If you’re buying a property in France, setting up an SCI could be a more thoughtful way to structure your ownership. SCI (Société Civile Immobilière) is a French company designed explicitly for owning and managing real estate, and it offers a ton of advantages—especially for foreigners. Whether you’re investing with family, friends, or business partners or want a better way to handle your property, an SCI can make ownership more flexible, tax-efficient, and straightforward in the long run. Let’s break it down!
What is an SCI?
An SCI isn’t like direct property ownership; it’s holding shares in a real estate company. You don’t own the property itself—you own shares of the SCI, which has the property. This structure gives you more flexibility when selling, transferring, or inheriting your property.
If you’re a non-resident and want to invest in French real estate, using an SCI can help you manage the property better, reduce potential tax liabilities, and make estate planning more straightforward. Contact us to make an appointment with our network of English-speaking and flexible French notaries, who can explain this in detail.
The Benefits of an SCI for Foreigners
- Simplified Property Transfers
One of the major perks of an SCI is how it simplifies property transfers. Instead of selling or passing down a physical portion of the property, you transfer shares in the SCI. This is especially helpful for non-residents who want to pass the property on to their children or other heirs without the headache of splitting up the actual real estate.
- Why It Matters: Selling or transferring shares is much easier and less expensive than selling a portion of a villa or apartment. Existing shareholders usually have pre-emption rights (right of first refusal), ensuring the group retains control.
- Pro Tip: An SCI also helps avoid forced sales if heirs disagree on what to do with the property. Instead of selling the actual home, they can sell their shares to one another, keeping the property in the family.
- Capital Gains Tax Savings
Capital gains tax can be high when selling property in France. Currently, it’s 19%, plus 17.2% in social charges, up to 36.2%. However, an SCI allows for significant capital gains tax reductions over time.
- Long-Term Benefits: If the property is held in the SCI for over 22 years, you are fully exempt from the 19% capital gains tax. After 30 years, you also become exempt from social charges. This makes SCIs particularly attractive for long-term investments.
- Avoiding Disputes Among Co-Owners
Owning property jointly with family or friends can lead to disagreements, especially regarding decisions like repairs or selling the property. An SCI helps avoid these conflicts because it operates like a business with clear statutes and rules for decision-making.
- Shareholder Agreements: With an SCI, everything is outlined upfront, from voting rights to decisions. This helps avoid the messiness of co-ownership and keeps relationships intact.
- Wealth Tax Reduction (IFI)
In France, the wealth tax (Impôt sur la Fortune Immobilière, IFI) applies to real estate assets worth over €1.3 million. This tax affects residents and non-residents but only applies to French property for non-residents. However, with an SCI, you can reduce your exposure to IFI in a few ways:
- Debt Deduction: The IFI is calculated on the net value of the property, meaning you can deduct any loans or debts attached to the property. If your SCI has a mortgage, the debt reduces the taxable amount.
- Splitting Ownership: By dividing the ownership among multiple shareholders (such as family members), each individual’s share may fall below the IFI threshold, helping reduce the overall tax burden.
Renting Out Property via an SCI: Is It Possible?
While an SCI is excellent for owning and managing property, it’s not designed for commercial activities, like renting out properties regularly. You must set up a separate business structure if you plan to rent your property (especially for short-term vacation rentals).
Most foreign investors use a two-company setup. You keep the property under the SCI but create an SARL (Société à Responsabilité Limitée) to handle the rental income. Essentially, the SARL rents the property from the SCI, keeping everything compliant with French regulations and avoiding legal issues.
Global Wealth Tax and SCIs: What Foreigners Should Know
If your net real estate holdings exceed €1.3 million, you’re subject to France’s global wealth tax (IFI). The IFI applies to French residents on their worldwide real estate, but for non-residents, it only applies to property located in France.
Key Tax Rates (IFI):
- Up to €800,000: 0%
- €800,001 to €1.3 million: 0.5%
- €1.3 million to €2.57 million: 0.7%
- €2.57 million to €5 million: 1%
- €5 million to €10 million: 1.25%
- Over €10 million: 1.5%
Conclusion: Should You Use an SCI?
An SCI offers many flexibility and tax advantages for foreigners looking to buy and manage property in France. Whether you’re thinking about long-term investments, inheritance planning, or reducing your wealth tax exposure, an SCI can simplify the process and save you money.
An SCI can significantly reduce capital gains and inheritance taxes. Plus, with the option to use a dual structure (SCI + SARL), you can still profit from legally renting out the property. It’s a smart, flexible way to own and manage real estate in France, especially for non-residents.
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