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Investing in Vineyards
Today, the enthusiasm of foreign investors in French vineyards cannot be denied but the question arises: which aspects should foreign buyers take into account when purchasing a vineyard in France?
The buyer who has found the vineyard of his dreams must carry out preliminary research of various kinds: technical audits (property expert, oenologist, etc...) but also financial audits, accounting, legal, tax and social audits; indeed he is not only purchasing a property but also a business.
This will enable him to make an offer, negotiate the price, evaluate the benefits of buying assets versus shares, add reserves or impose conditions such as a guarantee of assets and liabilities.
Once the terms of the sale are agreed, it is time to negotiate the various contracts.
First a letter of intent is usually signed and then the promise of sale (promesse de vente). This second deed is fundamental because it confirms the agreement of the parties and the terms of the sale. The terms and scope of the guarantee of assets and liabilities must be precise and carefully written. This guarantee allows the purchaser to engage the liability of the seller for acts prior to the sale for adverse consequences that may be discovered after the sale.
The last step is the final sale transaction which is handled either by the Notaire for the property purchase or a Lawyer for the share purchase.
One of the key questions is how a foreign buyer should structure such acquisition?
Choosing the right structure is essential, because it will determine the tax regime applicable to both the vineyard and the owners. This choice will depend on many factors such as: How will the vineyard be operated? What are the objectives of the purchaser? What is the personal tax and family situation of the investor? Etc …
Each case is unique and tailor-made advice is necessary, especially for non-residents. Indeed, in addition to French internal tax rules, a non-resident will have to apply the relevant bilateral tax treaties which could offer interesting tax planning opportunities.
We note that is usually favorable to separate the land (owned by example by an SCI, a Groupement Foncier Viticole - GFV) from the business operation (commercial companies with limited liability are recommended).
The GFV mentioned above, is a civil company with a special status which allows it either to purchase the property for direct use or for lease. A long term lease, usually signed the property holding structure and the commercial entity running the business, can allow a specific reduction of both wealth tax and inheritance tax.
Wealth tax and inheritance tax are the two main taxes to be optimized for the investor who can benefit from partial or total tax exemption through specific technics such as: third party loans, specific shareholders agreements, professional asset qualification etc...
Non-resident investors may also find advantages in using a single non-French vehicle to own both the real estate and the business, to allow the structure to remain out of the scope of French personal taxation.
The taxation of profit will depend on whether limited companies or partnership structures are used. This choice will also have an impact on the future capital gain realized, especially on the sale of the land. Foreign investors should be careful when choosing a corporate tax entity to own the land because of the latent capital gain tax generated by this tax regime.
Finally, foreign structures such as Monaco SCI (ie: for land ownership) and European Holding Companies (ie: for the business operation), could be interesting alternatives to optimize the tax position in France.
Cécile Villacres Acolas
For further information on Rosemont Consulting SARL and services provided please visit www.rosemont.mc
Please do not hesitate to contact Cecile Acolas at firstname.lastname@example.org for queries on these topics.