The 3% Tax: The End of Passive Compliance

In wealth structuring, the absence of a transaction no longer necessarily means the absence of an obligation.

A property may remain within the same family and be held through the same structure for decades, without any sale, refinancing or reorganisation. Yet a change in legislation can materially alter the obligations attached to its ownership.

The recent reform of France’s 3% annual tax on real estate held through legal entities provides a particularly relevant example for Monaco.

French Law No. 2026-534 of 25 June 2026 on combating social security and tax fraud amended Articles 990 E and 990 F of the French Tax Code and introduced a new Article 990 FA. While the tax rate itself remains unchanged, the reform materially alters the conditions under which certain entities may qualify for an exemption.


An established tax, but one rarely paid where the compliance requirements are properly met

The 3% tax is not new.

Legal entities that directly or indirectly own one or more properties in France are, in principle, subject to an annual tax equal to 3% of their market value.

The regime does, however, provide for a number of exemptions. As a result, the tax operates less as a charge routinely borne by property-holding structures than as a mechanism designed to ensure transparency over the ownership of French real estate.

For entities falling within the exemption regime affected by the reform, which may include certain Monaco-based structures, one of the available routes to exemption previously relied on a choice.

An entity could either report annually to the French tax authorities the location and value of the properties it held, together with the required information on its shareholders or members, or it could undertake to provide that information if requested by the authorities.

The latter option was particularly well suited to long-standing wealth-holding structures: the obligation existed but remained largely passive unless and until the tax authorities made an enquiry.

It is precisely this option that the reform has removed.


From a potential obligation to an annual requirement 

Following the reform, Article 990 E now requires an annual filing, by 15 May, in order to benefit from the relevant exemption.

The information to be reported includes, in particular, the location, nature and market value of the properties held as at 1 January, together with the identity and address of shareholders, members or other persons holding more than 1% of the rights in the entity and the extent of their respective holdings.

At first sight, the change may appear largely administrative. In practice, it goes further.

The French tax authorities no longer merely require the ownership structure to be capable of being disclosed. That transparency must now be renewed each year.

For entities already filing annually, the practical impact should be limited. For those that had historically secured their exemption through a standing undertaking to provide information on request, however, the regime now moves to systematic annual reporting.


A particularly relevant issue between Monaco and France

The reform deserves particular attention in Monaco.

Many Monaco families and residents have held French real estate for years through civil companies and other wealth-holding structures. This is especially common along the Côte d’Azur, where some ownership structures have been in place for several decades.

The company continues to operate, the property remains in the portfolio, and no event occurs that would naturally prompt a review of the structure.

That is precisely why a change of this kind can easily be overlooked.

The reform does not apply only to future acquisitions. A company incorporated twenty or thirty years ago, whose assets and ownership have remained unchanged, may still become subject to a new annual reporting requirement.


Case study: A villa held for fifteen years

Consider a straightforward example: a Monaco civil company has owned a villa in Saint-Jean-Cap-Ferrat for the past fifteen years.

The company remains owned by the same family members. No shares have been transferred. The villa has not been sold, contributed to another entity or refinanced. Its market value as at 1 January is estimated at €12 million.

Under the previous regime, assume that the company had validly undertaken to provide the required information to the French tax authorities upon request and therefore qualified for the exemption.

From an economic, legal and family standpoint, nothing has changed.

Its reporting position, however, has.

The previous undertaking is no longer sufficient. The company must now move onto an annual filing cycle in order to continue meeting the conditions of the relevant exemption.

The theoretical exposure is far from immaterial: 3% of €12 million amounts to €360,000 per year.

This does not mean that a simple filing failure would necessarily and irrevocably result in a €360,000 tax charge. French administrative guidance has historically allowed, in certain circumstances, for a first failure to be remedied. How those principles will interact with the new regime will nevertheless need to be considered in light of the 2026 reform.

The example does, however, illustrate the potential mismatch between what may appear to be a relatively minor administrative formality and the tax exposure that compliance with it is designed to protect against.


A designated recipient in France will also be required

The law also introduces a new requirement for relevant entities that do not have a permanent establishment in France.

New Article 990 FA requires them to designate, in their filing, either an individual who is tax-resident in France or a legal entity with its registered office in France, authorised to receive on their behalf correspondence, procedural documents and notices issued by the French tax authorities in connection with the 3% tax.

This role should not be confused with that of a fiscal representative who becomes personally liable for the tax. The provision is primarily concerned with ensuring that the tax authorities have an identified recipient in France for official communications.

It nonetheless reinforces the broader direction of the reform: foreign entities holding French real estate must now maintain a clearly identified administrative point of contact in France.


The real change: The end of administrative inertia

It would therefore be misleading to present the reform as the introduction of a new tax on Monaco owners of French property.

The tax already existed. Its rate remains unchanged.

What has changed is more subtle: one of the mechanisms allowing entities to qualify for an exemption can no longer operate on a passive basis.

The broader point extends beyond the 3% tax itself. Long-standing wealth-holding structures were often established at a time when the absence of a transaction generally meant a degree of administrative stability. That model is gradually giving way to recurring transparency and reporting obligations, irrespective of whether there has been any change in the ownership of the underlying asset.

For Monaco-based owners of French real estate, the reform therefore calls less for a wholesale restructuring of existing arrangements than for a review of them: the ownership chain, the identity of shareholders or members, the valuation of assets as at 1 January, the history of previous undertakings or filings, and the organisation of the annual compliance process.