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St Barth, French West Indies Law Firm

07/04/2007

Wealth Tax (dowload article by a click on the photo)

Wealth Tax

Will second home owners or residents of metropolitan France and residents considered as non-resident for tax purposes pay wealth tax on their real estate in Saint Barth?

Individuals, who have their tax domicile in France and own property exceeding the net value of the tax threshold on 1 January of the tax year, are liable for wealth tax.

Individuals, who are not domiciled in France but who own property there exceeding the net value of the same tax threshold, are also liable for tax under the same conditions.

Individuals domiciled in France are taxed on their worldwide property.

Individuals, who are not domiciled in France, are taxed on their property in located in French territory.

The French General Tax Code (which was drafted prior to the creation of the territorial authorities of Mayotte, Saint Martin and Saint Barth) considers that France is comprised of metropolitan France and overseas administrative departments for tax purposes.

Does this mean that property located in the territorial authority of Saint Barth will not be liable for wealth tax?

We consider that the principle of devolution of powers relating to tax matters to the territorial authorities prevents the State's tax definition from being extended to the newly created territorial authorities.

Nevertheless, Saint Barth will form an exception out of the four territorial authorities.

Article LO 6214-4 of the institutional act introduces this specificity, which provides as follows:

"1. Individuals may only be considered as residents of Saint Barth for tax purposes after having lived there for at least five years. Individuals or legal entities failing to satisfy the residency requirements laid down in the preceding two paragraphs are considered as residents of metropolitan France for tax purposes.".

This text will have a specific impact on wealth tax.

Indeed, individuals, who do not satisfy the residency requirements to be considered as Saint Barth tax residents, will be treated as tax residents of metropolitan France.

They must consequently declare and pay wealth tax on their worldwide income.

As regards residents in metropolitan France (residents of Saint Barth for less than five years on top of the year of the year move are treated as French tax residents) and overseas administrative departments, liability for wealth tax is definite in accordance with the provisions of Article LO 6214-4.

The situation is particularly confused for foreign residents.

The tax treaties, which were all concluded prior to the institutional act of 21 February 2007, generally define France as follows:
"The term "France" means the Republic of France, and based on its geographical meaning, European and overseas administrative departments of the Republic of France, including the territorial sea, and beyond the same if the areas on which the Republic of France has sovereign rights for the purpose of exploring and using the natural sea bed and superjacent waters in accordance with international law;"

Therefore, pursuant to in force tax treaties, Saint Barth does not form an exception to the French tax territory since Saint Barth is simply a dependency of the administrative department of Guadeloupe.

As a result, the change of Saint Barth's status including its tax exception, creates the obligation for the State to interpret what currently constitutes its tax territory pursuant to Article LO 6214-4 for its relations with foreign States.

For tax purposes, the French government may easily consider that no discrimination would result from subjecting foreign residents to wealth tax since French citizens physically resident in Saint Barth but who are not domiciled there for wealth tax purposes and residents of France established outside of Saint Barth continue to be liable for wealth tax and all other State taxes.

The intention to extend liability for wealth tax to foreign residents owning property in Saint Barth appeared in the version of the text of Article LO 6214-4 two days prior to the final vote of the institutional act by the two chambers of Parliament.

Indeed, the phrase "irrespective of their nationality" was discretely added by an amendment after the phrase "are considered as having their tax domicile in metropolitan France" so that the issue of concern to us is finally settled in favour of taxation (see our article on "Alert on COM" of 8 February 2007).

Following the various last minute discussions, this amendment was withdrawn.

The fact remains nonetheless that the introduction of a virtual tax domicile in metropolitan France for individuals, who do not satisfy the residency requirement, may mean that the COM will be transparent for them. Therefore, by following this interpretation, with the exception of the residual category of tax residents of Saint Barth, all other individuals will be liable for taxes in metropolitan France, including wealth tax.

It seems that this is the actual intention since by way of comparison, the provisions relating to tax matters in Saint Martin are completely different: the residency requirement is strictly limited for residents from metropolitan France and overseas administrative departments wishing to live in Saint Martin. These individuals benefit from the overseas tax scale.

Article LO 6314-4 provides that: "individuals whose tax domicile is established in an administrative department of metropolitan France or overseas may only be considered as having their tax domicile in Saint Martin after having lived there for at least five years".

Furthermore, no residency requirement is laid down in order to benefit from Mayotte's tax independence.

There is consequently a specific taxation policy for Saint Barth.

Is there still an intention to impose wealth tax on foreign residents, who own property in Saint Barth?

If so, when and how will it be expressed?

By the first tax deficiency assessments, by a directive on interpreting tax matters or by a clause in a treaty?

We raised this issue with the tax authorities.

We are puzzled by their reply.

In this respect, the future of foreign residents with regard to wealth tax is now in the hands of the government resulting from the upcoming elections.

Copyright: Maître Emmanuel Jacques

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