Investing in real-estate in France:
Chances and Opportunities
Jacques-Henry de Bourmont – Tax partner,
Lefèvre Pelletier & associés
November 15th 2012
136 avenue des Champs-Elysées 75008 Paris - Tél. : +33 (0)1 53 93 30 00 – Fax : +33 (0)1 53 93 30 30 – www.lpalaw.com
Summary
I.
Presentation of the French tax regime
1.
2.
Comparison of the major features of the French and Chinese tax systems
France – Tax presentation
•
•
•
•
3.
French tax in a nutshell
Property-related taxes
Inheritance & gift taxes
Major town planning taxes
France-China Double Tax Treaty
•
•
Real estate income
Capital gains
II. Investing in France
1.
Direct investments
•
•
•
2.
Investments through a French company
•
•
3.
Built immovable property
Farm or wine property (exploited or not)
Woods and forests
Type of investment
French tax regime
Investments through a foreign company
2
I. Presentation of the French tax regime
3
1. Comparison of the French and Chinese
tax systems
France
Corporate income tax
Standard tax rate of 33,33% (34,43 or 36,1% with surcharge for large companies).
Reduced tax rate of 15% for SME's for the first 38.120 € of their taxable result.
Personal Income Tax
Income tax is progressive: Rates range from 5.5% to 45%.
Family-favorable scheme is provided.
Registration duties
Acquisition of real estate generates a registration duty of 5,09% of the estate's fair
market value (FMV), due by the buyer. For real estate companies, the registration
duty amounts to 5% of the underlying estate's FMV minus all liabilities linked with
the asset's acquisition. Registration duties on sale of shares amounts to 0.1% of the
shares' FMV for "SA" and "SAS" and 3% for "SARL".
Withholding tax on
dividends**
30%*
Withholding tax on
interest
0%*
Value Added Tax
Social charges
Wealth tax
VAT is due at each stage of the production/commercialization chain. The deduction
of input VAT from output generally ensures that VAT is neutral for businesses.
Various exceptions (for instance holdings, banks) however generate possible nondeductible VAT at business level.
China
Standard tax rate of 25%
Income tax is progressive (but with low brackets):
Rates range from 3% to 45%. No family incentives.
Stamp duty, due by both parties, ranges from 0.005% to
0.1% of the value indicated in the document to be stamped,
depending on the type of document.
Deed tax, due by the buyer, ranges from 3% to 5% of the
amount of real estate . Land appreciation tax, due by the
seller, ranges from 30% to 60% based on added value.
10%
10%
VAT applies to sales or import of goods, and to
services to a certain extent and/or in certain
regions. The VAT rate is 17% (reduced rate of 13%
exists for some products). Exports are exempt from
VAT (VAT refunds possibilities have to be checked on
a case by case basis).
Various social contributions are due. The global rate is 50.6% (Social charges burden Various social contributions are due. The applicable rates
range from 27.2% to 44% depending on the region.
is shared between employer and employee).
Wealth tax is applicable when a taxpayer's net wealth exceeds 0.8m€.
Rates range from 0.5% to 1.5% of the net wealth.
No wealth tax is levied.
* Except distribution to a person located in a tax haven
** Except application of double tax treaty
4
1. 中国与法国税务制度比较
法国
中国
企业所得税
标准税率为33.33%（针对大型企业因附加费而增加至34.43%或
36.1%）
标准税率为25%
个人所得税
逐级累进税率：5.5% - 45%
可适用家庭税收优惠方案
逐级累进税率（但是包括低层薪资）：3% 45% （无家庭优惠）
备案要求
不动产转让按该物业之公平市场价格的5.09%征收，由买方承
担。针对房产公司，物业的公平市场价格减去与物业转让相关
的税负后按5%征收。股份转让按拟转让股份的公平市场价格的
0.1%征税（适用SAS和SA类型的公司），SARL类型的公司按3%
征税。
根据不同类型的合同，印花税以合同所述之
标的额按0.005%-0.1%征收,由双方承担。
契税由买方承担，按标的额的3%-5%。
土地增值税由卖方承担，按增值额的30%60%。
股息预提税**
30%*
10%
利息预提税
0%*
10%
增值税
生产、销售的各个环节均需征收增值税。增值税进项税额抵扣
以确保增值税是公平合理的。各种例外情形（如控股公司、银
行）无法进行增值税抵扣。
在中国进口、销售货物或提供与生产、修理
和安装相关服务均需征收增值税。增值税率
17%（某些项目递减为13%)。出口免征增值
税（出口退税以个案分析）
社会保险金
各类社会保险征缴项目。总税率为50.6%（社会保险由雇员与
雇主共同分担）
各类社会保险征缴项目。根据区域不同，适
用税率27.2%-44%。
财富税
若纳税人的财富净额超过800万欧元，则征收财富税。
税率按财富净额的0.5%-1.5%征收。
尚未开征
*除非向在税收天堂的股东分配
**除非适用于避免双重征税协税
5
2. France – Tax presentation
French taxes in a nutshell

