I. Nature and Purpose of the Formality: What Is It and Why Must It Be Carried Out?
Declaration of Existence for Foreign Companies Directly Acquiring Real Estate in FRANCE: Principles, Procedures, Costs and Sanctions
- Nature and purpose of the formality: What is it and why must it be carried out?
- Applicable legal and regulatory framework
- Preparation, formal requirements and deadlines
- Administrative procedures and additional tax obligations
- Costs related to the procedure
- Sanctions in the event of non-compliance
- The role of the notary
- Conclusion
Under French law, foreign companies wishing to conduct business activities in FRANCE or establish their first place of business there are subject to specific reporting obligations. When a foreign company directly acquires real estate in FRANCE, it is likewise subject to these obligations, including the declaration of existence.
This procedure is a legal obligation imposed on foreign companies owning real estate on French territory, even if they do not have their registered office there.
The purpose of the procedure is to ensure the company’s official identification and registration with the French administrative and tax authorities.
It is essential in enabling the tax authorities to monitor the company’s activities within the territory and to ensure compliance with the applicable tax rules.
In the specific case of foreign companies directly acquiring real estate in France, they are considered, for tax purposes, to be carrying on an activity in FRANCE due to the income generated by such properties or the rights attached to them, in accordance with Article 164 B of the French General Tax Code (Code général des impôts, hereinafter the “CGI”).
Such acquisition results in the company becoming subject to corporate income tax and triggers a series of strict accounting and reporting obligations.
The declaration of existence therefore serves as an instrument of tax transparency aimed at monitoring international investments on French territory.
II. Applicable Legal and Regulatory Framework
The legal framework governing this obligation is based on several key provisions of the CGI and the French Tax Procedures Code (Livre des procédures fiscales – LPF):
- Article 23 D of Appendix IV to the CGI provides that companies which, without having their registered office in France, carry out activities there rendering them liable to corporate income tax must obligatorily indicate in their declaration the location of their principal establishment in France as well as the surname, first name and address of their representative in FRANCE.
In the event of replacement of this representative or a change in the location of the aforementioned establishment, such companies must file a declaration under the conditions set forth in Article 23 B of the same appendix.
- Article 164 B of the CGI establishes the principle of taxation of French-source income and specifies that foreign real estate companies may be subject to corporate income tax in FRANCE with respect to income derived from real estate located in France or rights relating to such real estate, such as usufruct rights, shares or interests in real estate companies, or co-ownership rights.
- Official administrative doctrine (Reply from the Minister Delegate for the Budget No. 41415, Mr. Ehrmann, JOAN Q of 16 September 1991) confirms that these companies are liable for corporate income tax pursuant to Articles 205 and 209, paragraph I of the CGI, subject to international tax treaties.
Although they are not subject to French commercial accounting obligations for their internal operations, they are required to maintain accounting records enabling the determination of their taxable income in accordance with Article 54 of the CGI.
They must file tax return No. 2065 under ordinary law conditions in order to determine and verify such taxable income and are not authorized to file tax return No. 2072, which is reserved for companies not subject to corporate income tax.
- Article 223 quinquies A of the CGI provides that foreign legal entities may be requested by the tax authorities to appoint, within ninety days from receipt of the request, a representative in FRANCE authorized to receive communications relating to tax assessment, collection and litigation.
However, this obligation to appoint a tax representative does not apply to legal entities having their registered office in another Member State of the European Union or in another State party to the Agreement on the European Economic Area (EEA) which has concluded with FRANCE an administrative assistance agreement for the purpose of combating tax fraud and tax evasion, as well as a mutual assistance agreement concerning tax collection.
- Article 990 D of the CGI establishes an annual tax equal to 3% of the market value of real estate or real property rights located in FRANCE and owned directly or through intermediary legal entities (regardless of the structure or percentage of ownership in the holding chain).
This provision was specifically introduced to combat international real estate tax evasion.
The case law of the Court of Justice of the European Union (Fourth Chamber, 11 October 2007, Case C-451/05) clarified the nature of this tax by ruling that it falls within the scope of Directive 77/799 concerning mutual assistance between competent authorities, since it applies to assets or elements of wealth.
The Court also ruled that Article 990 E (in its version applicable at the time) was incompatible with the principle of free movement of capital, rejecting France’s anti-fraud argument on the grounds that the provision disproportionately denied exemption to foreign legal entities established in the EU or EEA whenever no bilateral administrative assistance agreement existed, despite the fact that information exchange mechanisms made it possible to verify shareholders’ identities.
III. Preparation, Formal Requirements and Deadlines
In order to properly complete this procedure, the foreign company must comply with strict formal requirements and prepare precise supporting documentation.
The required documents obligatorily include the company’s updated articles of association, the complete contact details of the appointed tax representative in France, as well as all identification details relating to the acquired property (address, description, cadastral references).
