French VAT Recovery Guide | Save 20% on New Build Property
For international buyers looking at purchasing new build or off plan (VEFA) properties in France, such as luxury chalets and apartments in the French Alps, VAT recovery is one of the most powerful financial mechanisms available. It allows qualifying buyers to effectively claw back the 20% French Value Added Tax (VAT) included in the purchase price. Most property websites in France will let you know up front before you make an enquiry whether this is the case for each property, so look out for the wording on the property listing.
How French VAT Recovery Works (LMNP)
The acronym LMNP stands for Loueur en Meublé Non Professionnel (Non-Professional Furnished Landlord), a special tax status in France for individuals who rent out furnished properties. We will talk about this later on.
Normally, buying a new build property in France incurs a 20% VAT charge (unlike older resale properties, which carry higher notary/tax fees but no VAT). However, the French government offers a full VAT refund to buyers who agree to put their property into the commercial rental market and this is particularly the case in French ski resorts.
- The 20% Savings: On a €1,000,000 new build property, the 20% VAT component equals €200,000. Through the recovery scheme, this entire amount can be refunded to the buyer.
- The Mechanism: To qualify, the property must be fully furnished, rentals must be short-term and at least 3 of the following para-hotelier services must be offered: Reception, Check-in, Bed linen, Cleaning, Breakfast.
Key Conditions & Obligations for Buyers
To successfully claim and retain your VAT refund, several legal and financial criteria must be met:
- Newbuild / Off-Plan Only (VEFA): VAT recovery applies exclusively to brand new constructions or off plan properties. It does not apply to properties older than 5 years.
- Parahotelier services: The property must be furnished and offer the parahotelier services mentioned above. This places the property under the LMNP (Loueur Meublé Non Professionnel / Non Professional Furnished Rental) tax regime.
- VAT Registration: You must register for a French VAT number (usually handled automatically by your appointed French notary and accountant).
- Holding Period (The 20 Year Rule): The French tax authorities (Fisc) refund the 20% VAT incrementally or in a lump sum shortly after completion. However, this is tied to a 20 year commitment. If you sell the property before 20 years have passed, you must repay a prorated portion of the VAT back to the government (e.g., selling after 10 years means refunding 50% of the recovered VAT, though sales after 20 years incur zero penalty).
Financing and Cash Flow Considerations
- Bridging Loans (Prêt Relais TVA): Because the 20% VAT is paid up front at completion but the refund takes several months to be processed and paid out by the French tax office, many international buyers utilise a specialized French VAT bridging loan. This loan covers the 20% tax amount temporarily and is automatically cleared the moment the tax authorities disburse your refund.
- Rental Income & Taxes: While your property is rented out through the management company, you will earn rental income. Under the LMNP regime, this income can often be offset against property depreciation, mortgage interest and operational expenses, resulting in highly tax efficient returns.
Important to Note
It is important that you understand the rules and implications of the VAT recovery system and have the optimal tax structure in place - such as Sarl Famille - before you buy a new build ski chalet or apartment in France. We strongly recommend consulting a tax specialist in advance of any property purchase to discuss your individual circumstances, and can make introductions if required.
At Alpine Property Search we are always happy to answer any questions you may have and find a suitable property for you and your family, please just get in touch using the contact form or give us a call. You can find our French Property listings HERE.