Corporate income tax
—
—
—
—
—

Business Tax
—

Tax rates: 0% - 45% (6 brackets) plus exceptional contribution on high income (3% as of 250,000 €).
Family-friendly tax system.
Transaction taxes & stamp duties
—
—
—

Mix of tax on properties and on profits (2 components).
Personal income tax
—
—

Tax rate: 33.33% (34,43% or 36,1% incl. surcharges)
Loss carry forward without time limit (1 Million € + 50% of current tax year’s profits), carry-back 1 year up to 1
Million €.
Participation-exemption regime for qualifying shares (no tax on dividends & capital gains except 5% add-back on
dividends and 10% add-back on capital gains).
Rules on tax consolidation for qualifying shareholdings (>95%), on thin capitalization, CFC and transfer pricing & TP
documentation.
Interesting tax credit for research and development expenditures.
Real estate transfer tax: 5,09% (or less in some cases) of the sale value or fair market value if higher;
Transfer tax on shares: 0,1% of the sale value or fair market value if higher for sales starting from August 1st 2012;
Transfer tax on shares in real estate companies: 5% on the fair market value of the underlying real estate and
movable assets deduction made from the liabilities linked with this acquisition of these underlying real estate
assets
VAT
—
Tax rates: 19,60% (normal), 7% (reduced), 5,5% (reduced), 2,10% (super-reduced).
6
2. France – Tax presentation
Property-related taxes – Wealth tax

Scope & tax base
Wealth tax (or “ISF”) is an annual tax payable by individuals domiciled in France, levied on the net value of a
taxpayer’s assets should it exceed m€1,3. Non-residents individuals are only taxable on their French-based assets.

Tax rate (Project of Finance Law for 2013, to be confirmed)
Fraction of the tax base
not exceeding 800.000 €

Tax rate
0
between 800.000 and 1.300.000 €
0.50%
between 1.300.000 and 2.570.000 €
0.70%
between 2.570.000 and 5.000.000 €
1.00%
between 5.000.000 and 10.000.000 €
1.25%
equal or superior to 10.000.000 €
1.50%
Major tax exemptions
Some properties are not included in the tax base of the French wealth tax:
 Business assets;
 Antique, collection, art works;
 Literary and artistic property copyrights held by the authors;
 Industrial property rights (patents, trademarks etc.) held by the authors;
 Shares in SMEs which have an industrial, commercial, agricultural or independent activity;
 Financial investments of non-residents (except real estate investments).
7
2. France – Tax presentation
Property-related taxes - Land tax

Description
There are two types of land taxes. The first one is levied on the rental value of constructions and their dependences.
The second one is levied on undeveloped sites.

Taxable event
The land tax is established for the whole year according to the situation existing on January 1st of the taxation year.

Tax base
The land rental value is used to determine the tax base of each property. Two different set of rules apply depending
on the nature of premises or grounds:
 Commercial premises:
The land registry department determines for every plot of land a price to the square meter ; it retains
a value applicable in 1970 if the good existed already. Otherwise, it uses a comparative method
(comparison with a reference building) or even the direct appreciation should no comparison be possible.
Industrial establishments:
The evaluation is made according to the accounting method. The rental value of the plots of land is
determined through the book value of the properties.
8
2. France – Tax presentation
Property-related taxes – 3% tax

Scope
This tax applies to companies which own real estate properties in France. The tax amounts to 3% of the fair market
value of the properties held by a company on January 1st of a said year. Exemptions might apply within EU and
countries with which an exchange of information agreement applies.

