject to VAT?
Yes, renting animals is a rental of tangible personal property and therefore falls within the field of VAT. This includes, for example, the rental of horses by an equestrian center or bulls for shows.
6. If I rent an equipped stand for a fair, do I have to pay VAT?
Yes, the rental of stands at fairs and exhibitions is explicitly mentioned as a rental of furnished space subject to VAT. It is a taxable supply of services.
7. What is the main condition that makes renting a business premises taxable for VAT?
The main condition is the provision of a furnished room. If the premises are rented with the furniture, equipment or installations necessary for the exercise of the activity, the rental is taxable. If it is rented nude, it is in principle exempt.
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