We reported last year on a ruling in the French courts which threw into question whether French law on VAT on furnished lettings complied with European law.
Under European law, if the furnished accommodation has the status of a hotel then VAT must be charged on all bookings and services.
In France, this has been interpreted in statute law to mean that where at least 3 of 4 services are being offered as part of the furnished rental, the letting is considered 'para-hôteliere', and VAT must apply.
The 4 services concerned are:
The provision of breakfast;
Regular cleaning of the property;
Provision of linen;
Reception of the customer (which need not be by the landlord).
According to the French Supreme Administrative Court, the Conseil d’État, a rental property can give rise to liability only in the context of potential competition with the hotel business.
Until now, this concept had never been clearly defined by the tax authorities, although it has given rise to several interpretations in case law decisions both at the European level and in France.
The decision of the court has led to a revision of Article 261D of the General Tax Code.
The new wording now distinguishes between two forms of para-hotel rentals:
Hotel or similar rentals: includes seasonal rentals and Airbnb-type rentals.
Residential furnished rentals: concerns longer-term furnished rentals.
Seasonal Rentals
For seasonal rental activities to be considered as para-hotels, two cumulative conditions are now required:
The maximum length of stay must not exceed 30 days.
The furnished rental must provide (and not merely offer) at least 3 of the 4 services.
Long-Term Rentals
For long term residential rentals, the law now states that at least three of the four ancillary services must actually be provided (and not merely offered) to customers.
The government has specified that the services can be included in the rental price or offered as an option.
Services
In terms of the services to be provided:
Breakfast: This must be provided either in a common room or directly in the accommodation. If a room is used, it must comply with food conservation standards. A breakfast offered via a vending machine will not be considered compliant.
Linen supply: Must be made at the beginning of the stay with a weekly renewal proposal. This renewal may be charged extra.
Regular cleaning of the premises: this must be offered at the beginning of the stay, then regularly during it, with a weekly frequency deemed sufficient.
Reception: it is possible to carry it out in a different place from the rented property, by an electronic system (key box, telephone line, etc.).
The rate of VAT that applies is 10% on the rent and the services, except for those services not included in the rental, which are at the rate of 20%.
Whilst that might seem to impact on the competitiveness of the offer, and to be an administrative burden, it is attractive to many landlords, as they can recover VAT on their expenditure, notably that in relation to the property purchase and building works, as well as routine maintenance and management costs.
Nevertheless, for most landlords the option of whether or not to charge VAT will remain, due to the turnover threshold from exemption. This is currently €37,500 for unclassed accommodation and €85,000 for classed accommodation. These figures apply for 2025 onwards.
More generally, the fiscal status of rental properties has undergone other changes of late, and there is every prospect that there will be further changes in the near future. You can read more in Taxation of Rental Income in 2023/24.
If you seek professional advice concerning anything in this article contact our Property/Tax Clinic and one of our advisors will get back to you.
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