An SCI (Société Civile Immobilière) is a legal entity in France specifically designed to manage Real Estate assets. A SCI operates similarly to a real estate investment or property holding company. Understanding the declaration procedure for SCI creation is vital. It involves complying with legal requirements, defining the roles and responsibilities of shareholders and managers, and ensuring compliance with tax regulations. Failure to do so can result in legal and financial complications. This guide will walk you through the steps of properties and tax declarations as SCI for rental activities in France, along with some practical advice.
Understanding the SCI
Definition and function of SCI (Société Civile Immobilière)
A SCI (Société Civile Immobilière) is a legal entity formed by at least two individuals, both of whom are partners (associé), to manage one or more real estate properties. The SCI company owns real estate assets, and each partner receives shares corresponding to their respective contributions.
Like other types of companies, the SCI operates under its bylaws. These bylaws stipulate the decision-making process, particularly whether decisions are taken unanimously or by majority vote.
The shareholders of the SCI may appoint a manager (gérant), who is responsible for the day-to-day administration and management of the property held by the SCI. This manager is authorized to make operational decisions without the formal agreement of the other partners.
Different types of SCI
Family SCI (SCI familiale)
The family SCI is often used to hold and transfer family Real Estate assets. It enables family members to be grouped as partners, facilitating the management and transfer of property assets.
Rental SCI (SCI de gestion ou de location)
A rental allows several members to manage or rent out properties, enabling more effective Real Estate project management and receiving rental income in proportion to their share of the investment.
Construction SCI (SCI de Construction)
This type of SCI is specifically dedicated to real estate projects, such as the construction or renovation of buildings, allowing members to finance and manage real estate operations collectively.
Attribution SCI (SCI d'Attribution)
Also known as SCI Attribution en Jouissance Indivise (SAJI), the attribution SCI structure enables its members to jointly hold full ownership of a property while enjoying its benefits individually.
SCI (Société civile immobilière) and joint ownership (Indivision): what are the differences?
SCI (Société Civile Immobilière) and joint ownership (Indivision) are legal structures involving multiple individuals owning property together, but they have significant differences.
Joint Ownership (Indivision)
- No Formalities Required: Automatic application, especially in cases of estates with multiple heirs.
- Participants: Known as "indivisaires," each holding a share in the property.
- Rights and Responsibilities: Extend to the entirety of the property or properties, irrespective of individual ownership stakes.
Société Civile Immobilière (SCI)
- Establishment: Involves the creation of an SCI entity, with formal procedures required for its formation.
- Shareholding Structure: Members hold shares in the SCI, determining their ownership interests.
- Rights and Liabilities: Limited to the portion of shares owned in the SCI, ensuring individual accountability within the entity.
Exploring the benefits and disadvantages of SCI Structures
Advantages of using an SCI :
The registered capital of an SCI is unrestricted
There is no legal minimum registered capital for setting up an SCI. In other words, a SCI can set its capital money as low as €1, meaning that partners only have to bring as little as €1 as a cash contribution.
SCI enables simplified Real Estate management and daily administration
SCIs offer great flexibility in managing and organizing property ownership and French property purchase, allowing the shareholders to define operating and decision-making rules freely.
SCI facilitates the wealth transfer and inheritance of real estate between generations
The SCI structure facilitates the transfer and inheritance of real estate between generations.
If, as parents, you wish to pass on a property to your children, you can transfer shares in your SCI to them successively. In this way, you can benefit from the tax deductions applicable to direct line inheritance, up to €100,000 per child for each donation, renewable every 15 years.
SCI brings several tax advantages to both its shareholders and the company
The SCI can bring tax benefits for both the shareholders and the company itself. For SCI members, the taxable profits generated by the SCI are declared non-commercial profits (BNC) on each member's income tax returns. As for the SCI company itself, it is possible to depreciate the assets owned to reduce the taxable profits generated each year.
Disadvantages of SCI :
The process of setting up an SCI is relatively complex
Setting up and managing an SCI can involve some administrative complexity, particularly regarding incorporation formalities, bookkeeping, and tax returns.
High initial costs for establishing an SCI
The costs of setting up an SCI, including notary and registration fees, can be relatively high compared with other forms of real estate ownership.
Potential discord caused by collective management and decision-making within an SCI
Decision-making within an SCI can sometimes be the subject of conflict between members, particularly about managing and operating real estate assets.
Understanding the different taxations of SCI: income tax (IR) and corporation tax (IS)
Which tax regimes to choose for your SCI?
The taxation of an SCI in France involves a crucial choice between income tax (IR) and corporation tax (IS).
The SCI operates unfurnished rental activities taxed as income tax:
The rents received by the partners from the SCI's unfurnished rental business will be taxed as income (IR - impôt sur le revenu).
The SCI operates furnished rental activities taxed under corporate income tax:
Furnished rental activities are commercial services. Therefore, if an SCI operates a furnished rental business, whether professional rental or non-professional rental, the SCI will file the generated rental revenue as corporate income tax (IS). Thus, an SCI operating in the industrial and commercial business must file a corporate income tax return in the SCI's name.