Concerned entities
The 3% tax applies to all the legal entities: companies or legal entities, bodies, trusts or other comparable
institutions.
Entities that are considered entering the scope of the 3% tax are those who have properties or property rights in
France by interposed entity, and therefore any legal entity which detains a participation in another entity which is:
Owner of buildings located in France or rights concerning such buildings;
 Or holder of a participation in the third entity which is itself:
o owner of buildings or property rights;
o interposed in the chain of participations.

Taxable event
The person owning the company on January 1st of the taxation year is liable to the 3% tax for the entire year.

Exemptions
Are exempted from the 3% tax:
 International territorial and political organizations, sovereign States and their subdivisions;
 Legal entities which are not considered to be real estate companies for 3% tax purposes;
 Listed legal entities among which shares are the object of significant and regular negotiations.

Tax liability
Every company located, within a participation chain, between the tax-liable person and the real estate properties or
rights is jointly liable to the 3% tax owed by this “higher” member of the participation chain.
9
2. France – Tax presentation
Inheritance & gift tax - Scope

Scope
The French inheritance tax rules rules apply to inheritances and gifts in the following cases:

When the deceased had his/her place of residence in France, all movable or immovable assets belonging
to him are taxable in France whatever their nature or their place. To avoid possible double taxation,
taxes paid abroad are credited against the French tax levied on movable or immovable assets located
abroad (French tax code, art. 784 A).

When the deceased had his/her place of residence outside France, two situations have to be
distinguished:
 The beneficiary had his/her place of residence in France at the transfer date and had it at least during
six years over the past ten years: all movable or immovable assets located in France or outside France
are taxable in France;
 The beneficiary had her/his place of residence outside France: in this case, only French assets are
taxable in France.
The scope of the gift tax is similar to the scope of the inheritance duties.
10
2. France – Tax presentation
Inheritance & gift tax – Tax base

All real estate assets are subjected to inheritance and gift tax
However, certain tax exemption may apply in the event of a transfer of business through inheritance or
donation.

Family-friendly tax allowances
ALLOWANCES (amounts applicable for the 2012 year)
Allowances applicable to inheritances and gifts
Specific allowances applicable to gifts
€ 100 000 for each direct ascendant or descendant
(article 779 I of the French tax code)
€ 80 724 for gifts between married partners or
partners linked by a civil partnership
€ 159 325 for disabled persons
€ 31 865 by share for gifts to grandchildren
€ 15 932 for each brother and sister not living under the same roof
€ 5 310 by share for gifts to great-grandchildren
€ 7 965 for each nephew or niece (article 779 V of the French tax code)
€ 300 000 for company's gifts to employees
For inheritances, if these allowances are not applicable, there is a residual
allowance of € 1 594
N.B. The surviving spouse is exonerated from inheritance tax (but not from gift tax).
11
2. France – Tax presentation
Inheritance & gift tax – Tax rates
Inheritance and gift tax rates for 2012
Tax rates applicable to inheritance (or gift) in direct line
Fraction of the taxable net share
Not exceeding
Beetwen
Tax rate
€8 072
5%
€ 8 072 € and € 12 109
10%
€ 12 109 and € 15 932
15%
€ 15 932 and € 552 324
20%
€ 552 324 and € 902 838
30%
€ 908 838 € and € 1 805 677
40%
Beyond
€1 805 677
45%
Tax rates applicable to inheritance (or gift) between brothers and sisters
Fraction of the taxable net share
Tax rate
Not exceeding
€24 430
35%
Beyond
€24 430
45%
Tax rates applicable to others inheritance (or gift)
Fraction of the taxable net share
Tax rate
Between relatives up to the fourth degree
55%
Beetwen relatives beyond the fourth degree and between not related
people
60%
12
2. France – Tax presentation
Gift taxes – specific tax rates
Specific tax rates for gifts (for 2012)
Tax rates applicables to gifts beetween married partners or partners linked by a civil partnership
Fraction of the taxable net share
Tax rate
Not exceeding
€8 072
5%
€ 8 072 and € 15 932
10%
€ 15 932 and € 31 865
15%
€ 31 865 and € 552 324
20%
Beetween:
€ 552 324 and € 902 838
30%
Beyond
€ 908 838 € and € 1 805 677
40%
€1 805 677
45%
13
2. France – Tax presentation
Major town planning taxes
 Tax on the creation of office spaces (redevance sur la création de
bureaux en Ile de France)
In the Ile de France region, the construction of premises dedicated to offices, research and their outhouses is subject to the
payment of a specific tax.

