The French government has removed the capital gains tax exemption which used to apply to Luxembourg companies selling shares in French real estate companies.
Typically when acquiring real estate in France fund managers use Luxembourg companies to purchase shares in French companies which ultimately own the real estate asset. This was because the France-Luxembourg tax treaty gave a tax exemption to the Luxembourg company when it sells the French shares.
However, the French and Luxembourg Ministers of Finance have amended the France-Luxembourg tax treaty so the Luxembourg company would incur a 33 percent capital gains tax when exiting a French real estate company.
The amendment to the treaty awaits ratification, but legal sources speaking to pfm expect that to occur before the year’s end. If this is the case capital gains will be taxable in France from January 1, 2015.
“It is urgent for Luxembourg holding vehicles to review their portfolios with shares in French real estate companies,” said Fanny Combourieu, Paris-based partner at King & Wood Mallesons SJ Berwin. “It is important to assess whether a sale or restructuring before December 31 would be beneficial.”