THE LADY IS A TRAMP

Before I say anything else I would like to wish all of you a very happy and prosperous 2010!

"The Lady Is a Tramp" is one of the best known songs of the musical, Babes in Arms. Richard Rodgers wrote the music, and Lorenz Hart wrote the lyrics. It was performed the first time on Broadway in 1937.

Yes, the lady can be a tramp, and President Obama is not a miracle maker but a president faced with fierce opposition and doubts in his own political party as well as in a growing part of the population.

Yes, the Auto-Entrepreneur status has been recently improved from what was already an excellent choice. In this case, it is possible that the French administration follows through and delivers what has been promised.

Yes, short-term rental in Paris used to be the best way to buy real-estate in the city “without paying for it.” Then it got totally out of hand and the government decided to address the issue by proposing a solution that looks perfectly reasonable until you understand what it entails.

THE LATEST NEWS ABOUT THE AUTO-ENTREPRENEUR STATUS
The French government is allowing most self-employed professionals to sign on to the Auto-Entrepreneur status, providing that they comply with all of the requirements. Primarily, annual sales must be less than 32,000 euros, and family income from all sources, including the revenues from the business calculated as sales minus all professional expenses, must not exceed 25,926 euros for the year 2008. The deadline for changing your status is February 28th, so you have one month to do so. The application form can be downloaded at www.lautoentrepreneur.fr . I have been strongly advising any professional who qualifies for this new status to sign up for it. This is one of the very rare occasions where it is good for everybody involved and does not involve a case-by-case review of each individual situation. This new status comes with significantly less paperwork for all the branches of the French administration and with lower taxes, specifically concerning les charges socials, a vague equivalent to Social Security.

The key point is that this is not a termination of your old status and registration for a new one, but is merely a change of fiscal status within the same category. I can assure you that this possibility of switching to auto-entrepreneur status is unexpected good news from a division of the French administration known to be exceedingly rigid. Considering the number of people who will be applying, I hope that they will be able to handle the demand, since it goes against their “inborn logic.”

THE AMERICAN HEALTHCARE LEGISLATION
As 2009 drew to a close, the US Senate passed a bill initiating widespread health coverage. This could be an important victory for President Obama, as well as an acceptable compromise between his original project and what Congress eventually passed. The situation exemplifies what politics is all about: “the art of what is possible to achieve, all things considered.”

I have read Mr. Howard Dean’s view that President Obama has deeply compromised his healthcare policy by lowering his standards way below what was acceptable. According to Mr. Dean, President Obama has given up on his idea of decent coverage for all. Who is right, and how can a bill be evaluated and measured?

Furthermore, many believe that the insurance and the banking industries are going to torpedo the implementation of the policy, in an effort to make it close to impossible to carry out the reforms. In Europe, we perceive our governments as always having the highest power and strongest political will, and that no private interest can counteract them, although ten years of globalization and the changes made by the European governmental body may have dampened this somewhat. In the USA, on the other hand, I am concerned that if the American insurance industry can “blackmail” the healthcare industry: “either you work with us and we cover your expenses, or you work with the government and we do not reimburse your expenses,” the healthcare industry will have no choice but to follow the demands of the insurance industry.

If the government ever succeeds in overcoming this struggle, will it still be a striking victory for Obama? Stated differently and in more generic terms, when does one decide if it is a final victory or not, and when does the fat lady finally sing?

NEW POLICY ABOUT SHORT-TERM RENTAL COMING FROM THE PARIS CITY HALL
A new law that restricts short-term rental activity in Paris is being implemented by the City Hall. This law requires commercial zoning for all apartments used for short-term rentals, since this is a commercial activity. The law affects anyone who owns an apartment in Paris and rents it to people who stay there for a very short time, rarely less than three nights but not more than three weeks. These landlords are targeting people looking for vacation rentals as well as professionals on business trips. Some owners also set aside some time for their personal use and occupy the apartment in the same way as their guests.

From the government’s point of view, these apartments are being used as hotel rooms or more precisely, as suites. Since the owners are running the same business as hotels, the government contends that the owners and their properties should be treated the same way, i.e., as a hotel business.

Apparently tens of thousands of apartments in Paris are not in compliance with this new law and I believe that City Hall is only in the first stages of implementing the new policy. As far as I can tell, the procedure will be to first send a summons to the property owners, following which, if they do not cease and desist, there will be the threat of a fine and a court procedure with the Tribunal Administratif.

It is uncertain who will be the first recipients of a summons, but we know that the owners will be faced with the consequences of not complying with the new regulation. The process of determining all properties that are non-compliant and then contacting all the owners is going to be very time-consuming. Therefore, there is definitely a time factor here, depending on whether one is among the first or among the last to receive such a letter. It is fairly certain that this process could take years and that during this time other developments could occur.

