France 3% Tax: What the 2026 Reform Changes for Foreign Entities

I. How the 3% tax and its exemption work

A. A tax that climbs the ownership chain

Article 990 D of the French General Tax Code (Code général des impôts, CGI) imposes an annual tax equal to 3% of the market value of real estate on legal entities (companies, organisations, fiducies or comparable institutions) that own, directly or through an interposed entity, one or more properties located in France or rights in rem over them. An entity is deemed to own property through an interposed entity if it holds an interest, whatever its form or size, in an owning entity or in an entity that is itself interposed, regardless of the number of tiers. The tax is therefore designed to reach up the entire ownership chain, to the structures furthest from the property.

One liable entity and jointly liable entities. Article 990 F of the CGI provides that the tax is due on properties held on 1 January of the tax year. Where there is a chain of interests, it is due by the legal entity or entities closest to the properties that are not themselves exempt under the disclosure-based exemption. Every entity interposed between that taxpayer and the properties is jointly and severally liable for payment. The tax is collected under the rules, penalties and guarantees applicable to registration duties, which is why disputes fall within the jurisdiction of the civil courts.

B. The disclosure-based exemption, cornerstone of the regime

Article 990 E of the CGI provides several exemptions. Some are objective: international organisations and States, entities whose French real estate represents less than 50% of their French assets, listed companies, entities whose real estate share is below EUR 100,000 or 5% of market value, pension bodies and certain investment vehicles. For most family holding structures, none of these is available. What remains is the disclosure-based exemption, open to entities established in France, in the European Union or in a State that has an administrative assistance agreement with France to combat tax fraud and evasion.

An exemption conditional on transparency. The principle is simple: the entity escapes the tax if it discloses to the tax authorities the location, nature and value of its properties and the identity of its shareholders. The 3% tax was never primarily designed to raise revenue. Its purpose is to deter the opaque interposition of foreign structures between taxpayers and French real estate. The whole issue therefore lies in how that transparency is achieved, which is precisely what the 2026 reform changed.

II. The reform introduced by the law of 25 June 2026

A. The end of the undertaking to disclose

Until the reform, the disclosure-based exemption could be obtained in two ways: filing an annual return (form No. 2746), or giving and honouring an undertaking to disclose the required information to the tax authorities on request. Article 102 of Law No. 2026-534 of 25 June 2026 abolished the second route. In its version in force since 27 June 2026, Article 990 E, 3°, d only exempts entities that file each year, by 15 May, a return stating the location, nature and value of properties held on 1 January, together with the identity and address of all shareholders, partners or other members holding, in any capacity, more than 1% of the rights, and the number of rights held by each.

Proactive transparency. The undertaking to disclose rested on a passive logic: the entity only revealed its shareholding if the tax authorities asked. The new regime requires spontaneous, annual transparency. Structures that relied on an undertaking given when the property was acquired, sometimes decades ago, must therefore switch to the annual return. Otherwise, they lose the exemption and become liable each year to the 3% tax on the market value of their properties.

B. A mandatory representative in France

The law created Article 990 FA of the CGI. Where the entity subject to the reporting obligation has no permanent establishment in France, it must appoint in its return an individual or legal entity tax resident or headquartered in France, authorised to receive on its behalf all communications, procedural documents and notices from the tax authorities relating to the audit of the tax or arising from it. Failing such appointment, the legal entity closest to the properties in the chain of interests and known to the tax authorities, whether exempt or not, is deemed authorised to receive those documents.

A streamlined procedure for the tax authorities. The practical impact is considerable. The tax authorities can now conduct audits in France, without international service of documents, through a designated or deemed representative. For a French property company (SCI) held by a foreign company, the SCI itself will in principle receive the documents if no representative has been appointed. Families must therefore ensure that the person receiving these notices can handle and forward them promptly; otherwise, response deadlines may expire unanswered.

