Key Points: International Property Taxation for French Residents
The situs-state principle (OECD Model Art. 6 and Art. 13) dominates: states assert taxing rights over property on their territory regardless of the owner’s residence. No real property investment can escape taxation in the situs state. No real optimisation is available to French residents with foreign property.
French conventions eliminate double taxation on foreign rental income via two mechanisms: the taux effectif (foreign income exempt in France but used to set the marginal rate on French income) or the faux crédit d’impôt (foreign income included in French base; credit equals the French tax on that income, not the actual foreign tax paid).
French residents with foreign rental income must file Form 2047 (foreign income annex) and Form 2044 (revenus fonciers declaration). Convention-exempt foreign income falls outside the French prélèvement à la source (PAS) withholding system.
The IFI base for French residents is worldwide (CGI Art. 964): all real property assets anywhere in the world are included. Foreign property must be valued at French valeur vénale rules, not local cadastral or administrative values.
A genuine credit (not taux effectif) is available for comparable foreign wealth taxes (CGI Art. 980): Swiss cantonal/communal wealth taxes qualify; UK rates, US property taxes, and German Grundsteuer do not. Non-creditable foreign wealth taxes may still be deductible from the IFI base.
Whether pre-2018 wealth tax conventions cover the IFI is legally uncertain: the Conseil constitutionnel characterised the IFI as a “specific contribution” not a wealth tax (Cons. const. 28-12-2017 n° 2017-758 DC). Each convention must be examined case by case. Confirmed covered: France-Luxembourg (2018), France-Saudi Arabia (1982 as amended).

The Two Scenarios

Outbound
French Resident Owning Foreign Property
Rental income Taxed in situs state; France applies taux effectif or faux crédit d’impôt to avoid double taxation. Forms 2047 + 2044.
Capital gains Situs state primary taxing right. France eliminates double tax by taux effectif or true crédit d’impôt depending on convention.
IFI Worldwide real property in French IFI base (CGI Art. 964). Credit for comparable foreign wealth taxes (CGI Art. 980).
Optimisation Very limited. No real structuring escape from situs-state taxation. Taux effectif raises French marginal rate on other income.
Inbound
Non-Resident Owning French Property
Capital gains Subject to CGI Art. 244 bis A withholding (see companion article). No principal residence exemption for non-residents.
IFI French-situs assets only in IFI base; France always retains situs-state taxing right over French immovables regardless of convention.
Local taxes Taxe foncière and (where applicable) taxe d’habitation apply as normal French property taxes.
3% tax Foreign companies holding French property may be subject to the 3% annual tax (CGI Art. 990 D–990 F) unless an exemption applies.

The Situs-State Principle: Why Location Dominates

The international taxation of real property is structured around one overriding principle: states assert taxing rights over property located on their territory, regardless of the owner’s residence. This is not a matter of convention preference but of near-universal state practice, reflected in OECD Model Art. 6 (rental income) and Art. 13 (capital gains). The consequence for investors is that no real property investment can be structured to escape taxation in the situs state: whether the property is held directly by a French resident or through an interposed company, whether French or foreign, the situs state will impose its own income or profits tax.

Moreover, conventions do not limit the situs state’s freedom to determine the form and rate of taxation: there are no convention-imposed caps on local tax rates for rental income, no requirement to tax on a net basis (except in specific conventions, such as the France-US convention of 31 August 1994, Art. 6 §6), and no limitation on withholding-at-source on gross rents. Each state applies its domestic law in full, subject only to any non-discrimination clause.

French Resident: Rental Income from Foreign Property

Taxation in the Situs State

A French-domiciled person who lets property abroad will be subject to the situs state’s income tax on the rental income, without any requirement to have a local permanent establishment or fixed base: simple ownership and letting is sufficient to create tax liability in virtually every state. The situs state may tax on a gross or net basis and at whatever rate its domestic law prescribes.

