3% Property Tax on Real Estate Owned by Corporations: Who Is Affected?

Quick Answer. The annual 3% tax on fair market value as of January 1st targets legal entities (French or foreign) that hold real estate in France. But several exemptions cover common French structures: real estate representing less than 50% of French assets, a property stake below €100,000 or 5%, or simply filing the annual Form 2746. Most family SCIs with up-to-date filings therefore owe nothing.

The 3% tax on the fair market value of real estate held by corporations serves as a transparency measure and a tool to combat opacity in property ownership. Designed to block offshore arrangements, it has been part of French tax law for several years yet continues to raise questions among executives and property managers. At Hayot Expertise, we regularly guide clients through SCI partnerships, holding companies, and foreign-registered structures to ensure compliance without penalties.

The tax applies to all legal entities with or without legal personality: corporations, limited liability companies, real estate partnerships (SCIs), professional associations, general partnerships, as well as trusts, fiduciary arrangements, and comparable foreign structures. It makes no difference whether the entity is French or foreign. What matters is direct or indirect ownership of real estate located in France or of real property rights (usufruct, bare ownership, long-term leases, etc.).

Three typical cases illustrate the scope:

1. A French SCI holding a rental apartment in Paris
2. A foreign LLC that acquired a logistics warehouse in the regions
3. An offshore structure (Luxembourg, Mauritius) whose only asset is French real estate

All three are, in principle, subject to the tax. The law aims to prevent opaque ownership chains.

Tax Rate and Fair Market Value#

The tax is calculated on 3% of the fair market value of the real estate and property rights, assessed as of January 1st of the tax year. This fair market value typically reflects market price: the price at which the property could trade on that date.

Concrete examples:

• Building purchased for €500,000 in 2024 → estimated tax €15,000 for 2026 (3% of €500,000)
• Building revalued to €600,000 → estimated tax €18,000 for 2027 (3% of €600,000)
• Usufruct right valued at €100,000 → estimated tax €3,000 for 2026 (3% of €100,000)

Cumulative Taxation#

This tax does not replace property tax or the professional activity tax (CFE) for businesses. It applies in addition to transfer duties (registration, DMTO) and local taxes. For an SCI holding property, the owner therefore pays:

• Property tax (classified as undeveloped or developed property based on use)
• Possibly CFE if business activity
• And the annual 3% tax (if applicable)

This is the crucial point. Many standard structures qualify for legal exemptions without even realizing it.

Non-Predominant Real Estate (Article 990 E, 2°)#

An entity is exempt when its French real estate assets represent less than 50% of its French assets held directly. A company whose building is only a minor part of its holdings thus escapes the tax. Example: a holding company with €5M of French assets including €200,000 of real estate (i.e., 4%) is not liable on this basis.

Small Stake: Below €100,000 or 5% (Article 990 E, 3°-a)#

The entity is exempt when its stake in the French property or properties is below €100,000 or 5% of their fair market value. Concretely:

• an SCI holding a small unit worth €80,000 (stake below €100,000) → exempt;
• a company owning only a minority fraction (less than 5%) of a jointly held property → exempt on this basis.

Declaration-Based Exemption (Form 2746)#

Entities that file an annual declaration detailing the location, composition, and value of the properties, along with the identity of shareholders holding more than 1%, benefit from exemption (Form 2746-SD). This is the most common case in France:

• family SCI filing property and shareholder details → exempt;
• LLC holding business premises with current filings → exempt.

This exemption requires a registered office in France, the EU, or a country bound to France by an administrative assistance treaty or a non-discrimination clause. An alternative is to commit to disclosing this information to the tax authority on request (Article 990 E, 3°-d).

Other Exemptions#

• Sovereign states, international organizations: embassies, international organization headquarters, etc.
• Publicly traded companies: if their shares trade significantly and regularly on a regulated market.
• REITs, real estate mutual funds and comparable structures: under specific conditions.

