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Buying Property

This Article is written by local counsel, who has advised American citizens and Anglophones throughout the world on the purchase and proper financial management of commercial and residential properties on the island of Saint Barthelemy over the past 22 years.   

SAINT BARTHELEMY PURCHASE OVERVIEW – UPDATED JANUARY 2013

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, issues of taxation as to property local resident income, 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.

The Right of Preemption in Favor Collectivity : 

The Collectivity of Saint Barthelemy has, through its Territorial Council, on February 12, 2008, instituted a right of pre-emption in favor of he Collectivity relative to the transfers of property in the Territory of Saint Barthelemy in favor of non-residents.

This decision took effect on March 17, 2008.

The right of preemption does not apply to residents residing on island for a period of time exceeding 5 years.

In order to respect this right, upon signature by the parties or their representatives of the Purchase Contract, the Notaire notifies the Collectivity of the pending purchase by providing a copy of the contract, and the Administration has the period of Sixty (60) days within which to decide whether or not they choose to preempt the contract. The decision is usually made in a shorter period of time, but the period must be made available, meaning that no contract may provide for a closing within the sixty days of signature of the Purchase Contract.

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 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.

Generally speaking, the average transfer tax for properties including Notaire’s statutory fees represents approximately 6.3-6.5% 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 inventory of furnishings sold with the real property being purchased.

Inheritance :

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 for assets inherited on island. There is no longer any inheritance tax in France between spouses, regardless of nationality of the spouses.

French (and by definition St. Barthelemy) 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. This must be reviewed in discussions as to the structuring of the manner of purchase.

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. There is a concept of a “reserved estate” to certain heirs.

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 elections 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 structure, if any of ownership purchase may be made shortly after the signature of the Purchase and Sale contract (assuming the ability to substitute is n the Purchase contract) but in any event at least 45-60 days prior to the purchase of property (remembering the necessity of notifying the Collectivity as to its right to preempt), such that the Buyer will be a legal entity, either already formed or in the process of formation. Failure to 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. nor French inheritance taxes The use of a legal entity 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, remaindermen, 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 an inter-ministerial appointee and who acts essentially as a "Title Insurer”. He is neither a notary public nor an attorney. 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, or if not, to exclude the same in the Deed ONLY if agreed to by the Buyer. After the receipt of a Statement of Recorder's liens from Guadeloupe, the Deed is signed and title transferred. The Notaire may be additionally 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 Recorder’s Office in Guadeloupe.

Unlike in common law countries, there is no title insurer in France. To the extent title opinions are requested, the Notaire does so and is likewise 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.

It is also interesting to note that legal instruments executed before a notaire is considered an “authentic” instrument, having the force of law unless the notaire himself or his instrument is attacked as fraudulent. 

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:

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 in Saint Barthelemy is the rate of 35.5%, which includes a tax of 20% to which is added a “social charge” of 15.5%. There is a 10% reduction per year in the gain as of the 6th year anniversary date of ownership, (commencing after 5 full years of ownership, such that after 15 full years of ownership, no capital gains tax is due)

The Requirement of a Declaration as to ownership in order to avoid a 3% Tax on Ownership:

There is a requirement to disclose information regarding the interest holders of a legal entity holding an interest in real estate, be it directly or indirectly, each year, as of January 1, 2013, said declaration to be filed prior to March 31 of the year in question.

The Code of Contributions of the island of Saint Barthelemy provides as follow:

(Certified Translation of Extract of the Code of Contributions prepared by Chantal B. Decombe, Expert Interpreter / Translator before The Court of Appeals of Basse-Terre, of extracted text of The Code of Contributions of the Collectivity of Saint Barthelme

…

“…Chapter 6: TAX ON LEGAL ENTITIES BASED ON THE MARKET VALUE OF REAL PROPERTY OWNED ON THE TERRITORY OF THE COLLECTIVITY OF SAINT BARTHELEMY.

“Article 110: All legal entities, any trust or group of any form whatsoever, including but in no manner limited to, trusts and groups, holding directly or indirectly, through intermediary persons or legal entities, owning one or several properties in the Collectivity of Saint Barthelemy, owes an annual tax equal to 3% (emphasis added) of the market value of these properties or rights and interests relative to the same.

Is deemed to own real estate rights or assets, all legal entities, trusts or other grouping which holds a participation or interest, regardless of the form or quantity of the same, that holds the property or holds an interest in the third party legal entity (trust or arrangement) that owns the asset(s) or rights therein or interposed in the chain of participation. This holds true regardless of the number of legal entities, trusts or grouping interposed.”

“ Article 111:

The tax envisioned by Article 110 of the present code is not applicable:

1º) To legal entities, trusts or grouping that declares, each year, prior to March 31 to the Territorial Fiscal Administration:

-The location, surface area and value of the property held on January 1,

-the identity and address of their shareholders or members at that same date together with the interest or shares held by each among them. In the event of a chain of participation the declaration must follow the chain of interest or participation until the reaching of the shareholders or member1 who are physical persons holding shares, actions, rights or interest in each of the entities forming the chain involved.

This Declaration is addressed to the Tax Office of the island of St. Barthelemy. …

… “Article 112:

The tax is due by reason of holding property of interests in property on January 1 of the year of imposition.

The tax is due by the legal entity, trust or other entity, regardless of form, that are, in the chain, the closest to the property, but all the participants in the chain are jointly and severally liable for the payment of the tax.

As to the legal entities having failed to proceed to the Declaration provided for in 1º) of Article 111 above, may exonerate themselves from further payment starting the year in which it communicates to the Fiscal Administration the information mentioned above in paragraph 1º) .

The tax is recovered according to the rules and pursuant to all sanctions and guaranties applicable in the matter of registration taxes.”

Article 3 (sic): Authorizes the President to assure the follow-up and execution of the present decision….

In conclusion, the purchase of property on island can be one of the richest experiences 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 and to structure the purchase so as to best serve your short and long term goals as well as family and marital situation.

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