Whether you're investing in real estate or already have assets under management, there's always time to set up an SCI to secure them and facilitate their transfer, or even to optimize your company's tax situation.
The Société Civile Immobilière (SCI) is the property management tool par excellence. Made up of at least two partners, each receives remuneration based on the number of shares he or she owns in the structure.
The SCI is a genuine company, whose articles of association are not governed by the French Commercial Code. It is a written contract, requiring the agreement of both parties.
Like a commercial company, an SCI has its own legal personality and a management body in the person of a manager. The manager is responsible for the day-to-day management of the real estate owned by the company.
Ownership of real estate in the context of inheritance is generally governed by the undivided co-ownership system. Each heir, known as an "indivisaire", owns a share of the property, but also has rights to the inherited property as a whole.
The creation of an SCI is intended to limit the rights of property owners to the shares they own in the company. To give this form of company its full potential, different types of SCI exist, each adapted to a particular type of real estate investment.
SCI for management or rental
SCI de gestion, also known as SCI de location, is the most classic form of SCI. It supports the purchase of real estate intended for rental. The property becomes the property of the SCI, and each partner holds shares in proportion to their contributions.
All property-related financial flows pass through the SCI, which also has full decision-making powers over the property it owns. Rental income, or the property deficit, is managed entirely by the SCI, and is distributed among the partners according to their shares.
The family SCI
The SCI is often seen as a tool for passing on wealth. A family SCI is nothing more or less than an SCI whose partners are all members of the same family. The creation of this type of SCI makes it possible to limit inheritance tax.
In the case of gifts from parents to children, SCIs enable you to benefit from a 100,000 euro tax allowance every 15 years. Careful management of the SCI can save on transfer duties.
This is not the only advantage of this type of SCI. Indeed, a partner cannot carry out a forced sale of the property(ies) managed by the SCI. He will be obliged to sell his shares to the other partners in order to leave. The assets remain intact.
SCI construction-vente
This type of SCI is not intended for the purchase of one or more properties, but for the construction of a property with a view to its sale. Although SCIs are not authorized to carry on commercial activities, they do enable profits to be made.
The sole purpose of an SCI de construction-vente is to build and sell a property. Once the SCI has fulfilled its corporate purpose, i.e. sold the property, it will be dissolved.
SCI attribution
This type of SCI is governed by article L212-1 of the French Construction and Housing Code. Its purpose is to acquire one or more buildings, which are then divided into lots distributed among the associates.
This is a medium-term type of company, as it dissolves once its purpose has been achieved, i.e. to divide the property into lots. This type of SCI can also be set up to acquire a property that is still under construction, or requiring major works.
SCI time-share
This is the legal form par excellence for second homes. The cost of residences in tourist areas, such as seaside resorts and ski resorts, soon made it impossible for a single buyer to acquire a property.
The SCI de jouissance à temps partagé is therefore designed to bring together several investors who purchase a property with a view to occupying it in turn for one or more weeks of the year. The SCI partners then occupy the property successively, usually as part of their vacations.
The drafting of the contract binding the parties must comply with the provisions of articles L121-60 to L121-79-5 of the French Consumer Code, which are considered to be of public order. In other words, failure to comply with them will result in the immediate annulment of the contract and its effects.
Clear distinction between real estate and professional activity.
SCI and taxes
The debts and profits generated by an SCI accrue to the partners in proportion to their contributions, making this type of legal arrangement easier to manage. Above all, the SCI facilitates the transfer of real estate assets by limiting the impact of taxation.
In fact, there are tax allowances for gifts of up to 100,000 euros every 15 years per child. A well-managed SCI, with donations made every 15 years, saves on transfer duties.
Professional SCI
Distinguishing real estate from business activities is made possible by a form of SCI we haven't yet mentioned: the SCI professionnelle.
This type of company makes it possible to distinguish between the assets needed to run a business and the business itself. In other words, it enables assets to be separated, and therefore better protected.
For example, the SCI professionnelle allows you to buy the walls of a business and set up a commercial lease with the company operating the business.
The twofold consequence of this legal arrangement is as follows:
The real estate expense does not appear on the balance sheet of the trading company,
Real estate assets are protected in the event of bankruptcy.
The non-trading property company (SCI) can also be used for tax optimization. The rents paid by the commercial company to the SCI represent expenses that are deductible from the company's income.
At the same time, the SCI professionnelle can opt either for income taxation, or for corporate taxation if the income tax bracket exceeds 30%. The depreciation of the building also enables deductions to be made in the SCI's tax return.
The steps involved in setting up a company are cumbersome,
Unlimited liability of associates,
Mandatory annual general meetings,
Accounting and tax obligations,
Hidden costs.
A complex creation
Like all companies, SCIs must be registered with the RCS (Registre du Commerce et des Sociétés) so that a Kbis can be issued.
Consequently, the creation of an SCI does not dispense with any of the requirements for incorporating a company. You must :
Draw up articles of association, including all mandatory information,
Making the capital contribution,
Complete the M0 société civile form,
Pay the cost of publishing the legal notice,
File the documents with the commercial court clerk's office.
Unlimited liability of partners
Owning real estate is not always synonymous with the famous image of passive income in the form of an annuity. The expenses inherent in owning real estate can sometimes far exceed the income generated by the property.
In this case, the partners are liable for the SCI's debts out of their own personal assets. In other words, creditors have the right, after bringing an initial action against the SCI, to use the partners' personal assets to repay their debts.
However, two things need to be made clear:
Each partner is liable for debts only up to the amount of his contribution,
Partners are not jointly and severally liable.
The SCI imposes a number of obligations
From annual general meetings to accounting and tax obligations, the SCI is not known for its ease of management. The partners must keep double-entry commercial accounts.
Tax returns require a certain amount of tax knowledge, depending on the tax system chosen. It may be income tax or corporation tax.
At the end of each year, the associates must meet in a general meeting to draw up the minutes of the general meeting ruling on the situation of the accounts for the past year.
Hidden costs
An SCI requires extensive legal and tax knowledge to ensure that all partners can make the most of this type of company. The major orientations given to the SCI, such as the inclusion of children, the creation of a holding company or the management of shares, often require the intervention of an advisor.
This is often done by a notary or a lawyer, or even both, as the notary is not a tax lawyer. Costs can quickly become very high, and above all unexpected.
In addition to consultancy fees, certain legal provisions require SCIs to call on the services of an architect when applying for planning permission, or a chartered accountant when bookkeeping is mandatory.
Written by our expert Cyril SCHWASTIAK
April 27, 2022
How to set up an SCI?
Simply follow the steps below:
1. First step
Drawing up articles of association including the required information
2. Second step
Making the capital contribution
3. Third step
Complete the M0 form for non-trading companies
4. Fourth step
Pay the costs of publishing the legal notice
5. Fifth step
File documents with the commercial court clerk's office
Easy management and transfer of assets, choice of tax regime, free capital, flexible operation, clear distinction between real estate and professional activity.
How much does it cost to set up an SCI?
Setting up an SCI costs 222 euros, which corresponds to the cost of publication in a legal gazette in mainland France.
Why set up an SCI?
An SCI makes it easy to manage property assets and pass them on to heirs at lower cost.
