Your decision has been made: you are starting a short-term rental and you are wondering about the regulations. You are enthusiastic about generating additional income and suddenly, you are confronted with the barbaric terms of LMP, LMNP... As you can imagine, who says income, says taxation and therefore, legislation. We are going to decipher for you the 5 important points of short-term rental regulations. And help you frame your thinking.
Your decision has been made: you are going to short term rental and you are wondering about rulemaking. You are excited about generating additional income and suddenly, you are confronted with the barbaric terms of LMP, LMNP... As you can imagine, who says income, says taxation and therefore, legislation. We are going to decipher for you the 5 important points of the short-term rental regulations. And help you frame your thinking. Of course, there is no substitute for an interview with a specialist lawyer or a chartered accountant. Because no one is supposed to ignore the law, especially when it is constantly evolving. In addition, this article only deals with the legal aspect, we will discuss the fiscal aspect in another blog post
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On the Internet, in common language, we talk about seasonal rentals, short-term rentals, furnished apartments. However, the exact term for this activity is the rental of a furnished tourist or tourist accommodation. Governed by the Tourism Code, article D324.1 defines it as “furnished villas, apartments, or studios, for the exclusive use of the tenant, offered for rent to a clientele passing through and who stay there characterized by renting by the day, week or month, and who do not choose to live there”.
You are in possession of a property, so you will have to understand the regulations depending on whether it is a primary or secondary residence.
If you live in your property for more than 8 months a year, then it is your main residence (Article 2 of Law No. 89-462 of 6 July 1989). Thus, you have the right to rent it for short periods of time, not exceeding 120 days per year (Article L631-7-1-Paragraph 5 of the Construction and Housing Code). If the threshold is exceeded, you will then have to obtain an authorization to change use. Attention, on some platforms, such as Airbnb, this overrun will automatically be blocked and you will no longer be able to make a reservation (updated on January 1, 2021).
As for second homes, it is necessary to declare them to the town hall. Thus, the declaration will be made online on the public service website. Attention, in some cities, a declaration is not enough. You will also need to get permission from the town hall. As regulations are constantly evolving, you will need to check this specific point with the latter on a regular basis.
The change in use of the property refers in concrete terms, according to Article L631-7 of the Construction and Housing Code “the fact of renting a furnished space intended for housing repeatedly for short periods of time to a passing clientele who does not take up residence there constitutes a change of use” (...).
The cities concerned in January 2021 are as follows:
Once you get permission from your municipality, your home will then be considered commercial property. All you have to do is change the destination of the residential premises (to be seen at the town hall).
An alternative is possible to the procedure of changing use to rent accommodation on a rental platform: the mobility lease. In fact, this alternative is established by The Elan Law of 23/11/2018 which allows you to rent a furnished apartment for up to a maximum of 10 months. Small precision and not the least: it can only be concluded for the benefit of certain tenant profiles (trainees, apprentices, employees on a mission or in a professional transfer, etc.)
Last point to check, compliance with the compensation rule in cities with more than 200,000 inhabitants and in those of Seine Saint Denis, Val de Marne and Hauts de Seine. This rule aims to balance the ratio between furnished tourist accommodation and long-term rentals.
You may have noticed these abbreviations during your research on furnished vacation rentals. But what do they mean?
In general, you'll start with this status instead. First rule: the rental of the accommodation must be effective the month following the date of completion of the work on the building or its acquisition, whichever is later. The rented property must also be furnished, i.e. have all the equipment necessary for the needs of the tenants. Therefore, this status will make it possible for tax purposes to benefit from tax reduction when the property is acquired but also to recover VAT. We will discuss this topic in a future article.
Investing in LMNP should not be the main activity of the investor. Because otherwise, you will fall under the LMP.
On the other hand, the professional furnished rental company must therefore generate more than 23,000 euros in net income per year. And this income must exceed the income of the fiscal household. The two conditions are cumulative: that is to say, you must meet both conditions to benefit from this status.
Do you have to create a company to start a short-term rental business? The best answer is of course to check with your lawyer or accountant in order to optimize your choice with a professional. Among the types of companies available to you:
It is intended to manage bare (or empty) rentals. And it facilitates the transmission of assets by avoiding, in particular, the difficulties associated with joint ownership. (L)The PAP site summarizes the pros/disadvantages of the device). In tax matters, the SCI offers two options: taxation with IR (income tax) or with IS (corporate tax). In addition, for the unique management of furnished rented properties, SCI at IR is excluded. Even if a tolerance is allowed if the rental income does not exceed 10% of the total income of the SCI. But also, if furnished rental is a secondary activity to it. Thus, as a general rule, furnished rentals are therefore subject to taxation in SCI (irreversible transition). So you have to think carefully before making a decision.
This form of company involves several partners, each responsible in his own name. The SNC is not subject to corporate tax (with some exceptions). This legal status is adapted to LMP owners. Be careful, however, that the liability of the partners is unlimited. Thus, all partners have the status of merchant. You should check this point, if compatible with your main profession.
To be able to set up a family SARL, the list of authorized partners is limited (spouse or civil partnership, children, siblings and their spouse, grandparents and in-laws). The company must also carry out exclusively commercial, industrial, craft or agricultural activities. Two options are possible: taxation with IS or with IR. We will deal with this tax subject in more detail in a future article. If you are interested, don't forget to subscribe to our newsletter so you don't miss a thing. I subscribe to the OIQIA newsletter
A single-person business with limited liability, whose object may be commercial, is perfectly suited to the furnished rental business. Compared to a family limited liability company, there is only one partner in this case. This makes it possible to limit your financial risk to the amount of your capital contribution. The tax regime is based on IR (income tax) via therefore BICs (industrial and commercial profits). Unless you opt for corporate tax.
This status is particularly aimed at self-employed workers. In LMNP, rents are collected and declared as income tax, in the BIC category (industrial and commercial profits).
The Decree of 28 April 2017 makes the registration of the accommodation you rent mandatory. Indeed, the latter allows French cities with more than 200,000 inhabitants to require owners to declare their short term rental. Attention, we are talking about a declaration and not about an authorization request. In the end, this registration will give you a registration number. And the latter must appear on all the rental ads you post.
In conclusion, the legal and fiscal part that follows is complex. And we can only advise you to talk to a lawyer or your accountant. Last but not least, check with your condominium that you have the right to rent for a short term.
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