Starting from January 1st 2016, France will enforce a capital gains tax (CGT) charge at a rate of 33% on German- and Luxembourg-resident Shareholders of property companies whose main investments are located in France. The alterations are currently being approved by the jurisdictions and are expected to apply to transactions taking place after the end of this year.
Previously, capital gains made by such investments have been exempt from capital gains tax in France. However, the relevant double-taxation tax treaties have now been looked at to eliminate this exception. In both circumstances, it will mean that any gains made on the shares of a property holding company will be taxable in the state where the property is situated and not the state where the seller is resident.
The removal of the exemption will be more of a minor change for German Shareholders, who are taxed on these gains at home anyway (although at only 6%) than for Luxembourg investors, who are not currently. However, according to Solicitor Franck Lagorce of Pinsent Masons, it will mean a substantial increase in the charge for German businesses who own shares in companies possessing French property.
There is still an exemption for companies whose properties are used for their own professional purposes, rather than being held as investments. Under the new Franco-German treaty, France will also charge a 30% tax levy on shares paid by property holding companies to German Shareholders holding a minimum of 9% capital. A similar provision appears in an agreement made between France and the UK in 2008, but it is not in the amended Luxembourg treaty.
It is expected that the French finance ministry will try to get similar amendments included in its other double-taxation treaties, to prevent taxpayers investing in French property free of CGT.