The activity of playing host to tourist in rural areas has been growing constatly in France for some years now, and it can take various forms : fermes-auberges (farm hostels), camping à la ferme (farm camp sites), gites ruraux (rural self-catering accommodation), and chambres d'hôtes (guest rooms)  which is the form closet to the British Bed & Breackfast system.

Generally situated in a rural area, the gîte is an equipped and furnished house essentially used for lodging families for holidays and week-ends.

The special character of gites excludes them from housing situated on estates or in apartment blocks, and from housing that does not have any exterior space. For the same reasons, a gîte may not be built or fitted out near to a main road, a factory, or a railway line.

The gîte differs from traditionnal hotels in that the owner is obliged to handle reception of their guests on their own.

Decribing the rules governing this activity is particulary difficult in that numerous regulations apply very differently depending on wether or not it takes  place on a farm. It is frequently carried on in addition to the activity of a farmer, but it may also be carried on by a person who has no other occupation.

Nature of the activity

When it is carried on by a non-farmer, the gîte activity has a commercial nature, which carries with it the obligation to register in the "registre du Commerce et des Sociétés" (Trade and Companies Register), and to make all declarations resulting from that obligation (with URSSAF - body collecting welfare and family allowance contributions-, the tax authorities, etc.), those declarations all being made in a single place : the "Centre de formalité des entreprises" (business formalities centre).

In contrast, a farmer who sets up a "gîte rural" on their farm is not a trader, and registers with the Chamber of Agriculture.

The activity became liable to VAT used to require a registration in the Trade and Companies Register, but this requirement was removed by the Finance (budget) Law for 2003 in order to bring French Law into compliance with the European Directive.

Town planning rules

Setting up a "gîte rural" activity can make it necessary to build or to transform buildings, such operations requiring planning permission.

By the definition, this activity is often exercised in zones listed in the Land Use Plan (Plan d'occupation des Sols) or in the Local Town Planning Plan (Plan local d'urbanisme) as reserved for farming activities or as natural areas (zones marked NC, A or N in French). The rule of planning permission being granted only for a limited amount of building work in such zones means that only those constructions which are deemed necessary to the farming activity or to extensions thereto will be authorized by the administrative authority in charge of examining the application. Planning permission may thus be granted to a farmer who also operates "gîtes ruraux", whereas it is refused to a person who, since they are not also a farmer, is considered to be trader.

Applicable regulations

Whenever there are at least five rooms open to the public, or whenever the operator receives groups of children or has children to stay, the regulations for establishments who receive the public shall be applied, which will make the rules provided for establishments of fifth category applicable, essentially involving fire protection rules.

If play areas provided for children, it is necessary to comply with the rules laid down for their safety.

When meals are served, it is necessary to apply the hygiene rules for foodstuffs. Such rules essentially relate to rules for slaughtering animals (for farmers using meat from their own stock), to compliance with uninterrupted cold storage requirements, and to proper preservation of food.

Serving drinks requires a declaration to be made with the local customs office if the drinks are non-alcoholic drinks; for non-distilled alcoholic drinks (wines, cider, beer), it is necessary to apply for a licence of category 2, a licence of category 3 being necessary for certain alcohols whose alcohol content does not exceed 18°, and a licence of category 4 being required for all other alcohols.

Signage

The positions of gîtes ruraux which are, by their very nature, off the main roads can raise difficulties for customers, who sometimes have problems finding them. In order facilitate finding gîtes for the first time, signposting may be put in place on the road network.

It requires use of signposts of the CE type that are 70 cm by 70 cm and that bear a blue crown on a white background and a logo for gîtes ruraux. Such panels indicate both the distance to the gîte and the direction to be taken to reach it. The authorisation to put up such signposts that must be granted by the administration is to be applied for from the authority running the road network.

VAT

Furnished lets are, in principle, exempt from VAT. However, they are liable to VAT whenever the operators offer para-hotel services.

Article 261 D-4th subparagraph of the Code Général des Impôts (General tax Code) exempts from VAT without authorising the option to apply VAT to furnished lets.

However, para-hotel services are obligatorily liable to VAT. Such services are characterized by providing at least three of the following services in addition to accommodation :

-providing breackfast

-cleaning the premises on a daily basis (or at least the possibility of providing that service)

-providing household linen

-providing customer reception.

When the activity is liable to VAT, the VAT schedule applicable to farmers is the "regime simplifié agricole" (simplified agricultural schedule) if the turnover from the lets does not exceed 30,000 euros or 30% of the turnover from the farming activity; in other cases, the "regime de droit commun" (ordinary law schedule) applies.

As for the applicable rate, it is 5,5% for providing accommodation and 19,6% for breackfast.

Registering for VAT enables the operator of the let to deduct the VAT paid on the construction and fiffting-out work and the VAT paid on purchases or services.

Local business Tax

An operator of gîtes ruraux is liable to "taxe professionnelle" (local business tax) unless the let is entirely or partly contained within their own home (in which case it is liable to "taxe d'habitation" (local residence tax). A "home" in the sens of exemption from local business tax may be a main home or a second home; exemption may however be removed by a deliberation taken by the local authorities.

