The use of an SCI to acquire property in France
Written by Professor Robert Anthony, Anthony & Cie
GGI-Real Estate News – March 2012
An SCI (Société Civile Immobilière) is frequently used as a means to acquire property in France, and is appropriate for both French fiscal residents just as it is for non-residents.
A “société civile immobilière” is a civil company having by definition its registered office in France, for it to then acquire property. The SCI, being a civil company, is owned by ‘associates’ who, in the majority of cases, are members of the family, so indicating that the overall ownership of these SCIs is affected by private individuals.
The ‘associates’ can either be French residents, just as they can be non-residents. It is important, however, to note that there are fiscal consequences to the purchase of a property through an SCI, and that these need to be analysed not only from the French legal perspective but, where the ‘associates‘ are non-residents, also in conjunction with the provisions of the double tax treaties applicable to their country of residence.
With regard to successions, it is true that the use of an SCI does create the environment in which to circumvent what would otherwise be awkward aspects of French law. French law provides that in the event of the death of the property owner, the property itself is split between the various inheritors that there may be and, if the surviving spouse is amongst these, this can affect their enjoyment of the property and, perhaps more specifically, their ease of being able to dispose of the property or even their share in it.
However, the SCI does enable parents to retain control over the company. In the statutes, the shareholding couple can, in the event of one of them predeceasing the other, ensure that their children inherit their share whilst the company continues with the surviving parent having all rights over the assets of the company. Subject to other formalities, the SCI can ensure that the last parent alive retains control of the company, and of the property within, even though half the ownership is in the hands of the children.
As to successions, shares are far easier to transfer than part of a property, so facilitating the orchestration of the succession, notwithstanding the fact that the company statutes can be varied at all times.
If non-residents are concerned, the SCI can be of immense use as it can enormously facilitate dealing with the transmission of assets due to its flexibility. One contradiction however, is with regard to successions, as civil law will regards the shares as being private possessions falling under the legislation of the country of residence of the beneficiary, whilst certain tax treaties will seek to also tax the value of the shares in France, country where the company has been constituted. It is therefore imperative to consult a professional well versed in these international matters.
Furthermore, an SCI allows those with small budgets to club together and pool their resources within such a legal entity and so be able to acquire property that otherwise, individually, they would not have been able to consider buying. Conversely, should one of the ‘associates’ wish to sell their share, doing so from an SCI is much easier than from being a direct property owner, and the costs allied to share sales are much reduced compared to those associated to the sale of part of a property.
Yet another advantage of an SCI is that its net value can be reduced through the use of debts and private loans, and so aide the reduction of wealth tax and liabilities arising from inheritance tax.
Insofar as foreign residents are concerned, the ownership of SCI means that the value of the company is included in their estate in their country of residence and, therefore, the succession laws applicable are those of their country of residency. The is an important point to remember with regards to inheritance planning, and especially so given a different fiscal approach.
Notwithstanding the many advantages of using an SCI to own property, it is nonetheless important to always bear in mind that there are many considerations that need to be taken into account before deciding on the approach to property ownership.
Likewise, it is pertinent to mention the costs of an SCI, since there will evidently be more of these given the legal nature of a company. However, despite these additional costs, and irrespective of the manner in which the property is acquired, there will always be the standard costs associated to the legal and other fees, as well as those of stamp duty.
Evidently, therefore, the use of a company will necessitate the creations of statutes, and of registration of the company, generating costs, as well as those associated to the management of the company, and naturally those related to accounting.
On this latter point, an SCI is obliged to have French accounting, which means that the accounting needs to be effected in the manner of the French. However, it is true that a family-owned company will not generate much accounting, especially if compared to a commercial company. Accordingly, both French residents not used to accounting, as well as foreign residents, and all those who may in not be even used to accounting, will evidently have to go through a short period of learning. Conversely, perhaps one option would be to outsource the administrative and accounting functions, and at costs that today are not prohibitive.
As a company, the SCI also needs to file annual accounts, and have an annual general meeting. Legal documents also need to be retained in a safe manner, and if these documents and formalities are not submitted in time sanctions can extend to the annulment of the company, with financial consequences of the ‘associates’.
Therefore, it is important to bear in mind than an SCI is a separate legal entity, and that filing requirements and other obligations do need to be observed, all in order to avoid possibly being penalised by taxes of 3%.
Wealth tax on foreign residents, as for residents of France, is always on the net value of the SCI – the property value less the various costs and debts, but the current accounts of ‘associates’ is no longer allowed as a deduction … though there are means of circumventing this issue. Whilst is to be expected that foreigners may not always know the relevant rules, it is similarly to be expected that not all foreigners know that they are liable to the wealth tax on their French assets, but then our firm is here to help and keep you informed.
Indeed, the British tax authorities have revised their understanding of SCIs further to our involvement, and in fact as a result of our representations they have suspended corrective proceedings on certain files covering benefit in kind issues.
As always with important financial operations, it is a paramount requirement to have the assistance of professionals. Each case is different and requires its own evaluation and feasibility study. The involvement of a professional will enable the right information to be presented to you, at the right time, in the right manner, all in order for you to be able to make the right decision.
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