Taxation in France: The Two Mechanisms

Foreign rental income received by a French resident is not simply exempt in France because it is taxed abroad. In the absence of a convention, the foreign income is included in the French tax base and the foreign tax paid is deductible as a charge against the revenus fonciers, reducing (but not eliminating) the French tax. In the presence of a convention, two approaches are used to eliminate double taxation:

  • Taux effectif mechanism: the foreign rental income is exempt from French tax but is taken into account when computing the French rate applicable to French-source income. If a French-resident taxpayer has €1,000 of French income and €100 of foreign rental income exempt under a convention, the French tax base remains €1,000 but the applicable rate is that which would apply to a total income of €1,100. The result is a higher marginal rate on the French income without the foreign income itself being taxed. This mechanism preserves the progressive structure of the income tax and is common in many French conventions;
  • The faux crédit d’impôt mechanism: the foreign income is included in the French tax base but the taxpayer benefits from a tax credit equal to the French tax corresponding to that income — not the actual foreign tax paid. In practice this is economically equivalent to the taux effectif mechanism (both preserve progressivity without double taxation) but differs mechanically: the foreign tax is not deductible as a charge, and the credit equals the French tax on the foreign income, making that portion of income tax-neutral in France but counting towards the progressive rate. This mechanism is used in the France-US convention, among others.
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No Withholding at Source on Convention-Exempt Foreign Income

Where foreign real property income is exempt from French tax under a convention (whether via taux effectif or faux crédit d’impôt), it falls outside the scope of the French prélèvement à la source (PAS) income tax withholding system, even though it is taken into account for the taux effectif calculation (BOI-ANNX-000473). Similarly, where a convention provides for a faux crédit d’impôt, the foreign income is not subject to PAS either (BOI-IR-PAS-10-20 n° 70).

Declaration Obligations

French residents with foreign rental income must file:

  • Form 2047: the annex to the main income declaration (Form 2042) for income received outside metropolitan France and the DOM, including foreign revenus fonciers;
  • Form 2044: the standard revenus fonciers declaration, which must be filed for foreign letting income in the same way as for French-source income.

The Limits of Tax Optimisation for Foreign Rental Property

For French-resident individuals, foreign rental property cannot realistically be structured to achieve a material tax advantage:

  • Holding through a company does not avoid situs-state taxation — the company pays its own corporate income tax locally, and distributions are then subject to French income tax;
  • Direct holding means foreign income enters the French taux effectif calculation, blocking any benefit from lower foreign rates on the progressivity of French tax on other income;
  • The only possible residual advantage is where the foreign rate is lower than the French rate: in that case, the French resident bears the lower foreign tax on the foreign income itself, with the benefit capped at the difference between rates.

French Resident: Capital Gains on Foreign Property

The principles for capital gains closely mirror those for rental income. Gains on foreign property are in principle taxable in the situs state under OECD Model Art. 13. The same two convention mechanisms (taux effectif or crédit d’impôt) apply in France for the elimination of double taxation.

In the absence of a convention, the gain is taxable in France under the standard French private capital gains regime, calculated by the same rules as for French-situs property. The situs-state tax is not directly creditable against the French tax but is deductible in computing the gain.

Where a convention exempts the gain in France (using taux effectif), the French taxpayer still benefits from all the standard French capital gains exemptions to the extent they apply. Where the convention uses a true crédit d’impôt (equal to the foreign tax actually paid, as in the France-Spain, France-US, and France-UK conventions), the foreign tax reduces the French tax directly.

Holding Structure: Shares of Real-Estate Companies

An important complication arises where French property abroad is held through a company whose shares are sold rather than the property directly. Whether the situs state can tax the gain on the share sale — treating it as a gain on real property — depends on the applicable convention. The OECD Model (post-2017 revision) now includes a provision in Art. 13 treating gains on shares deriving more than 50% of their value from real property in the situs state as taxable there. Many French conventions contain similar provisions (e.g. the France-Canada and France-US conventions). Where no such provision exists in the applicable convention, the situs state generally cannot reach the share sale gain under the convention.

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Practical Advice: Verify the Applicable Convention Before Any Disposal

Before selling foreign property or shares in a foreign property-holding company, always check: (1) whether a bilateral convention exists; (2) whether it uses the taux effectif or a true crédit d’impôt for gains; (3) whether it contains an Art. 13 “real property company” provision (50%+ real property value triggers situs-state taxing right on share sales); and (4) whether any applicable exemptions under French domestic law (holding period abatements, etc.) are available. The interaction of domestic exemptions with convention mechanisms can produce unexpected results.

