You may have read about buying property in France with an SCI, but what exactly does it mean?
While this arrangement can have tax and other financial advantages, it might not be for everyone.
Here is our simple guide to this special type of arrangement.
What is an SCI?
First things first, you might be wondering exactly what an SCI is, and why you would use one.
An SCI is a ‘Société Civile Immobilière.’ This is a form of French company that’s exclusively used to own and manage real estate.
In simple terms, an SCI can be set up to purchase property in France – family homes, second homes, and rental investment properties. The owners then become ‘shareholders,’ while the property is ‘owned’ by the company.
There are a few reasons why you might want to do this – including possible tax benefits for international buyers.
It also makes it easier for several people to invest in the property, spreading the load, and potentially creating a higher borrowing capacity should you need it.
The benefits of buying property with an SCI
There are many advantages of buying with an SCI.
If several individuals are coming together to make the purchase and they require a mortgage, all of their financial situations are collectively taken into account. This can boost the amount you are able to borrow.
Buying a property this way can also remove the stress of traditional joint ownership – which requires that all decisions must be unanimous. This can create tension between the partners.
With an SCI, you must appoint a manager. They will oversee the day-to-day decisions and usually host an annual meeting.
As well as business investors coming together to purchase real estate, an SCI can also be a good option for families or a group of friends looking to purchase together, and to share in the benefits.
Having your assets in an SCI rather than directly in a property also protects your money should you face a demand from a creditor.
How does it work?
An SCI requires a minimum of two associés (partners) but there is no maximum.
The members appoint the manager, known as a gérant. Then registration of the SCI must take place with the local companies registry here in France. Of course, a notary is also required.
There are many other steps – an experienced notary or lawyer can assist with the creation of an SCI.
What are the potential tax benefits?
As you will be a shareholder and not a property owner, your investment is meubles (a movable asset). This can be advantageous to those who don’t live full-time in France.
It means your share in the property might not be taxable here, but instead in your country of residence.
Also, when an SCI shareholder dies, the probate laws of their country of residence apply.
There are many more possible tax benefits depending on your own financial circumstances. We recommend getting professional advice.
What about inheritance when I die?
Setting up an SCI might be a good option for international buyers thanks to added protection against French inheritance laws.
If you own a property in the traditional way, it is a fixed asset and subject to inheritance laws. But an SCI may not be.
This means non-residents can bequeath their shares in the property with fewer restrictions.
It is also possible to gift your children and grandchildren shares in your SCI property over time, without having to pay inheritance tax. The limits for this are currently up to €100,000 for children and up to €31,865 for grandchildren every 15 years.
Careful planning over time can reduce the amount of inheritance tax due when you die.
Possible disadvantages of an SCI
Of course, there are potential downsides to using an SCI, which you will want to weigh.
Setting up a company involves paying professional fees – which could be several thousands.
Being part of a company also demands a certain amount of paperwork and accounting every year – again this can add up.
If you are planning to rent out your property, it must be totally unfurnished. Otherwise, your SCI company could be liable to pay corporation tax.
Some banks may also apply stricter rules to borrowers when using an SCI.
The bottom line is – every situation is different. And you should always seek professional advice before making the decision, tailored to your personal situation.
Paris-based real estate experts
Thinking about buying property with an SCI here in Paris?
While we cannot assist you directly in setting up an SCI, we have contacts that can help you, including an English-speaking French notary.
However, we are experts on the local property market, with an extensive portfolio of properties and a friendly team who are on hand to assist with all your real estate queries. Please don’t hesitate to get in touch with us.
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All information given in this blog is current at the time of writing and is a guide only. At 56Paris, we always recommend consulting a legal and/or tax professional for advice on your own personal situation.