Real estate holding in France by Liechtenstein companies
The Tax Information Exchange Agreement (TIEA) between Liechtenstein and France has been in force since 19 August 2010. The TIEA applies to tax periods from 1 January 2010 or, where no tax period applies, to all tax claims arising on or since that date.
The information exchange takes place only when specifically requested. It conforms to the OECD standard and the OECD Commentary on such agreements.
In this regard, the question arises of how France is going to treat the holding of real estate by legal persons in Liechtenstein, especially Establishments.
In principle France levies the following taxes on properties located in France; furthermore, allowance must be made for the following property-related costs:
1. Registration fees amount to around 7% of purchase price, including notarial fees (a natural person incurs the same costs on a purchase).
2. Capital gains tax amounts to 33 1/3% on the gain from the sale. This tax is significantly higher than if the property is held by a natural person or SCI (Société Civile Immobilière).
3. Taxe Foncière (real estate tax) and Taxe d'Habitation (habitation tax) are payable annually. They are a kind of taxation of rental value, and should approximate to the same amount for natural persons. The tax rate for legal persons is 33 1/3% and up to 40% for natural persons. The taxe basis is not the same.
4. The annual solidarity tax on wealth (ISF), ranging from 0.55 to 1.8%, is not payable below a certain threshold. Though it applies to both legal and natural persons, the methods of calculation are not identical. However, these differences would not be decisive factors in a purchase decision.
5. The annual tax return, on forms 2072/2746, relates to the beneficial owner of the legal person. If the legal person is not established in a convention state, a 3% tax is payable annually on the market value.
6. Under Article 164 C of the General Tax Code, an annual tax of three times the rental value applies if the property is held by a legal person based in a tax haven.
Under the TIEA now concluded, the annual taxes mentioned in 5 and 6 above cease to apply from the 2010 assessment period. Hence the taxation becomes similar to the case of holding by an SCI (Société Civile Immobilière) or by a natural person abroad.
TIEA with Germany
The Tax Information Exchange Agreement between Liechtenstein and Germany applies to tax periods from 1 January 2010. Germany has repeatedly confirmed that § 15, especially paragraphs 1 and 6, of Germany's Foreign Tax Relations Act (AStG) now applies to Liechtenstein. This means that the earnings of discretionary foundations without a fixed group of beneficiaries (50% or more) are no longer imputable to the founder and/or beneficiaries. However, contributions of assets remains subject to German gift tax, while any distributions are subject to income tax (and gift tax problems?).
Earnings of a foundation with tax transparency (right of revocation; or right of amendment of by-laws – explicit or de facto; or mandate agreements) are attributed to the founder or beneficiaries. The foundation is non-existent for tax purposes. Hence the problems of gift tax do not arise.
A "transparent" foundation investing all its assets in gold generates no income, thus maximising its tax neutrality in wealth management terms.
A "transparent" family foundation is tax neutral and serves for asset protection purposes. Liechtenstein law makes sure that a properly set up foundation limiting the founder's rights can serve as a firewall against creditor and family member claims, so offering the same advantages as seen in common law countries. So the foundation stays – in a tax transparent world – a valid product as part of the wealth management.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.