IFI on Foreign Property: French Residents

A French-resident taxpayer’s IFI base includes all real property assets situated anywhere in the world, including foreign property (CGI Art. 964). This covers both directly-held property and shares in companies (French or foreign) to the extent their value is attributable to real property in France or abroad. The same exemptions available for French-situs property (notably the professional asset exemption) apply equally to foreign property.

Foreign properties must be valued at their market value (valeur vénale) under French rules — not the valuation method used by the foreign jurisdiction (e.g. cadastral value, uniform method, etc.).

Credit for Foreign Wealth Taxes (CGI Art. 980)

Foreign Wealth Tax Credit: CGI Art. 980 Parameters
Mechanism Genuine credit (not taux effectif)
Qualifying condition Tax must be comparable to IFI: levied on property values (not income or gains)
Creditable examples Swiss cantonal and communal wealth taxes
Not creditable UK rates; US property taxes; German Grundsteuer or Gewerbesteuer; French-style local property taxes
Credit cap Capped at IFI attributable to the foreign property; not refundable
Currency conversion Foreign tax converted to euros at Paris exchange rate on date of actual payment
Non-creditable taxes May still be deductible from IFI taxable base (BOI-PAT-IFI-20-40-10 n° 80)

The IFI and French Tax Conventions: An Uncertain Terrain

Whether existing French wealth tax conventions cover the IFI is legally uncertain. The IFI was created in 2018 to replace the old ISF; many conventions were concluded before the IFI existed and expressly covered the ISF. The Conseil constitutionnel characterised the IFI not as a wealth tax but as a “specific contribution for budgetary purposes” (Cons. const. 28-12-2017 n° 2017-758 DC), raising doubts about whether older conventions’ catch-all clauses covering “identical or similar” taxes extend to the IFI. The administration takes the view that each convention must be examined case by case. It has confirmed the IFI is covered by the France-Luxembourg convention of 20 March 2018 and the France-Saudi Arabia convention of 18 February 1982 as amended.

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Warning: Non-Creditable Foreign Taxes May Still Be Deductible

Where a foreign wealth-type tax cannot be credited against the IFI (because it is not sufficiently comparable), it may nonetheless be deducted from the IFI taxable base to the extent it relates to an asset within the IFI base that is not a professionally-exempt asset (BOI-PAT-IFI-20-40-10 n° 80). This deductibility route is distinct from the Art. 980 credit and does not require the foreign tax to be comparable to the IFI.

Summary: Practical Checklist for French Residents with Foreign Property
Annual income declaration: file Form 2047 (foreign income annex) and Form 2044 (revenus fonciers) for all foreign rental income. Identify whether your convention uses taux effectif or faux crédit d’impôt: the mechanism affects the amount of French tax owed on your other income.
Before selling foreign property: check the convention mechanism for gains (taux effectif or true crédit), whether the convention contains a real property company clause (50%+ test for share sales), and whether French holding-period abatements or other exemptions apply to the French element of the computation.
IFI worldwide base: declare all foreign real property at French valeur vénale rules on your IFI return. Do not use local cadastral or administrative values — these will almost always differ from French market value standards.
Foreign wealth taxes: check whether the foreign wealth tax qualifies for credit under CGI Art. 980 (comparable to IFI: levied on property values). Swiss cantonal/communal taxes qualify. If the foreign tax does not qualify for the credit, assess whether it is deductible from the IFI base under BOI-PAT-IFI-20-40-10 n° 80.
Older wealth tax conventions: do not assume that an ISF convention automatically covers the IFI. The Conseil constitutionnel’s 2017 characterisation of the IFI as a “specific contribution” creates genuine legal uncertainty. Obtain specialist advice on the specific bilateral relationship before relying on any ISF-era convention for IFI purposes.
Questions About International Property Taxation?

Our French law practice advises French residents with overseas property, non-resident investors in France, and cross-border property holding structures on the interaction of French domestic rules, bilateral conventions, IFI worldwide exposure, and the foreign wealth tax credit mechanism.

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Legal Notice. This article is provided for general information and educational purposes only. It does not constitute legal or tax advice. The analysis is based on the OECD Model Convention and reflects principles applicable to the majority of French tax conventions; specific conventions may deviate from these principles and should always be reviewed for the applicable bilateral relationship. The legal uncertainty surrounding the application of wealth tax conventions to the IFI should be assessed with specialist advice in each specific bilateral context. Always consult a qualified French tax lawyer before making any international property transaction or structuring decision.