The Game Board of French Real Estate Parts 1-6

By Samuel H. Okoshken

If you want to be a successful real estate player in France, you should familiarize yourself with the "Game Board," avoiding "Chance" and contributing no more than the necessary minimum to the "Community Chest." This article begins a discussion the Game Board and offers ideas that might guide you through some of the twists and turns toward the finish.

1) Legal steps in the purchase of French real estate
2) Title insurance
3) Role of the French Notaire
4) Resident/non-resident buyer
5) Form of ownership - outright ownership, entity ownership
6) Effect of marital regime
7) Forced heirship rules
8) French wealth tax (ISF)
9) Pre-purchase structuring of real estate holding
10) Special 3% tax on property owned by company
11) Tax considerations upon death of an ultimate owner in a chain of ownership
12) Tax and filing obligations of entities in the chain of ownership
13) Use of a trust as ultimate owner
14) Treaty concerns
15) Gifts of interests in real estate
16) Converting from personal to corporate ownership in mid-stream.
17) French inheritance tax rates
18) Taxation in home country - foreign tax credit
19) Tax considerations on rental
20) Legal considerations on rental
21) Tax considerations on sale
22) Will relating to the French real estate


Once the property has been identified and the price negotiated, an option (known as the "promesse de vente" or "compromis de vente") is signed between buyer and seller. In conjunction with the signing of the option, the buyer deposits the option price (normally 5%-10% of the contract price) with the Notaire, that amount being held in escrow and credited at the title closing. If the deal does not go through, for whatever reason except the unfounded unilateral decision of the buyer to back out, the option price is released to him.

The period between signature of the option and the title closing is normally three months. During that time, the Notaire will ensure that that the title is in good order, that the property meets legally mandated health standards (lead, asbestos, etc.), that various "conditions of sale" are fulfilled, and of course draft the "acte de vente" (the deed). The "conditions of sale" should include a financing condition which allows the buyer to back out of the sale if he cannot secure bank financing. Normally, buyers prefer to see this condition in the option, but in a seller's market, which persists today, most sellers are not willing to accept such a clause.

Assuming everything moves along as programmed, the closing will take place (at the office of the Notaire), and the final money will change hands. Buyer pays the notary fees, transfer taxes, etc., all of which currently total about 6.5% of the purchase price. If two Notaires are involved (one for buyer and one for seller), the fees are split between them. Thus, it costs you no more to engage your own Notaire, and it is best to do so.

When you apply for mortgage financing, the bank normally requires that you take out life insurance to the extent of the mortgage. This may add an additional fraction of a point to the mortgage cost, but it is usually well worthwhile to have that extra guarantee of liquidity. In fact, many people in France, who are otherwise uninsurable, see this as a handy method to bring some liquidity to their estate.


Title insurance is customary in the U.S. In France, title is guaranteed by the Notarial system. So, in a sense, title insurance is redundant. However, a foreign buyer should look into this option as it is quite reasonably priced and its advantages evident. Title insurance is relatively new to France. Many or even most Notaires are not familiar with it and would probably scorn it if your suggested it, but don't be put off by that.


Title to real property cannot be transferred without the intervention of a Notaire. The Notaire's role in property transfers of all sorts is a state-conferred monopoly that - while sometimes abused, as all monopolies may sometimes be - is part of the fabric of the French legal system. A good Notaire is worth his fees. He will, in addition to performing the mechanics of the transfer, be able to offer practical and legal advice on arcane legal niceties that affect the transaction or other aspects of your ownership… such as spousal gifts, testamentary protection, and the like.


A non-resident is roughly on the same footing as a resident with respect to the purchase of French real estate. Notarial charges are the same; income and capital gains taxes are the same; inheritance taxes are the same. A non-resident may require more hand-holding, such as explanations of the French system, review of documents, et al, but it will come as no surprise that even residents are often in the dark about the international aspects of their acquisition and require the intervention of a specialist in the area.

A potential advantage for a non-resident is structuring the purchase to avoid later gift or inheritance taxes when title passes to, say, a child. If you intend to leave property to a child, you might consider the stratagem of gifting the purchase price to that child who will then make the purchase in his/her own name. As the first step (cash transfer) occurs outside France, it is not subject to French gift tax. This would not be the case for a resident, as gifts of cash are potentially taxable gifts. There are of course trade-offs when you purchase property in the name of a child, such as loss of control over the property - but with careful planning, this downside may be minimized. The ins and outs of these choices will be discussed further on.

