Capital gains on real estate for non-residents: what the Lagrasse Limited case reminds us about reporting obligations and tax penalties.
The decision rendered on May 6, 2025 by the Administrative Court of Appeal of Toulouse (case Sté Lagrasse Limited, n°23TL00017) strongly reminds us of the consequences of poor tax anticipation when a non-resident sells real estate in France. This case highlights the strict requirements of the reporting regime applicable to non-residents and the rigor with which the administration applies penalties.
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A Strict Reporting Regime for Non-Residents' Capital Gains
Non-residents who carry out a real estate sale in France fall under the scope of the flat-rate withholding tax of Article 244 bis A of the CGI, whether they are individuals or foreign companies.
Essential Formalities Not to Be Overlooked
Before even the notarial signature, a number of steps are mandatory:
- Complete form n°2048-IMM-SD for the sale of real estate
- Complete form n°2048-M-SD for the transfer of shares in real estate-dominant companies
- Submit these forms to the administration before any registration or land publication
In case of non-compliance, penalties are automatic:
- 10% increase for failure to declare (Article 1728 of the CGI)
- Late payment interest of 0.20% per month (Article 1727 of the CGI)
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Lagrasse Limited Case: Failing to Declare Means Being Penalized
A Sale Concluded, But Without Declaration
The British company Lagrasse Limited, despite its non-resident status, sold two properties in France in 2020 without declaring the capital gain. However, the notarial deeds explicitly mentioned the applicable tax obligations.
A Quickly Dismissed Challenge
In response to the reassessment, the company's manager attempted to argue ignorance of French tax regulations and to claim deductible expenses. But the administrative judge was clear:
- Ignorance of the rules does not exempt one from complying
- No convincing evidence was produced to prove the claimed expenses
- The penalties are legal and proportionate, with good faith not being accepted as a reason for remission
The message is clear: the tax regime applicable to transfers by non-residents is automatic and independent of the taxpayer's intent.
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Best Practices to Avoid Penalties
The ruling of May 6, 2025, serves as a useful reminder for foreign sellers conducting a real estate transaction in France. Here are the essential measures to implement:
1. Anticipate Tax Procedures
- Early identification of the seller's tax residency
- Evaluate the appointment of an accredited tax representative, a requirement for certain non-resident profiles
- Prepare and submit the mandatory forms before any final signature
2. Streamline Communication with the Notary
- Provide all tax-related information as early as the pre-contract
- Ensure the acquisition of the tax clearance, a document sometimes required to release the sale price
- Verify that the tax conditions are properly reflected in the deeds
3. Justify Each Deductible Expense
Reassessments often occur due to lack of solid evidence. Therefore, it is imperative to:
- Keep all invoices for work, commissions, or consulting services
- Compile a complete tax file prior to the sale
4. Involve Foreign Decision-Makers
Foreign executives or investors must be made aware of French rules:
- Include a tax alert clause in mandates or internal instructions
- Seek assistance from a competent professional to avoid good faith errors
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The Importance of Professional Support
An international real estate transaction requires prior coordination between the notary, the tax representative, and the lawyers or accountants involved. As highlighted by the Lagrasse Limited case, the notary alone is not sufficient to meet the requirements of the tax regime.
It is recommended to:
- Establish a tax checklist specific to each transaction
- Ensure the effective submission of declarations and the payment of withholding tax
- Entrust the operation to a law firm specializing in tax law familiar with these procedures
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Conclusion: Mandatory Rigor, Immediate Risks
The ruling issued on May 6, 2025, in the Lagrasse Limited case serves as a wake-up call to foreign investors: French real estate taxation allows for no approximation. Ignoring or delaying procedures exposes one to automatic penalties, even in the absence of fraudulent intent.
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✔ Defense in case of disputes with the administration
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