The SCI leases out both furnished and unfurnished properties:
The French tax authorities allow the SCI owners not to be taxed under the corporate income tax system as long as the revenue generated from furnished rentals does not exceed the revenue from unfurnished rentals by more than 10%. In this case, the SCI partners would remain subject to personal income tax.
Tax implications of SCI ownership: Personal Income Tax vs. Corporation Tax
SCI subject to personal income tax :
- Fewer accounting obligations and easier management of profits.
- Revenue is taxed directly by the SCI partners as property income.
SCI subject to corporation tax:
- Direct taxation of the SCI's profits on the company level, with long-term implications.
- Deduction of expenses related to the administration and acquisition of properties managed by the SCI.
- The manager's remuneration is deductible from the taxable income of the SCI.
Preparing the elements for tax declaration as an SCI: furnished rentals
List of documents and information required for SCI declarations
Documents required for the formation of the SCI :
- The business creation document with the company's operating rules.
- Personal information on the partners (identity, home address, etc.).
- The amount of each partner's contribution.
- The choice of manager and their details, if applicable.
Specific documents depending on the type of SCI activity:
- If the SCI owns rental property, the relevant leases.
Information on the SCI's operating procedures:
- Rules for sharing profits and expenses between partners.
- Decision-making procedures within the SCI.
Tax information:
- Choice of tax regime for the SCI (income tax or corporation tax).
- SCI-specific tax returns, such as income and corporate income tax returns.
The declaration process as an SCI: furnished rentals
Detailed steps for revenue tax declaration as an SCI
1. Complete the tax return of the SCI:
The SCI for furnished rentals must file a n°2065 return and its appendices (2033 et seq. or 2050 et seq.).
NB: A special tax exemption allows SCIs to avoid being taxed under corporate income tax only if their commercial revenues (such as furnished rentals) do not exceed 10% of their total revenues (official French tax bulletin BOI-IS-CHAMP-10-30 n°320).
2. Set up your professional space before declaration:
The declaration must be made online via the professional space if the SCI is under corporate income tax. Suppose the SCI still needs to get its professional area. In that case, you must create one in advance to access the online tax declaration service or hire an approved service provider. There are two possible filing methods:
- by EFI on a professional space created on behalf of the SCI if its revenues do not exceed €236,000 per year ;
- by EDI, using a third-party service provider, regardless of the SCI's revenues.
3. File an online revenue declaration:
Utilize the "Déclarer résultat" service available through the professional space online. Ensure that the declaration is submitted no later than the 2nd working day following May 1st.
4. The SCI member issue their own individual tax declaration:
If, during the general shareholders' meeting, the SCI decides to distribute the SCI's income to its shareholders in proportion to their shares in the SCI, the shareholder must enter the income received from the SCI in box 2 DC "Income from shares" (revenues des actions et des parts) in the "Income from securities and movable capital" (revenues des valeurs et capitaux mobiliers) section of the 2042 tax return.
5. Respect the declaration's submission deadline:
SCIs that have opted for corporation taxation must submit their income tax return (no. 2065) within three months following the end of the financial year unless they close on December 31st or do not close their financial year during the year, in which case the SCI must file its tax return before the 2nd working day following May 1st.
Key steps for declaration of real estate property held through an SCI company (Déclaration des biens immobiliers)
1. Understand the obligation of property declaration for SCI:
Be aware that since 2023, a new obligation for real estate property declaration in France exists. This property & occupation declaration applies to all property owners, including individuals, companies, and SCIs.
2. Note the deadline for property declaration in 2024:
Be aware that the deadline for property declaration in 2024 is June 30, 2024.
3. Identify changes to the property owned by the SCI:
Since 2024, property owners must report changes in their property, such as changes in occupancy, tenants, and rent price adjustments. The SCI is exempt from this property declaration if there have been no changes since the last statement in 2023.
4. Access the professional space to file the property declaration for SCI:
Log in to the professional space on impots.gouv.fr by entering the SCI's Siren number when prompted to specify the property's ownership status.
5. Identify changes to the property owned by the SCI:
Then, navigate to the "Gérer mon bien" ("Manage my property") tab to specify the occupancy status of the property held by the SCI.
6. Declare new properties acquired by the SCI
If the SCI has acquired a new property in France since the previous declaration, it must state the latest property purchased and its occupancy status.
7. Submit declaration on time:
Ensure the property declaration is submitted on time to avoid late payment penalties.
Tax calendar and important deadlines to meet for tax declaration under SCI
Deadline for annual income tax return of the SCI company:
- The SCI must file its annual income tax return three months after its financial year ends.
- SCIs that close their financial year on December 31 must submit their tax return by the end of March of the following year.
Deadline for ONLINE tax declaration of the SCI company:
The SCI must file their income tax return no later than the 2ᵉ working day following May 1 of the year.
Deadline for ONLINE tax declaration of the SCI's individual members:
The income tax return of the SCI's shareholders is generally due in mid-May or the beginning of June each year, depending on the area where the person lives.
Deadline for real estate property declaration of the SCI:
The property & occupation declaration is generally due June 30 each year.
