The status of professional furnished rental company (“LMP”) applies exclusively to lessors who rent out furnished accommodation on a professional basis.
We will see in this article the following points:
- The conditions for being a professional furnished rental company;
- Tax regimes;
- Social regimes.
I – The conditions to become a professional furnished rental owner
Today two conditions are necessary to become LMP (professional furnished rental company):
- The annual revenue from the furnished rental business by all members of the tax household must exceed €23,000;
- These receipts must exceed the income of the tax household subject to income tax in the categories:
- Salaries and wages within the meaning of article 79 of the General Tax Code (CGI),
- Industrial and commercial profits (BIC) other than those derived from the furnished rental business,
- Agricultural profits,
- Non-commercial profits and income of the managers and partners mentioned in article 62 of the CGI.
When the two criteria above are met, the lessor automatically benefits from LMP status. On the contrary, if one of these conditions is not respected, he will obtain the LMNP status (non-professional furnished rental company).
II – Tax regimes
The micro scheme for furnished rentals
This regime applies when the income for the previous year or the penultimate year does not exceed €72,600 for a classic furnished rental or €176,200 for furnished tourist accommodation or guest rooms.
In this case, the taxpayer only declares his turnover on his annual income tax return and a reduction of 50% for conventional furnished premises (as well as rural lodgings not classified as “furnished for tourism”) or 71% for furnished tourist accommodation and guest rooms is automatically applied to the income derived from this rental. The minimum amount of the allowance is €305.
This flat-rate allowance represents all expenses. It is therefore impossible to deduct any expense from this income.
Income from these rentals is taxed under the category of industrial and commercial profits (BIC). The taxable BIC corresponds to the amount of income declared, minus the allowance (50% or 71%) automatically calculated by the administration. It is added to the other income of the tax household to be subject to income tax at the progressive scale.
The real regime of furnished rentals
The real regime applies when the income exceeds the limits indicated in the paragraph above or when the taxpayer opts for this regime in order to deduct the precise amount of the charges or amortize the value of real estate and furniture.
The actual tax regime presupposes keeping accounts. This must comply with the Commercial Code and the general chart of accounts. For this, it is often necessary to call on an accountant. It is mandatory to file a declaration of result N° 2031 (balance sheet and income statement) and its annexes with the tax authorities.
- Deduction of charges
The furnished property owner can deduct all charges provided that:
- they are incurred in the direct interest of the operation;
- they correspond to an effective charge and are accompanied by sufficient supporting documents;
- they are included in expenses for the year in which they were incurred.
- Deduction of depreciation
The lessor of furnished property taxed according to a real regime can also deduct the depreciation from the purchase price of the goods (movable and immovable) on the condition that these are recorded as assets in his balance sheet.
But, fiscally, for furnished rentals, the deduction of depreciation is limited. The deductible share of depreciation cannot exceed the amount equal to the difference between the total rents and the other charges. This means that depreciation cannot generate a deficit.
Example:
Total rent acquired in the year: €30,000
Total deductible expenses: €20,000
Maximum depreciation allowed as deduction = €10,000
If the annual amount of depreciation is €13,000, only €10,000 can be deducted. The remainder of €3,000 will be deductible in subsequent years.
The tax advantages of the professional lessor (LMP) over the non-professional lessor (LMNP)
- Deficits
The deficits withdrawn from the furnished rental activity exercised in a professional capacity are attributable to the overall income of the taxpayer without limitation of amount. If the overall income is insufficient, the overall deficit thus generated can be carried forward for 6 years.
On the other hand, for non-professional furnished rentals, losses can be carried over for 10 years exclusively on income from non-professional furnished rentals.
- Capital gains
The capital gains of professional lessors benefit (provided that the activity has been carried out for at least five years) from a total exemption when the average of the income derived from the rental for the financial years closed during the two calendar years which precede the closing date of the year of realization of the capital gain does not exceed the threshold of €90,000 excluding tax (or a partial exemption if the receipts are between €90,000 excluding tax and €126,000 excluding tax).
If any of these conditions are not met, they are subject to the professional capital gains and losses regime.
Capital gains made by LMNP (non-professional lessors) on the sale of furnished residential premises are taxed as private capital gains.
- Real estate wealth tax and succession
The real estate of LMPs being considered as professional, this allows them to be exempt from IFI (tax on real estate wealth).
In addition, in some cases, the transfer of assets is also accompanied by advantageous conditions within the framework of the status of professional furnished rental company. Do not hesitate to contact us for further details on this subject.
III – Social regime
Since January 1st 2021, all professional furnished rental companies (LMP) are subject to social security contributions.
Long-term furnished rental
- If the annual turnover in 2022 is between €23,000 and €72,600 and exceeds the tax household income subject to income tax in the other categories of earned income (wages and salaries, BIC, BA), it is possible to choose between the status of micro-entrepreneur or independent worker.
In this case, the flat-rate contributions are 22% of the amount of gross receipts, to which must be added the contribution to vocational training. - If the annual turnover in 2022 is greater than €72,600 and exceeds the income of the tax household subject to income tax in the other categories of activity income (wages and salaries, BIC, BA) only the status of worker independent is applicable.
In this case, to know the approximate amount of the contributions, we suggest that you refer to the article entitled “Social contributions for independent workers in 2021” on our website.
Short-term rental of furnished accommodation
- If the annual turnover in 2022 is between €23,000 and €72,600, three social statuses are possible: general scheme, micro-entrepreneur or independent worker.
- If the annual turnover in 2022 is greater than €72,600, only independent worker status is applicable.
Rental of furnished accommodation for short-term classified tourism
- If the annual turnover in 2022 is between €23,000 and €72,600, three social statuses are possible: general scheme, micro-entrepreneur or independent worker.
- If the annual turnover in 2022 is between €23,000 and €176,200, it is possible to choose between two social statuses: micro-entrepreneur or independent worker.
- If the annual turnover in 2022 is greater than €176,200, only independent worker status remains possible.
Bed and breakfast rental
From €5,348 the income from this self-employed activity is professional in nature.
- If the annual turnover in 2022 is between €5,348 and €176,200, it is possible to choose between two social statuses: micro-entrepreneur or independent worker.
- If the annual turnover in 2022 is greater than €176,200, the only acceptable status is independent worker.
If you want to know more about the Non-professional furnished rental, see our article on this subject: Non-professional furnished rental after the reform of the social security financing law for 2021
