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Posted on 07/06/2022

The taxation of the Civil Real Estate Company (SCI)

Income tax or corporation tax?

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The taxation of the Civil Real Estate Company (SCI)
The taxation of the Civil Real Estate Company (SCI):

Despite an economic and health situation that is difficult to anticipate with inflation growth rates that have reached more than 5.2% over one year in France, investing directly in stone remains a solution of choice. Even today the rates on real estate loans remain contained, but until when? ?

The SCI (Société Civile Immobilière) is a legal tool open to all, at the service of the preservation of everyone's heritage. It is one of the most popular legal structures with French rental investors to structure their real estate assets.

1. What is an SCI ? and what might it be used for?

A civil real estate company is a legal structure made up of at least two people, each person having the status of partner, in order to manage one or more real estate assets.
This real estate heritage is held by the real estate civil society and each partner mentioned in the articles of association receives shares in proportion to his contribution. This makes it possible to define the decision-making methods, the day-to-day management of the real estate property(ies) held by the company.

We are talking here about an adequate social structure to Hold, Transmit, Manage, Optimize. And yes ! provided it is used wisely, the SCI can prove to be of great service in the field of heritage management. As in particular:
- Holding a property together (in order to manage conflicting successions by imposing common management rules for everyone, for example. Holding meetings, opening an account attached to the SCI, etc.)
- Transmit one or more real estate assets (in order to avoid taxation at the prohibitive rate of 60%, the SCI allows you to transfer with reduced rights to your partner, for example).
- Manage different properties
- Effectively optimize the taxation of a rental property (land deficit, Pinel, Malraux, etc.).

Nevertheless, beware of attempts to optimize, which could be reclassified as tax abuse.
This is why, in the absence of being a specialist, the advice of a lawyer or notary is ESSENTIAL and mandatory in the event of the contribution of a property during its creation.

The civil real estate company certainly has many advantages (easier management, less complex transfer procedures or even advantageous taxation).

Let's consider this last point in detail !!! what is the taxation of my SCI ????

2. The choice of the french tax regime:

The income (or deficit) of your SCI will be subject to either IR (Income Tax) or IS (Corporate Tax).

If the SCI has a commercial vocation (furnished rental or property dealer for example… (read here), the income (or deficit) of the SCI will be subject to corporate tax.

If the SCI has any other vocation, you will have the choice between submitting the income (or deficit) to the IR or the IS; it's up to you to choose according to your level of taxation. If you don't make a choice... NO WORRY... the state takes care of it: you will be at the IR. You will then have to declare the property income (one of the tax category incomes) generated by your SCI.

This choice of tax regime must be made when creating your SCI. If you want to change your plan later: only one solution: the dissolution of your SCI.

The return to the IR entails the same effects as a cessation of business and which will have the immediate effect of leading to the taxation of your profits, capital gains subject to tax deferment or even the loss of the deferral of your previous deficits. Once this revocation has been exercised, or after the 5th year of exercise, it is no longer possible to change the plan. Always think before you act !


 

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