3% tax on real estate: what they don't tell you and what can cost you dearly
29/08/2025
For several years now, the 3% tax on real estate has intrigued many investors and owners of legal entities holding real estate in France. This provision, which is often misunderstood and underestimated, primarily targets mechanisms for indirect ownership of real estate in order to combat tax evasion. However, many are unaware that a simple omission in their tax return can result in particularly heavy penalties. It is therefore essential to clearly understand the scope of this tax, its many exemptions, and the steps to take to protect yourself from it.
Why was the 3% tax on real estate introduced?
The 3% tax on real estate aims to regulate real estate taxation linked to the ownership of French assets through companies, especially when a foreign structure is involved. The stated objective is to prevent certain real estate assets from partially or totally escaping the real estate wealth tax (IFI) due to complex arrangements involving foreign legal entities.
It is therefore an anti-abuse measure primarily targeting tax evasion organized through the separation between the beneficial owner of the asset and its shell company. However, the rule does not apply to everyone in the same way: it all depends on the nature of the owner, their country of establishment, and compliance with formal reporting obligations.
Who is really affected by this tax?
The scope of the 3% tax on real estate is broad, but not all entities are required to pay it. The legislation carefully distinguishes between the types of structures concerned, as well as their specific conditions for exemption or liability.
These are mainly legal entities, regardless of their organizational structure or nationality (French or foreign), which directly or indirectly own real estate assets and rights located in France. The most common cases include real estate investment companies, asset holding companies, and foreign investment funds that have invested in French real estate.
Sometimes, indirect ownership makes the rule complex: when the company itself owns shares in another entity that owns the buildings, taxation also applies. Individuals are only affected if they are involved in these structures indirectly rather than directly. The market value of the buildings must be taken into account on January 1 of each year to determine liability and the potential amount to be paid.
Many foreign entities have questions about their responsibilities with regard to French real estate taxation. Just like French entities, any foreign entity that directly or indirectly owns real estate in France is theoretically subject to this floating tax at a rate of 3% of the market value of the assets held.
Everything you need to know about reporting requirements and Form 2746
When an entity wishes to obtain an exemption, it is mandatory to complete and submit Form 2746 within the specified time frame. This form includes a detailed list of beneficial owners, the distribution of capital, and the total market value of assets held in France through the entity.
Failure to submit this declaration will in most cases automatically result in the 3% tax being levied, even where the entity could have legitimately avoided it. Strict formal requirements mean that the application must be renewed each year to ensure that the exemption obtained previously remains valid.
What are the risks of non-compliance with the 3% tax?
Failure to comply with reporting requirements entitles the immediate application of the 3% tax.
This applies to situations where Form 2746 has not been submitted, has been completed incorrectly, or has been submitted late. Even a simple clerical error can be costly, as it is the entity's responsibility to ensure that all information submitted is accurate.
In fact, exemption is never automatic: it is conditional not only on disclosure, but also on the entity's actual ability to identify its beneficial owners. It is therefore essential to file a complete annual disclosure in accordance with Article 990 E of the French General Tax Code.
In addition, the 3% tax applies for each year of non-compliance, with interest for late payment and possible surcharges in cases of bad faith or fraudulent behavior.
Tips for staying compliant
To avoid any unnecessary risk, it is best to anticipate tax deadlines and centralize the information to be provided. The annual filing of Form 2746 is not just an administrative formality: it is necessary to gather supporting documents attesting to the entity's shareholder transparency and the accurate valuation of its French real estate assets.
We should also consider seeking the advice of a tax expert when a situation is unusual or involves a complex ownership structure. Certain cross-border arrangements require in-depth analysis of international agreements in order to validate an effective exemption or avoid double taxation, particularly when several intermediary companies are involved in the indirect ownership structure.
Frequently asked questions about the 3% tax and entities that own real estate in France