Another advantage a non-resident has is the ability to avoid the "forced heirship" rules (discussed below) by taking title through a corporate or other entity.

A possible disadvantage to a non-resident is the flat 33.33% capital gains tax rate that applies upon sale. This is usually higher than the effective rate paid by residents, although several factors enter into the tax calculation, including whether the property qualifies for partial or full exemption from French capital gains tax, as well as the holding period of the property. Note, a non-resident cannot qualify for the special French rule exempting sales of a principal residence from capital gains tax.


A preliminary note: It is possible to structure the purchase option to allow substitution of some other person or entity for yourself at the closing. Hence, you can execute the “promesse de vente” or “compromis de vente” (initial sales contracts) in your name, leaving open the possibility of substituting a corporation or other entity as the original owner. This gives you the possibility of signing the option now and leaving time to consider the tax and estate planning ramifications during the three-month option period.

How you take title to the property has income and estate planning ramifications. How title is registered at the outset must be given careful thought as any later change entails tax and notarial fees. Right now, let’s touch lightly on a few factors you should consider at this point in the property acquisition:

- You may decide to own the property in your name or your and your spouse’s names. - You may decide to buy the property in the name of one or more of your children. - You may take title through a corporation or trust. - You may be in a position where you want to register title in the name of a friend or other unrelated person. This might avoid the high inheritance taxes on bequests to unrelated third parties.

Summarizing the above… if you are planning to leave your property to a child or someone whose bequest would be taxed in a high bracket, you could consider buying the property in that person’s name and reserving a life estate (“usufruit, ” use for your lifetime) for yourself and your spouse. If you use a corporation for this purpose; you relinquish control over the title, and, without some sort of private understanding with the title-holder, would no longer have the right to sell it. The final decision in these matters is often a compromise or a trade-off between conflicting values.

Ownership through an entity offers a non-resident a means of avoiding the French “forced heirship” rules.


The law governing your marital property may impact how you decide to take title to French real estate. According to French law, the place of your “first marital domicile” (FMD) determines the interest in marital property of each spouse. FMD is defined as where you first lived as a married couple. Even if you are a non-resident of France, FMD is a working concept. If your FMD is a community property state, such as California, unless you and your spouse entered into a pre-nuptial separate property agreement, the acquisition of French real estate will be considered as jointly owned, whether or not your spouse is on the deed. Although, note, a spouse can waive his or her community interest.

If you are from a separate property state, such as New Jersey, you can purchase the property in the sole name of one spouse or do so jointly by both of you being on the deed. In sticky cases, where your wish to make joint or separate ownership is not absolutely clear and you wish to make it so, or where you wish to own the property as tenants in common, then a corporate holding structure of some kind is usually the best route to follow.

A further word about FMD: Although a clear concept, FMD may sometimes be difficult to prove in a given case. As I said, it refers to the State or other jurisdiction where you were married and lived as a married couple for more than a token period of time. So, for example, if you and your spouse popped over the State line to marry and then returned to your home State to live as man and wife, or if you went to romantic France to marry (not an easy thing to accomplish for two non-residents!), spent your honeymoon on the Côte d’Azur and then returned to Hoboken, your FMD would clearly be New Jersey (unless you couldn’t stand it anymore in Hoboken and picked up stakes a month later to try to make a life in France – in which case France would probably be your FMD).

The possibilities for confusion are endless. So, in the example above, even if you were familiar with the FMD rule (which most people are not) you may discover that the law of New Jersey (a separate property State) does not in fact apply to your marriage, but the law of France does, meaning that half of what you own (with certain exceptions) belongs to her and vice-versa. There are pluses and minuses in either case (separate property versus community property), but it is always better to go into the first phase of the property purchase with a clear notion of the applicable law affecting your holding.

EDITOR'S NOTE: Samuel H. Okoshken, an American, is a U.S.-educated tax lawyer, and has been practicing law in Paris since 1974. His practice is devoted to the various legal and tax problems of Americans and other foreign "expats," and to the issues that non-residents of France encounter when contemplating buying property or setting up business in France. He will be speaking at the upcoming Working and Living in France Conference here in Paris this October ( His website is: