What is the applicable tax regime for an SCI?

The initial choice of taxation for an SCI is left to the founder: it can be taxed at IR (Impôt sur le revenu) or IS (Impôt sur les sociétés).

This choice depends on the SCI's results, the income it generates for its partners, and their personal asset structure. Before making a choice, it is advisable to carry out a precise tax and asset simulation to optimize your tax situation.

Let's take a look at the tax implications for SCIs.

How does a tax-exempt non-trading property company work?

SCIs subject to income tax (impôt sur le revenu) are taxed as property income. The partners are taxed directly in their own hands, as would be the owner of an apartment receiving rent directly.

You will then have to pay social security contributions at the overall rate of 17.2%, followed by income tax according to your marginal tax bracket (0%, 11%, 30%, 41% or 45% depending on your income level). In this way, each partner has a different tax rate, depending on his or her own asset situation.

This system is often described as "transparent", because each partner is taxed according to his or her status, whatever the purpose of the partnership.

How does a non-trading property company (SCI) governed by corporate income tax work?

It is possible to opt for corporate income tax (impôt sur les sociétés) when the company is set up. In this case, the company is taxed directly on its profits at the prevailing rate:

• 15% for profits under €38,120
• 28% above

The French government plans to reduce the corporate tax rate to a maximum of 25% by 2022.

You can deduct property acquisition costs, property management costs (works, co-ownership fees), building depreciation and the remuneration of the managing partner from your taxable income.

How do I choose between a SCI subject to income tax and a SCI subject to corporation tax?

An SCI is taxed at IR by default, but it is possible to opt for irrevocable IS taxation.

The IR tax rate reduces the partners' tax base. This system is often favored by young SCIs with high costs.

Income tax is more attractive if you are taxed at a rate higher than 28%. Remember that corporate income tax also allows you to deduct building depreciation.

Do you have to pay VAT on non-trading property companies?

An SCI is not subject to VAT. In return, it cannot reclaim it when it makes purchases.

SCIs (non-trading property companies) renting out industrial, commercial or office property can opt to be subject to VAT.

This also enables them to reclaim VAT on their purchases. SCIs renting out furnished accommodation are automatically subject to VAT. Those engaged in unfurnished, non-equipped rental for residential use cannot be subject to VAT.

How is capital gains taxed in the SCI sector?

Capital gains realized by the SCI are taxed pro rata to the capital shares held by each partner.

Real estate capital gains are now subject to the flat-tax (or prélèvement forfaitaire unique) at a global rate of 30%. An additional tax is applied to all capital gains in excess of €50,000.

Capital gains may be tax-exempt if :

• The dwelling was made available free of charge to a person residing there as his or her principal residence.
• A partner has not owned his or her principal residence in the 4 years preceding the session and is selling a property for the first time and reusing the proceeds to purchase a principal residence within 24 months.
• The resale value of the property is less than €15,000
• The property is sold to create social housing

What are the tax consequences of dissolving an SCI?

The dissolution of an SCI results in the sale of its assets. In this case, the partners must pay capital gains tax according to the usual rules. In addition, the SCI's income is taxed according to whether it is subject to personal income tax or corporate income tax in the year of dissolution.

The choice between income tax and corporation tax is particularly important, and requires your full attention.

The choice of taxable income is irrevocable, which is why it must be carefully considered in the light of the income generated by the SCI and the asset structure of the partners.