Differences Between Para-Hotel and Furnished Rentals
The main difference between furnished rentals and para-hotels is the nature of the services provided. Furnished rentals consist of renting out furnished accommodation, while para-hotels consist of renting out furnished accommodation with significant hotel services. Essentially, para-hotel rentals are considered a professional and commercial activity, not just a secondary rental activity.
Understanding the Para-Hotel Industry
The para-hotel is characterized by the provision of furnished accommodation and the supply of at least three of the following four services:
- Regular Cleaning of the Premises: A simple cleaning at the beginning and end of the stay is insufficient.
- Breakfast: Served directly in the rooms or in a dedicated room.
- Supply of Household Linen
- Reception of Customers: This can be a simple electronic reception system, and doesn't have to be personalized.
For all these services, it is possible to delegate certain tasks to a concierge. The para-hotel industry is therefore ideal for seasonal rentals, particularly for ultra-luxury properties on the French Riviera.
VAT in the Para-Hotel Industry
As a para-hotelier, you benefit from the VAT regime and have the possibility to recover VAT on services and the real estate purchase itself. This is advantageous for buyers of new properties or properties requiring major work.
- Applicable VAT Rate: The VAT rate in the para-hotel industry is 10% in metropolitan France.
- Commitment Period: By collecting VAT, you commit to carrying out the para-hotel activity for at least 20 years. If you sell the property before this period ends, you must pay back a portion of the VAT proportional to the remaining years. However, if the new buyer continues the para-hotel activity under the same tax regime, you won't need to refund the recovered VAT.
For example, if you sell your apartment 6 years after starting your para-hotel activity, you will need to repay 14/20ths of the VAT initially recovered. If the initial VAT recovered was €250,000, you would repay €175,000.
It's essential to ensure that all expenses claimed for VAT refund are genuinely incurred for para-hotel activities. Additionally, if investing in an older property without VAT reimbursement possibilities, you can opt for a VAT exemption system provided the turnover does not exceed €85,800.
Tax Advantages of the Para-Hotel System
Like furnished rental, para-hotel rental activity is considered, for tax purposes, as industrial and commercial profit (BIC). Therefore, the property can be depreciated. Key tax advantages include:
- VAT Recovery: A portion of the VAT is recoverable.
- Deficit Chargeable on Global Income: Any generated deficit can be charged to your global income.
- Exemption of Real Estate Wealth Tax (IFI): If the activity is your principal occupation.
- Exemption on Capital Gains: Under specific conditions, including not exceeding €250,000 in turnover.
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Para-Hotel System vs. Pinel Law
Many investors look to the Pinel Law to reduce their tax burden. The Pinel Law offers a tax reduction of up to 21% of the property price (capped at €300,000), providing a maximum saving of €63,000 over 12 years. However, you must commit to renting the property year-round for 6, 9, or 12 consecutive years.
The para-hotel tax regime can provide greater advantages, including no ceiling on rents and a higher tax reduction with a deficit that can be charged to your income. This makes the para-hotel system a potentially more attractive option for investors seeking significant tax benefits in the South of France.
For any questions, please contact Elena Agueeva, ultra-luxury real estate expert on the Riviera for over 15 years.