The legal ground for this is that renting a furnished apartment is taxed as a commercial activity regardless of who is renting it out. This has always been true. The new twist here is that short-term rentals are now comparable to running a small hotel, and therefore the zoning of the apartment must be changed to commercial.

This has two major consequences. First, in order for the owner to continue this activity while complying with the new law, the owner must submit a rezoning request, which is very similar to submitting a building permit. There is no certainty that this request will be granted since the city has the right to refuse a change of zoning. Should this request be granted, the second consequence is that the apartment can no longer be sold or rented as a normal apartment to be used for normal lodging. In order to do that, a second request for a zoning change must be submitted and will consequently involve a similar uncertainty.

In short, if you submit the request to change the zoning, there is no guarantee that your request will be approved. Your apartment will be documented as being used for short-term rental, and it is highly likely that you will come under tight scrutiny. If your request is approved, this will mean that you are neither allowed to live in nor rent your apartment as a long-term rental. If you decide to sell or rent your property long-term, you can submit a request for “residential zoning” but there too, there is no certainty that it will be approved.

What appears to be quite obvious at this stage is that the properties being targeted by City Hall are the ones that have formal complaints filed against them by neighbors. These complaints come from three sources: those filed at City Hall; lawsuits in the Tribunal d’Instance; and as records, une main courante, at the police station. Such information is readily available to the civil servants working on the new law and, therefore, these apartment owners will undoubtedly be the first ones to be contacted. After that, City Hall will use the information published on vacation rental websites to determine the next group of rentals to target.

My advice to property owners is not to panic, but to reorganize the way they conduct their business so that the nuisance coming from the apartment no longer bothers the neighbors. It could mean increasing the minimum stay to five nights or more, so as to reduce the suitcase traffic and other noise linked to settling in and leaving. Remove the address of the properties from the web, as well as any information that would identify the exact location of the apartment. And of course it is always a good policy to stay on good terms with your neighbors as much as possible.

Keeping impeccable records regarding paying taxes and declaring everything has no bearing on this situation. In my view, the only unknown element here is the level of City Hall’s determination to carry out the new policy. Do they want to totally eradicate short-term rentals from Paris? The official statement indicates they are cracking down on the situation until the last short-term apartment rental is closed. At this point there is absolutely no way to know whether or not this is their true goal.

If the intent of this law is to shrink the market or to reduce nuisance complaints, then it might suffice to be exceedingly careful not to arouse the ire of your neighbors. After the campaign is over, there could be a return to business as usual while keeping a very low profile. This is where the “grey application” of French law is exceedingly complicated for foreigners. Mastering the difference that exists between what is autorisé (authorized), toléré (tolerated), and interdit (forbidden), requires navigating between the letter and the intent of the law. Unfortunately, the intent is rarely clearly expressed when the law is passed. American law, or at least, American tradition, seems to have no nuanced grey area such as toléré. Either something is permitted or it is prohibited. In this instance, the current message from the French government is crystal clear, the change of zoning on those apartments is mandatory.

If this law was passed to eradicate the short-term rental industry, the sooner you can think of an alternative use of your apartment, the better. It is just a question of time before City Hall contacts you. You will not be able to avoid this new law, but you could possibly delay the effect it has on you. Meanwhile, you can gain crucial time by initiating changes to make the rental less visible and to think about the best choice for your interests, something only you can define. Every owner is different.

The above is solely meant to provide information and in no way should be construed as encouragement to circumvent the law.

FRENCH INCOME TAX REMINDER
French income tax is normally paid in three installments: on February 15th, May 15th, and September 15th. Everyone should have received the applicable tax statement by now. Even if you have not received it and you know that you owe French income tax, you must pay the required amount, which is one third of the total tax you paid last year in 2008. Errors made by the French administration never exempt the individual from complying with the law.

Best regards,

Q & A

RENEWING A CARTE DE SEJOUR BY MAIL IN PARIS

QUESTION
I hold a carte de séjour visiteur and I sent the package for renewal by mail before Easter 2009, which was a few weeks after the expiration of this card. I still have not heard back from the prefecture. In the fall of 2009, I contacted the office dealing with the mail-in requests and was told that they had never received anything from me. After meeting with the prefecture, I learned that I had been denied the renewal of my card and was told that I must return to the USA to get a new visa and start afresh. Could I have avoided this? If I return to the USA, I have no intention of wasting my time with the French civil servants since it has been a long time since I have seen my family.


