A Purchase Overview
On January 1, 2012, the island of Saint Barthelemy officially became an Overseas Territory of France, which previously, since July 2007 was a Collectivity and for many years prior, a Commune of the island of Guadeloupe, which in turn was a Department of France. We are no longer officially part of Guadeloupe although strong administrative ties remain. That being said, the island remains very much French. Although the island is subject to the French Constitution and remains French, much independence has been obtained with regard to the local administration of the island’s infrastructure, real estate, zoning, Code of Contributions, Code of Urbanism, and Immigration, among others and with regard to issues of taxation, among others.
Who Can Purchase on the island of Saint Barthelemy
In fact, any person or entity can purchase on the island of St. Barthelemy. Although certain legal entities may be disfavored from a tax standpoint, there is no prohibition, legally speaking, to the same. It is absolutely not required to have a French citizen own any portion of the property to be purchased, through the ownership of corporate shares, or outright. Likewise, there is no need for local government authorization through a landowner’s license or other. Real property in France and on the island of Saint Barthelemy is freely transferable without restriction, if no self-imposed restrictions or options are undertaken.
With the exception of the Conservator’s salary, most of the registration fees are now part of the revenue sources of the new Overseas Collectivity of Saint Barthelemy.
Cost of Property
In addition to the purchase price of the property in question, there are Notaire’s statutory fees along with filing and registration fees (globally referred to as “transfer taxes”) to be paid in a transfer of property. Those taxes are generally assumed by the purchaser. The seller is responsible for the payment of the capital gains taxes due, if any.
The amount of the transfer taxes to be paid upon property is, on the island of Saint Barthelemy, identical, without regard as to whether the property is developed or undeveloped and without regard to the number of years since completion. There is no longer a Value Added Tax applicable in the purchase of real property in the Collectivity of Saint Barthelemy pursuant to the newly adopted Code of Contributions applicable as of January 1, 2008. Unlike in Metropolitan France, the global transfer taxes associated with the purchase of property is the same regardless as to whether the property is developed or not.
Generally speaking, the transfer tax for properties including Notaire’s statutory fees represents approximately 6.3-6.8% of the property price. The exact amount of the transfer taxes varies based on the price paid for the property in that certain filing costs are fixed costs and the higher the price, the lower the percentage.
Neither registration taxes nor capital gains taxes are paid on the value of the furnishings sold with the real property being purchased.
There is on Saint Barthelemy, a very interesting particularity that has been included in the local Code of Contributions. There is no longer any inheritance taxes due by St. Barthelemy residents. There is no longer any inheritance tax in France between spouses, regardless of nationality of the spouses.
French (and by definition St. Barthelemy is included) does not allow for the exclusion of children, nor at this time of spouses, as heirs – regardless of the provisions of a Last Will and Testament.
French and local law do not allow for the exclusion of children, nor at this time of spouses, as heirs – regardless of the provisions of a Last Will and Testament.
Although the shares of a corporation may be disposed of pursuant to the intestate provisions of the decedent’s country of residence or their Last Will and Testament without regard to French forced heirship laws, the same does not hold true of property owned in individual names. If held individually, the share of the estate to which each among the children are entitled to, depends largely on the number of children belonging to the decedent.
Likewise, French law does little to consider the complexities associated with today’s mosaic families in which children may in fact result from one, two, or more marriages or even yet, certain adoptions. French estate law tends to sometimes unfairly favor bloodlines as opposed to family ties or the contractual ties of marriage. In order to avoid the harshness of the same as well as to benefit from the advantages of the tax treaties and applicable laws, depending on the individual circumstances, one may want to consider the creation of a French corporation or the holding through various foreign corporations, understanding that certain options must be made by US residents within a short period after the creation of a French Corporation in order to best benefit from US Tax Laws. The choice of the method and manner of purchase may be made shortly after the signature of the Purchase and Sale contract but in any event prior to the purchase of property, such that the buyer is the corporation, either already formed or in the process of formation. Failure purchase in the name of the intended titleholder will result in a second payment of transfer taxes as defined above.