Form 2746-SD and Deadlines#

Any taxpayer or entity seeking exemption by declaration must file Form 2746-SD by May 15th each year. This form must include:

• Location, area, and fair market value of each property
• Type of right held (ownership, usufruct, bare ownership, etc.)
• Identity of shareholders and number of shares
• Justification if applicable (low-value exemption, public listing, etc.)

Since April 1, 2021, electronic filing is mandatory for properties held since January 1, 2021. Paper filings are no longer accepted; all submissions must go through impots.gouv.fr or an authorized tax representative.

Penalties and Consequences of Non-Filing#

Failure to file or failure to assert an exemption does not eliminate the tax liability, but exposes the entity to:

• Application of the 3% tax on the late-declared value
• Default interest and penalties under standard rules (depending on the reason: good faith, simple negligence, willful non-compliance)

No fixed penalty amount applies to this tax; the burden is measured in unpaid tax plus accumulated interest.

Comparative Table: Who Pays, Who Does Not?#

Summary of Exemptions (Article 990 E)#

Special Cases: Transparent Arrangements and Interposed Structures#

Interposed company (intentional opacity):
If a French holding is owned by a Bermuda trust, and the trust holds real estate through the holding, the ownership chain is analyzed: the French holding is the taxpayer, not the trust (unless the trust controls the holding). The law targets the effective ownership link.

Split ownership (usufruct/bare ownership):
Each right (usufruct, bare ownership) constitutes a separate "real property right" subject to tax. If father holds bare ownership (€200,000) and son holds usufruct (€150,000), each declares their share and contributes proportionally. No double taxation: the two bases do not overlap.

Long-term lease (emphyteutic lease):
The long-term lessee (who operates the property) may be considered the taxpayer if law treats them as holding a "real property right." This must be verified case-by-case depending on contract qualification.

1. Fair Market Value vs. Purchase Price:
   The tax authority may revalue properties annually beyond historical cost. A house purchased for €400,000 in 2019 could be taxed on €500,000 in 2026 if market conditions have appreciated. This should be factored into cash flow planning.

2. Late Filing:
   Submitting Form 2746 after May 15th triggers default interest. It is always better to file late than not to file at all, but timely filing remains the standard.

3. Declaration-Based Exemption ≠ Automatic Exemption:
   The declaration-based exemption only exists if you actively request it via Form 2746. Failure to file = loss of exemption and tax assessment. This is an affirmative choice, not a default right.

4. Changes in Structure or Value:
   Mergers, contributions, partial sales: these operations alter the composition of the real estate portfolio. Form 2746 must be updated. An oversight following a restructuring is a frequent source of back taxes.

5. Foreign Real Estate (Non-Application):
   This tax applies exclusively to real estate located in France. Property held by a French SCI in Spain does not form part of the taxable base.

Recently, an executive consulted us with concerns about his SCI holding a small house in the Île-de-France region (valued at €200,000) that received a tax demand for the 3% levy. Upon investigation, the issue stemmed from failure to renew Form 2746: previous years had been properly filed, but a change in management had caused oversight. Three years of arrears accumulated. After filing amended declarations and presenting them to the tax authority, the administration confirmed the declaration-based exemption applied and withdrew the demand.

This anecdote illustrates a fundamental point: the 3% tax is a real burden only for opaque structures (foreign companies without transparent French links, trusts without legitimate business purpose) or poorly managed ones (administrative neglect). For the vast majority of family SCIs and corporations holding French real estate with identified shareholders and current filings, the declaration-based exemption applies as a matter of right.

The main issue is therefore not "how do we avoid the tax?" but "how do we ensure we benefit from the correct exemption?" This is a matter of administrative compliance, not risky tax planning.

Hayot Expertise Guidance. If you manage an SCI or corporation holding French real estate, we recommend you verify immediately: (1) Did you file Form 2746 for the past three years?; (2) Does the declared value match current fair market value?; (3) Have there been any structural or ownership changes to report? A simple audit can spare you significant back-tax exposure. At Hayot Expertise, we manage annual filings and updates to your situation to prevent these pitfalls.