3% Annual Tax on French Real Estate: Are You Really Safe After the 2026 Reform?

A Often‑Overlooked Tax With Significant Exposure

Do you hold French real estate through a company, investment vehicle or foreign structure? You may think you are “covered” because a commitment to provide information was given to the French tax authorities a few years ago.

Since 2026, the rules governing the 3% annual tax on the fair market value of French real estate have changed significantly: a mere promise of transparency is no longer sufficient and the previous tolerance allowing regularisation after a formal notice has been abolished.

We intend to give you concrete reflexes to assess whether your structures are exposed and, where relevant, to become compliant before entering into sometimes challenging discussions with the French tax authorities.

In a nutshell: What Is the 3% Tax?

An Annual Tax on Entities, Not Individuals

The so‑called “3% tax” is an annual French tax due by certain legal entities (companies, organisations, trusts and similar vehicles), whether French or foreign, which own French real estate, directly or through other entities.

It amounts to 3% of the fair market value of the real estate or real estate rights held on 1 January of each year, with no deduction of debt.

The logic is straightforward: if you hold French real estate through a more or less opaque structure, the tax authorities require you either to be transparent or to bear this annual tax.

Are You on the Tax Authorities’ Radar?

You are potentially within the scope of the tax if:

○ a French company (SCI, holding company, operating company) owns a property;

○ a foreign company (Luxembourg, Switzerland, UK, US, etc.) owns French property, directly or via a French SCI;

○ a chain of companies ultimately owns French real estate (for example: foreign parent company → intermediate holding → French SCI owning the property);

○ an investment vehicle or a trust‑type structure holds French real estate on behalf of investors.

The good news is that many situations are exempt (public entities, listed companies, regulated vehicles, entities without French real estate predominance, small holdings, etc.), but you must verify that you actually fall within one of these categories – and be able to prove it.

What Has Really Changed Since 2026: The End of the “Simple Promise”

Before 2026: A More Lenient Regime Based on a Commitment to Disclose

Until the 2026 law, an entity could be exempt by making a commitment to disclose, upon request from the tax authorities, detailed information on its properties and on the holders of more than 1% of its rights (identity, address, number of shares/units).

If this commitment was not complied with (no response or incomplete response), the tax authorities issued a formal notice; if the entity regularised within 30 days, the tax was not assessed for the relevant years. This tolerance, framed by Article R 23 B‑1 of the French Tax Procedure Code, effectively offered a “second chance”.

New Rule as From 2027 Filings: What Changes in Practice

The Law n° 2026‑534 of 25 June 2026 abolished this mechanism and tightened the regime:

• • the exemption based on a commitment to disclose has been repealed: a mere promise of transparency is no longer sufficient;
  • the tolerance after formal notice has also disappeared: where the tax authorities identify a breach, the entity must now file, within 30 days, a form n° 2746 together with payment of the tax for the relevant year and all non‑time‑barred years;
  • • if the declaration is not filed within this period, the tax authorities may proceed with ex officio assessment, with late‑payment interest and penalties, under the rules applicable to registration duties.

In other words, the new regime applicable from the 2027 filings onwards requires a much more rigorous approach. Either you are objectively exempt (and you can demonstrate it), or you must bear the tax.

A Key Point of Attention: Accuracy of the Information Reported

The reform also highlights a frequently underestimated risk: the fragility of exemptions in the event of any error, even minor, in the declaration.

In particular:

• • an incomplete declaration (omitting a property, a shareholder holding more than 1%, or an address) or an inaccurate declaration (undervalued property, incorrect shareholding breakdown, wrong address) may be treated as non‑compliance with the exemption conditions;
  • • the tax authorities may then challenge the exemption and assess the 3% tax in full for the year in question and, where applicable, for all non‑time‑barred years.

In practice, the slightest “small error” in form 2746 can have significant consequences, which makes it essential to secure, upstream, both the real estate values and the ownership information to be reported.

Three Simple Questions to Assess Your Exposure

Does Your Structure Hold (Directly or Indirectly) French Real Estate?

Start with a quick inventory:

• which companies or entities (French and foreign) hold French real estate or real estate rights?
• are there holding chains with several levels of entities?
• do you have investment vehicles, trusts, foundations or other “atypical” structures involved?

If, at the end of this mapping exercise, you identify at least one French property held within an entity, you fall within the potential scope of the 3% tax.

Are You Clearly Within a “Structural” Exemption?

Some entities are exempt by nature, for example:

• • listed companies and their 100%‑owned subsidiaries;
• • regulated vehicles (French SPPICAV, FPI, and foreign equivalents);
• • entities whose French real estate represents less than 50% of their French assets (excluding properties used for a non‑real‑estate business activity);
• certain pension or non‑profit entities, subject to specific conditions.

If you believe you fall within one of these categories, it is essential to document this analysis (financial statements, valuations, licences, by‑laws, etc.) so that you can produce it in the event of an audit.

• If You Do Not Benefit From an “Automatic” Exemption: Are You Truly Transparent?

