3% tax on real estate assets: new documentary requirements

3% tax on real estate assets: new documentary requirements

New guidelines have been issued by the French tax authorities on October 5th regarding the French annual 3% tax on real estate assets held by legal entities.

In order to be exempt from 3% tax, foreign entities can either file annually a 3% tax return or send a commitment letter.

According to these new guidelines, these entities must, if requested, provide to the French tax authorities with supporting documentation in order to prove the identity of their shareholders, their addresses and the number of shares held.

In this regard, the new guidelines specify that this information may be provided mainly by the following documents:

– extracts of legal registry of business of the state or territory of residence of entities, articles of incorporation, minutes of the general meeting of companies;

– tax returns filed with the tax authorities of the state or territory of residence of entities if they provide such information;

– documents legalized by a member of a regulated profession (public notary, auditor, etc.) stating the allocation of shares and any supporting documents into the financial flows linked to acts of disposals, capital increases or decreases;

– any other official document issued by the foreign tax authorities stating the identity and address of shareholders and the number of shares held.

However, no information are given by the French tax authorities regarding the date of entry into force of this new requirement.

Despite this lack of precision, we consider that this requirement should apply to 3% tax returns filed as from the publication date of the guidelines of the French tax authorities (October 5th 2016), either as from the 3% tax returns 2017.

As a practical manner, this new information requirement should increase the level of documentation required for the filing of the 3% tax returns for 2017. As a consequence it should be appropriate to anticipate this requirement and start to collect the supporting documentation as soon as possible.

Besides, attention must be paid to the fact this new requirement in case of disposal of real estate companies. The buyers are expected to require from the sellers to provide and put in escrow the aforementioned documentation.

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