Basis
Floor area: All premises dedicated to offices are subject to the office tax.

Rate
Various rates are applicable depending on the type of building constructed and on the location of the construction. The
applicable may rise for constructions in Paris to 361 € per m² of floor area.

Development tax (taxe d’aménagement)
A new town planning tax, the “development tax” is applicable on real estate projects which have been authorized after
March 1st 2012.

Basis
Fixed rate per m² (different rates are applicable depending on the type of construction) and in certain cases the lump value
of the developments created.

Rate
Each local authority (City, department, region) levies its share of development tax. The global tax rate may range in general
cases between 1% and 5% of the tax base. The maximum tax rate may rise to 20% in special circumstances.
14
3. France-China Double Tax Treaty

Signature of a double tax treaty regarding income tax on May 30th 1984
(hereinafter « The DTT »).

The DTT is not applicable in Hong Kong (special DTT signed with Hong Kong) as
well as in Macao.

The DTT contains provisions regarding:




Information exchanges.
Non-discrimination rules.
Mutual agreement procedure.
Taxes covered

FRANCE :



Income tax (IR).
Corporate income tax (IS).
CHINA:




Individual Income Tax.
Income tax regarding businesses with mixed capital.
Income tax regarding foreign businesses.
Local Income Tax.
15
3. France-China Double Tax Treaty
Real estate income taxation (Article 6 DTT)

Scope of Article 6 DTT
Real estate income derived by individuals.
Real estate income derived by legal entities.
Real estate income related to an independent activity.




Definition of « immovable property » (Article 6§2 DTT) : Referral to the law of
each contracting State.
Are deemed immovable properties by the DTT :

Property accessory to immovable property, livestock and

Equipment used in agriculture and forestry;

Usufruct of immovable property and similar rights;

Mineral deposits, sources and other natural resources.

Ships and aircrafts are not immovable property for DTT purposes

Definition of « income derived from immovable property » :

Income derived from the direct use, letting, or use in any other form of immovable property .

Non-exclusive taxation of real estate income in the State of situs of
the immovable property (Article 6§1 DTT)

China provides for the imputation of the tax due in France on the tax due in China (limited to the
amount of tax due in China) whereas France provides for the exemption of the income derived from
immovable property located in China.
16
3. France-China Double Tax Treaty
Real estate income taxation - Example
Real estate income derived by
an individual located in China
China
Withholding tax
 Non exclusive taxation in France
(article 6 §1 DTT) (Minimal tax rate of
20% in France for non-residents on their
French-sourced income).
Real estate income
France
Social contributions at a 15.5% rate
French Treasury
China
ChinaCo
 Taxation in China is possible
- French tax may be deducted from the
amount of tax payable in China (Article
22 a) DTT).
Real estate income derived by
a legal entity located in China
Withholding tax
 Non exclusive taxation in France
France
(article 6 §1 DTT) - (Profit tax :33,33%)
Real estate income
Social contributions at a 15.5% rate.
French Treasury
 Taxation in China is possible
- French tax may be deducted from the
amount of tax payable in China (Article
22 a) DTT).
17
3. France-China Double Tax Treaty
Capital gains (Article 12 DTT)

Sale of shares other than in real estate companies

Capital gains on shares



French tax law


Substantial participation clause in most tax treaties between China and European countries, including
France: Participation of at least 25% in a company may be taxable in the State where the company whose
participation is sold is deemed to be resident for tax purposes (Article 12 §5 DTT).
Article 12 §6: in other cases (holding < 25%), the shares are taxable in the State where the capital gains are
generated .
Withholding tax of 19% on sale of shares other than in immovable property companies (article 244 bis B of
French Tax Code).
Real estate capital gains

