by Patrice PERRIN

The side effect of the EUCJ ruling in the “De Ruyter case”

This article will solely deal with the social taxes applied to none-professional furnished lettings known in French as “Loueurs en meublés non-professionnels” (LMNP).

In February 2015, the European Union Court of Justice (EUCJ) issued a ruling. Social taxes on non-residents’ income  became illegal, as this tax was levied to finance the French social Security.

When introduced  in 2012 on rental property income, this tax  only applied (without any logic) to unfurnished lettings.

After losing the court case, the French government has decided to change the social tax, claiming that the tax will no longer finance  the French social security (which is doubtful).

Hence, according to the « Loi de Financement de la Sécurité Sociale pour 2016 », from 2015,  social taxes (15.5%) are applicable on all rental income (furnished or unfurnished) for  non residents. 

Solutions that can be carried out to lower the effect of the social tax

Let me describe first the way LMNP income is taxed in France.

LMNP applies typically to furnished, seasonal/holiday accommodation  rented to holiday makers.  There are two tax schemes :


Only the gross rent has to be reported on the tax return. A flat allowance of 50% of the rent is granted for expenses to arrive at the net taxable income. This scheme cannot generate deficit. The maximum yearly rent is limited to 32 900 € (82 200 € if the house rented is classified as Chambre d’Hôte or Meublé de Tourisme + the allowance is 71 % instead of 50 %).

For a non-resident, the rate of taxation is 20 % of the net income calculated above for income tax + (from 2015 income) 15.5 % for the social tax (i.e. 35.5 % on aggregate).

Régime réel

This scheme, unlike the micro-Bic, requires the preparation of full-blown accounts to French accountancy standards and additional tax forms. It is therefore more costly. It requires also to be registered as a “Loueur en meublé non-professionnel” at the tax office, as does the LMNP within the Micro-BIC scheme).

It enables the tax payer to claim all the expenses directly linked to the activity including depreciation costs of the building and usually leads to a deficit that can be set only against the LMNP income of the following years.

This scheme can also be used by non-residents who own a house in France and rent it out when they are not  holidaying in it, providing that they discount a part of the expenses (including depreciation costs of the building) pertaining to their share of occupation of the house.

So what to do ?

In short, the LMNP who is already in the micro-bic regime has to weigh the pros and cons of leaving things as they are and having to pay a tax of 35.5 % (instead of 20 %) of the net rental income (after an allowance of 50 or 71 %) or a tax of 35.5 % of the real net income (if any) +  a higher accounting fee….  

Patrice PERRIN

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