27 April 2020
The second Amending Finance Law, adopted on Thursday 23 April 2020, allows a landlord to deduct from its taxable profits the loss resulting from a rent waiver without the said landlord needing to have a commercial motive.
This version was updated on 27 April 2020
This incentive applies to rent waivers granted between 15 April 2020 and 31 December 2020 (and not 31 July 2021, as indicated in the amendment). The intention is to encourage landlords to assist lessees and, therefore, to, help lessees reduce their indebtedness with a view to enabling lessees to resume activity in a better financial state after the pandemic.
Normally, a landlord is subject to a double sanction when it waives the right to collect rent: while rent is waived (i) as a commercial matter, the landlord does not receive rent, and (ii) the landlord is nonetheless taxed on the rent that it did not receive unless the landlord can demonstrate that either the rent waiver constituted a "normal" act of management or the lessee was subject to an insolvency procedure (Article 39, 1-8° of the Code général des impôts and Article 39, 13 of the same code).
This incentive therefore introduces a new circumstance in which rent can be waived by a landlord without the landlord being subject to tax in respect of the rent that has been waived: as a landlord who grants a waiver during the period when the amendment is in force does not have to have a commercial motive for granting the waiver in order to escape taxation on the waived rent. The scope of this relief is broad, since it covers waivers that relate both to rent taxed in the hands of an individual as property income (bare rental) or non-commercial profits (subletting) and also to rent subject to corporate income tax in the hands of a company.
Several conditions (that were not initially included in the amendment) must be met to benefit from such measure:
Where relief is granted a landlord's right to deduct expenses incurred in earning the waived rental income is unaffected by the rental waiver.
For a landlord benefiting from a regime that exempts rental income from the charge to tax (e.g. a French ‘SIIC’ REITs and the French ‘OPCI’ regime), the amendment should not directly reduce tax exposure (as rental income will be tax-exempt in any event). However, rents waived will be ignored in calculating the profit that such a landlord is required, as a condition of enjoying tax exempt status, to distribute to investors.
From a VAT perspective, if the rents are subject to VAT, waived rents do not, in principle, give rise to VAT collection. We nonetheless draw your attention to the two following situations:
For a lessee, a rent waiver gives rise to a taxable profit. However, the amendment also provides for a temporary increase (under the conditions provided by Article 209, I paragraph 4 of the Code général des impôts) in the capacity to carry forward tax losses. The standard €1,000,000 threshold is increased, for a lessee who has been granted a waiver, by an amount equal to the amount of rent waived.
In practice, we strongly recommend to formalise the rent waiver with the lessee via an amendment of the lease agreement.
 French REITs.
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