Home Real Estate Residential Property Taxes – A Global Comparative Analysis

Residential Property Taxes – A Global Comparative Analysis

by Nabil Soormally

In the present-day global economy, cross-border investment decisions cannot be complete without tax considerations. The form and rate of taxes have a direct impact on investment returns. Tax laws also change with time to reconcile with the national context – sensitive to the state of the economy and elements of socioeconomics, culture, and history.

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With the global real estate investor in mind, we delve here into the subject of property taxes, which contribute to varying degrees to the national revenue collected by the government. In Mauritius, the contribution of taxes on property to total revenue collected by the government has been forecasted at 5.9% for the 2020/2021 financial year1.

Our focus here is on residential property taxes. Venturing on a global tour to compare residential property tax rules, we visit some of our major trading partners; South Africa, France, Germany, and the United Kingdom.

We caution our readers, however, to interpret this article as a generalisation and not in the exhaustive sense. To borrow the words of Richard M. Bird and Enid Slack, both references in matters of property tax: “The devil in taxation is in the details, and the details are often devilishly hard to determine.” Tax structures can become very complex, very quickly, and tax liabilities are functions of a taxpayer’s specific situation. One further recommendation is to seek the advice of a tax expert before any meaningful decision is taken.

To simplify the focus of the discussion, we classify the different taxes related to property into 3 broad categories:

  • Real estate value tax (Value) – imposed annually (or periodically) on the value of property;
  • Rental income tax (Rental) – related to income earned from the property;
  • Transfer tax (Transfer) – an ad valorem tax on the value of a transaction in property.

Mauritius

There is no real estate value tax applicable in Mauritius. What used to be the National Residential Property Tax (NRPT) was abolished in 2010, following years of heated debate. It could very well be that the idea of savings in the Mauritian culture is deeply rooted in the ownership of property – one major dissenting voice against the NRPT having been the erosion of savings by taxing the value of land.

Rental income is taxed at 15%, similarly to other taxable income – after allowing for expenses directly related to the generation of this income. As for property transactions, a registration fee of 5% is payable by the buyer, and 5% by the vendor. No capital gains tax applies. The property taxation system in Mauritius is relatively straightforward.

France

French locals are faced with two different taxes: taxe d’habitation (Residence tax), imposed on the occupants, and taxe foncière payable by the owner. The calculation for the taxe d’habitation is at best, very complex. Significant changes have been set into motion, with the intent to alleviate the burden from households. The valuation basis for rental values is also under revision. These amendments however are scheduled to be executed gradually. It remains complicated to establish a set rate for this residence tax. The taxe foncière is also a value tax imposed annually on owners whether or not they are occupants of the property. This tax covers not only residential, but also commercial and others, while certain exemptions are provided. Rental is taxed on a scale along the computation for income, in addition to applicable social charges. The standard capital gains tax rate on real estate is 19%, though progressive charges apply depending on the magnitude of the gains, plus the relevant social charges. Acquisition can be subject to transfer tax or real estate VAT, depending on the nature of the property and its use.

South Africa

An estate duty of 20% is payable on the estate of every person who passes away should the net estate be in excess of R3.5 million. While this is a value tax, it is however not directly related to the acquisition of property in a transaction.

Income tax is applicable on rental income earned from property, after allowing certain deductions related to maintenance. This rate ranges from 18% to 45% depending on the taxpayer’s income tax bracket.

No transfer duty is applicable on a property purchase under R900,000, thereafter a progressive rate up to a maximum of 13%.  If the purchase transaction is subject to VAT (15%), then there is no transfer duty. Capital gains tax is considered part of income tax, and ranges from 18% for Individuals, to 22.4% for companies, and 36% for certain Trusts.

Germany

Property tax in Germany involves two variants of land tax imposed on four different bases at five different “base rates” which in turn are modified by locally determined “leverage factors.” In effect, a taxpayer may pay between 1.5% to 2.3%.

Progressive rates apply on rental income, after deducting necessary expenses, including depreciation, prior to adding a solidarity surcharge.

Property transfer tax is payable on acquisition as well, ranging from 3.5% to 6.5%, depending on the Federal State. Capital gains tax is applicable.

United Kingdom

A council tax is payable by anyone who’s 18 years and older and who either owns or rents a home. To determine the quantum, different ratios apply to different bands (letters A to H). Rental proceeds are taxed as income, on a progressive scale from 20% to 45%, although personal allowances are deductible. Stamp Duty Land Tax (SDLT) is applicable on acquisition, within an established range. First-time buyers are eligible to a relief, with no tax applicable on the first £300,000. Capital gains tax on property applies.

residential property taxes, mauritius, fiancial system in mauritius

From this comparison, we may find that the property tax laws in Mauritius are relatively straightforward and accommodating. Suited to the national context, they have undoubtedly played an important part in the local economic success story, and the growth of the real estate sector.

Should we continue our journey around the fiscal regimes of the world, we may very well begin to chart their distinct differences. Tax laws are after all not mere legislation, but a cultural atlas. The form of the fiscal structure of a country is at the core of the social contract which exists between the state and the people. This is particularly relevant when it comes to property taxes – an extension of the close relationship we hold with real estate as security, purpose, investment, and legacy.

In the wake of Coronavirus containment measures and their ensuing economic impact, governments across the globe have been driven to enact extreme fiscal measures. Countries with weaker fiscal capacities may find the path to recovery to be longer and steeper. As of May 2020, the Government of Mauritius has responded with fiscal stimulus totaling Rs. 12 billion ($300 million) – roughly 2.5% of its Gross Domestic Product (GDP)2. The International Monetary Fund (IMF) expects the local economy to contract by 6.8% in 2020 but to pick up in 2021 by 5.9%3.

As mentioned, tax laws may change in response to economic needs. It is therefore another space that will require constant monitoring. However, all things being equal, Mauritius has a stronger fiscal stance than most Sub-Saharan economies, and the general applicable formula is expected to remain simplistic in the short to medium term.

  1. ^ Ministry of Finance and Economic Development. Summary of Revenue Projections. Retrieved on 4 June 2020 from http://budget.mof.govmu.org/budget2019-20/V_00_122019_20SumRevenue.pdf.
  1. ^ International Monetary Fund (IMF). Policy Tracker. Mauritius. Retrieved on 4 June 2020 from https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#M
  2. ^ Mauritius Trade Easy. Mauritius: Economic Outline. Economic Indicators. Retrieved on 4 June 2020 from http://www.mauritiustrade.mu/en/trading-with-mauritius/mauritius-economics-outline

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