Direct sale of a real estate property (article 12 §1 of the DTT)


Capital gains related to the sale of shares in real estate companies


Non-exclusive taxation in the State where the real estate is located.
Non-exclusive taxation in the State where the real estate is located (Article 12 §4 DTT).
French tax law



A 33,33% withholding tax is applicable on the capital gain related to the sale of real estate located in
France or shares in a real estate companies when the seller is not a EU-resident (article 244 bis A French
Tax Code). Additional mandatory costs – notary fees and tax representation – are due by the Seller.
If holding during a certain period : 2% allowance per year after the fifth year of holding, 4% after the 17th
year of holding, 8%-allowance after the 24th holding year (tax exemption after 30 years holding)
Social contributions applicable to the capital gains at a 15.5% rate.
18
3. France-China Double Tax Treaty
Direct/indirect sale of French-based real estate
Direct sale of a real estate located in France
by an individual or a legal entity.
China
ChinaCo
Sale of real estate
Tax payment
France
French
Treasury
China
Chinese tax consequences
- Possible taxation, but imputation of the tax
due in France on the tax due in China (article 22
a) DTT).
Sale of shares in real estate companies by an
individual or legal entity which is Chinese
resident.
ChinaCo
Sale of shares
French tax consequences
- Taxation of the capital gains (article 12 §1
DTT) at a 33,33% rate + Social contributions at a
15.5% rate.
- Individuals may benefit from allowances
depending on the ownership period.
Tax payment
French tax consequences
-Taxation in France (Article 12§ 4 DTT) at a
33,33% tax rate + Social contributions at a 15.5%
rate.
France
FrenchCo
French
Treasury
Chinese tax consequences
- Possible taxation, but imputation of the tax
due in France on the tax due in China (article 22
a) DTT).
19
II. Investing in France
20
1. Direct investments

Type of investment

Built immovable property

Farm or wine property (exploited or not)

Woods and forests
21
1. Direct investments

French tax regime applicable to a built immovable property



At the purchase of the property:

The DTT is not applicable : taxation in France ;

Registration duties : 5.09% registration duty assessed on the acquisition price.
During the detention of the property :

Non-exclusive taxation in France in application of the DTT (article 6) ;

The rent of the built immovable property produces real estate income ;

Real estate income are imposed at the income tax scale (minimum 20% rate) + 15.5% of French social
contributions.
At the disposal of the property:

According to article 12 §1 of the DTT, non-exclusive taxation of the capital gains in France ;

Capital gains on the sale of a French property owned by a non French tax resident who is not a resident of
another EU Member State are subject to the French income tax levied at a specific tax rate of 33.33 %
(article 244 bis A of the French tax code);
1)
The gross capital gain is reduced by a rebate which rate depends on the duration of ownership by the seller ;
2)
A 20% rebate on the income tax for the built property may be applicable exceptionally for the sales in 2013
(issued from the finance law for 2013, to be confirmed, not applicable to the social contributions) ;
3)
Capital gains are also subject to the French social contributions levied at a 15.5% rate.
22
1. Direct investments

French tax regime applicable to a farm or wine property


At the purchase of the property:

The DTT is not applicable : taxation in France ;

Registration duties : 5.09% registration duty assessed on the acquisition price.
During the detention of the property :
If the farm or wine property is rented by a farm lease that generates real estate income ;

Non-exclusive taxation in France in application of the DTT (article 6) ;

Real estate income are imposed at the income tax scale and are also subject to the French social
contributions levied at a 15.5% rate.
If the farm or wine property is directly exploited by the owner that produces agricultural income ;


Agricultural income are imposed at the income tax scale.
At the disposal of the property:
If the agricultural property is rented :

Same tax regime as provided for the disposal of a built immovable property ;

Right of pre-emption of the farmer.
If the agricultural property is directly exploited :

If the agricultural property is registered in the balance sheet, the regime of the professional capital gains
applies. Part of agricultural income (“forfait agricole”) is exempted under certain conditions.

