Overview 2008

In July 2007, the island of Saint Barthélemy officially became an Overseas Collectivity of France, which before was Commune of the island of Guadeloupe, which in turn is a Department of France.

We are no longer officially part of Guadeloupe although there remains strong administrative ties. 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 and with regard to issues of taxation.

Who can purchase real estate on Saint Barths?

In fact, any person or entity can purchase on the island of St. Barthélemy. 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 lien landowner’s license or other.Real property in France and on the island of Saint Barthélemy is freely transferable without restriction.

With the exception of the Conservator’s salary, most of the registration and filing taxes are now part of the large revenue sources of the new Overseas Collectivity of Saint Barthélemy.

Costs associated with real estate purchases

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, and 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 Barthélemy, 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 Barthélemy 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 whether or not it has been completed more than five years at the time of sale.

Generally speaking, the transfer taxes for properties including Notaire’s statutory fees represents approximately 6.0-6.2% of the property price, depending on the purchase price (some costs are fixed such that the higher the price the lower the percentage).

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.

St Barths Inhertance Laws and Taxes

There is on Saint Barthélemy, a very interesting particularity that has been included in the local Code of Contributions. There is no longer any inheritance taxes due by St. Barthélemy residents.

As to non-French, non-St. Barthélemy residents, the same pay normal French inheritance taxes, but to the extent Treaties are applicable, the taxes are subject to the Treaty and the credits afforded thereby. There is no longer any inheritance tax in France between spouses.

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 such as an SCI (Societe Civil Immobiliere), prior to the purchase of property, such that the buyer is the corporation, either already formed or in the process of formation.

In the event the property were purchased through a corporation, the applicable law as to the distribution of the St. Barthélemy estate 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 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.

Wealth Tax in St Barths

Without belaboring the application of the wealth tax in France and the details of the legislation relative to the same, it is important to note that the wealth tax is in fact a tax applicable on St. Barthélemy as of this date- for non residents.

Although the island is currently negotiating a tax Convention between St. Barthélemy and France, the same has not yet been signed or approved and until such time as the same is done, this author can only present the current situation as being one in which the wealth tax is due and payable.

Although it is believed by some that the Tax Convention between St. Barthélemy and France will permit St. Barthélemy to impose local real estate taxes if any and permit the taxation by the island exclusively as to real estate located in its Territory, there is no guaranty as to the same.

At this time, for non-residents, the Wealth Tax, income tax and 3% tax based on the value of real estate are due (the 3% tax is totally avoidable in the event of ownership through an SCI and in other situations if the appropriate disclosures made).

The wealth tax is based on the value of the equity in the asset held on January 1 of any given year, as follows (applicable table for the year 2008):

Up To 770 000 eur. 0 % TOTAL DUE : 0 €
Between 770 000 and 1 240 000 eur. 0,55 % 0 to 2 585 €
Between 1 240 000 and 2 450 000 eur. 0,75 % 2 585 to 11 660 €
Between 2 450 000 and 3 850 000 eur. 1 % 11 660 to 25 660 €
Between 3 850 000 and 7360 000 eur. 1,30 % 25 660 to 71 290 €
Between 7 360 000 and 16 020 000 eur. 1,65 % 71 290 to 214 180 €
Greater than 16 020 000 eur. 1,80 % > 214 180 €

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 part of a purchase in France including in the Collectivity of Saint Barthélemy. 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 and that the property transferred has no hidden liens, easements or other, 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 bonded by the French Government for the same. 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 he 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 Barthélemy. In fact, at this time, the following holds true:

As of January 1, 2008, the capital gains tax for European non-Metropolitan, non- St. Barthélemy French residents is 16%, with a 10% reduction per year in the gain after the 5th year, commencing the 6th full year of ownership, such that after 15 full years of ownership, no capital gains tax is due.

As to French residents, the same is16% plus a social charge for a total of 27% and as to St. Barthélemy residents the amount of 25%. For Non-European, Non-Barthélemy residents (such as Americans, South Americans, and others) the rate is 33.33%, again with a 10% reduction per year in the gain after the 5th year, commencing the 6th full year of ownership, such that after 15 full years of ownership, no capital gains tax is due.

Residing in Saint Barthélemy:

An aside as to residency, for those considering a move to the Overseas Collectivity of St. Barthélemy:

Island residents are not responsible for the payment of an income tax to France for income earned or generated on island.

Effects of residency and Persons considered residents:

As to the effects of residency, the same are limited, as to both physical residents as well as resident legal entities, to the income or benefits from business or other activity on the island of Saint Barthélemy or from property or assets located in the Collectivity.

All other income or benefits generated from any source not directly generated by island activities or further, from assets or property located elsewhere, is not covered by the Code of Contributions of the island of Saint Barthélemy at this time, although the Opinion of the Conseil d’Etat leaves that door open.

Physical Persons

Physical persons who are considered to be residents pursuant to the Code of Contributions are:

-Those persons who can justify that they have had their home or principal place of residence, for the period of at least 5 years on January 1 of the year of imposition; or

-Those persons who can justify that they have had their principal professional activity in Saint Barthélemy, for the period of at least 5 years on January 1 of the year of imposition; or

-Those persons who can justify that they have had the center of their economic, material or business interests in Saint Barthélemy, for the period of at least 5 years on January 1 of the year of imposition;

Legal Entities

Legal entities considered to be residents pursuant to the Code of Contributions are:

-Those entities which, regardless of their corporate form or corporate, for the period of at least 5 years on January 1 of the year of imposition, have established Saint Barthélemy as their effective principal place of business; or

-Those entities which, regardless of their corporate form or corporate, for the period of at least 5 years on January 1 of the year of imposition, have established Saint Barthélemy as their effective principal place of business or which are controlled, directly or indirectly by persons who are considered physical residents of the island of St. Barthélemy (majority ownership of shares by a tax resident of the Collectivity of St. Barthélemy).

The above provides a very general overview of the purchase transaction for property in Saint Barthélemy. Explanation and review of tax issues and a case-by- case analysis and discussion as to structure is important in order to preserve and secure real estate purchases and its resulting investment, on the island of St. Barthélemy.

In particular, it must be understood that the island of St. Barthélemy is in full transition and the above is likely to change post- signature of the Tax Convention between St. Barthélemy and France.

It must be stated that the individual situation must be considered when purchasing property on the island of Saint Barthélemy. Assistance by a professional is recommended.

Chantal Decombe-Greaux
Active Lawyer/Attorney
Member State Bar of California
DECOMBE & DECOMBE EURL
Edited June 12, 2008