Post by Sapphire Capital on Jul 12, 2008 20:21:54 GMT 4
The double CGT exemption that was achievable under the old France / Luxembourg 1958 treaty was no longer effective as the treaty is renegotiated.
However, the new treaty, which is applicable from 1 January 2008 only abolishes the double CGT exemption on direct ownership (or ownership through a transparent French entity) of French real estate. The following are possible structures to use for French real estate going forward:
1. Luxembourg company owns a French company owning French real estate: the gain on sale of the shares of the French company is, not taxable in France, and the gain may be exempt in Luxembourg under the participation exemption, provided the relevant conditions are met; or
2. Luxembourg company owns a French SCI owning French real estate: a French SCI can elect to be a civil or commercial entity. If the French SCI elects to be subject to corporate tax, any gain on disposal of the SCI shares will be taxable in France. If, however, the French SCI is subject to corporate tax by virtue of its trading activities, the gain will be taxable in Luxembourg only and may be exempt under the Luxembourg participation exemption.
Both Tax Laws are very complex and detailed handling and advise is necessary.
However, the new treaty, which is applicable from 1 January 2008 only abolishes the double CGT exemption on direct ownership (or ownership through a transparent French entity) of French real estate. The following are possible structures to use for French real estate going forward:
1. Luxembourg company owns a French company owning French real estate: the gain on sale of the shares of the French company is, not taxable in France, and the gain may be exempt in Luxembourg under the participation exemption, provided the relevant conditions are met; or
2. Luxembourg company owns a French SCI owning French real estate: a French SCI can elect to be a civil or commercial entity. If the French SCI elects to be subject to corporate tax, any gain on disposal of the SCI shares will be taxable in France. If, however, the French SCI is subject to corporate tax by virtue of its trading activities, the gain will be taxable in Luxembourg only and may be exempt under the Luxembourg participation exemption.
Both Tax Laws are very complex and detailed handling and advise is necessary.