If this is not the case, the private capital gains regime applies (19% income tax rate) .
23
1. Direct investments

French tax regime applicable to woods and forests



At the purchase of the property:

The DTT is not applicable : taxation in France ;

Registration duties : 5.09% registration duty assessed on the acquisition price.
During the use of the property :

The direct exploitation of the woods and forests produces agricultural income (lump agricultural income
(“forfait agricole”) equal to cadastral income) ;

Agricultural income are imposed at the income tax scale ;
At the disposal of the property:

If the woods property is registered in the balance sheet, the regime of the professional capital gains applies.
Part of agricultural income is exempted under certain conditions.

If this is not the case, the private capital gains regime applies (19% income tax rate) .
24
2. Investments through a French company

Type of investment
a)
b)
Detention of real estate property through:
•
A non-pass-through company subject to the tax regime of the shareholders : real
estate company (“société civile immobilière”)
•
A company subject to corporate income tax :

Simplified joint stock companies (“sociétés par actions simplifiées”( SAS))

Limited liability companies (“sociétés à responsabilité limitée” (SARL))
Detention of farm or wine property through:
•
A company subject to corporate income tax :

•
Limited liability companies (“sociétés à responsabilité limitée” (SARL))
A non-pass-through company :

Agricultural land group(“Groupement foncier agricole” (GFA))

Joint agricultural exploitation group (“groupements agricoles d’exploitation en
commun” (GAEC))

“Société civile d’exploitation agricole” SCEA

“Exploitation agricole à responsabilité limitée” EARL
c)
Detention of forests through forest groups (“groupements forestiers” (GF))
d)
Rural land group (“groupements fonciers ruraux” (GFR))
25
2. Investments through a French company
French tax regime

Registration duties
1)
The DTT is not applicable : taxation in France
2)
Companies subject to income tax
•
A fixed registration duty of 125 € is due on the purchase of shares.

•
3)
Applicable to GAEC, EARL, SCEA, GFA, GFR and GF.
For a real estate company, the purchase of shares is subject to a 5% registration
duty.
Companies subject to corporate income tax
•
For joint-stock companies, the disposal of shares is subject to a 0.1% registration
duty.
26
2. Investments through a French company
French tax regime

Taxation of profits
1)
Exclusive taxation in France (article 7§1 of the DTT)
2)
Companies whom shareholders are subject to income tax (non-pass-through company)
•
Taxation of profits in the hands of the shareholder at the income tax scale for the
part of the profits corresponding to the portion of its shares in the company.
•
Categories of taxation:
•
3)
Agricultural income for GAEC, GF, EARL, SCEA ;

Real estate income for GFA (without direct exploitation), the agricultural part of the GFR ;

Cadastral income (estimated income) for the forest part of the GFR.
Social contributions at a 15.5% rate if real estate income
Companies subject to corporate income tax
•


Taxation of profits at 33.33% rate.
Dividends paid to a non-resident (beneficial owner)
1)
Ø regarding non-pass-through entities which shareholders are subject to income tax.
2)
Companies subject to corporate income tax :
•
Non exclusive taxation in France (article 9 of the DTT) ;
•
Taxation of dividends in France at 10% rate maximum (article 9§2 of the DTT);
•
Taxation of dividends in China according to article 9§1 of the DTT.
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2. Investments through a French company
French tax regime

Capital gains on the disposal of shares
If the beneficial owner is a non-resident private individual :
1)
Shares of a company other than a real estate company :
•
Income tax exemption in France (article 244 bis C of the French tax code) ;
•
Exception: if the participation represent a substantial participation in the capital of
at least 25%:
 Non exclusive taxation in France: withholding tax of 19%. (article 244 bis B of the
French tax code and article 12§5 of the DTT).
2)
Shares of a real estate company :
•
Non exclusive taxation in France (article 12§ 1 of the DTT) ;
•
Withholding tax of 33.33% is applicable on the capital gain related to the sale of
shares in a real estate company in France when the seller is not a EU-resident
(article 244 bis A of the French Tax Code) ;
•
Social contributions at a 15.5% rate.
28
3. Investments through a foreign
company
Capital gains taxation optimization
The country where the company is established should be selected according to the country
tax regime and the DTT signed with France :



DTT with Germany :

Article 18 DTT provides for the exclusive taxation in Germany of capital gains derived
from the sale of French real estate companies with assets located in France.