ANSWER
You raise many issues, and I will comment on just a few here. The first is that the office of the prefecture at La Cité in charge of handling mailed requests has acknowledged that the system is backlogged and that people should avoid using it. Furthermore, the carte de séjour visiteur - which is one of the simplest to obtain and renew - cannot be done by mail anymore.

One of my clients submitted such a request at the end of August, a month before her card expired. I waited almost three months before asking her about its status, knowing that the current guideline is that the card should be ready four months after the request is received. In her case, the prefecture set up an appointment two months after we inquired about her status. The problem is that when a meeting occurs six months after the expiration date, even when the foreigner has been extremely pro-active and the error comes from the prefecture itself, the civil servant at the prefecture looks at the request with a very suspicious eye. This is exactly the case you present here.

To further illustrate the current chaos in this office, two of my clients found out that their requests sent during the first semester of 2009 were completely lost and that the prefecture did not have any record of them. It happens that one of them had been hand-delivered to the reception desk at the la Cité headquarters.

My advice concerning renewing a carte de séjour is that every foreigner living in Paris should avoid renewing by mail if at all possible. It is better to wait for a few hours in line than to have an endless wait at home for months with no certainty as to the outcome.

The second issue is that you need to be reminded of the elementary rules regarding the renewal of a carte de séjour before you can understand what went wrong. I must repeat the fact that while North Americans get incredibly lenient treatment, the prefecture will still say “NO” when the situation is too much out of line. Their primary mission is to apply the law and make sure that foreigners comply with it.

You made a number of common mistakes that I will discuss:

1. requesting renewal after a carte de séjour has expired.


2. Not getting the temporary ID card called récépissé.


3. not sending the request via registered mail.


4. excessive delay in requesting an appointment.

From what you described, you met with the prefecture so late that the request to renew the carte de séjour was denied. This was one of several reasons that made it possible for an American citizen to be denied a routine renewal, even though the submitted file was perfectly documented, as the manager of that office told my client that day.

1 - requesting renewal after a carte de séjour has expired
The main reason was that you submitted the request after the expiration date. How can you ask to renew something that has already expired? Always submit the request several months in advance so that there is a better chance that the new card will be issued at about the same time the old one expires.

2 – Not getting the temporary ID card called récépissé
The next reason is that you did not try to get a récépissé (temporary immigration title). This receipt proves you have applied for a renewal, and can only be obtained at the prefecture branches located in the 17th or the 14th. It allows you to maintain a legal stay for the duration of the procedure or up to three months whichever is shorter, so you want to get it shortly before your carte de séjour expires. Not getting the récépissé prevented you from learning early on that your paperwork was lost. You could have then taken immediate measures to resolve the situation.

3 – not sending the request via registered mail.
Another mistake you made was sending the renewal request by regular mail. A registered letter is essential to prove that your request was sent before the expiration date and also reduces the chance that your papers will be lost within the préfecture's office.

4 – excessive delay in requesting an appointment
Finally, you waited more than ten months before you went to the prefecture to submit your request! Normally you would have had the meeting while your carte de séjour was valid, or at a minimum, while your three-month récépissé was still valid. Considering how strict the civil servants are now, no one should submit a renewal request with an expired immigration status, even by a few days. This is basic common sense. North Americans might get away with a few weeks, but not two months.

At least you have not made the worst error of all — traveling outside of France after your carte de séjour has expired. Had you crossed the border, this would have been interpreted by the civil servants at the prefecture as meaning that you had definitively renounced your French residency.

North Americans travel in and out of France without a visa, often without having their passport stamped on entering or exiting France. Going through customs seems nothing more than just another long line, like waiting at the post office, the Motor Vehicle office, etc… but crossing any international border is a big deal whether or not you perceive it as such.

In the prefecture’s office where North Americans get their carte de séjour renewed, I have noticed several times that civil servants go totally out of their way to help the American foreigner keep their French residency. This does not mean that this is the normal way they handle requests. This is in fact a lot closer to a miracle and no one should count on miracles happening every time.

To specifically answer your question and your comment.

YOUR QUESTION
“Could I have avoided this?”

My answer is YES and I have described in great detail what you should have done to avoid this situation.

YOUR COMMENT
“If I return to the USA, I have no intention of wasting my time with the French civil servants since it has been a long time since I have seen my family.”

My comment is that I do not see any alternative if you want to resume your immigration status in France. You will waste a lot more time and money by trying to appeal the decision or by trying to pull strings to get back your status. I would say that this is simply the consequence of what you did and I really do not see how you can avoid it.

CREATING AN SCI TO BUY REAL ESTATE WHEN THE PARTNERS ARE NOT MARRIED

QUESTION
A friend of mine who has been living in France for over twenty years says that the best way to buy real estate in France when a couple is not married is to create a SCI so that they can both own shares of the company. What do you think about this? Do you think that the fact that this friend is homosexual makes a difference in this matter?

