Purpose and Design
The 3% tax was introduced to address a specific avoidance technique: holding French real property through an interposed company (often foreign and located in a low-transparency jurisdiction) in order to avoid the IFI (and formerly the ISF), capital gains tax on the sale of the property, and inheritance or gift duties on the transfer of the shares. Because shares in a foreign company are movable property — not immovable property for succession and gift duty purposes — structuring through a foreign company could disconnect the French property from French tax altogether if the entity’s ownership was not disclosed.
The 3% tax resolves this by imposing an annual levy at 3% of the gross market value of the French property on any entity that either refuses to reveal its ownership structure or is located in a jurisdiction with which France has no administrative cooperation. The tax thus confronts any entity with a fundamental choice: disclose the ultimate beneficial owners, or pay 3% per year of the full property value as the price of anonymity.
The scope was originally limited to foreign entities. It was subsequently extended to French entities as well in order to comply with non-discrimination clauses in French tax conventions, which prohibit taxing foreign entities more heavily than comparable French entities in the same situation. In practice, however, the exemptions for French entities (and for entities in administrative-assistance-convention states) are sufficiently broad that French entities are rarely subject to the tax in practice.
Scope: All Legal Entities Holding French Property
The tax applies to all legal entities — legal persons, organisations, trusts (fiducies) and comparable institutions — whether French or foreign, that directly or through interposed entities hold one or more immovable properties in France or hold real property rights over such property (CGI Art. 990 D).
The concept of holding through interposed entities is deliberately broad. An entity is deemed to hold French property through an intermediary if it holds any participation (regardless of form or percentage) in another entity that is itself a direct owner or that is itself interposed. The rule applies to any number of layers of intermediation. The tax is levied at the level of the entity in the chain that is closest to the property and is not itself exempt; where an intermediary entity fails to comply with its own declaration obligation, it alone bears the tax and the head-of-chain entity is relieved (CA Paris 13-2-2023 n° 21/01048, Société Lupa).
The Tax Base
The tax is assessed at 3% on the market value (valeur vénale) of French immovable property or property rights held on 1 January of the tax year. There is no deduction for debts contracted to finance the acquisition: the tax applies to the gross value of the property, regardless of the entity’s financing structure or indebtedness. This is a significant distinction from the IFI, which allows deduction of acquisition debt. The tax is assessed per entity and per property; the applicable rate is flat at 3%.
The current year’s market value must be assessed by the taxpayer or its representatives. The administration may challenge the valuation using its own market references.
Category 1: Exemptions by Nature (Unconditional)
The following entities are exempt regardless of their location or registered office (CGI Art. 990 E, 1° and 2°), and without any declaration obligation:
- International organisations, sovereign states, their political and territorial subdivisions, and their subsidiaries (entities more than 50% controlled) (CGI Art. 990 E, 1°);
- Non-real-estate-predominant entities: entities whose French real property assets represent less than 50% of their directly or indirectly held French assets (excluding professionally-used assets in computing the ratio) (CGI Art. 990 E, 2°-a);
- Listed entities: entities whose shares, units, or rights are regularly and significantly traded on a regulated market, and wholly-owned subsidiaries (threshold reducible to 99% in certain cases) of such listed entities (CGI Art. 990 E, 2°-b).
When computing whether French real property exceeds 50% of French assets for the non-predominance exemption, a current-accounts loan made by an associate to the SCI cannot be included in the denominator alongside the property’s own market value (Cass. com. 2-12-2020 n° 18-22.512, Société Cacique Investments Ltd). The French tax authorities are permitted to request market information through international administrative assistance to verify the values used.
Category 2: Exemptions Based on Location and Conditions
A second set of entities may be exempt, but only if their registered office (seat of effective management) is in one of the following (CGI Art. 990 E, 3°):
- France;
- An EU member state;
- A state that has concluded with France either an administrative assistance convention for combating tax fraud and evasion, or a treaty granting entities based there the same treatment as French entities (non-discrimination clause).
If the registered office criterion is met, the entity may qualify under one of the following unconditional sub-exemptions (no declaration required):
- De minimis: the French real property or property rights held are worth less than €100,000 or represent less than 5% of the market value of the entity’s total French property and property rights — assessed property by property (CGI Art. 990 E, 3°-a);
- Pension funds, public benefit and disinterested-management entities: entities established to manage pension schemes; and entities recognised as being of public utility or having a disinterested management, where their activity or financing justifies the property ownership (CGI Art. 990 E, 3°-b);
- Sppicav or FPI form: entities taking the form of a Sppicav or a FPI, or entities subject to equivalent regulation in their state of establishment (assessed strictly) (CGI Art. 990 E, 3°-c).
Category 3: Conditional Exemptions with Declaration Obligation
Entities in the qualifying states that do not fall within the unconditional sub-exemptions above may nonetheless escape the tax by making an annual declaration of their ownership structure (CGI Art. 990 E, 3°-d and 3°-e):
Under the 3°-e partial-disclosure route, the entity files by 15 May and discloses the shareholders of which it is aware who hold more than 1%. The 3% tax then applies only to the fraction of the property value attributable to shareholders whose identity has not been disclosed. An entity that discloses 80% of its capital pays 3% on the remaining 20% of the property value — not on the full value. Full disclosure of all >1% holders under 3°-d eliminates the tax entirely.