German participation exemption regime: 95% of the capital gains derived from the sale of
real estate companies with real estate assets located in France are tax-exempted.
DTT with Belgium:

Article 18 DTT provides for the exclusive taxation in Belgium of capital gains derived from
the sale of French real estate companies (excepted certain type of tax transparent
companies) with real estate assets located in France.

Belgian exemption regime: 100% of the capital gains are tax-exempted if a holding period
requirement of 1 year of the French company by the Belgian company is respected.
DTT with Luxemburg:

Article 18 DTT provides for the exclusive taxation in Luxembourg of capital gains derived
from the sale of French real estate companies with assets located in France.

Luxemburgish exemption regime: 100 % of the capital gains are tax-exempted.

French-Luxemburgish DTT is about to be renegotiated
29
3. Investments through a foreign company
Capital gains taxation optimization

China has signed a double tax treaty with Germany, Belgium and Luxemburg.

Chinese-German DTT:


Chinese-Belgian DTT:


WHT on dividends is capped at 10% (Article 10 paragraph 2 of the Chinese-German DTT).
WHT on dividends is capped at 10% (Article 10 paragraph 2 of the Chinese-Belgian DTT).
Chinese-Luxemburgish DTT:

WHT on dividends is capped at 10% (Article 10 paragraph 2 b) of the ChineseLuxemburgish DTT). The WHT is lowered to 5% if the beneficial owner has a holding of
more than 25% in the other company (Article 10 paragraph 2 a) of the ChineseLuxemburgish DTT).
30
3. Investments through a foreign company
Example – 1/3
China
ChinaCo
100%
Belgium
BelgiumCo
100%
FrenchCo
Investment structure
 A FrenchCo owns real estate assets
located in France.
 The FrenchCo is owned by a ChinaCo
through a BelgiumCo with substance.
France
Property/Participation rights
31
3. Investments through a foreign company
Example – 2/3
China
Sale of the shares in FrenchCo
after a holding period of 1 year
and provided the BelgiumCo is
not tax-exempted on its
operating income in Belgium.
ChinaCo
100%
 Tax-free sale in Belgium of the
Belgium
BelgiumCo
NewCo
FrenchCo shares to NewCo.
FrenchCo
Sale of the shares
in FrenchCo after
a holding period of
1 year minimun
No taxation of the capital gains in
France.
100%
France
No WHT
French Treasury
NewCo pays 5% in registration duties in
France (tax base: Fair market value of
the underlying real estate and non real
estate assets deduction made from the
liabilities linked with the acquisition of
these assets).
Property/Participation rights
32
3. Investments through a foreign company
Example – 3/3
China
ChinaCo
100%
Belgium
Dividend
distribution
BelgiumCo
Dividend
distribution
BelgiumCo to ChinaCo.
from
 The
dividend
distribution
from
BelgiumCo to ChinaCo triggers a 10% WHT.
10% WHT
Cash
Belgian Treasury
Property/Participation rights
33
3. Investments through a foreign company
Capital gains taxation optimization

Tax-free sale of the shares in a French real estate company (with French-based real estate
assets) is possible under conditions in Germany, Belgium and Luxemburg.

Dividends distribution originating in Germany, Belgium and Luxemburg are taxable in China. A
10% WHT is levied in the source countries.

The WHT rate may be lowered to 5% in Luxemburg. However, the French-Luxemburgish is in
jeopardy and should be renegotiated.
34
Lefèvre Pelletier & associés (« LPA »)

Founding in 1983
Paris
Hong Kong

Francfurt
Direction in Paris, France
Shanghai
Algiers
 More than 100 attorneys
worldwide
Guangzhou

Casablanca
7 bureaux:
in Europe, Asia, and Maghreb
35
Contacts
Jacques-Henry de Bourmont
Avocat associé
[email protected]
Tél. : +33 1 53 93 30 00
37