C. Timing

Articles 990 E, 990 F and 990 FA in their new wording have been in force since 27 June 2026. Since the tax is due on properties held on 1 January, the first deadline by which all entities should have switched to the annual return, with a representative appointed, is logically 15 May 2027, for properties held on 1 January 2027. How the new rules apply to pending situations, in particular for entities previously relying on an undertaking, will need to be clarified in administrative guidance. We recommend not waiting for that guidance before preparing the 2027 return.

III. Lessons from the 2026 case law

A. Sweet Revenge: mutually exclusive routes and the cost of inaccuracy

Sweet Revenge Ltd, an English company, owned a property in France. In 2004 it had given an undertaking to disclose the required information on request, and then voluntarily filed annual returns (form No. 2746) for 2006 to 2012. Those returns named four individuals as shareholders, whereas the company had in fact been wholly owned by another company since 2006. Once reassessed, it argued that the tax authorities should have followed the procedure attached to the undertaking, which required them to question the company before any reassessment. The Cour de cassation held that the two exemption routes are mutually exclusive and that the voluntary filing of returns allowed the tax authorities to reassess without following that procedure (Cass. com., 1 Apr. 2026, No. 25-10.605, Sweet Revenge Ltd, paras. 7 to 9).

A pivotal decision. The 2026 reform makes the exclusivity question moot for the future, since the annual return is now the only route. The ruling nevertheless remains fully relevant to audits of earlier years. Above all, it illustrates the core risk of the new regime: a return naming nominal shareholders rather than the actual owners forfeits the exemption, and the entity cannot hide behind a procedural safeguard. The return must reflect the actual ownership chain, not a simplified version of it.

B. Satofi: notification to the legally liable taxpayer only

Satofi, a Luxembourg company, wholly owned a French property company (SCI) holding real estate in France. The tax authorities notified it of a reassessment and then of a collection notice, without sending the subsequent documents to the SCI. The Aix-en-Provence Court of Appeal had set aside the procedure for breach of the adversarial principle and fair dealing towards the SCI, which was jointly liable. The Cour de cassation quashed that ruling: where there is a chain of interests, interposed entities are only jointly liable for payment, not legally liable for the tax, so the tax authorities need not notify them of documents issued after the reassessment notice (Cass. com., 28 May 2026, No. 24-18.404, Satofi, para. 8).

A solution reinforced by Article 990 FA. The ruling closes a frequently invoked procedural defence. Article 990 FA extends it for the future by organising service on a designated representative or, failing that, on the entity closest to the properties. Arguments based on defective notification within international ownership chains have thus lost most of their value. The defence shifts to the merits: the accuracy of the return, the value of the properties and the identification of shareholders.

C. Sefimo: the return used against the filer

Sefimo, a Belgian public limited company, had owned a villa in Biot since 1998, made available free of charge to its shareholders. Following a tax audit, the tax authorities added to its French corporate taxable income the rent it had forgone, treating the free use as an abnormal management act. In the absence of a comparable rental market, the tax office determined the villa's market value by comparison and applied a 4% rental yield, resulting in an annual rental value of EUR 56,000 for 2013 and EUR 60,000 for 2014 (CAA Marseille, 27 Mar. 2026, No. 24MA00244, Sefimo, paras. 3 and 4).

Returns as evidence. Two points stand out. The 198 m² floor area used by the tax authorities came from the company's own returns, including the form No. 2746 filed for the 3% tax; a contrary expert report, lacking detail on how the measurements were taken, was not enough to rebut it. The 4% yield was the rate the company had itself used in its returns (paras. 5 and 9). The court also held that legal and bailiff fees relating to the 3% tax dispute, incurred at the Belgian head office, were not deductible from French taxable income, as the company had no permanent establishment in France (paras. 11 to 13). The now-mandatory annual return therefore binds its author well beyond the 3% tax itself.