From a timing perspective, the requirements are particularly strict: the declaration of existence must be filed within fifteen days following the establishment of a place of business in France or following the effective date of acquisition of the relevant real estate assets.
IV. Administrative Procedures and Additional Tax Obligations
The procedure requires the foreign company to formally file its declaration of existence directly with the competent tax office (Service des impôts des entreprises étrangères – SIEE – or the local Service des impôts des entreprises – SIE – having jurisdiction over the location of the property), attaching the required documents and specifying the address of its principal establishment in FRANCE as well as the identity of its representative.
(Since 1 January 2023, all declarations relating to the creation, modification or cessation of business activities — including those concerning foreign companies acquiring real estate — must mandatorily be filed electronically through the single online portal managed by the INPI (Institut National de la Propriété Industrielle).)
Once registered, the company must comply with additional tax obligations: first, maintaining strict accounting records in accordance with Article 54 of the CGI in order to justify its taxable basis; second, annually filing tax return No. 2065 for corporate income tax purposes in order to declare rental income received or capital gains realized from real estate transactions.
In addition, the company may be liable, subject to statutory exceptions (notably transparency clauses), for the annual 3% tax based on the market value of its properties.
The appointment of a representative in France must, in principle, be made spontaneously by the foreign company. The case law of the Conseil d’État (Council of State) (8th subsection, 13 November 1964, requests Nos. 50944 and 60449) confirms that a foreign company carrying on business in France cannot validly argue that the tax procedure against it is irregular on the grounds that the administration had not previously requested it to appoint such representative.
Nevertheless, the tax authorities retain the right to formally request the company to do so within a ninety-day period (CGI, Article 223 quinquies A). In the absence of a formal appointment by the company, the administration cannot unilaterally designate a third-party taxpayer as representative in order to hold that party liable for the company’s taxes (Conseil d’État, 8th and 9th subsections, 11 July 1984, request No. 35416).
V. Costs Related to the Procedure
Although filing the declaration of existence with the French tax authorities does not give rise to registration duties or direct filing taxes payable to the State, regularizing the transaction entails professional and ancillary costs.
These costs include certified translation fees for the company’s articles of association and official foreign documents required by the authorities, contractual fees payable to tax representatives or legal advisers appointed to carry out the procedures, as well as notarial fees and land registration publication costs relating to the publication of the real estate purchase deed.
VI. Sanctions in the Event of Non-Compliance
Failure to file the declaration of existence or failure to appoint a tax representative exposes the foreign company and its directors to severe civil, tax and criminal sanctions:
1. Estimated Tax Assessment
If the company refuses or fails to respond to the tax authorities’ request to appoint a representative within the ninety-day period, it automatically becomes subject to an estimated corporate income tax assessment pursuant to Article L. 72 of the LPF.
The tax authorities then unilaterally determine the tax due, together with late-payment interest and substantial penalties.
2. Tax Sanctions Affecting Assets
Failure to file the declaration results in the company losing entitlement to exemptions from the 3% tax under Article 990 D, thereby making the tax immediately payable on the market value of the property, together with penalties for non-filing.
3. Criminal Sanctions
Where a foreign legal entity conducts activities or owns property in FRANCE while concealing its existence and deliberately failing to comply with its reporting obligations, this may constitute the criminal offence of concealed activity.
The case law of the Criminal Chamber of the French Court of Cassation (Cour de cassation, criminal chamber, 20 June 2017, No. 14-85.879, ECLI:FR:CCASS:2017:CR01397) reaffirms that such concealed activities on French territory may give rise to criminal sanctions against the company’s directors.
VII. The Role of the Notary
The notary plays a mandatory and central role in ensuring the legal security of a foreign company’s acquisition of real estate.
Pursuant to Decree No. 55-22 of 4 January 1955 reforming land registration procedures, the notary is the public officer responsible for publishing the deed of sale in order to render the company’s ownership enforceable against third parties.
Documents and articles of association drafted in a foreign language must be filed among the notary’s records and, where applicable, must be accompanied by a certified translation.
As part of the notary’s duty to advise, the notary informs the parties of their tax obligations and of the absolute necessity of filing the declaration of existence with the French tax authorities within the statutory deadline.
Conclusion
The declaration of existence constitutes an essential and mandatory formality for foreign companies directly acquiring real estate in FRANCE.
It conditions their legal recognition by the tax authorities, enables the allocation of a tax identification number and ensures that the structure complies with the ordinary tax regime.
Failure to comply with this obligation deprives the entity of entitlement to tax exemptions and exposes it to estimated tax assessments as well as serious tax and criminal sanctions.
In order to secure the transaction, it is strongly recommended to conduct a structural review with a notary and a tax adviser from the preparatory phase of the acquisition onward.
Med venlig hilsen / Kind regards
Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NICE
Camilla Nissen MICHELIS
Assistante – Traductrice
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
Camilla.nissen.michelis@brahin-avocats.com
www.brahin-avocats.com
