Unbundling of Property Rights from Paraguay: Usufruct and Naked Ownership
You live in Paraguay, your income is no longer taxed, and your wealth accumulates at 0%. There remains one question that Paraguayan territoriality does not address: what will happen to the apartment you kept in France, and how much will your children pay to inherit it? The answer depends on a tool of French civil law, largely unknown to expatriates, yet perfectly usable from Asunción: the dismemberment of property.
The principle can be stated in one sentence. The full ownership of a property is divided into two distinct rights: usufruct and bare ownership. You give bare ownership to your children today, you retain usufruct until your death, and on the day the usufruct ends, full ownership is automatically reconstituted in their hands, without any inheritance tax on the value of the usufruct. This is not a tax advisor's trick; it is written in the General Tax Code. Here's how it works when you live 10,000 kilometers from your notary.
Dismemberment in two minutes
Property rights are traditionally broken down into three attributes: the right to use the property, the right to collect its income, and the power to dispose of it. Dismemberment reassigns these attributes between two people.
| Right | What it contains | Who holds it in practice |
|---|---|---|
| Usufruct | The use of the property and its income. The usufructuary lives in the dwelling or rents it out and collects the rent. In return, they maintain it and pay current charges and property tax. | The parent. Usufruct is most often for life, meaning it ends upon the death of its holder. It can also be temporary, for a predetermined period. |
| Bare ownership | Ownership of the property, without the right to enjoy it. The bare owner is the legal owner on paper but can neither occupy the property nor collect its income as long as the usufruct exists. Major repairs are their responsibility. | The children. Upon the termination of the usufruct, they regain full ownership and full disposal of the property. |
Usufruct granted to a legal entity, such as a company, cannot exceed thirty years under French law. That granted to an individual lasts until their death.
The transmission mechanism
The parent gives bare ownership of their property to their children and retains usufruct. Nothing changes in their daily life: they continue to occupy the dwelling or collect its rent. Upon their death, the usufruct disappears, and the two rights are reunited. Article 1133 of the General Tax Code is explicit on this point: the reunification of usufruct with bare ownership by the expiration of the term or by the death of the usufructuary does not give rise to any tax or duty. All the value represented by the usufruct therefore passes to the children outside of the inheritance.
Article 669 scale: why age decides everything
The tax administration does not allow parties to freely value usufruct and bare ownership. A legal scale, that of Article 669 of the CGI, sets their distribution based solely on the usufructuary's age on the day of the operation.
| Usufructuary's age | Value of usufruct | Value of bare ownership |
|---|---|---|
| Under 31 years old | 80% | 20% |
| Under 41 years old | 70% | 30% |
| Under 51 years old | 60% | 40% |
| Under 61 years old | 50% | 50% |
| Under 71 years old | 40% | 60% |
| Under 81 years old | 30% | 70% |
| Under 91 years old | 20% | 80% |
| Over 91 years old | 10% | 90% |
The mechanism is mechanical: the earlier you donate, the more valuable the usufruct you retain becomes, and the lower the value of the bare ownership you transfer. However, gift taxes are only calculated on bare ownership.
Let's take an example. You are 55 years old, own an apartment in France valued at €300,000, and have two children. The scale places bare ownership at 50%, or €150,000, divided into €75,000 per child. Each child benefits from an allowance of €100,000 per parent, renewable every fifteen years. The gift therefore costs nothing: zero euros in tax. Upon your death, the €150,000 representing the usufruct joins their inheritance without further taxation, regardless of the value the property may have acquired in the meantime.
Without dismemberment, the same apartment transferred through classic inheritance, valued at, let's say, €400,000 at the time of death, leaves after allowances a taxable base of €100,000 per child, meaning approximately €18,200 in taxes each and nearly €36,400 in total. For a Parisian studio, the difference amounts to tens of thousands of euros. For a seven-figure real estate portfolio, where the French scale goes up to 45%, it amounts to hundreds of thousands.
