French Real Estate Investment | Analysis and Taxation of LMNP/LMP

This article delves into the pros and cons of "Loueur en meublé professionnel (LMP)" and "Loueurs meublés non professionnels (LMNP)," these two systems to help you make informed investment decisions.

Real Estate
Mar 18, 2024

In the rental housing market, furnished properties are becoming increasingly popular among investors due to their high demand. However, when it comes to renting furnished properties, there are taxation issues to consider.

Individual rental income is subject to a higher tax rate and cannot benefit from depreciation and other deductions. Therefore, more and more people are exploring alternative tax options, especially "Loueur en meublé professionnel (LMP)" and "Loueurs meublés non professionnels (LMNP)," which are two different taxation regimes.

This article delves into the pros and cons of these two systems to help you make informed investment decisions.

Before diving into the details, it's essential to understand the you have also other options as well. For example: Micco.

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Micco's commitment to empowering business creators extends to:

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  • Convenient capital deposit management solutions
  • A suite of additional financial tools and resources catered to entrepreneurs

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  1. Qualifications for LMNP/LMP Rentals
  2. Taxation: LMP Offers More Tax Benefits
  3. Property Management: LMNP is More Convenient
  4. Summary: A Comparison of LMP and LMNP

1. Qualifications for LMNP/LMP Rentals

To rent out a property as LMNP or LMP, you must first fill out a form called "P0i" at the Greffe de Tribunal de Commerce, located in the area where your rental property is situated. This form is used to obtain a SIRET (business registration number), which is necessary to report taxes for your rental property under the LMNP or LMP regime.

For professional furnished property rental (LMP), two essential conditions must be met:

  • Annual rental income exceeds €23,000.
  • Rental income exceeds the total of your other income (e.g., salary income).

If you fail to meet either of these two conditions, your rental automatically falls under the non-professional furnished property rental (LMNP) category, meaning your annual rental income is less than €23,000.

2. Taxation: LMP Offers More Tax Benefits

Whether you choose LMP or LMNP, the rental income you provide is considered "industrial and commercial profits" (bénéfices industriels et commerciaux) and must be reported separately for tax purposes. Apart from reporting rental income for personal income tax, you also need to submit an accounting statement to the tax authority's department responsible for businesses (Service des Impôts des Entreprises).

From a tax perspective, choosing LMP can be more advantageous. When you opt for the actual tax regime (Régime réel) instead of the fixed-rate regime (Régime Fixe) for your LMP, there are several benefits:

  • If your rental income is lower than your expenses, you have a deficit in your LMP (i.e., "income" - "expenses" is negative). You can deduct this deficit from your total income for personal income tax purposes (for up to 6 years), providing a tax reduction. However, with LMNP, you cannot deduct this deficit.
  • If you follow the tax regime with tax exemption (Régime de l'auto-entrepreneur), and your rental income has been less than €90,000 per year in the past two years, and you have been renting for more than 5 years, you may be exempt from paying value-added tax (VAT) when selling the property. However, with LMNP, your VAT exemption will require a 30-year waiting period.
  • Inheritance transfer benefits are available for LMP, reducing inheritance tax for your children.

3. Property Management: LMNP is More Convenient

When it comes to property management, LMNP is more convenient compared to LMP.

In terms of the obligations landlords must bear, both LMP and LMNP initially register as furnished rental companies using the P0i form with the relevant authorities. However, LMP landlords have significantly more obligations to fulfill.

Since LMP is considered professional renting, landlords must manage their real estate assets like a management company. This means that in addition to having legal and tax knowledge, landlords must also prepare tax planning or share the costs of furniture and housing.

Furthermore, the financial management of LMP is quite complex, and landlords often lack the necessary knowledge. They may need to seek assistance from professionals such as accountants, tax lawyers, or wealth management advisors. Of course, landlords can choose not to seek assistance from these professionals, but they are likely to waste time and make mistakes, resulting in high tax expenses.

💡  With a Micco account, you can have a dedicated bank account for your investment property. Micco's automatic invoice matching feature allows you to easily match expenses with invoices and file taxes at the end of the year with just one click, making it very convenient. All handled by professional accountants and personalized service!

4. Summary: A Comparison of LMP and LMNP

💡  Micco offers a property tax package to help you resolve tax issues, making it easier to manage your rental properties. Only €49 HT per month!

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