Territorial Economic Levy (CET)
This tax replaced the business tax (Taxe Professionelle) in 2010. Unlike the business tax, CET is applicable to real estate investment activities.
CET is divided into two charges:
- Cotisation Foncière des Entreprises (CFE, a levy based on company land); and
- Cotisation sur la Valeur Ajoutée des Entreprises (CVAE, a levy based on company value-added).
Cotisation Foncière des Entreprises (CFE)
CFE (articles 1447 and seq. of the FTC ) is payable by persons carrying out a freelance professional activity on a regular basis. The activities of property letting and subletting of bare premises (other than letting and subletting of premises not affected to business as long as they are part of private property management) are expressly included within the scope of the CFE (unless revenues are < € 100,000 for the reference period). The activities of property letting and subletting of furnished premises are, by their nature, include within the scope of CFE (excluding particular exemption).
The tax base of the CET consists of:
- The rental value of those assets liable to land tax (land, buildings, equipments);
- Which are available to the taxable person for their professional needs (excluding stock) at the end of the reference period.
The reference period is the calendar year N-2.
In practice, CFE is normally payable by users of the building as it is they and not the owner who will benefit from the availability of the leased property. On the other hand, for short term rentals, the lessor will be liable.
Like the land tax, CFE is established by way of a schedule issued directly by the FTA.
ð The person liable does not have to make an annual declaration (although an initial declaration must be made) unless the make-up or the surface area of the premises is modified.
It is payable as follows:
- Prepayment of 50% due on 31 May and paid prior to 15 June, if the CFE for year N-1 is more than € 3 K;
- Balance payable in December.
Cotisation sur la Valeur Ajoutée des Entreprises (CVAE)
CVAE (articles 1586 ter and seq. of the FTC) is payable by all persons carrying out an activity within the meaning of CFE with a turnover of over € 152,500 (in practice € 500 K, see applicable rate).
CVAE is due on the value-added produced in year N.
If the rental activity did not fall within the scope of the business tax, a progressive taxation system will now apply (for the calculation of CVAE, the value-added (VA) arising from rental activity is taken into account in the following percentages):
1.5% (maximum rate) with automatic capping of rates, including:
- Effective rate of 0% when turnover < € 500 K;
- Effective rate of 1.5% when turnover > € 50 M.
CVAE is self-assessed and settled by the liable person (no schedule is issued by the French Tax Administration; returns and payments are made by the taxpayer).
It is payable as follows:
- Prepayment in June N; and
- In September of N where payments for year N-1 exceed € 3 K;
- Payment of the balance of CVAE in May N+1 (period when the value-added generated in N is established);
- A minimum amount of € 250 is due as long as the company generates an annual turnover higher than € 500 K.
There is a capping mechanism for CET based on the value-added produced by the company ( article 1647 B sexies of the FTC). The cap will apply when CFE and CVAE exceed 3% of the value-added produced in N.
In this case, relief will only apply to CFE (it is assumed that CVAE cannot exceed this threshold).
This relief may be calculated in advance, at the company’s risk, and spontaneously charged against the balance of CFE, or be claimed back by no later than 31 December of N+1 (i.e. for CET 2014 → 31 December 2015).