"Understanding how French rental taxation works is essential for expat investors to correctly structure their real estate investments and anticipate their tax obligations." LC Finance

This Week’s Strategic Focus Furnished rental taxation in France

How Micro-BIC and Régime Réel taxation works

How to identify applicable income thresholds for furnished rentals

How rental income is calculated and taxed in France

How social contributions (URSSAF) are applied to LMP income

How depreciation and deductible expenses impact taxable income

Renting a furnished apartment you bought in your own name

In France, if you buy an apartment and rent it furnished, you will be considered a professional landlord (LMP) if all of the following conditions are met:

If one of these conditions is not met, the landlord is considered a non-professional furnished landlord (LMNP). See: LMNP

If the apartment is furnished and you meet the above conditions, this means that, for tax purposes, you will be taxed under professional rules.

In France, you will be classified as an “LMP” (Loueur Meublé Professionnel). In this case, the income you earn falls under the French BIC tax regime (Bénéfices Industriels et Commerciaux).

If you only rent the property without providing additional services, you will not have to collect or pay VAT (Value Added Tax).

As you are classified under the BIC regime, you will be subject to one of the two main BIC tax systems, depending on the amount of income generated from your rentals.

→ MICRO-BIC regime or REAL BIC regime: which one applies to your situation?

1 – MICRO-BIC regime: who is it for?

1.1 – MICRO-BIC tax regime: how does it work?

A - Classified tourism rentals: a flat allowance of 50% applies.

For example, if you generate €30,000 of annual rental income, the tax administration automatically applies a 50% deduction, regardless of your actual expenses. Your taxable income will therefore be €15,000. This €15,000 is then added to your global taxable income (for example, a French salary of €40,000). The total taxable base becomes €55,000. This total amount is then taxed according to the French progressive income tax system.

To continue the previous example with €15,000 of taxable income, and using the French progressive income tax table above: (15,000 - 11,601) × 11% + (11,601 - 0) × 0% = €373.89 in tax.

B - Long-term furnished rental with lease: a flat allowance of 50%applies.

For example, if you earn €30,000 in annual rental income, regardless of your actual expenses, the tax authorities will automatically apply a 50% deduction. Your taxable income will therefore be €15,000. How is it taxed? This €15,000 is added to your global taxable income (Revenu Brut Global), for example a French annual net salary subject to tax of €40,000. The tax authorities will then calculate €40,000 + €15,000 = €55,000. This total amount of €55,000. is finally taxed according to the French progressive income tax system.

To continue the previous example with €15,000 and French annual net salary subject to tax of €40,000 and using the French progressive income tax table above: (55,000 - 29,580) × 30% + (29,579 - 11,601) × 11% + (11,601 - 0) × 0% = €9,603.58 in tax.

Flat-rate discharge payment, either declared monthly based on turnover (CA), or collected monthly through a direct withholding system (pay-as-you-earn / at source).

Fiscal deficit with MICRO-BIC tax regime

A fiscal deficit is not possible under the Micro-BIC tax regime, as it is not possible to deduct actual expenses from rental income. Instead, the tax system applies a flat-rate allowance 50%, which is intended to represent average expenses.

This applies even if your real expenses exceed 50% of your rental income. For example, if you carry out renovation works whose cost is higher than your total annual rental income, you will still not be allowed to deduct more than the fixed 50% allowance.

As a result, it is not possible to create a fiscal deficit under the Micro-BIC regime. The concept of deficit simply does not exist in this tax system.

1.2 MICRO-social (URSSAF) : How does it work ?

You must understand that your total tax burden under the LMP furnished rental regime is the sum of the Micro-BIC income tax and the URSSAF Micro-Social contributions under the micro-social system.

Micro-BIC: where to declare?

Income under the Micro-BIC regime must be declared once a year using the tax form 2042 C PRO, which covers your full rental income for the civil year.

Social contributions must be declared separately on a monthly basis via the official URSSAF website: URSSAF

Notes

The following additional taxes apply even under the Micro-BIC tax regime:

– Property tax (Taxe foncière), as you are the owner of the property.
– Business property tax (Cotisation Foncière des Entreprises – CFE), as you are considered a professional landlord and all professionals are subject to this tax.

Even if you are eligible for the Micro-BIC regime due to relatively low rental income, you always have the option to choose the “Régime Réel” (see next section). This is the next level of taxation and can, in some cases, be more advantageous depending on your situation.

2.1 – Régime Réel : who is it for?

The Régime Réel applies in the following cases:

Fiscal Régime Réel (tax): how does it work?

Unlike the Micro-BIC regime, where tax is calculated using a flat-rate deduction on total annual rental income, the Régime Réel allows you to deduct actual expenses related to the property, provided they are justified, reasonable, and compliant with the French tax code (CGI – Code Général des Impôts).

The main advantage is that if you carry out significant works or renovations on the property, you can deduct them (at least partially) from your rental income. As a result, your taxable profit—and therefore your income tax and URSSAF social contributions—will be reduced.

In some cases, the taxable result can even be close to zero, meaning you would pay little or no income tax or social contributions on your rental activity. In other cases, the result may become negative.

