Buying with a SCI in France is quite technical. Indeed, many foreigners, non-residents, create an SCI for the purchase of their real estate in France. What are the tax consequences of this structure ?
Buying with a SCI in France : Is it more taxed?
The taxes paid when the property is acquired by an SCI are the same as in the absence of such a company and are not affected by the presence of non-resident shareholders. The SCI will be subject to a tax at the ordinary rate of duty: 5.90% or 5.19% depending on the location of the property.
I buy the shares of a SCI, will I pay more taxes?
You will be subject to a 5% duty, but be careful! Taxes may also be levied in your country of residence for tax purposes.
I have been told of a SCI subject to corporate tax and a SCI subject to income tax? What is the difference?
The SCI may be taxed on income tax, its shareholders are then taxed directly on their share, it may also be taxed on corporate tax as a traditional commercial company. When buying a property in France, it is most often advisable to opt for an income tax system. It should be noted that if the SCI rents the property furnished, it will automatically be subject to corporate income tax, which may have harmful consequences when the property is resold.
I intend to use personally the real estate that my SCI will hold. Are there any tax consequences?
In France, it is very common practice for a SCI (not subject to the corporate tax) to make the property it owns available to its shareholders free of charge. This transaction is not taxed in France.
Nevertheless, the British tax administration has a different view of the French SCI. Under English law, the British shareholders of the SCI could therefore be taxed in the United Kingdom on income tax, on the basis of a benefit in kind provided by the private use of the secondary residence. In order not to be penalized, it is necessary to be well advised during the incorporation and management of the company.
Buying with a SCI in France : Will I have to file an annual tax return in France?
You must declare your income in France, only if you receive income in France. The principle is that of the taxation in France of real estate income. All the tax treaties signed by France give the State where the building is located the right to tax these real estate revenues.
A minimum rate of 20% will be applied, and social security contributions will be subject to a rate of 17.2% unless the non-resident proves that his tax rate would be less than 20% if he were a French tax resident and therefore subject to French taxation on
all of its worldwide revenues. It is possible that the non-resident may also be found taxable in his own country. Everything will then depend – in the presence of a tax treaty – on the clause on the elimination of double taxation.
Thus, in Belgium, the tax authorities treat the income distributed by the SCI to the shareholders as dividends, taxable in Belgium. There is therefore a case of double taxation: the non-resident taxpayer is taxed in France on his property income and in Belgium on the same income considered as dividends in that country.
I have been told of a 3% tax that worries me……
All companies – French or foreign – owning one or more properties located in France on 1 January of the tax year are liable to an annual tax of 3%, based on the market value of these properties, but when a SCI submits a declaration n° 2072Il each year, it is exempt.
Will I be subject to the IFI (real estate wealth tax)?
Non-resident partners of our assumption SCI may be liable to the IFI if the net amount of their real estate assets in France exceeds €1,300,000. The interposition of the SCI is not significant.
Acquisition through an SCI can be a problem for a Swiss resident. Indeed, some Swiss cantons may provide that the shares of SCI – although exempt in France – are taxed in Switzerland, even though a direct holding would have made it possible to remove the property from the Swiss taxable base.
What will I pay in taxes when I resell?
You may pay a tax on the capital gain on the property.
The sale of the property in France is still taxable in France. For the calculation of the RI, the rate of the levy is set at 19%. It applies in the event of a transfer of the shares of the SCI, by its non-resident shareholders who are natural persons and to the SCI, in the event of a transfer of the property. The additional tax of 2% to 6% will also apply.
Non-residents’ French-source land income is subject to social security contributions.
What if I give or pass on my SCI in succession?
In an international context, the transfer by succession or donation of a real estate asset located in France is very common.
Déborah Zerbib has several years of experience in the field of personal and international taxation after a Master’s Degree II specialized in Tax Law.