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Setting up French property holding companies (SCI)
A Société Civile Immobilière (SCI) is a civil company, i.e. a company that does not conduct commercial activity as defined in the French Commercial Code and, as such, is transparent. If a civil company conducts commercial activity in France, such as renting out a furnished property, it will lose its civil status and become subject to the French corporation tax regime. An SCI owns and administers assets and can purchase, own and rent out unfurnished immoveable property. As a non-commercial company, an SCI benefits from a special legal regime but remains subject to French income tax. The shareholders of an SCI are personally liable to bear any losses of the company in proportion to their shareholding. There is no minimum capital requirement.
Two or more shareholders (associés) are required for an SCI and they are managed by one or more individuals (gérants) with their powers set down in the Articles of Association (Statuts). Important decisions are taken by the shareholders in a General Meeting (Assemblée Générale) in accordance with the ‘majority’ rules set out in the Articles. Shares can be transferred to another shareholder or a third party, subject to the approval of the remaining shareholders and in accordance with the rules set down in the Articles. However, the Articles may waive the need for approval in the case of a transfer of shares to existing shareholders or to a spouse, for example. Share transfers to children do not require the approval of the shareholders unless the Articles provide otherwise.
If you wish your Notaire to set up a French SCI, Notaire’s fees (including disbursements) are likely to be in the region of €3-4,000.
On incorporation, various documents must be filed with the local French companies’ registry. These include details of the SCI and its operation, Articles of Association (including name and address of the registered office) and details of the manager(s), shareholders and their shareholding.
A French registered SCI is obliged to hold an annual meeting of the shareholders. The formalities for calling meetings and the procedure are set out in the Articles of Association. If the SCI is funded by shareholders’ loans, the debts must be formally recorded in the SCI’s accounts.
The shareholders should pay an amount to cover the cost of renovation work, general maintenance and running costs directly into the SCI’s bank account. Subsequently, this should be used to pay suppliers’ invoices which, in turn, must be addressed to the SCI and recorded in the SCI’s annual accounts.
The SCI must file an annual tax return for any French income it has received, e.g. from the letting of the property. As the company is fiscally transparent, the income is taxed in the hands of the shareholders who can deduct any interest paid on a loan that was taken out to purchase the property.
An SCI that owns immoveable property in France must file a declaration disclosing the identity of the shareholders owning over 1% of the share capital or undertake to provide this information to the tax authorities upon request. If the SCI fails to do so, it must pay an annual tax assessed at 3% of the current market value of the property.
Whilst there is no requirement to have a French resident manager for an SCI, it is recommended to ensure its effective management. At the very least, it is recommended that the company’s annual meetings are held and documented in France. Equally, whilst it is not compulsory to complete annual accounts for an SCI, it is advisable.
Historically, as far as British buyers are concerned, the main reason for buying property in France through an SCI was to avoid the application of the French forced heirship rules whereby a certain proportion of their French assets must, by law, pass to their children. In other words, it was suitable for clients estranged from one or more of their children and who wished to have the freedom to not leave them any share of their French property. It was also an appropriate option for those who wished to leave the property to their surviving spouse in the first instance, thus postponing their children’s inheritance rights over the French property until the death of the second spouse.
However, other options are now available and the French SCI, with its administrative burden, has become a less attractive option except in very specific cases.