French 3% Real Estate Tax Enters into Force

France's new law on combating social security and tax fraud entered into force on June 27, 2026 (New Law). The law strengthens transparency and tax oversight regarding the ownership of real estate assets in France by nonresident legal entities. Under this new framework, non-French residents owning French real estate may have an annual reporting obligation and may need to appoint a French tax representative in certain circumstances.

Key Takeaways

• France has adopted a major reform of the 3% annual tax on French real estate (French 3% Tax) held directly or indirectly by French or foreign legal entities, with a shift to mandatory annual e-filing by May 15 on Form 2746-SD as a condition to exemption in certain circumstances.
• Failure to comply results in the French 3% Tax being due each year on the fair market value of the property, with no deduction for acquisition debt.
• Prior to the New Law, nonresidents were permitted to engage themselves vis à vis the French tax authorities to provide information on request to establish their exemption from the French 3% Tax; however, going forward, completeness and annual consistency of declarations are critical and will be strictly reviewed.
• Foreign entities without a French permanent establishment must appoint a tax representative in France to claim the French 3% Tax exemption. This new obligation applies to all entities subject to the reporting obligation, including entities benefiting from an exemption, except where such exemption applies automatically by law.
• Failure to make the annual declaration may in some cases be rectified; however, if a filing is erroneous or incomplete, filings may result in the French 3% Tax becoming due.
• Foreign entities that are exempt from the French 3% Tax due to their status, such as foreign pension funds, will not be impacted by the New Law.
• The New Law will only impact the filing of returns from 2027 onwards.

BACKGROUND

The French 3% Tax is, in principle, due by all entities, whether French or foreign, including companies, funds, trusts, and similar structures, that directly or indirectly own real estate assets located in France.

The taxable basis corresponds to the fair market value of the assets as of January 1 of each calendar year.

The French tax code provides for certain exemptions from the French 3% Tax, notably the following:

• Entities that own French non-real-estate assets, the value of which exceeds the value of their French real estate assets, whether directly or indirectly held, are not subject to the French 3% Tax.
• Entities having their registered office and effective place of management in qualifying States may be eligible for an exemption without the annual declaration if, notably,
  • the value of their share in the French real estate assets held directly or indirectly is less than €100,000 or 5% of the fair market value of said French real estate assets.
  • They qualify as pension funds or non-profit organizations subject to certain conditions.

Prior to the New Law coming into force beginning June 27, 2026, where the above mentioned exemptions were not applicable, a foreign or French entity would generally qualify for the exemption—provided it made a commitment within two months from the direct or indirect acquisition of French real estate assets, vis à vis the French tax authorities to provide them upon request with certain information about the ownership and the fair market value of the real estate assets.

This exemption will no longer apply beginning June 27, 2026, from which the exemption is subject to filing an annual information return on Form 2746-SD on or before May 15 of the year in which the tax is due.

NEW REPORTING OBLIGATIONS

For entities that were eligible for the exemption based on the formal commitment to providing information, the annual filing requirement now entails the disclosure of the following information:

• The fair market value, as of January 1, of the real estate assets held
• The full ownership chain up to the ultimate beneficial owner subject to disclosure requirements

In addition, foreign entities without a permanent establishment in France and subject to reporting requirements (i.e., excluding exempted entities that are not subject to reporting requirements) are now required to appoint a tax representative in France. The appointed representative must be identified in the relevant filing.

Where no representative is expressly designated in the 3% tax return, French law provides for a default representation mechanism under which the entity closest to the real estate assets within the ownership chain known to the French tax authorities is deemed to be the representative.

This new obligation applies to all entities subject to the reporting obligation, including entities benefiting from an exemption, except where such exemption applies automatically by law.

In light of the deadline for filing the annual returns (no later than May 15 of each year, based on the real estate assets held as of January 1 of the relevant year), the reporting obligation described will not apply in practice until 2027.

The appointment of the representative shall be made for the first time in a return to be filed no later than May 15, 2027.

RECOMMENDATIONS

We recommend undertaking a tax audit of all entities holding one or more real estate assets in France to verify ownership chains, fair market values as of January 1, and partner identification thresholds.

Particularly in the case of indirect ownership, including for example indirect ownership of French real estate through an investment fund, ensure that there is sufficient access to information, including the details and value of any French real estate.

Additionally, where the relevant entities are required to seek the French 3% Tax exemption through the annual filing with the French tax authorities,

• prepare and perfectly complete Form 2746-SD by May 15 of each year, ensuring annual coherence and completeness, and complete prior registration steps to obtain a French company number (so called SIREN) for e-filing where needed, and
• if no French permanent establishment exists, appoint a French tax representative to be identified and remunerated in the 2746-SD filing.