Investing in commercial property - France and Monaco


Investment in commercial property in France and in Monaco is attracting increasing numbers of foreign investors. We meet Eastern European clients wishing to diversify their property investment portfolio through the acquisition of commercial properties and businesses in Monaco, France, Germany, Spain and Italy. Commercial property is an excellent investment for the buyer, (landlord) with an average yield of between 5% and 7% a year, when compared with a yield of 2% to 4% on residential property.

From a legal standpoint, a commercial lease is more flexible (the parties have greater contractual freedom) than a standard residential lease, and can allocate more charges to the tenant. In practice, unpaid commercial rents are less frequent than for residential rents. This is due to the fact that, even in case of legal proceedings or liquidation, the liquidator will indemnify the landlord who is treated as a privileged creditor.

In France and in Monaco, the rent is freely determined but on review the increase is capped by regulation. The current rent can be reviewed in two ways specified in the contract: either a three-year or an annual review according to the “sliding scale clause”. A sliding scale clause is a contractual provision which automatically increases the rent, following a publically recognized index. In Monaco rent review is permitted only after the initial three-year period.

A new law introduced in France in June 2014, the Pinel law, capped the increase on review of commercial property rent. The reviewed rent cannot now be increased by more than 10% a year over the previous year. In Monaco, there is no limitation to the increase of rent on review, unless it is differently provided in the lease.

The legal entity which owns the premises as landlord has a direct impact on the taxation of rent it receives as income. Various options are available as the vehicle for the investment. To optimize the tax planning of the landlord investor and for greater confidentiality, the investor can create a Monegasque real estate company, which can be owned by him and his family. French commercial rents will be taxed in France regardless of the location of the holding structure. In France the tax regime applicable to the rent received is determined by the form of the receiving company, for example a French SCI or Monaco SCP is usually subject to income tax and a SAS is subject to corporate tax.

The rental activity can be either civil or commercial. The letting of commercial premises can be a civil activity but if the rent paid by the tenant depends on the tenant’s turnover it is a commercial activity for tax purposes. 

If the activity is civil and the landlord company is not subject to corporate tax, certain limited expenses, eg loan interest, insurance and repairs, are tax deductible. In case of commercial activity, there is a greater range of deductible expenses including property depreciation.  Where there are significant flows of rental income or where a foreign investor does not want to be subject to taxation in his country of residence, it may be appropriate to opt for taxation under the French corporate tax regime.

A French real estate property company that is subject to the French income tax regime will be taxed on its capital gains, but may benefit from a total capital gains tax exemption after a continuous twenty two years ownership. However, the allowance does not extend to an entity subject to corporate tax on realizing a gain of the sale of commercial premises.

In Monaco, it is much simpler for landlords who benefit from an overall tax exemption on rental income and capital gains; though consideration must be given to transfer duty and inheritance tax.

Tenants’ rights are well protected in France and the future investor should carefully understand its obligations prior to purchase on case of sale. Also he needs to take into account the possibility for the tenant to sell its lease without his authorization unless provided otherwise by the contract.

Commercial leases need to be drafted with care. A well drafted lease allows the landlord greater freedom and will have a direct impact on the return on this investment, whether in France and in Monaco. The experts at Rosemont Consulting are able to advise and assist on the draft of commercial and residential leases as well as in checking existing leases.

Rosemont Consulting provides a qualified expertise not solely for the owner or investor in commercial property but also for the tenant. We assist our clients in the analysis of the tax and legal corporate structure to optimize their investment in commercial property and we can provide full services afterwards to run the structure on a monthly basis.

For further information on Rosemont Consulting SARL and services provided please visit
Please do not hesitate to contact Cecile Acolas at for queries on these topics.

This article is published in MONACO БИЗНЕС (Monaco Business) Magazine - April issue