The Investor’s Practical Choices
In practice, a non-resident investor holding French property through a company faces three options:
Where a non-resident holds French property through a foreign entity subject to the 3% tax, the IFI is also due on the French real property component of those shares (to the extent caught by the IFI). Critically, the 3% tax paid cannot be credited against the IFI (CGI Art. 964). The two taxes cumulate. This double exposure is one of the reasons the 3% opaque structure is generally unattractive as a planning tool for the long term.
Interaction with Other Taxes
The 3% tax coexists with — and does not replace — the other French taxes applicable to property held by entities:
- IFI: non-residents subject to French IFI on French property also owe 3% tax if their entity is not exempt. The two taxes are not offset against each other (CGI Art. 964);
- Capital gains (CGI Art. 244 bis A): if the entity’s shares are sold, the gain may be subject to non-resident withholding if the entity is real-estate-predominant. The 3% tax payments do not reduce the capital gains base;
- Transfer duties: the 3% tax does not replace French transfer duties on the eventual sale of the property (or the shares, if the convention permits the situs state to tax the share sale);
- Taxe foncière: the entity owning the property is also subject to the standard annual taxe foncière at the commune level. The 3% tax is a separate, national-level levy.
Our French law practice advises on the 3% tax exemption analysis, optimal holding structures for French real estate, and the interaction between the 3% tax, IFI, capital gains withholding, and succession duties for French and non-resident investors.
Book a ConsultationLegal Notice. This article is provided for general information and educational purposes only. It does not constitute legal or tax advice. The list of states with administrative assistance conventions and non-discrimination clauses qualifying for the CGI Art. 990 E, 3° exemptions (BOI-ANNX-000349 and BOI-ANNX-000350) and the list of ETNC (CGI Art. 238-0 A) are updated periodically and should be verified at the time of any assessment. The equivalence of foreign regulated structures to Sppicav or FPI is assessed strictly by the administration. Always consult a qualified French tax lawyer before making structuring decisions involving French property held through legal entities.
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Key Legal References
Scope of 3% annual tax: applies to all legal entities (legal persons, organisations, trusts, comparable institutions), French or foreign, holding French immovable property or property rights directly or through any number of interposed entities; tax levied by the entity closest to the property that is not itself exempt
Exemption by nature — international organisations and sovereign states: unconditional exemption for international organisations, sovereign states, their political and territorial subdivisions, and subsidiaries more than 50% controlled
Exemption by nature — non-real-estate-predominant entities: exempt where French real property assets represent less than 50% of the entity’s directly or indirectly held French assets (professionally-used assets excluded from numerator)
Exemption by nature — listed entities: exempt where shares, units or rights are regularly and significantly traded on a regulated market; and wholly-owned subsidiaries (threshold reducible to 99%) of such listed entities
Location-conditional exemption — de minimis: French real property or property rights held directly or indirectly worth less than €100,000 or representing less than 5% of the market value of the entity’s total French property and property rights (assessed property by property)
Location-conditional exemption — pension funds and public-benefit entities: entities established to manage pension schemes and entities recognised as being of public utility or having a disinterested management where their activity or financing justifies the property ownership
Location-conditional exemption — Sppicav and FPI: entities taking the form of a Sppicav or FPI, or entities subject to equivalent regulation in their state of establishment (assessed strictly by the administration)
Full exemption on disclosure commitment: entity commits to communicate on demand the identity and address of all shareholders holding more than 1% of capital; indefinite commitment renewed by default if respected; results in full exemption from 3% tax
Pro-rata exemption on annual declaration: entity files by 15 May each year disclosing identity and address of known shareholders holding more than 1%; 3% tax applies only to the fraction of property value attributable to undisclosed shareholders
Tax base: 3% of market value (valeur vénale) of French immovable property and property rights at 1 January; no deduction for acquisition debt (unlike IFI); gross assessment per entity and per property
No credit of 3% tax against IFI: where a non-resident holds French property through a foreign entity subject to the 3% tax, the IFI is also due; the 3% tax paid cannot be credited against the IFI; both taxes cumulate
ETNC definition and list: non-cooperative states and territories for French tax purposes; entities in ETNC states cannot qualify for location-conditional exemptions under CGI Art. 990 E, 3° and are subject to the full 3% tax
States with administrative assistance conventions for CGI Art. 990 E, 3° exemptions: the qualifying state list is maintained by the administration and must be verified at the time of any assessment
States with non-discrimination clauses qualifying for CGI Art. 990 E, 3° exemptions: separate list maintained by the administration
Current-account loan made by associate to SCI cannot be included in the denominator of the non-predominance ratio when computing whether French real property exceeds 50% of French assets for the CGI Art. 990 E, 2°-a exemption
Trusts: registered office for CGI Art. 990 E, 3° exemption purposes is the state whose law governs the trust, not the state of the trustee’s residence or place of administration
SCI shares are movable property, not immovable property, for succession and gift duty purposes; structuring through a foreign company could disconnect French property from French succession duty if ownership not disclosed
Intermediary entity in a chain that fails to comply with its own declaration obligation bears the 3% tax alone; the head-of-chain entity is relieved from liability where the non-compliant intermediary is identified
