Similar tax dispositions exist for natural reproductions existing in selection forests (i.e. regulated uneven-aged forests) whereby 25 % the annual forfeited taxable income is exempted for 15 (renewable) years.

3.2. Land taxes

Usually in the amount of € 4.- to 16.- per hectare per year on average, land taxes can go up to € 30.- per ha-year or even go beyond that.

There again, exemptions may exist as follows :

- 100 % annual land tax exemption for reforestation (afforestation) with :
· poplar over a 10 year time span
· softwoods over a 30 year time span
· hardwoods over a 50 year time span

- 100 % annual land tax exemption for existing natural reproduction (1)(2) with :
· softwoods over a 30 year time span
· hardwoods over a 50 year time span

upon reputed success of this regeneration under normal conditions.

For a balanced irregular forest(3) the annual land tax rebate is 25 % for 15 (renewable) years.

(1)  Conditions to be met for natural regeneration to be land tax exempt: presence of natural seedlings of so-called classical species regularly spread over at least 70 % of the area, with a minimum density of 1100 seedlings per ha for ash, cherry or maple trees, or 2000 seedlings for the other species. Seedling height should be between 1.5 and 3 m

(2)  To benefit from the full time span exemption, tax exemption should be requested between year 3 and year 10 after the year of final cutting. Beyond year 10, the time span exemption will be the difference between 30 years (50 years) and the time of declaration after the final cut year minus 10 years.

(3)  An equilibrated regeneration under an irregular forest system is when there are 100 free stems per hectare of so-called classical forest species, having a height between 3 and 10 m, and regularly spread over an area representing at least ¼ of the compartment size. The stand itself should be of an irregular nature, i.e. presenting on the whole of the area a diversity in both diameters and ages.

4. Gift and Estate taxes

Forest gift or estate state taxes are advantageous since forest face values upon which these duties are levied are divided by 4 under some commitment on the part of the beneficiary to provide a good stewardship of his forest during the next 30 years.

As an indication, below is a table of gift and estate tax rates.

From parents to children: franchise of € 50,000 (2005).- per child.

(Tariff 2005)

More advantageous tax options are still available when a private owner decides, while alive, to give his property to his children or beneficiaries in usufruct (he will then become an usufructuary, while his children or beneficiaries become naked owners– see for instance the Louisiana tax code for similar cases).

If need be, precise cases can be studied for our reader.

5. Wealth Tax ("Impot de Solidarité sur la Fortune or ISF")

In France, every fiscal resident (see further) being worth more than € 732,000.- must pay each year a wealth tax (ISF) as follows:

Resident’s worth (€)		ISF tax rate
from	to
up to 732,000		0,00 % (no ISF)
732,000      1,180,000 1,180,000   2,339,000 2,339,000   3,661,000 3,661,000   7,017,000 7,017,000   15,200,000 above 15,200,000		0,55 % 0,75 % 1,00 % 1,30 % 1,65 % 1,80 %	on the amount exceeding € 732,000

(Tariff 2005)⁽¹⁾

Note : the tariff brackets are to be modified each year in the future.

The tax amount is reduced by € 150.- for each dependent person to the taxpayer.

Again is the forest value taken into account for 1/4 of its appraised value. For instance, if a forest is worth € 2,880,000.- the fourth of it is € 720,000.- and the corresponding ISF tax rate is 0 %. It is therefore advantageous.

As a condition for this reduction of 3/4 in the value of the forests in the sense of ISF, the owner takes the commitment to manage his property for 30 years as a "good family father", that is to apply an approved management plan during this period (or several sequential management plans).

If the forest is a professional belonging (say, as part of the assets of a sawmill or when the owner can prove he is professionally dedicated to his forest), no ISF tax return is to file.

For non fiscal residents in France, i.e. not having there their main residence or main economic interests, the ISF tax must be paid unless specific tax conventions between countries waive this aspect to avoid double taxation (for instance, Belgian residents are subject to the ISF in France).

6. Capital Gains Tax

Capital gains taxation does now occur upon the sale of a forest or of limited partnership shares. The capital gains tax rate amounts to 27 % but after the fifth year an annual marginal 10 % rebate applies such that no capital gains tax is due after a holding period of 15 years.

In addition to the preceding, a rebate of € 10.- per hectare and per holding year is applied against the resale value to determine the capital gains basis. In addition a € 1,000.- rebate is applicable to the taxable gross capital gains value.

(1) Functioning mode : Asset value € 1,500,000

up to € 732,000 , no ISF ;
from € 732,000 to € 1,180,000 = € 448,000.- × 0,55%	= € 2,464
from € 1,180,000 to € 2,339,000 = € 1,059,000.- × 0,75 %	= € 7,942,50
ISF Total	= € 10,406,50 per annum

7. Concluding Remarks

Forest investment has been for a long time favored in France from a fiscal standpoint. In addition to these advantages, subsidies are obtainable under some conditions for reforestation or roading.

