SCI profits: how to make the best tax choices?

A SCI (Société Civile Immobilière) is a company used to pool one or more real estate assets in order to share the profits or benefit from the savings that may result. It is a tool often favored by many French people to facilitate the management of their assets, and optimize their transfer.

An SCI has its own legal personality, and is administered by a manager appointed by a vote of the partners. Its operation is set out in its articles of association. It is taxed at IR (Impôt sur le revenu) by default, but can opt to be taxed at IS (Impôt sur les sociétés), if the associates so wish.

This choice has far-reaching consequences and needs to be carefully considered to minimize taxation of income and capital gains.

It also depends on your ancillary income and the way your assets are structured.

What tax systems are available for SCIs?

Two tax regimes coexist in SCI. By default, an SCI is taxed at IR (Impôt sur le revenu). It is taxed in the same way as property income. The partners are taxed in their own hands (in the same way as a property owner) in the category of movable capital at a rate of 17.2%.

Capital gains on the sale of property are taxed according to each partner's share. Each shareholder is taxed at 19%, plus 17.2% social security contributions.

Any property with a taxable capital gain in excess of €50,000 generates the payment of an additional tax. It is important to note that a progressive allowance is applied according to the number of years the property is held. After 30 years, the capital gain is fully exempt from social security contributions. After 22 years, it is no longer subject to income tax.

However, it is also possible to opt for taxable income. In this case, the SCI is taxed directly at a rate of 33.33%.

The Prime Minister's recent announcements postpone the target of reducing corporate income tax to 25% by 2023, without specifying in concrete terms what the gradual reduction trajectory will be. Corporate tax income is taxed at a rate of 15% between €0 and €38,120, then at a rate of 28% between €38,121 and €500,000.

Associates only pay taxes and contributions on dividends received. Since January 1, 2018, the flat tax is a single levy of 30% (12.8% income tax and 17.2% social security contributions) that applies to tax dividends received.

How do you choose your tax regime?

In addition to the above-mentioned conditions for taxing profits, there are several other points to bear in mind when making your choice.

In a property investment company subject to income tax, property acquisition costs are not deductible for tax purposes. However, they can be deducted from taxable income in SCIs subject to corporate income tax.

In a SCI subject to income tax, maintenance and repair work, insurance premiums, provisions for co-ownership charges, property tax and interest on loans are deductible. In a non-trading property company subject to corporation tax, all expenses incurred in the interest of the company are deductible.

In a SCI subject to income tax, the depreciation of your property does not give rise to any tax deductions, unlike under the corporate income tax system.

All these elements must be inspected and brought back to your personal situation in order to deduce the most advantageous tax regime.

How can you change your tax status?

It is possible to change your tax regime during the life of your company. A company taxed under the corporate income tax regime can switch to the personal income tax regime, and vice versa. When the change is made, current profits and deferred capital gains are immediately taxed. On the other hand, losses carried forward must be utilized immediately. Otherwise, they will be lost for good.

It is important to note that, in some cases, the change of tax regime is definitive. It will therefore be impossible to revert to the original tax system.

As a result, the taxation of SCI profits is highly flexible, with many different options available.

To make your choice, you need to carry out a tax simulation to assess the impact of each plan.

This depends in particular on your ancillary income and the overall structure of your assets. In general, smaller projects are taxed at a lower rate under the IR system, while larger projects are taxed at a higher rate under the IS system, in order to minimize costs during operation, while accepting to pay tax on disposal.