ANSWER
Your question raises more significant issues than at first appears.

An SCI stands for Société Civile Immobilière and it is created to own and manage real estate. Each person involved is called a “partner” and the shares are owned by all the partners. For French residents, the SCI is rarely the best solution for people who want to buy real estate, especially if they are going to live on the property.

First, consider your relationship. In France a couple can be married, PACSed, or simply living together. PACS stands for Pacte Civil de Solidarité, and documents a stable relationship different from marriage. It is available for both heterosexual couples and homosexual couples. It is a contract that resembles a prenuptial agreement and is registered with the court, le Tribunal d’Instance, where the couple lives. While in its early years the PACS was seen as a kind of marriage tailored to homosexual couples, today it has been totally embraced by the mainstream, with 2009 data indicating that now 95% of PACSed couples are heterosexual. Today, married and PACSed couples have almost the same rights, especially concerning fiscal situations. The PACS is therefore a good solution for heterosexual couples and I am surprised that your friend did not mention it. This said, in order to be eligible for this status, one of the partners must be a French citizen, or the couple must reside in France. I recommend the PACS for couples who do not want to be married and who can qualify under the PACS guidelines.

One of the best uses of an SCI is when different generations of a family own real estate together in France. Specific rules are needed to organize both the common ownership and the “usage in common.” For example, the arrangements for using a small apartment or house would be different from the arrangements made for sharing a large mansion that has 10-15 bedrooms. Since France does not have anything that resembles a trust, the main point of the SCI is to regulate common ownership among partners.

Another reason to consider creating an SCI is to fight the consequences of French estate law. French law heavily regulates estates and those laws take precedent over wills that explicitly state different arrangements. You can put a non-family member in your will but you cannot disinherit your children, your spouse, or your parents. Furthermore, the taxation of estates in France increases as the heirs depart from the central bloodline. For example, a son pays less in taxes than a sibling of the deceased, who pays less than a cousin. For those who want to depart from this hierarchy, serious planning is required.

If you put a non-family member in your will, the rule of thumb is as follows: The surviving spouse will receive his or her part of the estate first. The remainder of the estate will be divided by the number of children plus one. That is, if you have three children, the non-family beneficiary receives a fourth of the estate. As a result, many foreigners feel that their freedom to bequest is quite limited, even non-existent. Throughout the years, the SCI has also been used to fight this lack of freedom to bequest by writing the company bylaws to favor the surviving SCI partner(s). The SCI bylaws should define how shares will be transferred first among the said partners, then to third parties.

For example, the bylaws of the SCI could be used to distinguish between the third-party members in accordance with their ties with the existing family. The scheme could block the children and favor the romantic partner in one scenario, or systematically favor the immediate blood link, in order to keep, for example, an ancient castle in the family. So the conflict of those two laws, the bylaws on the one side and the absolute right of the surviving spouse and the children to inherit on the other, is solved by first applying the SCI bylaws. These designate the inheritor(s) and their share, after which the beneficiary of this decision must compensate the lawful heir(s), i.e., buy out the family members’ shares. The obvious question, and the source of numerous lawsuits, is: “how much is a share worth?”

Another reason why non-French residents often choose the SCI is that the liquid assets of an estate are governed by the country of residence, while real estate is governed by the country of location. Since the shares of an SCI are considered to be liquid assets, this scheme enables American residents (for example) to bequest their SCI shares according to American law, which will be taxed according to the same American law.

Now I will go back to your question and look at several scenarios.

1 - If you and your partner want to buy a primary residence together, the best situation would be to get married or PACSed. Then you own the property outright and benefit from low estate taxes and other provisions covering the primary residence, le domicile principal.

2 - If you and your partner want to buy a secondary residence, creating an SCI makes the best sense if you are both non-French residents. If you are a French resident and want to use the residence for your personal use, then it is not worth it to create a SCI unless you are legally single, i.e., neither married nor PACSed. If you plan on renting out, it will require a precise case-by-case analysis. If you rent the place furnished, for instance, creating a normal commercial corporation like a S.A.R.L. might be financially advantageous.

3 - If you want to buy property with family members, the number of owners involved complicate the benefits of direct ownership, and therefore a SCI is probably the best solution. One other specific situation where the SCI is the perfect answer is when older persons, commonly the grandparents, want to give a portion of their assets to their children. The regulation about changing the ratio of the ownership shares of an SCI is much simpler than having a notary draft a new title once the gift of a portion of the property is recorded. The SCI then becomes a beautiful tool to gradually pass real estate assets from one generation to the next.

As you can see, these are not common situations, and certainly not the romantic situation of a couple buying their first home.