In the event the property were purchased through a corporation, the applicable law as to the distribution of the St. Barthelemy real property at death is that of the country of residence of the decedent at the time of death, without regard to the forced heirship provisions of French Estate law. The use of a corporation can be an extremely useful vehicle for estate planning purposes and the taxation of the same in Saint Barthelemy together with that of the country of residence.
Further, a corporation, regardless of its form, may be structured so as to provide that in the event of the death of any shareholder, the remaining shareholders have a pro-rata first right of refusal as to those shares so that even if the decedent left the shares to their spouse, the remaining shareholders could choose to pay the heir the value of the shares on the date of death of the shareholder and not accept the designated heir as a shareholder. A corporation provides a greater flexibility of ownership and transfer of interests in general, including the possibility of creating life estates, remaindermans, etc. that can certainly have an affect on the tax consequences in the country of residence of the beneficiary under a will or intestate.
The Role of The Notaire in a Purchase
Unlike in common law countries, there is in France a “Notaire” who is appointed and who acts essentially as a “Title Insurer”. He is NOT a notary public. He is a necessary and obligatory part of a purchase in France including in the Collectivity of Saint Barthelemy. He is responsible for the drafting and filing of the Deed. He is responsible for making certain the instruments he or she drafts, such as the deed of sale, are effective for the purpose for which they are intended, the transfer of free and clear title and that the property transferred has no liens, easements or other encumbrances, that are not disclosed and which could affect the use or value of the property purchased. The Notaire’s fees are set by statute and he/she is responsible for making certain that “Free and Clear Title” is transferred. After the receipt of a Statement of Recorder’s liens from Guadeloupe, the Deed is signed and title transferred. The Notaire may be viewed as a scrivener. The delay between signature of the Purchase Agreement and the Deed is generally about three (3) months. The Notaire is responsible for having the title deed and/or mortgage registered at the Land Registry.
Unlike in common law countries, there is no title insurer in France. To the extent title opinions are requested, the Notaire is legally responsible to perfect title. He is in fact the title insurer and is insured by a notarial fund, to which all notaire’s contribute, in the event of an error in title, or undisclosed/unknown lien. The fee paid him may be viewed as title insurance.
Purchase & Sale Agreement
Once a Seller and a Buyer have agreed on price, a Purchase and Sale Agreement is executed, at which time generally 10% of the purchase price is placed into the Notaire’s escrow account as an earnest money deposit pending the signature of the Deed of Sale. In the event the purchaser decides not to buy, after all the conditions to a sale have been fulfilled, the earnest money deposit is forfeited. Any number of conditions precedent may be included in the sale, and the same can be used to protect the potential buyer from the loss of his earnest money deposit if a condition important to him is not satisfied on the last possible date set for closing.
Notwithstanding the above, the Buyer, or his agent in the event of signature through a Power of Attorney, generally have a seven (7) day period after the receipt of the signed Purchase and Sale Agreement to back out of the sale and to have reimbursed within 21 days, his earnest money deposit with no questions asked (IF they are not a professional in the sector of real estate and if the property is not a vacant lot).
Capital Gains Taxes in St Barths
The issue of capital gains taxes has been the subject of many questions by non-residents owning property in the Collectivity of Saint Barthelemy. In fact, at this time, the following holds true:
As of January 1, 2008, the capital gains tax for European non-Metropolitan, non-St. Barthelemy residents with a 10% reduction per year in the gain after the 5th year anniversary of ownership, commencing the 6th full year of ownership, such that after 15 full years of ownership, no capital gains tax is due
The most common tax rate for French Real Estate Holding Corporations and most non-residents has now been lowered to the lowest rate in many years, to 20%.
In conclusion, the purchase of property on island can be one of the richest experience of a lifetimes, but as is the case everywhere, it is important to be guided by someone familiar with the ins and outs of the local real estate requirements.
Edited April, 2012 This Article is written by Chantal Decombe, who has advised American citizens and Anglophones through the world on the purchase of residential and commercial property on the island of Saint Barthelemy over the past 22 years with much dedication.