D. Le Bois Dormant: regularisation without payment and identifying the settlor of a fiducie

Le Bois Dormant, a French simplified joint-stock company (SAS), owned a villa in France. The undertaking to disclose it had given in 1993 had lapsed in 2008, and it had filed no return since. Served in 2015 with a formal notice to file the form No. 2746 returns for 2009 to 2014 together with payment of the tax, it filed and paid, while disputing liability. The Cour de cassation quashed the ruling against it on two grounds (Cass. com., 8 July 2026, No. 25-12.737, Le Bois Dormant, published).

The regularisation guidance is binding on the tax authorities. Under the administrative guidance, entities that could qualify for the disclosure-based exemption but failed to file must be given formal notice to regularise within thirty days; if they do so, payment of the tax is not required. This concession applies only to the first request, for all years not yet time-barred, and the tax authorities apply the same treatment to entities that regularise spontaneously, without waiting for a formal notice (BOI-PAT-TPC-30-20171004, para. 20). The Court of Appeal should have examined whether the tax authorities had breached that guidance, which taxpayers can rely on under Article L. 80 A of the French tax procedure code, by demanding payment in the formal notice (paras. 16 to 18).

The fiduciary is not the shareholder. The returns stated that the capital was wholly held by one individual and mentioned, for some years, a fiduciary holder. The Court held that the fiduciary, whose estate for wealth tax purposes does not include the assets transferred into the fiducie, cannot be regarded as a shareholder for the exemption rules; the Court of Appeal should therefore have examined whether the returns sufficiently identified the actual shareholder (paras. 24 to 27). On the merits, the ruling echoes Sweet Revenge: what matters is identifying the person who actually holds the rights, not the nominal holder. Above all, it opens a valuable route for defaulting entities: regularising under the conditions of the guidance avoids payment of the tax. This guidance, published in 2017, has not been updated since the 2026 reform and can be relied on until it is withdrawn.

IV. Auditing structures before 15 May 2027

A. Map the chain and the actual owners

The first step is to reconstruct the full ownership chain, from the property up to the individuals, identifying for each tier the State of establishment, legal form and shareholding. The aim is to determine the liable entity (the closest to the properties and not exempt), the jointly liable entities and all holders of more than 1% who must appear in the return. Holdings through trusts, foundations, fiducies or nominees require particular care: Sweet Revenge and Le Bois Dormant show that a return based on nominal holders offers no protection.

Check geographic eligibility. The disclosure-based exemption is only available to entities established in France, in the EU or in a State with an administrative assistance agreement with France. For an entity located in a jurisdiction that does not meet this condition, filing a return is not enough: the audit must then consider restructuring the ownership chain, weighing its cost against the tax saved.

B. Ensure consistency of returns and review the occupancy policy

The second step concerns the consistency of the information reported. The floor area, nature and value of the properties stated in form No. 2746 must be consistent with other filings (property tax returns, corporate tax returns, earlier valuations). Any discrepancy will be exploited, and Sefimo shows that a late counter-valuation struggles to overturn data the filer itself provided. It is better to verify floor areas and values before filing than to dispute them afterwards.

Rent-free use, a separate risk. Where the structure makes the property available free of charge to its shareholders or their family, it is exposed, if it is subject to French corporate tax on that property, to the addition of a notional rent as an abnormal management act. This exposure should be assessed and, where appropriate, addressed by charging a documented market rent or reorganising ownership.

C. The firm's position

We are convinced that the 3% tax can no longer be handled as a mere annual formality. The end of the undertaking to disclose, the introduction of the French representative and the 2026 case law all point the same way: procedural defences are giving way to the accuracy of the return. The annual return is the only route to exemption, but it is also a document the tax authorities can use against the filer, for the 3% tax and for corporate tax alike.

We therefore recommend that any foreign entity holding French real estate, directly or indirectly, commission an audit now, covering the ownership chain, identification of holders above 1%, consistency of reported floor areas and values, the occupancy policy and the appointment of the representative required by Article 990 FA. For entities that have never filed or whose undertaking has lapsed, spontaneous regularisation should be considered before any audit, since the guidance then waives payment of the tax for the years not yet time-barred. The 15 May 2027 filing should be prepared as a case file, not as a form.