Why a Paraguayan resident needs a French tool
The question naturally arises: since Paraguay has neither inheritance nor gift taxes, why bother with a French arrangement? Because inheritance tax does not follow your residence; it follows your assets. A property located in France remains subject to French inheritance tax, whether its owner lives in Lyon or Asunción. This is the rule of the location of the asset, and no Franco-Paraguayan tax treaty on inheritances modifies it: French rules apply unilaterally.
| Asset | Inheritance treatment |
|---|---|
| Apartment or house in France | French inheritance tax, scale of 5 to 45% in direct line beyond the €100,000 allowance per child and per parent. The deceased's Paraguayan residence changes nothing. This is where dismemberment has its full effect. |
| Shares in a French SCI | Attached to France as long as the company holds French real estate. Same exposure, same interest in dismemberment. |
| Real estate in Paraguay | No inheritance or gift tax in Paraguay. Notary fees and registration fees remain. Dismemberment no longer has a fiscal utility, but retains a family organization utility. |
| Securities portfolio and accounts abroad | If the deceased is a Paraguayan resident, these assets escape French taxes, except when the heir resides in France and has resided there for at least six of the last ten years. In this case, Article 750 ter of the CGI brings worldwide transmission within the scope of French law. |
Remember the dividing line: dismemberment optimizes the French part of your assets, while Paraguayan tax residency optimizes everything else. The two do not compete; they complement each other. Other French procedures triggered by a death are detailed in our guide on the death of an expatriate in Paraguay, and the reverse movement, that of an inheritance received from France, in inheriting property in France as a Paraguayan resident.
Three arrangements that work from Paraguay
Directly giving bare ownership of the property
This is the simplest and most common arrangement. A notarial deed before a French notary, the value of the bare ownership calculated according to the scale, allowances applied, and the declaration filed. Expect 1 to 2% of the property's value in notarial fees, i.e., €3,000 to €6,000 for a property worth €300,000. The arrangement is solid but rigid: each property requires its own deed, and any subsequent modification requires another.
Dismembering SCI shares
If the property is held within a civil real estate company (SCI), it is the bare ownership of the shares that you give, not that of the property itself. Three advantages follow. The articles of association freely organize the distribution of powers between usufructuary and bare owners, which avoids blockages. The valuation of the shares allows for a discount for illiquidity, generally around 10 to 15%, beyond which the risk of reassessment becomes real, and this discount reduces the taxable base accordingly. Finally, a single operation transfers all properties held by the company, whereas direct dismemberment would require as many deeds as properties.
A point of caution regarding the company's tax regime. Under corporate tax, depreciation reduces taxable income year after year, but it also reduces the cost price and automatically inflates the capital gain on the day of resale. Under income tax, there is no depreciation, but property income is taxed directly in the hands of the partners. Long-term ownership generally favors income tax. And contrary to popular belief, the donation of company shares falls under solemn donations: a notarial deed is the rule, not just a recommendation.
Dismembering a financial portfolio, with caution
Dismemberment also applies to securities, but its nature changes. Money and securities are consumable goods: the usufructuary can sell them and spend the proceeds. This is known as quasi-usufruct, and the bare owner only holds a claim for restitution against the estate. Without a written agreement specifying the inventory, obligations, and guarantees, this arrangement is a recipe for family disputes, with the heir discovering at death a claim on an empty estate.
A recent development must be known: since the 2024 finance law, the restitution debt arising from a donation of a sum of money with reservation of usufruct is no longer deductible from the estate. The arrangement has lost much of its tax interest in this specific configuration. For a Paraguayan resident whose portfolio is held outside France with an international broker, the interest is limited anyway, unless the heirs themselves are French tax residents.
Two quantified cases
The inherited Parisian studio
A 52-year-old Frenchman, a Paraguayan resident for three years, owner of a studio apartment in the fifteenth arrondissement inherited from his parents, valued at €150,000, classified G in the energy performance diagnosis and therefore not rentable in its current state. One child, aged 25, living in France.
The scale values the bare ownership at 50%, or €75,000, which is below the €100,000 allowance. The donation costs nothing in terms of taxes, only notary fees. The parent retains the usufruct and can occupy the studio during their visits to Paris, or rent it out once the necessary renovations are completed. Upon death, the child regains full ownership without any tax on the reconstituted usufruct share. This represents a saving of approximately €5,000 to €10,000 compared to a classic transmission, for a modest property.
The rental portfolio in SCI
A couple aged 48 and 45, Paraguayan residents, equal shareholders in an SCI (Civil Real Estate Company) owning two apartments in Lyon valued at a total of €600,000, generating €2,000 in net monthly rent. Three children residing in France.
Each parent donates the bare ownership of their shares, i.e., 40% of €300,000, reduced to approximately €102,000 after a 15% discount, distributed among three children. Each child thus receives €34,000 from each parent, well below the €100,000 allowance. Cost in gift tax: zero, for the transfer of a €600,000 estate. The parents continue to collect all the rent. Upon the second death, the children become full owners without tax on the usufruct share, meaning nearly €360,000 transferred tax-free.
