This article provides a concise overview of the tax regime applicable to office properties throughout the investment lifecycle, when held by owners subject to corporate income tax (IS): acquisition, construction, ownership, and disposal.

 

Tax Implications at Acquisition

 

a) Transfer Taxes


The acquisition of office space is subject to transfer taxes, the rate of which depends on the nature of the building: (i) 5.80665% for buildings completed more than 5 years ago; or (ii) 0.71498% for buildings completed less than 5 years ago or for building land.

 

These rates may be reduced to: (i) 0.71498% if the buyer commits to resell the property within 5 years, or (ii) €125 if the buyer commits to undertake works leading to the creation of a new building within 4 years.

 

An additional tax of 0.6% applies to acquisitions of offices completed more than 5 years ago and located in the Île-de-France region.

Also payable are the real estate security contribution: 0.1% and notarial fees: approx.. 0.799%.

 

b) VAT


The sale of office space completed less than 5 years ago is automatically subject to VAT at a rate of 20%. Offices completed more than 5 years ago are exempt, unless the seller opts to apply VAT. VAT is recoverable if the premises are rented out with VAT.


VAT deducted on acquisition or on construction/improvement works becomes definitive after 20 years. If a non-VAT sale takes place before this period, 1/20 of the VAT per remaining year must be adjusted. A mandatory VAT exemption applies if the building is rented out with VAT, and recognized as a fixed asset by both the seller and the buyer, who continues the rental activity.

 

For property traders, VAT can only be recovered upon resale subject to VAT (which may require opting into VAT at resale).Early recovery may be possible after 12 months of VAT, subjected leasing if the premises are more than 3 years old.

 

Taxation at Construction Phase

 

During the construction period, premises unfit for use are subject to property tax on undeveloped land.
During this time, the annual office, commercial, storage and parking tax in Île-de-France (TSBCE) is due, with no exemption possible if the premises were already classified as offices before construction began.
Upon completion, a 40% exemption on the property tax base for built properties applies for two years.


The Tax for Office Creation (TCB) in Île-de-France is due when constructing office space or changing use to office space.
It is payable by the owner on the date the construction or development permit is issued, or, if no permit, the start date of works or the change in use.

The TCB is calculated based on the created surface area (in new builds), or the additional surface area beyond the original (in renovations or reconstructions).
2022 rates range from €53.31 to €426.30 per m², depending on location.
If TCB was previously paid for another use, it can be offset against the TCB due when converting to office use.

An urban planning tax is also levied, composed of:
-    A municipal component (1% to 5%),
-    A departmental component (capped at 2.5%), and
-    A regional component specific to Île-de-France (capped at 1%).

 

Tax Rules During Ownership

 

1) Rental Income Taxation


Rental income is subject to:
-    Corporate Income Tax (IS) at 25%, and
-    A social contribution of 3.3% on the portion of IS exceeding €763,000.

For properties held through a transparent real estate partnership (SCI), the taxable result is calculated at the SCI level, and taxation applies at the partner level, based on their tax status.
Income from unfurnished office rentals is subject to the CVAE (Value-Added Contribution) at a maximum rate of 0.75%.

 

Unfurnished office rentals are subject to VAT on option.If no option is taken, a rental income contribution (CRL) is due at 2.5% on net rental income for properties older than 15 years.

 

2) Real Estate Taxes


Offices are classified as professional premises and valued according to cadastral rental value, defined by sector and property type, for property tax purposes.
The TSBCE applies to offices in Île-de-France and also to their immediate and necessary annexes: meeting rooms, copy/print rooms, data entry, documentation, storage, locker rooms, smoking areas, and restrooms.


Excluded from TSBCE: shared spaces (in multi-tenant buildings) and technical areas.
Parking spaces linked to offices are subject to TSBCE if the total surface exceeds 500 m².2022 rates:
-    Offices: €5.26–€23.67/m²
-    Parking: €0.75–€2.67/m²(depending on location)

Not deductible for IS purposes.
An additional parking tax (TASS) in Île-de-France applies on top of the TSBCE, with 2022 rates ranging from €1.34 to €4.57/m².


Property tax, TSBCE, and TASS may be passed on to tenants.
Entities (French or foreign) holding French property directly or indirectly may be liable for a 3% tax on the market value of the real estate.


Numerous exemptions exist, notably the annual declaration requirement providing details on:
-    The property,
-    Any intermediary holding entities,
-    The shareholders of the relevant entity.

 

Tax Nuances at Disposal

 

Capital gains on the sale of office buildings are taxed at the standard IS rate.

A reduced rate of 19% applies until December 31, 2023, if:
-    An office building is sold, and
-    The buyer converts it into residential use within 4 years of acquisition.
The same transfer tax and VAT rules as for acquisition apply at resale.