Taxation of rental income under the Civil Code lease in Paris

The Civil Code lease is attracting more and more Parisian landlords — for its free rents, its contractual flexibility, and its lack of constraints related to rent control. But it also raises a question that many landlords ask too late: how are these revenues taxed?

The answer is not uniform. It depends on the type of rental (furnished or unfurnished), the amount of annual income, your tax status, and your country of residence. This guide provides you with a structured reading of the main applicable regimes, with what you truly need to understand to make the right decisions.

First fundamental question: furnished or unfurnished?

The tax regime applicable to your rental income under a Civil Code lease depends above all on the nature of the rental.

If the property is rented unfurnished — meaning without furniture — your income falls under property income (revenus fonciers), declared on form 2044. Two regimes apply: the micro-foncier (a flat-rate deduction of 30%, accessible if your annual income remains under €15,000) or the actual regime (deduction of actual expenses: works, mortgage interest, management fees, property tax).

If the property is rented furnished — which is the case for the vast majority of Civil Code lease rentals in Paris, intended for companies, diplomats, or secondary residences — your income falls under Industrial and Commercial Profits (BIC). It is this framework that offers the most powerful optimization levers, and it is the one that this guide focuses on as a priority.

The BIC regimes for furnished rental under a Civil Code lease

The micro-BIC: simple, but increasingly less applicable in Paris

The micro-BIC applies automatically if your annual furnished rental income does not exceed €77,700 for a classic furnished rental (secondary residence, company housing, corporate rental). It allows you to benefit from a flat-rate deduction of 50% on your income, without having to justify your actual expenses. You declare half of your gross income on your tax return.

This is the simplest solution administratively. But it is not always the most advantageous. If your actual expenses exceed 50% of your income — which is common as soon as you have an ongoing mortgage, significant works, or high management fees — the actual regime systematically becomes preferable.

For very well-positioned properties in Paris rented to corporate profiles with high monthly rents, annual income can easily exceed €77,700, making the switch to the actual regime mandatory.

The actual regime: the tool for landlords who optimize seriously

Under the actual regime, you declare your entire income and deduct all of your actual expenses. The main deductible items are mortgage interest, rental management fees, insurance, maintenance and repair expenses, property tax, and the CFE (Corporate Property Contribution).

But the decisive lever of the actual regime is the accounting depreciation of the property and furniture. In practical terms, your apartment is depreciated over 40 to 50 years, and your furniture over 5 to 10 years. This depreciation reduces — sometimes completely offsets — your net taxable income each year, without you having to pay anything out of pocket. This is an advantage that the micro-BIC cannot replicate.

The trade-off is more demanding accounting: balance sheet, income statement, annual depreciation schedules. Hiring a chartered accountant is highly recommended — their fees being deductible themselves.

Your status: LMNP or LMP?

Beyond the tax regime, your furnished rental income positions you in one of these two statuses, with significantly different tax implications.

LMNP: the status of the vast majority of buy-to-let landlords

You are a Non-Professional Furnished Landlord (LMNP) if at least one of these two conditions is met: your annual rental income is less than €23,000, or it remains lower than the total of the other professional income of your tax household.

The LMNP is the status of almost all landlords who rent one or two properties in Paris. It offers substantial tax advantages under the actual regime, notably the possibility to create a deficit that can be carried forward to the BIC furnished income of the following ten years. If your depreciation and expenses exceed your income in a given year, the excess is offset against your future income of the same nature — allowing you to smooth tax optimization over time.

One point to watch: social security contributions of 17.2% (CSG, CRDS, solidarity tax) apply to the net taxable income, including under LMNP. They are added to your income tax according to your marginal tax bracket.

LMP: the regime for landlords with high rental activity

You switch to Professional Furnished Landlord (LMP) if your annual rental income simultaneously exceeds €23,000 and represents more than 50% of your household's professional income.

The LMP opens up more powerful advantages: deficits can be offset against the total income of the household, without any limit on the amount or duration. It also offers an exemption from the IFI (real estate wealth tax) for the properties concerned, and an exemption from professional capital gains after five years of activity if income remains under €90,000 excl. tax. Beyond that, a partial exemption applies up to €126,000.

The trade-off of the LMP is the liability to URSSAF social security contributions — up to 43% of profits depending on the chosen legal status — which can significantly increase the overall social security burden.

Reporting obligations not to be overlooked

Annual declaration of rental income

All landlords receiving rental income in France — residents and non-residents alike — are required to declare it to the tax administration, regardless of their country of residence. Failure to declare exposes you to penalties and tax reassessments covering the statutory limitation years.

For furnished rentals under BIC, the declaration is made via form 2042 C-PRO (micro-BIC) or the professional BIC tax returns (actual regime). Accounting compliant with the rules of the general chart of accounts is mandatory under the actual regime.

Annual declaration of real estate

Since 2023, all property owners in France must annually declare the occupancy of their property via their personal space on impots.gouv.fr. This declaration specifies whether the property is occupied by the owner, rented, or vacant, and identifies the occupant(s). It determines the calculation of the housing tax on secondary residences and other local taxes. An omission can lead to penalties.

Non-resident owners: the risk of double taxation

Owners who are not tax residents in France must check the bilateral tax treaties between France and their country of residence. Most treaties provide that property income and real estate BIC are taxable in France — where the property is located — with a tax credit mechanism in the country of residence to avoid double taxation. However, rules vary by country: tax advice tailored to your personal situation is essential.

The SCI: a wealth structuring tool to seriously consider

For owners who hold multiple properties, plan to transfer assets to their heirs, or wish to clearly separate their personal wealth from their rental wealth, the Société Civile Immobilière (SCI) offers a particularly flexible fiscal and legal framework.

An SCI can opt for taxation under income tax (IR) — where rents flow directly into the partners' personal tax returns proportionally to their shares — or under corporate tax (IS), where it is the company that is taxed on its profit, with the possibility of reinvesting profits and deducting a broader range of expenses.

The corporate tax (IS) option is often advantageous for owners highly taxed under income tax (IR): the reduced rate of 15% on the first €42,500 of profit, then 25% beyond that, can be significantly lower than their personal marginal tax bracket.

From an estate planning perspective, the SCI facilitates the gradual transfer of the property to heirs by transferring social shares, benefiting from the tax deductions applicable to donations. In France, transfer duties can reach up to 45% in direct line and 60% for non-direct heirs — a burden that the SCI can significantly reduce over the long term.

The SCI is not suitable for every situation: it involves setup costs, mandatory accounting, and annual formalities. But for a Parisian rental portfolio intended to last, it is a tool that every owner should at least have examined with a notary or a chartered accountant.

What owners on Civil Code leases often miss

The Civil Code lease is often chosen for its contractual advantages — free rent, flexibility, corporate clientele. But the tax dimension is frequently under-optimized, due to a lack of proper advice at the time of renting.

The most common mistakes: staying under micro-BIC without simulating the actual regime, not declaring the property annually, not identifying one's tax treaty as a non-resident, or not anticipating the LMNP / LMP switch as the portfolio grows.

The good news: these mistakes can be corrected, and the tax optimization of a furnished rental under a Civil Code lease can be very significant — provided you act before, not after.

Do you want to rent out your property under a Civil Code lease in Paris?

BAUVAUT assists Parisian owners in renting out and managing their furnished properties — secondary residences, company housing, corporate rentals. From drafting the lease to daily management, including advice on optimal rental positioning. Contact us for a free initial consultation.