It is always tempting to acquire a land asset in France, but the question is what business structure is the most beneficial?
Choosing the right structure is paramount, 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.
It is usually advisable 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), as a land acquisition is much less complicated in business terms.
The GFV mentioned in the title, 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.
So the safest and most logical way to invest in the purchase of a vineyard is through a wine property investment group, a GFV as mentioned above.
Below is a simplified explanation as to how a GFV works.
The purchase of a vineyard plot by a single or several investors is often carried out in France by creating a GFV – Groupement Foncier Viticole (a wine property investment group). The investors place their capital share in a newly established company which then purchases one plot, several plots or an estate. The vineyard is then rented to a chosen winegrower who pays the rent on the vineyard plot.
The lessee or tenant, in other words, the winemaker, pays a rental on the vineyard, which is also known as tenant farming.
This tenant farming is payable on a yearly basis according to farming laws, in other words 9,12 hectoliters per hectare. The amount is calculated on the average prices of the concerned appellations and validated by the Prefecture.
This rental is paid either in money or in bottles of wines made from the concerned vineyard plots (the most frequently used formula by investors). When the annual rental is paid in wine, this is done at the home of the investor at a pre-convened date which is calculated at the General Assembly and takes into account the time needed to make the wine and the ensuing barrel maturation (12 to 18 months). Some of the overheads will be charged to the investor who will fix the amount each year at the General Assembly.
3/ Advantages of purchasing vineyards
If tenant farming isn’t a huge source of profitablility, purchasing a vineyard is a means of acquiring fiscal advantages through both inheritance tax and wealth tax (ISF).
The other advantage, and by far the most interesting, is the increase in capital value. The more sought-after the vineyard is by potential buyers, the safer the investment, which increases each year and consequently gives a much higher fiscal reduction on capital gains!!
The current rise in Grand Cru vineyard value is around 5% per annum in Burgundy. According to Wine Spectator, in 2013/2014 Burgundy has 32 of the top 50 most expensive wines. Another 6 are Premier Crus (or First Growth). This means that although prices are high, Burgundy is currently the best vineyard investment region in France!
Why invest with Burgundy Beyond Investments?
- We select exceptional vineyards in Burgundy and highly respected winemakers/estate owners. Our knowledge of the region and its wine estates is second-to-none.
- We organize general meetings with the estates and their owners where you are given a tour of the estate and can meet and discuss the project with the winemaker. Very importantly you also taste the estate wines.
- We provide a first-class service with a 7/7 availability for clients and a highly professional and specialized legal service.
- We also provide a secondary market arrangement where a waiting list is established and shareholdings can be sold on to future shareholders.
For more information on current investment possibilities please contact Stephen Liney
email@example.com or +33(0)62 042 5978