When a negative result occurs, it can generate a fiscal deficit. This deficit can then be offset against other taxable income subject to income tax, such as salaries or pensions.

The advantage is significant: not only can you reduce or eliminate taxation on your furnished rental income, but you can also reduce the taxable base of your other income (such as salaries or pensions) by imputing the rental deficit before the final income tax calculation.

The following expenses can be deducted from your taxable result (i.e. rental income), as not all charges are necessarily deductible:

Régime Réel and depreciation: key points to watch

Depreciation is the concept that allows you to progressively deduct the value of an asset from your taxable result over time, based on its wear and useful life.

In simple terms, if an electrical installation costs €20,000 and is expected to last 25 years, you can depreciate it in your accounts at €800 per year (i.e. €20,000 / 25 years).

This means that each year, your taxable result is reduced by €800, allowing you to be taxed on a lower amount and therefore pay less tax.

This is a key advantage of the Régime Réel under the BIC system, where taxation is based on a net result: income minus expenses.

Below is an indicative depreciation schedule commonly used in French real estate, based on guidelines from the French tax authorities. It allows you to depreciate different components of a property over time:

Important: the principle is based on the useful life of each component. You must therefore depreciate each element of the property according to its actual rate of wear. However, for standard components, the following typical durations can be used as a reference.

For simplification purposes, the French tax administration provides the following guidance:

A landlord may also apply depreciation to the property itself. The purchase price of real estate is not directly deductible as an expense, but it can be depreciated over its actual holding period.

For example, if the property is estimated to be held over 50 years, 2% of its value can be deducted each year during that period.

Under this simplified approach, the property is not broken down into components -> you depreciate the entire purchase price as a single asset.

As a result, the tax authorities may reclassify your depreciation method if you have chosen to depreciate the entire property as a single asset, since the general rule is to break down the property into components.

In other words, under the LMP regime, depreciation reduces your taxable profit, which in turn reduces your social contributions (SSI). This creates a double benefit: you pay less income tax and lower social charges.

See more here : LMP

Focus on Article 39 C, II-2 of the French Tax Code (CGI)

Article 39 C, II-2 of the French Tax Code applies to furnished rental activity carried out by individuals (notably under the LMP regime). The key principle is the following: depreciation cannot create or increase a fiscal deficit.

This rule applies to LMP status. If depreciation exceeds the profit before depreciation, the excess is not lost. Instead, it is recorded as deferred depreciation (“Amortissements Réputés Différés”) and can be carried forward indefinitely.

In practical terms, you first calculate your result before depreciation:

Total rental income
– Deductible expenses (excluding depreciation): establishment costs (notary fees, etc.), maintenance and repairs, local taxes, management and insurance fees, loan interest.

If a positive result remains, you may then deduct depreciation but only up to that amount.

For example: You purchase an apartment for €100,000 and choose to depreciate it over 50 years (simplified approach), resulting in €2,000 of annual depreciation.

During the year:

Rental income: €10,000
Other expenses (excluding depreciation): €9,000

→ Result before depreciation: €1,000

You would like to deduct €2,000 of depreciation. However, since your profit before depreciation is only €1,000, you can only deduct €1,000. This brings your taxable result down to €0. You are not allowed to deduct the full €2,000, as this would create a negative result of –€1,000, which is prohibited under Article 39 C. The unused €1,000 of depreciation is not lost. It is carried forward as deferred depreciation and can be deducted in future years, without any time limitation, under the BIC regime.

Fiscal deficit with fiscal "régime réel"

A professional furnished rental landlord (LMP) may deduct any fiscal deficit from their total taxable income, without any limit on the amount.

If the overall income is not sufficient to fully absorb the deficit, the remaining amount can be carried forward and offset against future global income for up to six years.

Notes

The following additional taxes apply even under the Micro-BIC tax regime:

– Property tax (Taxe foncière), as you are the owner of the property.
– Business property tax (Cotisation Foncière des Entreprises – CFE), as you are considered a professional and all professionals are subject to this tax.

2.2 – Social contributions under the Régime Réel (URSSAF): how does it work?

When you are subject to the Régime Réel because your rental income exceeds the thresholds of the Micro-BIC regime, it is no longer possible to opt for the Micro-Social regime. Instead, you will be subject to social contributions, which are typically more costly than those applied under the micro-social regime.

You must understand that your total tax burden under the LMP furnished rental regime is the sum of income tax under the Régime Réel and URSSAF social contributions.

The LMP social contribution system is complex. It involves payments to URSSAF covering various social contributions that help finance the French social welfare system. The main contributions are as follows:

• Health & maternity insurance
• Basic pension scheme
• Supplementary pension scheme
• Family allowances
• CSG-CRDS social contributions
• Professional training contribution (2026)

Social contributions table (LMP)

Note: PASS stands for "Plafond Annuel de la Sécurité Sociale" (Annual Social Security Ceiling). The applicable amount is set each year and can be found on the official French government website.

For more details on this social contribution scheme and how it is calculated, please refer to the official URSSAF website: https://www.urssaf.fr/accueil/outils-documentation/taux-baremes/taux-cotisations-ac-plnr.html