Friday, December 24, 2010

Spanish property woes highlight security of French system

Although Spain is still the number one choice for British overseas property buyers - ahead of France - recent reports in the Daily Telegraph and elsewhere continue to highlight the many uncertainties surrounding property purchase there, in comparison with France's highlys secure system of property buying and selling.

Headlines such as 'Britons lose millions on the Costa homes that never existed' or 'Nearly 400 Britons lost £43 million in property deal' appear almost daily in the property columns of the daily and Sunday newspapers. Among the most recent scandals has been the failure of some regional Spanish banks to provide the financial guarantees (against deposits paid) which are required under Spanish law 57/1968 designed 'to protect the funds paid by the buyer into a special account and ensure they are used solely for the purpose of building the property'.

Speaking of a recent ruling by a provincial court in Cantabria, Charels Svoboda - head of an action group in Valencia - noted "While this is an improvement, and it does make me hopeful, it is important to remember that half of the Spanish banks are in financial trouble and many of the developers have gone out of business or simply disappeared - so where is the money going to come from to pay them back?"

According to recent figures there are some 683,000 new-build properties in Spain seeking buyers, plus an estimated 700,000 homes for sale by their owners, according to consultancy RR de Acuna. Several Spanish banks, who have repossessed properties from owners unable to keep up repayments, are now trying to offload them at 50% of their original price. The same report notes that out of 60,000 property companies, some 23,600 have gone bust, owing 137 billion euros to the banks.

Could this happen in France? The answer is a resounding No! In the case of off-plan developments, a minimum of 50% of the proposed properties (such as apartments and villas) have to be sold before work can begin. Purchasers then pay a small deposit and a series of stage payments only when building work progresses - foundations, first floor, roof etc - which are verified and authorised by independent lawyers ('notaires') in charge of the transaction. It is rare for a building company, many of whom are large multi-nationals, to run out of funds and for work to cease.

Because of its system of land registry, existing properties and their ownership can be verified by consulting the 'plan cadastre' on-line or at the local Mairie. Part of the duties of the Notaire handling the transaction is to ensure that the property exists and that the owner/vendor has has true title. Any additions or alterations can also be checked to make sure the appropriate planning permission was obtained. Building work undertaken by correcntly registered French artisans will be covered by insurance guarantees of up to 10 years.

Buyers should exercise reasonable care particularly when purchasing new-buildss or off-plan property, either for occupation or investment, and as a minimum personally visit the site of the proposed development and samples of recent properties built by the constructor.

Sources: Sean O'Hare, Daily Telegraph 23 December 2010; Graham Norwood, The Observer, 26 December 2010.

Tuesday, December 7, 2010

Auto-entrepreneurs - shock tax, resolution!

Many people opting for the comparatively new French self-employment regime (known as 'auto-entrepreneur') suffered a nasty shock this autumn when they received huge bills for a new local tax (CFE*) which replaces the old 'taxe professionnelle' levied on all commercial and professional enterprises, including those run from home. This despite the fact that many of the newly created enterprises had little or even a nil turnover, and had relied on the French government's promise (when the scheme was launched in January 2009) of 'no turnover, no tax' - including exoneration from the 'taxe professionnelle' or its equivalent for the first three years of operation.

The problem, as is often the case, lay in the small print, in this case buried within the auto-entrepreneur registration form, which basically offered two distinct options for paying income tax and social security contributions. Both of these are based on a fixed percentage of revenue - 13% in the case of 'commerce' (basically businesses that buy and sell) and around 23% for services and professions. Of these amounts the majority comprises social security contributions and the remainder (1% - 2%) income tax.

The registration form offered two methods of payment of the tax element, either by three-monthly declarations (along with the social security payments) or at the end of the tax year, together with any other income tax. The latter option appeared attractive to those on very low incomes or a pension, who might end up paying no income tax at all. (For a single person, earnings up to nearly 10,000 euros do not attract tax, and for a couple the amount is around 15,000 euros).

What many signatories missed when completing the form was the provision that the exemption from 'taxe professionnelle' - replaced in 2010 by the new CFE - only applied to those electing for the system of three-monthly payments - known as 'prélèvement forfaitaire libératoire' - a term not easily understood by the average French person, let alone an English speaker resident in France. Those that had opted for the once-off annual income tax payment were as a result suddenly faced with a huge CFE bill, often when they had not generated any income from their newly created auto-enterprise.

Further anomalies arise as the former 'taxe professionnelle' and its new replacement the CFE are calculated on notional values of property owned by local businesses, whereas many auto-entrepreneurs work from home and already pay 'taxe habitation' and 'taxe foncière' - personal taxes applied to domestic properties and their owners/occupiers! Many auto-entrepreneurs also point out that they do not actually work at home but at their clients' base (such as those offering services delivered in their clients' home or business premises) or at most use a few square metres in their living room, occupied by a computer.

Fortunately after vigorous protest and a lot of adverse publicity, the government has amended the law and on 6 December, as part of the budget for 2012, announced that all auto-entrepreneurs would be free of the new tax, during the early years of startup.. Anyone who had paid the tax already, ahead of the 15 December deadline, would be reimbursed. There are ongoing discussions about paying a contribution towards local business training programmes.

While the decision has been welcomed by auto-entrepreneurs, it is regrettable that a basic form of self-employment has become so complicated in the hands of French bureaucrats.

The French discussion forum is an excellent source of information about the auto-entrepreneur regime, including the new EIRL** version available from January 2011, which offers an element of limited liability, similar to a company, for the individual auto-entrepreneur, by separating (and protecting) personal assets from those of the enterprise.

(*'cotisation foncière des entreprises')  (**'entreprise individuelle à responsabilité limitée')