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[Dry goods] French house buying guide! Why set up a company to buy real estate?

​Red Line Intelligence Group

When you buy a house, you usually hold it directly in your own name. Under what circumstances do you choose to set up a company (SCI: Société Civile Immobilière) to buy a house in France? Redline Real Estate does some analysis of the pros and cons of setting up a company and indirectly holding it. The final choice still needs to be determined according to the individual situation.

01/ What is SCI?

SCI, translated in Chinese as "real estate civil company", is a form of joint-stock company dedicated to asset management. It is jointly established by at least two shareholders, who can be natural persons or legal persons (students, CDD/CDI staff, freelancers, even the unemployed, etc.), and is managed and operated by a corporate legal person. Each shareholder contributes in the form of capital for the purpose of purchasing and managing one or more properties. Since this kind of company structure is flexible, shareholders have no nationality restrictions, and the distribution of costs and benefits between partners is more concise and clear, it brings many conveniences to real estate investors.

02/ What are the advantages of SCI?

As shareholders of SCI, investors can live in the properties they purchase for free or pay a certain rent based on the value of the property. The rent received by the company, as well as various other forms of income, are the common income of the shareholders and will theoretically be distributed according to the proportion of each shareholder's shareholding.


When the real estate sale generates capital gain and needs to pay VAT, the shareholders of SCI can enjoy the same value-added tax as if they dispose of their main residence in their own name (main residence: the residence where a person lives and lives for at least 6 months per year). tax policy. However, there is a premise to enjoy the tax exemption policy: the operation of the SCI company chooses the "individual income tax system" (IR: impot sur revenu) , rather than the corporate income tax system (IS: impot sur société). During the period of holding real estate through SCI, if the real estate generates profits, all shareholders will receive the corresponding real estate income according to their individual shareholding ratios and file their own tax returns.


SCI has another benefit: risk aversion . When SCI shareholders are faced with the possibility of property division, such as death, marriage, etc., their heirs can inherit and share the equity of SCI, that is, inherit the real estate in the form of movable property. At the same time, in response to the relatively heavy inheritance tax in France, according to the law, parents can give their children a certain amount of movable property tax-free every few years, including the SCI shares they hold, so as to gradually transfer the property to the children's name, and reduce the payment in the future. Purpose of estate tax.


Based on the above advantages, many investors buy and hold real estate by establishing SCI. However, before we decide to choose SCI, we should also objectively understand its inconvenience.

03/ SCI precautions?

First of all, we all know that French property owners face various taxes , one of which is the " rich man tax " (IFI: l'impôt sur la fortune immobilière). This "wealth tax" is payable when your real estate (including SCI Real Estate, land and residences) has a net worth of more than 1.3 million euros. When calculating the net assets in the annual tax return, the main residence purchased in the name of an individual can be included at 70% of the value; while the real estate purchased in the SCI needs to be declared in full.

For example 🌰:



If you have a property of 1.5 million euros (>1.3 million euros), 70% of the value is 1.50*70% = 1.05 million euros. At this time, the value of your real estate is less than 1.3 million euros, and there is no need to declare "rich person tax". However, if you hold property through an SCI, you cannot avoid this “wealth tax”.

Second, because SCI is a limited liability company, many French banks will not provide mortgage loans to SCI. Even if you want to get a loan, you must obtain multiple approvals from the bank: for example, the bank will evaluate whether each shareholder of SCI is in good financial condition and meets the conditions of the loan customer (if the SCI shareholders include minors, the loan cannot be realized under normal circumstances); Evaluate whether the articles of association established by the SCI company meet the standards set by the bank to provide loans, etc.


In addition, SCI is a non-commercial trading company, so its establishment can only be used for non-commercial purposes. "Lease without furniture" is more likely to be considered a non-commercial activity when a landlord chooses to rent out a property purchased through an SCI company. If the landlord chooses to rent with furniture, the income obtained during the rental period can only be taxed under the "corporate income tax system (IS)", but not the "individual income tax system" (IR). Income tax system (IS)", it cannot be transferred back to the "individual income tax system (IR)". In this way, when the property is sold, it cannot enjoy the VAT exemption as mentioned above.


Finally, when SCI companies have debt problems, all shareholders need to share the responsibility.


To sum up, here are some basic pros and cons of setting up SCI in France for you, summarized by Redline Real Estate. We suggest that you should ask a professional to conduct a comprehensive assessment for you and make a prudent decision based on your personal situation before purchasing a house.

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