TVA and LMNP: how do they work?

VAT and LMNP: the basic principle

La taxation in LMNP (Non-Professional Furnished Rental) has particularities, especially with regard to VAT. Understanding the basic rules of VAT is important for any real estate investor who wants to start a furnished rental business.

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Exemption from VAT

As a general rule, income from non-professional furnished rental activities is exempt from VAT. This fiscal specificity is particularly advantageous because it considerably simplifies the daily management of properties:

• Les LMNP renters do not have to declare or remit VAT on the rent received, which reduces administrative obligations.
• Exempt from VAT, the rents received are fully retained by the owners, thus increasing the net margin on investments.

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According to what criteria are LMNP renters subject to VAT?

However, according to the General Tax Code (article 261 D-4°), there are exceptions where LMNP renters may be liable for VAT. These criteria depend mainly on the additional services offered:

• Para-hotel services: when the lessor offers at least 3 ancillary services similar to those of a hotel, the rental may be subject to VAT., such as:
  • regular cleaning,
  • the supply of household linen,
  • breakfast,
  • or the reception in person upon arrival beyond simply handing over the keys.

With the exception of para-hotel services, the General Tax Code (Article 261 D, 4°) also states that the following are subject to VAT:

• Accommodation services offered by classified tourist hotels and classified or approved holiday villages
• The accommodation services provided by the tourist residences classified, provided that they are intended for tourists and rented by a contract of at least nine years to one or more operators who have subscribed to a commitment to promote tourism abroad
• Rentals of premises, whether bare or furnished, to the operator of an accommodation establishment (such as nursing homes or student residences) whose activity is itself subject to VAT in accordance with the conditions described above).

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How much is the VAT as a renter?

For LMNP renters who are subject to VAT and who will collect and deduct it from the VAT paid, the rate applied varies according to the nature of the services:

• Normal rate: 20% for most furnished rental services.
• Reduced rate: 10% or 5.5% may be applicable for certain specific services related to accommodation, under specific conditions defined by legislation.

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Eligibility requirements for VAT recovery in LMNP

Buying a new home as part of a LMNP investment is subject to VAT (20%) on the purchase price. VAT recovery is a possibility that can represent a considerable financial advantage for LMNP renters, but it is subject to certain strict conditions.

To be eligible for VAT recovery in LMNP, you must meet several specific criteria:

• The property must be new or off-plan (Sale in Future State of Completion). VAT recovery is mainly applicable when buying new goods where VAT has been paid on the purchase price.
• The property must be rented furnished and the rental activity must begin in the months following the completion of the purchase or work.
• The rental commitment must be maintained for a minimum period of time, often set at 20 years to fully recover VAT without partial repayment in the event of early termination.

Practical details for eligibility:

• The offer of para-hotel services is often required. These services include, for example, the reception of customers, the regular cleaning of the premises, the change of sheets and the supply of household linen.
• It is necessary to declare the activity and register as a VAT taxable person with the tax services in order to be eligible for VAT recovery.

Concrete example: Investment in a tourist residence

An investor acquires an apartment in a new tourist residence for 300,000 euros, VAT included. He can recover up to 20% VAT, or 50,000 euros, provided he rents the property with the required para-hotel services and respects the 20-year rental commitment.

VAT recovery in LMNP therefore offers significant advantages, but it requires particular attention to the details of the eligibility conditions and careful management to avoid costly mistakes.

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Procedures to recover VAT in LMNP

VAT recovery in LMNP may seem complex, but by following the right procedures, investors can effectively master the necessary procedures.

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Registration for LMNP status: procedures and necessary documents

To benefit from the status of Non-Professional Furnished Renter and potentially recover VAT, it is important to register correctly:

To register in LMNP, the first step is to create your LMNP activity by registering on the INPI. You can fill out the p0i form online on the site inpi.fr, which will declare the creation of your LMNP as well as the start of your fiscal activity.

If you do not offer additional services, select the “Other” box in the VAT Tax System section. We recommend that you specify in the comments: “Not subject: LMNP without service”.

When registering, you will have to choose your tax regime (micro-BIC or real BIC) as well as your VAT regime for the declaration of furnished rental income. You will also be asked to set a start date for the activity.

Following this process, the tax authorities will assign you a SIRET number, thus confirming your LMNP status.

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VAT registration: when and why?

The amounts of VAT that you have collected and those that you can deduct must be summarized and indicated in a VAT return (CA12 or CA3) online on the site taxes.gov, in your professional space. This declaration will then be sent to the Business Tax Service (SIE) attached to your main place of furnished rental activity.

If you are under the simplified income tax regime, you will have to fill out an annual VAT return, the CA12 (form no. 3517-S), before the 2nd working day following May 1 of the year N+1.

In addition, it is important to transmit instalment payments electronically (form no. 3514) according to the following schedule:

• In July: 55% of the VAT amount due for the previous fiscal year,
• In December: 40% of the VAT amount due for the previous fiscal year.

Why register? This allows you to recover the VAT paid on purchases and investments related to your rental business, thus improving your profitability.

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How do you fill out and submit your VAT returns?

You must determine the amount of VAT by subtracting the VAT on operating goods and services from the VAT collected on rents.

Then, this amount must be entered on form no. 3517-SD.

Declarations can be submitted online via your professional area on the site. taxes.gov.

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Reporting frequency and deadlines

The frequency of VAT reporting depends on the tax regime:

• For investors subject to the simplified real regime, the declaration can be made once a year.
• For investors subject to the normal real regime, VAT must be declared and paid monthly via the professional area on the site impots.gouv.fr.

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Special cases and exceptions in VAT recovery in LMNP

VAT recovery in LMNP, while beneficial, includes several special cases and exceptions.

Exemption from VAT despite para-hotel services

In some cases, even if a renter offers para-hotel services, VAT exemption may still be applicable:

• Franchise based on VAT : if the annual income does not exceed a certain threshold:
  • For para-hotels, if your annual revenue is less than 85,800 euros (or 94,300 euros, provided that the revenue for year N-2 is also less than 85,800 euros),
  • or for furnished rentals, if your annual revenue is less than 34,400 euros (or 36,500 euros, provided that the revenue for year N-2 is also less than 34,400 euros), some specific tax regulations may apply.
• If para-hotel services are considered ancillary (not dominant in the activity), the VAT exemption may be maintained.

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Conditions for early VAT repayment

Early recovery of VAT is possible, but subject to strict restrictions:

• For major capital goods such as major renovations or expensive equipment, it is possible to request a VAT refund even before these goods are put into service.

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Exception to the 20-year rule

The general rule requires the property to be rented for 20 years to fully benefit from VAT recovery. However, there are exceptions:

• Status change : if the property is converted into a main residence or sold, part of the recovered VAT must be refunded.