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3% Tax on the Value of Real Estate held in France: Exemption Now Subject to Enhanced Reporting Requirements

3% Tax on the Value of Real Estate held in France: Exemption Now Subject to Enhanced Reporting Requirements

Published on : 07/07/2026 07 July Jul 07 2026
Focus

New rules, same underlying rationale: the Law of 25 June 2026 continues the trend towards strengthening reporting obligations in relation to the French 3% tax.

End of the Exemption Based Solely on a Disclosure Commitment

Until now, certain entities established in "qualifying" jurisdictions could benefit from an exemption from the 3% tax by committing, at the time of acquiring the real estate or the relevant interest, to provide the French tax authorities, upon request, with information relating to the property and to persons holding more than 1% of the shares or other ownership rights.

The Law on Combating Social Security and Tax Fraud abolishes this mechanism: the exemption is no longer available on the sole basis of a disclosure commitment, even where that commitment has been fully complied with.

Exemption Now Conditional Upon an Annual Mandatory Filing

The new applicable rule is straightforward: the tax exemption is now available only to eligible entities that file an annual return no later than 15 May, containing:
  • the location, description and value of the real estate owned as of 1 January;
  • the identity and address of all shareholders, partners or other members holding, in any capacity whatsoever, more than 1% of the shares, interests or other ownership rights;
  • the number of shares or rights held by each such significant holder.

The information to be reported is, in substance, the same as that previously covered by the disclosure commitment. However, the logic has fundamentally changed: rather than waiting for the tax authorities to request the information, taxpayers must now disclose complete and up-to-date information proactively on an annual basis.

Fiscal Representative in France: A New Link in the Compliance Chain

Another significant development introduced by the Law is that all foreign entities must now appoint a tax representative domiciled or established in France who is authorised to receive documents relating to the administration and audit of the 3% tax.

This requirement ensures that the French tax authorities have a designated point of contact and reflects the same policy objective as the extension of document retention periods: facilitating the effective exercise of audit and enforcement powers over an extended period.

An Increasingly Documentation-Based Tax: The Growing Importance of Accurate and Truthful Reporting

Alongside these legislative changes, recent case law confirms an increasing requirement that tax returns be both accurate and truthful in order to qualify for the exemptions provided for under Article 990 E of the French Tax Code (Code général des impôts).

The courts have become increasingly explicit in holding that:
  • the purpose of the 3% tax is to combat tax avoidance involving French real estate held through foreign entities; and
  • foreign entities must provide a level of transparency equivalent to that required of French entities, particularly regarding the identification of the ultimate beneficial owners.

The new applicable rule therefore results not from legislation alone but from a consistent body of case law: filing a return is not sufficient in itself; the return must also be substantively accurate and truthful.

Beneficial Owners: Increasingly Thorough Scrutiny

Recent decisions demonstrate heightened judicial scrutiny regarding the identification of the actual beneficial owners. In particular:
  • the French Supreme Court (Cour de cassation) held that a foundation which is unable to identify, for each relevant year, a current beneficial owner (as opposed to a future or hypothetical beneficiary) does not satisfy the conditions for exemption, even where a return has been filed;
  • lower courts now require taxpayers to demonstrate the substance of ownership chains and the financial flows establishing that the identified persons effectively hold more than 1% of the ownership rights.

In several cases, the courts have therefore denied the exemption because taxpayers failed to demonstrate beneficial ownership adequately, citing, for example, insufficient documentary evidence, undated documents, lack of evidence supporting financial flows, or confusion between a person's status as a director and as a shareholder.

Towards a Broader Interpretation of "Accurate and Truthful Reporting"

To date, the requirement for accuracy and truthfulness has primarily focused on identifying shareholders, partners or other members holding more than 1% of the ownership rights, and therefore on ensuring transparency regarding beneficial ownership.

However, there are grounds to anticipate that this scrutiny may be extended to all information included in the annual return, including the description of the assets, their valuation, their location and the allocation of ownership interests.

A Tax Subject to Increasing Scrutiny: What Are the Implications for Taxpayers?

The combination of the new statutory rules and recent judicial developments represents a significant shift in approach.

Before the Law of 25 June 2026: certain entities could still secure the exemption through a disclosure commitment by responding to requests from the French tax authorities.
Following the reform: the exemption is now conditional upon filing a structured, comprehensive and internally consistent annual return, the accuracy and truthfulness of which may be scrutinised in detail.

In this context, the 3% tax has become a tax involving significant documentary risk:
  • any omission or inaccuracy concerning the identity of a beneficial owner may result in the denial of the exemption;
  • an imprecise description of the assets or a material undervaluation may justify an adjustment, even in the absence of clearly established fraudulent intent;
  • inadequate documentation supporting ownership structures and financial flows may be regarded as insufficient proof of actual beneficial ownership.

Practical Considerations: Securing Compliance Under the New Framework

For entities potentially subject to the 3% tax, two priorities emerge:
  • ensure that reporting procedures fully comply with the new statutory requirements, including systematic annual filing, appointment of a French tax representative for foreign entities, compliance with filing deadlines and regular updating of reported information;
  • strengthen the quality, consistency and traceability of supporting documentation by maintaining robust evidence of ownership structures, asset valuations, financial flows and consistency across all reporting obligations (including the 3% tax, French real estate wealth tax (IFI), wealth reporting obligations and other relevant tax filings).

The objective is no longer simply to file a tax return, but to be able to demonstrate, in the event of a tax audit, that the return faithfully reflects the legal and economic reality of the ownership structure.

Conclusion: Anticipation Rather Than Remediation

The reform of the 3% tax follows the same policy direction as the extension of document retention periods: providing the French tax authorities with the means to review more detailed and more comprehensive disclosures over a longer period.

In an environment where the concept of accurate and truthful reporting now permeates virtually all litigation relating to the 3% tax, it has become essential for affected entities to review both their reporting procedures and their internal documentation.

I remain available to assist taxpayers subject to the French 3% tax in reviewing their specific circumstances, assessing their reporting obligations in light of these developments, and helping them strengthen and secure their compliance framework.
 
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