Paris Second Homes Face Tax That May Hit Foreign Owners

If you own an apartment in Paris that’s not your primary residence, brace yourself for a new tax.

French President Francois Hollande is planning a new levy next year on second homes in areas with housing shortages, looking to raise 150 million euros ($188 million) annually.

The new levy would represent 20 percent of the existing housing tax and be imposed on properties in about 30 metropolitan areas in France, including Paris. Owners of second homes would pay the levy to local government.

Hollande has pledged several times that there would be no new levies. Still, with a budget deficit that the government expects to top 4.1 percent of gross domestic product in 2015 and an economy that will barely grow 1 percent, the French president is looking into ways to fill the state’s coffers.

More than 174,000 properties in Paris, or about 16 percent of the housing in the French capital, are second homes. That share is rising, according to the city’s rental watchdog, having climbed 3 percentage points in the past five years.

In the upscale parts of town in Paris’s 6th, 7th and 8th arrondissements near the Champs Elysees, the Latin Quarter and the Eiffel Tower, the share of second homes -- often owned by foreigners -- touches 40 percent.

After Hollande’s much publicized “millionaire tax,” a 75 percent levy on income of more than 1 million euros, expires on Jan. 1, his government needs to fill the gap. The new measure has not been welcomed, even by Hollande supporters.

“Clearly there are a lot of rich foreigners owning homes,” Labor Minister Francois Rebsamen told I-tele news channel today. “But when we say no new taxes, it means no new taxes. Voila!”

Easing Shortage

Finance Minister Michel Sapin defended the government’s plan saying at a press conference today that “fiscal stability isn’t an absolute freeze on everything.”

The government says the new levy is meant to force owners to rent or sell their property as Hollande’s ministers pledge to free up the thousands of unoccupied homes.

“Our analysis is not a fiscal one but a real estate one,” Jean-Marie Le Guen, the minister in charge of parliamentary relations told reporters today. “There is an important problem with vacant homes and we need to find elements to regulate that.”

The planned tax, which will be debated in parliament this month as part of the 2015 budget law, is also meant to appease local governments. The state is shrinking transfers to local governments by 3.7 billion euros each year until 2017, according to the 2015 budget bill.

Local municipalities are themselves looking for new ways to raise funds. Paris Mayor Anne Hidalgo’s office is considering a tax on the person-to-person rentals for the likes of Airbnb Inc.

Faced with resistance, the government showed signs of hesitation on the new tax.

“The government is proposing considering targeted measures,” Budget Secretary Christian Eckert said today in the National Assembly. “Local governments will have the right to accept it or refuse it.”

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