Tax treaties and IFIs in Mauritius
Property tax (IFI) depends on the amount of your real estate assets in France and abroad. But is it applicable in the context of Convention tax international? IfMauritius is renowned for its paradise beaches, it has also become a very interesting financial place thanks to its soft taxation, especially for real estate investors.
IIFI, what is it?
On 1 January 2018,property tax replaces the solidarity tax on wealth (ISF).
Taxable assets
Any French tax resident is subject to the IFI where the net taxable value of his or her property is more than 1.3 million € as at 1 January 2020.
The declaration takes into account all property and property rights held by all persons making up the tax home (individual or living in a couple), whether in France or abroad. In particular, these properties include built and unbuilt buildings, under construction and even buildings classified as historic monuments.
IFI is to be reported at the same time as income, but via an attached form, on paper or online. It is from this return that the amount of tax payable will be calculated by the administration. You will then receive, as for income tax, a tax notice of the amount to be paid.
Calculation of IFI
As we have just seen, property tax is calculated on the basis of the net taxable value of the property. This value takes into account deductions already made from certain exemptions and existing debts, if justified. For example, you can deduct 75% of donations to organizations of general interest in France or Europe, capped at 50,000€. Of course, these donations should not be combined with those already deducted from your income tax. You can find the complete lists of exemptions and deductible debts on the government website.
On the other hand, all taxes payable by the occupant such as the housing tax and the share of tax corresponding to the income from immovable property, i.e. property income, are not deductible from this tax. After these tax cuts, it is important to know that property tax will be capped.
The calculation scale is degressive and very similar to that used for the old ISF. However, although the tax threshold begins at 1.3 million €, the calculation begins at 800,000€. Below, the applied rate is zero. A discount is applied for net assets between 1.3 and 1.4 million €. Take into account that you are entitled to a tax allowance of 30% on a principal residence only. You have the opportunity to get an idea of the amount of your property tax through the departmental simulator.
Heritage abroad
The general principle
The theory is that every natural person attached to a tax home in France should be subject to unlimited tax liability, regardless of nationality. This suggests that all its real estate in France or abroad is covered by the IFI.
If you are taxed in France and own property abroad that is taxable in France and the country concerned with a tax similar to the IFI, you can avoid double taxation by charging tax abroad. However, this approach is possible only if the property was actually taken into account in the calculation of the French IFI and the amount is then capped on the value corresponding to the property present abroad only.
But what about international tax treaties? Do they have an impact on the IFI? It would appear that the Authority has provided an initial response, explaining that certain tax treaties do apply to the IFI, thereby dam, but each situation needs to be studied on a case-by-case basis. No choice, therefore: to know the position of the convention in relation to the IFI, it is still best to study it in detail.
The Mauritius case
The Franco-Mauritian tax treaty was originally signed in 1981 and amended in 2011. In order to determine the fate of the IFI on real estate invested in Mauritius, three items should be retained.
- Article 6 – Real property income: « income derived by a French resident from immovable property situated in Mauritius is taxable in Mauritius »
This article avoids the double taxation : residents taxed in France will only be taxed in Mauritius in respect of income from the rental of their property acquired on the island. Thus, these owners will pay tax on the rental income of Mauritius, i.e. at 15% instead of 45% in France.
- Article 13 – Capital gains: « Gains derived by a French resident from the alienation of immovable property referred to in Article 6 and situated in Mauritius may be taxed in Mauritius ».
This article stipulates that the surplus value generated by the resale of real estate in Mauritius will be taxable at the Mauritian rate, i.e. 0%.
- Article 23 – Fortune: « Capital constituted by immovable property referred to in Article 6, owned by a French resident and situated in Mauritius, shall be taxable in Mauritius ».
This article makes it clear that real property owned in Mauritius by French residents constitutes a fiscal asset linked to the island and not to France, so that the French IFI will not be applicable to such property. Mauritius does not apply any property tax, so French tax residents will not be subject to any tax on their Mauritian property.
The convention thus echoes the Minister of Economy and Finance who had proclaimed in 2018 that the IFI would fall within the scope of the convention only if it included the same and similar tax on wealth and future taxes. This is the case in Mauritius.
You will understand, investing in real estate in Mauritius is a tax deal. The conventions with France make it a financial centre of choice thanks to the imputation of the Tax on the Real Estate Fortune to the island, which is in fact non-existent.
Do you have any questions?
