This piece of advice comes from a number of practical cases, so it is very useful for those who is planning to invest abroad.

Imagine you have found a nice opportunity for an investment, a small chalet in France. You are planning to put some investment in it and redesign the small cottage into a 3-story guest house. Suppose you have a good credit history and you get a financing for that from the bank. (The loan details are not relevant for our example, so we will avoid them). 

Now, before any investment is done you will need to analyze, what would be a right structure of ownership? Would it be better to buy it personally, as non-resident. Or, should you settle a legal entity and buy it via the company? And where should you settle down the company, in France or in any other country?  All these initial questions are very important to realize before a decision is done, because they will substantially influence your tax liabilities later. 

Most probably you would come to a conclusion that to buy the cottage via a legal entity is more practical, considering that it will be a hotel in the future. So, you will need to operate it and employ the staff, and have various suppliers. Obviously, to run it as a person won’t be possible.

Suppose you decide to settle down the company not in France, but in Cyprus, because of its low income tax rates. It is worth to realise, that income derived from the property will be taxed in France based on the location of the property rule. Therefore, not only taxation of Cyprus is irrelevant, but you will also need to solve the problem with registration of the Cyprus company in all the relevant authorities in order to make you property functional, and of course in the tax authorities, to be able to pay the taxes in France. So, that might turn out quite inconvenient. 

After a number of years, you had finally achieved your goal and a small cottage became a nice small hotel on the hill of the French Alps. The value price of the renovated cottage now increased from EUR 1,000,000 up to EUR 6,000,000. 

In order to sell the hotel, you might want to sell it as an object separately or by means of company’s shares. So, in case if that will be shares of Cyprus company, I doubt that someone in France would be interested of buying the company in Cyprus. But even that is possible. 

However, the most important if you decide to relocate to France, run yourself the hotel and retire in France. Then you would probably would like to get rid of the Cyprus company and transfer the hotel to your newly established French company to make the things simple. Now, this transfer will be considered as sale in France and is subject to corporate income tax (for 2021 – 26,5% up to EUR 7,630,000). 

Therefore, before buying the perfect investment take a closer look at all the relevant tax issues: ownership, financing, corporate income tax, personal income tax for dividends and share sales, including the final step – the sale of your investment.

About the Author: Olena Bokan

International Tax Lawyer, Financial Advisor
olena.bokan@astonground.com
Published On: January 18th, 2021 / Categories: Blog /