Where no structural exemption applies, the main route to avoid the tax is exemption through a detailed annual declaration:

• • annual filing of form n° 2746;
• • disclosure of the properties (location, characteristics, value);
• • disclosure of the identity and address of shareholders/partners holding more than 1% of the rights and of the number of shares/units they hold.

The exemption is then proportional: you are exempt for the fraction of the share capital whose holders are disclosed and taxable on the remainder.

If you benefit from neither a structural exemption nor a regular, accurate detailed declaration, your exposure to the 3% tax is high.

Practical Action Plan Before 2027 – Beyond Pure Tax Compliance

The issue is not only to “tick the box” of a filing obligation, but to build a broader compliance and risk‑management approach.

Map Your Structures and Properties

Objective: obtain a clear and shared view of French real estate holdings.

Key steps:

• • identify all entities (French and foreign) that directly or indirectly hold French real estate or real estate rights;
  • reconstruct the ownership chains for each property (interposed entities, ownership percentages, location of registered offices);
  • classify the assets: operating properties, investment properties, vacant premises, development or trading stock, etc.

This mapping is an essential prerequisite, not only for the 3% tax but also for governance, financing and future disposals.

Diagnose Your Exemptions and Risk Areas

Objective: distinguish between clearly exempt entities, those potentially exempt subject to conditions and those exposed.

Key steps:

• mesurer, pour chaque entité, la prépondérance immobilière de ses actifs en France (< ou > 50 %) ;
  • • identify entities qualifying for a structural exemption (listed, 100%‑owned subsidiaries, SPPICAV/FPI, pension or non‑profit entities, small holdings, etc.);
  • • verify the place of management/registered office (France, EU, state with an administrative assistance treaty or non‑discrimination clause) to confirm that exemptions are indeed available;
  • • flag entities that do not meet any of these criteria: for them, the detailed declaration will often be the only way to avoid the tax.

Organise Transparency on Shareholders and Beneficial Owners

Objective: be able to meet, without approximation, the requirements of the detailed declaration.

Key steps:

• • set up an annual update process for information on shareholders/partners holding more than 1% of the rights (identity, address, number of shares/units);
  • include specific clauses in by‑laws or shareholders’ agreements to require investors to provide and update this information;
  • anticipate situations where investors refuse disclosure: their portion will, by definition, remain taxable;
  • align this framework with other obligations (beneficial ownership registers, KYC, banking compliance).

This is a project that is at once tax‑related, legal and linked to governance.

Anticipate Valuations and Valuation Evidence

Objective: by 2027, have defensible fair market values for all relevant properties and ensure consistency with your other tax positions (e.g. French Real-Estate Wealth Tax, rental income, transfer planning).

Given the requirement for truthful declarations, relying on rough estimates is no longer advisable.

Key steps from 2026 onwards:

• • identify properties whose fair market value is uncertain (illiquid markets, atypical assets, recent works, change of use);
  • schedule, in good time, valuations or valuation reports by recognised professionals, taking into account lead times and internal validation;
  • keep all valuation evidence (appraisals, comparables, leases, etc.), which will be key in any discussion with the tax authorities;
  • • check the competent tax office for each entity and ensure that each has an active gouv.fr account for e‑filing.

This reduces the risk that a clear undervaluation will be treated as a breach of the exemption conditions.

Never Ignore a Letter From the Tax Authorities

Objective: be able to respond quickly and in a structured manner to any information request or formal notice.

Key steps:

• • appoint an internal or external 3% tax contact person to centralise all correspondence and coordinate responses with advisers;
  • prepare a standard file for each entity (ownership chart, exemption evidence, valuations, copies of forms 2746 filed) to be able to respond without delay;
  • • define a regularisation strategy for past years: in some cases, a voluntary approach may allow better control of the risk (years covered, penalties, reputation).

This is a matter of overall risk management, not just a box‑ticking exercise.

What Are the Risks if You Do Nothing?

Remaining in the dark is no longer an option. The main risks are:

• • payment of an annual tax of 3% of the gross fair market value of the properties, with no deduction of debt, over several years open to tax audit;
• • late‑payment interest and penalties for failure to file or late payment;
• • joint and several liability of interposed entities and, for non‑residents, potential liability of the French tax representative appointed for capital gains purposes;
• • reputational and governance risk for groups and institutional investors.

It is better to Perform a Preventive Audit rather Than facing a Surprise Assessment

The 3% tax remains a discreet tax, but potentially very costly for entities holding French real estate through interposed structures.

The right reflex is to take the initiative.

This process can be an opportunity to rethink more broadly the structuring of your French real estate investments (simplifying ownership chains, choosing appropriate vehicles, governance) and to strengthen the alignment between your wealth, operational and tax objectives.

Our lawyers, who are experts in inheritance tax, are on hand to answer any questions you may have and to advise you. Our consultations can take place in person or via video conference. You can book an appointment directly online at www.agn-avocats.fr.

AGN AVOCATS – Tax Department contact@agn-avocats.fr 09 72 34 24 72