Since 1 January 2010, the sale of foreign companies whose assets are predominantly made up of real properties located in France is subject to the 5% transfer duty set out in article 726 of the French Tax code (Code Général des Impôts), even where the deed of sale is not executed in France.

By this new measure, introduced by the 2009 Revised Finance Act (loi de finance rectificative), the legislator counteracted various decisions of the judiciary according to which the sale of such companies was not subject to the above mentioned transfer duty where the deed was entered into abroad.

Under article 718 of the Tax Code, the sale of foreign companies is only subject to transfer duty where established by a deed executed in France. This provision, in that regard, does not distinguish between those companies which are not predominantly real property based, and those which are. Contrary to the position of the French Tax Administration, case law quite rightly stated that the sale of real estate companies was not subject to any transfer duty if the deed of sale was not entered into in France.
The above mentioned 2009 Revised Finance Act added article 718 bis to the Tax Code which expressly provides for the application of a 5% duty on the sale of foreign companies the assets of which are predominantly made up of French real properties.

Given the reference to the provisions of article 726 of the Tax Code, a real estate company for the purpose of the 5% duty is an unlisted company the assets of which are, or were during the year preceding the sale of the shares, constituted mainly of (i) real property rights or properties located in France or (ii) shares in unlisted real estate companies.

The text provides that a tax credit may be offset against the transfer duty due in France should a similar duty have been paid in the country of registration of the company that has been sold. The tax credit is limited to the amount of the French duty.