Legal liability for SCI partners
Non-solidarity liability (non solidaire) for SCI partners
The liability of SCI partners is unlimited. Non-solidarity liability means that creditors cannot demand repayment of the debt from a single partner. The SCI partners are liable for the company's obligations in proportion to their share of the registered capital.
For example, Martin holds 70% of the SCI's share capital, and Stephen holds 30%.
The SCI has taken out a €100,000 loan with a bank to buy a new property. However, the company can no longer repay the monthly installments, and the SCI still owes the bank €10,000 for the loan. In that case, the bank (the creditor) can claim reimbursement of the loan in proportion to the capital held from the SCI's shareholder, as follows:
Martin: €10,000 x 70% = €7,000
Stephen: €10,000 x 30% = €3,000
Subsidiary liability (Responsabilité subsidiaire) for SCI partners
The liability of the SCI partners is subsidiary, which means that the SCI company is primarily liable for its debts. In other words, the shareholders are only liable if the SCI cannot pay off its debts.
The liability allocation between SCI partners based on the SCI's bylaws
The SCI's bylaws may provide a different division of liability from what is provided for by the law (i.e., liability in proportion to the share capital held). Keep in mind that this liability allocation from the bylaws of SCI is not binding for creditors. Therefore, the shareholders may have to reimburse for the difference between the shareholders.
For example, Martin holds 70% of the shares, while Stephen holds 30%. They stipulate in the SCI's bylaws that each should contribute 50%-50% to the company's losses rather than in proportion to their shares.
The SCI has taken out a €100,000 loan with a bank. However, the company can no longer repay the monthly installments, and the SCI still owes the bank €10,000 for the loan. In that case, since this liability division is not binding on the lender, the bank (the creditor) claims reimbursement of the loan in proportion to the capital held from the SCI's shareholder, as follows:
Martin: 10,000 x 70% = €7,000
Stephen: 10,000 x 30% = €3,000
As Stephen has only paid 30% of the SCI's debts to the bank, to comply with the SCI's bylaws, which provide for a 50%-50% sharing of liability, Stephen must reimburse 20% of the debt to Martin.
Liability of SCI partners after transfer of shares
A shareholder who sells shares in the SCI is no longer a shareholder. But what about their liability for the SCI's debts?
There are two possible scenarios for assigning liability after the transfer of shares in an SCI:
The debt falls due before the shareholder leaves the SCI:
In this case, the shareholder is responsible for repaying their part of the debt.
N.B. The repayment of the debts can be claimed up to 5 years after the transfer of the shares in the SCI. Once the 5-year period has expired, even debts incurred before the transfer can no longer be claimed from the former shareholder of the SCI.
The debt became payable after the shareholder left the SCI:
The shareholder is not liable for the debt after the shareholder left the SCI, and does not have to repay it.
Tax management and implications for an SCI
Conseils pour optimiser la fiscalité de votre SCI
Choosing the suitable tax regime for your SCI:
Based on your financial situation and objectives, carefully evaluate income taxation (IR) and corporation taxation (IS) advantages and disadvantages. Choose the most advantageous tax regime for your SCI and for you as a shareholder.
Allocate revenue between partners in the SCI:
If you opt for an income tax regime (IR), consider allocating revenue between partners to benefit from lower tax rates and reduce the overall tax burden.
Optimize deductible expenses under corporation tax regime (IS):
Identify all deductible expenses, such as loan interest, management fees, maintenance costs, etc. Maximize deductions to reduce the SCI's taxable income if you opt for the corporation tax regime (IS).
Anticipate capital gains:
If you plan to sell property held by the SCI, plan the sale strategically to minimize capital gains tax and reduce the amount of tax payable.
Consult a qualified accountant or tax expert for the taxation of SCI:
For effective tax optimization of SCI, don't hesitate to consult a professional who specializes in the tax management of SCI. An expert can advise you on the best tax strategies to minimize your SCI's tax burden while complying with tax legislation.
Keep accurate accounting records:
Maintaining accurate and up-to-date accounting records to track all the SCI's financial transactions is essential. Rigorous bookkeeping makes tax management easier and maximizes the tax deductions possible.
In conclusion, managing the tax declaration process and complying with the tax obligations of an SCI requires careful attention to detail and compliance with legal requirements. By following the advice in this blog, individuals and businesses can efficiently operate an SCI of rental activities while minimizing legal and financial risks and optimizing tax efficiency.
You can also contact your local tax office and make an appointment. They'll be able to answer all your questions and have access to your file.
Then how do I make an appointment with a local tax agent in France?
You can contact your local tax office by calling the number on your tax notice or the phone number 0 809 401 401, available Monday to Friday, 8.30 am to 7 pm. You can also use the online messaging system by logging on to your personal space on the impots.gouv.fr website and clicking "Secure messaging" in the top right-hand corner of the page.
You can meet DGFiP staff in France Services areas by appointment, town hall, or videoconference.
For further assistance, Paris Rental recommend consulting qualified legal, financial, and tax professionals to ensure compliance and maximize the benefits of SCI ownership.
Editor: Siyi Chen
Photo credit @ Unsplash+
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