When exemption is not applicable, local business tax is payable by all operators of lets, including those who are farmers, althouth farmers are exempt for their other activities. Local business tax is payable regardless of wether the gîte is listed as a "gîte de France".

Local business tax is based on the value of the property and on a fraction of the salaries (if the operator employs salaried employees). This base may, in certain cases, benefit from reduction or be replaced with a minimum base.

Taxation of profits

Its nature varies depending on wether the operator is not also a farmer, or wether the gîte activity is carried on a farm.

In the former case, it is an activity coming under the "regime des bénéfices industriels et commerciaux" (industrial and commercial profits schedule). If the annual amount of turnover does not exceed 76,300 euros, the operator may opt for the "régime des micros-entreprises" (micro-business schedule) and then transfers directly 30% of the turnover to their income tax return. Since the allowance of 70% encompasses all exepnses including depreciation or capital allowance, no deduction is possible and the concept of deficit is totally excluded.

If the amount of the turnover is greater than threshold, or if the operator does not opt for the micro-business schedule, the operator is liable to the "régime du réèl" (real earnings schedule) and usually to the "régime du réèl simplifié" (simplified real earnings schedule), and, if they adhere to a "Centre de gestion agrée" (approved audit centre), an allowance of 20% can be deducted from the real income (up to 111,900 euros).

When the activity is carried on a farm, and if the gîtes account for an annual turnover of less than 30,000 euros, and not exceeding 30% of the turnover from farming, the operator may be taxed for their whole earnings under the "régime des bénéfices agricoles" (agricultural profits schedule).If the operator is liable to the "régime du forfait agricole" (agricultural flat rate schedule), they must add to the flat-rate amount they declare the real income drawn from the gîte activity but, if they satisfy the turnover conditions (less than 76,300 euros), they may opt for the micro-business schedule.

It should be noted that if a civil form of company is incorporated for the farm, and if the commercial activity of the gîte exceeds the above mentioned limits (30,000 euros or 30% of the turnover from farming), the company is obligatory liable to corporation tax. When, from the outset, the activity shows signs of the amount of turnover being large, or when its development makes it possible to observe that limits are almost reached, it may be necessary to dissociate the activities into two different structures.

Welfare contributions system

Since the law of January 17, 2002, the field of application of the "régime social agricole" (agricultural welfare scheme), now covers all of the tourist hosting activities geographically situated on the farm.

A farmer who lets gîtes ruraux situated on their farm is thus liable, for their entire activity, to the "régime d'assurance maladie et vieillesse agricole" (agricultural health and pension insurance scheme), and comes exclusively under the "Mutualité sociale agricole" (agricultural mutual fund).

Operators of gîtes ruraux who are not farmers come under the "régime général des travailleurs non salariés" (general non-salaried workers scheme).Their registration with URSSAF and with other supplementary schemes is performed directly by the "Centre des Formalités des Entreprises".

Labels

The dispersion of the gîtes in the rural area and their limited accommodation capacity makes it difficult for potential customers to have an access to knowledge of the "product".

In order to mitigate that drawback, the gîtes are organised into networks which organise advertising and implement booking systems. The largest of these organisations is the "Fédération National des Gîtes de France".

Membership of that organisation requires an approval subordinated to signing of a charter. It requires the member to comply with certain obligations and also confers advantages on the member.

The first advantage is the right to enjoy the "gîte de France" label which is displayed by affixing a distinctive sign, and which has a rating system similar to the star rating system in the hotel trade. In the gîte rating system, "épis" (ears of corn) are used instead of stars in the official rating. The ears of corn, whose number varies from 1 to 4, are awarded depending on the presence of certain covenience elements (bathroom facilities, household electric appliances, etc.) or pleasantness elements (character house, setting, view etc.)

Since 2002, gîtes ruraux have been rated by ears of corn and also by stars (rating by the prefecture), it being specified that the number of ears of corn may not exceed the number of stars.

The second advantage relates to the advertising enjoyed trough publication of guides, the presence of the organisation at lay or specialist shows, the marketing done trough the presse, which gives the product publicity of international scope, and the existence of a central booking office which makes it possible for all tourists seeking accomodation in rural areas to be informed of the existence of the gîtes, and of when they are available, and when to book them.

CONCLUSION

Setting up a gîte rural activity is relatively simple if it involves merely letting two or three rooms in one's home, and does not involve major transformation work.

Conversely, if the activity has a more professional nature, it will require a serious preliminary survey :

-market survey : number of tourist visitors to the region, and analysis of their accommodation habits in order to forecast turnover

-analysis of costs : welfare contributions and taxes

-feasibility of the operation : acquisition or rental of property, statues applicable to the lease when a lease exists, possibility of building or transforming, administrative regulations.

It is thus necessary to take the advise of a notary for the legal aspects, and the advice of an accountant for the finacial diagnosis, and, if the project goes ahead, for checking the accounts of the operation.