Real Estate Tax Services in France

It is very common for investors in France to own real estate assets through a company. It can hold any kind of asset such as housing, office, commercial real estate… This scheme can offer several benefits, including potential tax advantages, better debt financing possibilities and limited liability. 

There are different types of companies you can use for this purpose, each with its own implications. Specific attention should be made in choosing the legal structure adapted to your project. Among the most common legal structure we often advise our clients the most adapted to their needs : “Société Civile Immobilière”, “SARL de Famille”, “Société par Action Simplifié” and “Société en Nom Collectif”; “Société Civile de Construction Vente”…

Société Civile Immobilière (SCI)

One of the most common structures for holding real estate in France is the Société Civile Immobilière (SCI), or real estate company. An SCI is a non-commercial company specifically designed for owning and managing property and can be an excellent vehicle for owning office real estate.  As a non commercial entity, no furnished nor any commercial leasing activity should be done by a SCI. An SCI can only hold unequipped housing lease of unequipped offices lease.

SCI will offer advantages in many aspects such as tax, civil law issues, inheritance and donation, dismemberment of property… We are used to proposing scheme with an OpCo renting a property to an SCI owned by the business owner also. 

Tax Regimes for SCI

An SCI can choose between two tax regimes:

1. Corporate Income Tax (CIT) Regime
   • Taxation: If an SCI opts to be taxed as a regular company, it will be subject to Corporate Income Tax. This means the company pays tax on its profits at the corporate rate, and any distributions to shareholders are taxed separately. Lower CIT rate of 15% will apply on the first 42 500€ of taxable income, and the usual 25% rate will apply on the remaining profits. The company will be able to deduct the amortization of the building itself.
   • Advantages: This regime can be beneficial if the company plans to reinvest profits into the business, as corporate tax rates can be lower than personal income tax rates for high-income individuals. This is in general the best option of a buy and hold strategy since the tax burden will be lower during the life of this asset. On the other hand capital gain taxation will be significant at the exit date.
2. Transparent Entity (Personal Income Tax) Regime
   1. Taxation: Alternatively, an SCI can choose to be taxed as a transparent entity, where profits are passed through to the shareholders and taxed at their personal income tax rates.
   2. Advantages: This option can be advantageous for smaller investments or where shareholders have lower personal income tax rates, as it avoids the double taxation seen in the CIT regime. It is also very common for multi asset investment firms that will own their assets throughout a SPV at each time but with a taxation at the investor level.

Navigating the taxation landscape for commercial real estate investments can be complex. At L2A ADVISORY we provide expert taxation guidance for offices and commercial real estate in France, ensuring you understand and comply with all relevant tax obligations:

1. Corporate Income Tax Compliance: For companies opting for the CIT regime, we assist with accurate tax filings, deductions, and planning strategies to minimize tax liabilities.
2. Personal Income Tax Compliance: For transparent entities, we offer detailed guidance on declaring income and expenses, optimizing your tax position.
3. VAT Compliance: Depending on the nature of the commercial real estate and its use, VAT may be applicable. Our team helps you navigate VAT registration and ongoing compliance.
4. Local Taxes: We ensure you are aware of and comply with local property taxes, business rates, and any other applicable levies.

“SARL de Famille”

As SCI cannot hold furnished or equipped lease, we often advise our client that want to conduct this kind of activity throughout a company to set up an “SARL de Famille”. This particular scheme enable the company to pursue furnished lease activity,  throughout a tax transparent entity. 

This particular tax situation raises two majors benefits :

1. The company will have the capacity to deduct the amortization of the building hence reducing the taxable income.
2. The depreciation won’t be considered within the sale of the asset which will reduce the capital gains tax.

“SARL de Famille” should comply with significant requirements such has been incorporated only between family members.

“SNC”

We are used to working with Société en Nom Commercial. This legal structure also aims to enable commercial activity. It is often used in commercial restate for rent that include a variable part based on the turnover of the shop it holds. 

SNC are tax transparent entities by principle but they can opt for the corporate income tax. As for the SCI tax regime this will depends on the investor’s goals and strategies.

“SCCV”

The Société Civile de Construction Vente (SCCV) is a specialized entity in France designed for real estate development projects. Unlike a regular Société Civile Immobilière (SCI), which is intended for managing existing properties, the SCCV is tailored for the development and sale of real estate, making it ideal for construction projects.

SCCV will be a very smart option in asset promotion projects where the goals is only to build an asset and to sell it. This is only way to keep this commercial activity within a civilian company whilst applying personal income tax computation. 

Choosing the right legal structure is going to be a key success factor of you real estate investment project. We will help you make the best decision. We are used to working closely with tax and corporate lawyers for the most complex situations.