Real estate expert

Purchasing through an SCI as a foreigner in France : what are the tax consequences and the pitfalls ?

Many foreigners, who are not tax resident in France, set up an SCI for the purchase of their French properties. What are the tax consequences of this option? 


Purchasing through an SCI: is the taxation greater?

The tax paid on the acquisition of a property through an SCI is the same as when there is no SCI, and is unaffected by the presence of non-resident shareholders. The SCI will be subject to tax at the standard rate of 5.90% or 5.19% depending on the location of the building.

I am buying shares in an SCI. Will I pay more tax?
You will be subject to duty at 5%; however, tax could also be payable in the country where you are a tax resident.  

I  have  heard  that  there  are  SCIs  subject  to  corporate  tax  and  SCIs  subject  to  income tax. What is the difference?

The SCI can be subject to income tax, with shareholders being taxed directly on their holding. It can also be subject to corporate tax like a classic commercial company. For property purchases in France, the income tax option is often advisable. It should be noted that if the SCI leases the
property, it will automatically be subject to corporate tax, which may be disadvantageous on a re-sale of the property.

I intend to use the property held by my SCI on a private basis. Are there any tax consequences?

In France, it is common practice for an SCI (not subject to corporate tax) to make the property it owns available to its shareholders. This transaction is not taxable in France. Nevertheless,  the  UK  tax  authorities  take  a  different  view  on  French  SCIs.  Under  English  law,  UK shareholders in an SCI could therefore be subject to income tax in the United Kingdom on the basis that the private use of a second home amounts to a benefit in kind. To avoid being penalised,  it  is  essential  to  take  good  advice  on  the  constitution  and  management  of  the company.

Will I have to make an annual tax return in France?

You only need to declare your income in France if you earn income in  France.  The  principle  is  taxation  in  France  of  real  estate  income.  
All tax treaties signed by France give the State where the property is located the right to tax that real estate income.
A  minimum  rate  of  20%  will  be  applied,  with  17.2%  in  social  security contributions, unless the non-resident can show that his tax rate would be less than 20% if he or she were a French tax resident and therefore subject to French taxation on worldwide income.
It is possible that the non-resident will also be taxable in his or her own country. If there is a tax treaty in place, the situation will then depend
on the double taxation relief clause.

In  Belgium,  for  example,  the  tax  authorities  regard  the  income  distributed  by  SCIs  to  shareholders  as  dividends,  which  are  taxable  in  
Belgium. This 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 regarded there as dividends.

I’m worried about a 3% tax that I heard about ...

All companies - whether French or foreign - with 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 those buildings.
Nevertheless, an SCI will be exempt if it completes annual declaration No. 2072Il.

Will I be subject to IFI (Real Estate Wealth Tax)?
Non-resident shareholders in an SCI may be liable to IFI if the net amount of their real estate assets in France is greater than 1,300,000 Euros. The presence of the SCI is irrelevant. Acquisition through an SCI can be a problem for Swiss residents. Some Swiss cantons may provide that SCI shares - although exempt in France - are taxed in France, whereas a direct holding would have enabled the property to be removed from the Swiss tax base.

What tax will I pay on a re-sale?
You are likely to be taxed on the real estate capital gain.
The sale of the property in France is still taxable in France. The tax is calculated at a fixed rate of 19%. This applies in the event of the sale of the shares of the SCI by non-resident shareholders who are natural persons and to the SCI, in the event of a sale of the property. Additional tax of
2% to 6% will also apply. French real estate revenues of non-residents are subject to social contributions, at a fixed rate of 17.2% since January 1, 2018.

What if i transfer my SCI ?
In an international context, the transmission through inheritance or donation of real estate wealth located in France is regularly taxed in France. Shares of an SCI and the current accounts of this company are concerned.
International conventions are rare, but a few may be quite interesting because they can cancel the right to tax for France , As it is the case with Belgium, Spain, Bahrain, U.A.E, Saudi Arabia, etc.


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Cabinet Roche & Cie, English speaking accountant in Lyon, France.
Specialist in French Real-Estate and Non-resident taxation.