The Duflot scheme and the benefits of the new law for overseas real estate investment

The terms of the Duflot law

Replaced by the Pinel Law Overseas, this scheme was applied in France until September 2014. Consequently, the Duflot Overseas Law benefited many taxpayers who are today owners of an apartment or house thanks to this tax relief tool. The Duflot Ultramarine scheme allowed obtaining a significant tax reduction for a real estate purchase in the Tropics. It corresponded to 29% of the acquisition amount for a rental commitment of 9 years.

All new housing located in the DROM (Department and region of overseas France) and the COM (Overseas collectivity) were concerned. A condition was in force with the Duflot DOM law, the percentage of housing that could be tax-relieved must not exceed 80% for buildings housing at least 5 units. Furthermore, the tax reduction was conditional on the commitment to lease the bare housing for primary residential use.

The conditions and reasons for investment in Reunion

Three distinct obligations governed the Duflot Overseas scheme. First, there was the number of acquisitions, capped at two per year. The percentage was calculated within the limit of one or two investments that did not exceed a total of 300,000 euros with the Duflot DOM law. Furthermore, investors had to verify that the acquisition price per square meter did not exceed 5,500 euros per square meter. A Duflot Ultramarine investment remained more attractive than a metropolitan purchase since the reduction rates were increased. Among the other rules of the scheme was the following: when the tax relief for any given year exceeded the tax owed for that same year, the balance of the tax reduction could be applied against income tax for the following years. With Duflot DOM tax relief, individuals made the choice of a safe investment. Several reasons could prompt them to act this way. The Duflot Ultramarine law was for some synonymous with building real estate wealth. For other households, it was about quickly generating rental income. The most forward-thinking wanted to plan for retirement with a Duflot Overseas investment.

The innovations with the Pinel law

Understanding the terms of the old scheme helps you understand the new DOM-TOM tax relief tool replacing the Duflot law, which is called the Pinel law. First, the Pinel law is more attractive from a tax perspective since it offers a maximum reduction rate of 32%. The scheme currently in force is also more interesting in that it allows investors to house their ascendants or descendants, which the Duflot Overseas law did not allow. Furthermore, Pinel is distinguished by different tenant income ceilings since these can change each year. It is 27,359 euros per year in 2015 for a single person. In early 2014, it was only 26,776 euros with the Duflot Reunion law, for example in the context of a real estate purchase in Saint-Denis.

Simulation under Duflot Overseas Law

We will compare the potential of the two schemes with a fictional investment. You buy an apartment for 140,000 euros under the Duflot law on the island of Reunion. Applying the percentage of 29% (for a rental period of 9 years), the tax reduction reaches 40,600 euros. The tax deduction under Pinel law is higher than Duflot DOM tax relief since it amounts to 44,800 euros (rental commitment of 12 years). The opportunities are diverse on this island for taxpayers seeking an investment in real estate. The Duflot Reunion attracted many households ready to take on reasonable debt to become homeowners.

In sum, the Duflot law was an excellent scheme, but whose defects were eliminated and corrected by the Pinel Law. For more information on the Scellier, Pinel DOM-TOM, and Pinel Reunion laws, do not hesitate to consult our dedicated pages.

Also read:

• Overseas real estate investment
• New Program Overseas
• Pinel Law Dom-Tom
• Girardin Outre-Mer Law
• Scellier Overseas Law