What France continues to levy
Dismemberment optimizes transmission, not ownership. As long as you are the usufructuary of a property rented in France, the rents remain taxable in France, and the bill deserves to be looked at squarely.
| Levy | What applies to a Paraguayan resident |
|---|---|
| Income tax | Rental income declared in France, under the actual regime or micro-foncier with a 30% allowance below €15,000 in annual rent. A minimum rate of 20% applies to non-residents on the first bracket, 30% beyond, with the possibility of requesting the application of the average rate if it is more favorable. |
| Social contributions | 17.2%. The reduced rate of 7.5%, often mistakenly cited, is reserved for individuals affiliated with a social security scheme in the European Economic Area, Switzerland, or the United Kingdom. A Paraguayan affiliate is not entitled to it and bears the full rate. |
| Total | Approximately 37% on French rents, compared to 0% in Paraguay on your foreign-sourced income. This is precisely the difference that prompts many expatriates to choose between retaining a French property and selling it to reallocate the capital under the Paraguayan regime. |
Five costly mistakes
- Donating too late. At 45, bare ownership is worth 40% of the property; at 75, it's worth 70%. Waiting increases the taxable base of the donation and reduces the share of usufruct that will escape taxation. The most effective window is between 45 and 60 years of age.
- Forgetting the reserved portion of an inheritance. In France as in Paraguay, children have a minimum share that cannot be taken from them, and the Paraguayan reserve is even more protective than the French. A donation that favors one child over others is exposed to an action for reduction upon death. A "donation-partage" (partitioned gift), which distributes and fixes values among all children, is the appropriate tool. It should also be noted that a child deprived of their reserved portion by the application of foreign law may, under certain conditions, claim compensation on assets located in France.
- Confusing usufruct and quasi-usufruct. The former applies to an existing asset, the latter to sums that are spent. Without a written agreement, quasi-usufruct ends up in court.
- Not declaring the gift. Even when taxes are zero because the allowance covers everything, the gift must be declared to the French administration. Omission exposes you to reassessment with late payment interest and penalties. Living in Paraguay does not exempt you from this.
- Believing that dismemberment solves ownership issues. It does not eliminate the taxation of French rents, property tax, or real estate wealth tax if your French property exceeds the threshold. It acts on transmission, and only on transmission.
Where dismemberment fits into a complete strategy
| Tool | What it addresses |
|---|---|
| Paraguayan territoriality (Law 6380/2019) | 0% on all your foreign-sourced income: activity billed from abroad, dividends, capital gains, pensions. |
| Dismemberment (Article 669 of the CGI) | Reduction or elimination of French inheritance tax on your assets located in France. |
| Paraguayan Fideicomiso (Law 921/1996) | Organization and protection of locally held assets, structured transmission. |
| International structures such as trusts or foundations | Relevant beyond a significant estate and a multi-generational transmission objective. Below that, the cost and complexity outweigh the benefit. |
| Regular donations | No gift tax in Paraguay, and a French allowance of €100,000 per child and per parent that renews every fifteen years. Two parents and two children can thus transfer €400,000 tax-free per cycle. |
The overall logic unfolds in three stages. During active life, Paraguayan territoriality handles the bulk of income. During the consolidation phase, local and international structures organize ownership. At the time of transmission, dismemberment neutralizes what France would have levied on your French assets. Expatriates over sixty, whose choices we detail in our guide on active retirement in Paraguay between 60 and 80 years old, are those for whom this articulation matters most, as they often combine 0% Paraguayan income with real estate assets remaining in France.
Conclusion
Usufruct/bare ownership splitting (démembrement de propriété) is a French tool, and that's precisely what makes it useful to a Paraguayan resident: it deals with the only part of your assets that territoriality cannot protect. Giving your children bare ownership of your French property, retaining the usufruct, and letting the law reconstitute full ownership upon your death means transferring significant real estate assets at a cost often limited to notary fees.
Two conditions differentiate between an effective setup and a missed opportunity. The first is age: each passing year shifts the scale against you, and the decade between 45 and 60 is the most profitable. The second is consistency: usufruct/bare ownership splitting is only worthwhile if it is part of an overall architecture, where the Paraguayan residence generates income, where local structures hold ownership, and where the French portion of the assets is treated for what it is, an asset subject to foreign taxation that must be anticipated rather than endured.
Are you preparing to transfer your French assets from Paraguay? Contact us to build the Paraguayan framework that will support the rest: Paraguayan tax residency from €1,400, or €1,800 for the Express formula completed in a single 2-day trip on-site, bank account opening at €250, US LLC creation and DNIT accounting at €30 per month. Write to us on WhatsApp at +595 971 362 302: quick response, in French.