These subsidies cover about 30 to 40% of the actual costs with variations on a case basis.

IV. HUNTING / STALKING LEASES AND MISCELLANEOUS

Leasing hunting rights can provide a substantial extra annual income (between € 22.50 and 38 per hectare-year with lows reaching € 7.50 and highs above € 91 up to € 152).

Fenced in forests would even reach higher rental amounts but then one has to balance animal damage on trees against cash income.

Lease income is taxable as a regular income. For non-corporate owners, if such an income comes from hunting and a rental amount less than €15,000 per year occurs, a 40 % rebate on income is applied to take care of forfeited expenses presumed to be needed for hunting grounds maintenance and upkeep. If the rental is equal to or more than €15,000, you can expense all the pertinent costs and a further rebate of 14 % is applied to the gross income from hunting. If the owner is incorporated, no special tax treatment applies: he just deducts his expenses from the hunting gross income, to which the corporate income tax is applied.

Lease of fishing or mining rights as well as mushroom picking permits provide possible (sometimes sizeable) extra revenues when these activities are relevant.

V. RETURN ON FOREST INVESTMENT

Forest profitability is a complex issue because each forest is a special case the data of which being different from one another and hence generating different returns.

Also one should differentiate two aspects :

1) Regular profitability or, more exactly, regular average income obtained by the management of the forest

2) Return on investment as seen from the standpoint of an increase in asset value over a period of time.

These two aspects can also interplay with each other.

As far as regular forest income is concerned, an average tree volume growth of 1.3 to 6 % is usually accepted. These figures can vary as a result of a number of factors such as soil quality, tree species and age, stand type and quality, as well as the management method used. The choice of the timber marketing approach can also made the profitability figures vary (e.g. sell timber regularly or, if technically feasible, only when the timber market is bullish)..

This production, however, is somewhat theoretical since one does not crop trees each year at the same place and since at the time of cuts several options present themselves leading to harvest more or less than growth (i.e. to dip into the capital, to maintain or improve it) and to be more or less selective according to the timber market response.

Financial outcomes will have to be seriously corrected as a function of the particularly positive above factors, such as forest taxation and capital gains, if one is to make comparisons over a time period between forest investment and other investment types.

Profitability, whether regular or long term, will largely depend on the quality of investment which will have been realized.

This is where precisely a domain in which the Forest Consultant will play a capital as well as determining role for the potential owner who will be consulted by him.

In a general way, forest investment should be envisioned over the long, or even very long, term to be put in a situation to fully benefit from all its particular components and to allow the forest owner to measure the impact of all the management options he will have chosen.

In general, over a long period of time, forest investment maintains its purchasing power and yields a capital gains of 1 to 4% over and above inflation.

Furthermore, with a judicious forest investment and the right choice of forest advisor, the stewardship of such an asset presents no specific difficulty:

·    there is no legal obligation to hold a bookkeeping system (although it might be useful),

·    no constant worry about daily arbitrages

·    tree growth rhythm allowing to ripen one's decision without jeopardizing the future of a property if a decision is not taken immediately.

VI. WHO INVESTS IN FRENCH FORESTRY ?

Essentially French people or private organizations invest in French forestry but also many Europeans as well as prominent Middle Eastern people and North Americans, especially when it is possible to acquire a historical dwelling or a castle nearby the forest. The possibility to purchase an oak forest could be tantalizing to winemakers or cooperage specialists.

VII. THE CURRENT FOREST MARKET IN FRANCE

According to the forest type, its thriftiness and age, one should count on investing anywhere between € 1,500 to 9,500 per hectare (or more) including land.

The average forest price is about € 3,000 to 6,000 per ha with highs going into the € 9,000 - 12,000 range (or sometimes above) per hectare.

Forest land values are counted in the above price ranges for € 800 to 1,300 per ha.

Usual tracts purchased cover a fraction of a hectare to 500-600 hectares, with some exceptions for larger areas (1,500 or 2,000 ha from time to time).

For foreigners to make a "real" forest investment it seems that a size of 80 ha would be a minimum, with an optimum between 300 to 600 ha, a larger area justifying better the travel costs to and from France.

As a result, a minimum purchasing budget of € 300,000 to 800,000 is advisable with a possibility to increase it to € 2,300,000 to 3,100,000 or more.

Currently the forest market is favorable to the buyer. There are, thus, opportunities yet to grab.

VIII. SOME UNIT COST AND PRICE IDEAS

Silvicultural costs vary with treatment type, forest operation intensity and local conditions. As an example: