Manage property in France : SARL de famille VS SCI subject to corporation tax
Family limited liability companies (SARLs) subject to income tax (IR) and non-trading property companies (SCIs) subject to corporation tax (IS) are two corporate forms commonly used in France, enabling several people to invest together in real estate.
As SCIs subject to income tax are restricted to bare property rentals, planning to rent out a property on a furnished basis requires us to consider the differences between SARL de famille and SCIs subject to corporation tax, which do allow this type of rental.
Although they share certain similarities, these companies also have significant differences. This article analyzes these two types of company to provide a better understanding of how they operate and their respective advantages.
Manage your property in France with legal structures :
Similarities between Family limited liability companies (SARLs) and non-trading property companies (SCIs)
These two types of company enable you to carry on a furnished rental business. This type of rental offers many advantages.
Some tenants prefer to rent furnished accommodation. The most important of these are students, whose shared property often offers attractive return. Naturally, the second most important tenant category is tourists, both business and leisure.
So, depending on whether your property is located in the city center, close to faculties and other schools, or in a tourist town by the sea or in the mountains, furnished rental may be unavoidable.
SARLs and SCIs are legal entities. Their creation requires the completion of administrative formalities which represents a certain cost.
All companies must draw up articles of incorporation, register with the RCS (Registre du Commerce et des Sociétés) and comply with other formalities, such as opening a dedicated bank account and depositing funds.
To benefit from the legal personality and advantages of the chosen structure, it is essential to comply with these legal formalities.
Manage you property in France with legal structures :
Differences between Family limited liability companies (SARLs) and non-trading property companies (SCIs)
These two types of company enable you to carry on a furnished rental business. This type of rental offers many advantages.
Some tenants prefer to rent furnished accommodation. The most important of these are students, whose shared property often offers attractive return. Naturally, the second most important tenant category is tourists, both business and leisure.
So, depending on whether your property is located in the city center, close to faculties and other schools, or in a tourist town by the sea or in the mountains, furnished rental may be unavoidable.
Social security charges are different in those companies.
In SARLs, the manager’s social security contributions vary according to the percentage of ownership, which includes the shares of members of his or her tax household:
- If he is a minority shareholder (less than 50%), he comes under the employee scheme. Social security contributions are collected only if he/she earns a salary.
- If he is a majority shareholder, he is covered by the social security system for self-employed workers. Social security contributions are calculated on the share of profits due to him. Even if profits are negative, the minimum social security contributions are due, i.e. around €1,200 per year.
In the case of a SCI subject to corporation tax (IS), the managing partner who receives remuneration is, in principle, covered by the social security system for non-salaried workers. Thus, if he does not take a salary, he is not liable for social security contributions. However, case law takes a less clear-cut position than the authorities, considering that a manager may be affiliated to the general social security scheme if he is the SCI’s subordinate.
The capital gain is the gain realized on the sale of the property (selling price – purchase price – depreciation deducted).
For SCIs subject to corporation tax : the capital gain is added to the ordinary income and is subject to corporation tax under ordinary law conditions.
For family-owned SARLs, a distinction is made between two situations, depending on the status of the partner :
- Either, for the partner, it is a professional furnished rental (income superior to €23,000 and exceeding the amount of other professional income of the tax household). The professional capital gains regime applies. This has far-reaching consequences, as depreciation is deducted from the purchase price, increasing the amount of the capital gain. However, an exemption is possible provided several requirements are met:
- the business has been in operation for at least 5 years
- income from this activity does not exceed 90,000 euros in the year of sale.
- Or, for the partner, it’s a non-professional activity. In this case, the capital gain is taxed according to the rules applicable to private individuals (deduction for length of ownership, leading to exemption from income tax after 22 years, and social security after 30 years).
One last difference : Company members
By definition, in a family-owned SARL, the partners must all come from the same family. They must be related (directly or collaterally) up to the 2nd degree, or by marriage or a civil partnership (PACS).
Thus, spouses; fathers and one or more children; brothers or sisters; grandparents and grandchildren meet this condition. The concept has been extended to include the formation of a family SARL between brothers and sisters and their spouses, or a father-in-law and his son-in-law.
Nephews, nieces, uncles, aunts, brothers-in-law and sisters-in-law are therefore excluded.
On the other hand, there is no family relationship requirement between SCI partners. It can be made up of members of any kind (company, friends, cohabitees, etc.).
This difference needs to be taken seriously, as it can be a hindrance both when the company is set up and during its lifetime. In the event of separation, shares must be resold within the family!
|
|
SCI subject to corporation tax |
SARL de famille |
|
Taxation |
Corporation tax |
Income tax |
|
Members |
All interested parties |
Family members |
|
Reduction in tax base |
Actual expenses |
Actual expenses |
|
Manager’s social security regime |
If remunerated: subject to the social security regime for non-salaried workers |
– Minority: employee regime – Majority: self-employed workers’ scheme |
|
Capital gains |
Capital gains plus depreciation. It is added back to the joint income, subject to the standard corporate tax rate (15% then 25%) |
– LMP: professional capital gains regime (depreciation added back) – LMNP: capital gains tax for private individuals (allowance for length of ownership). |
Manage your property in France : Case study
Two brothers decide to rent out a furnished property. They decide to set up a company, but don’t know which corporate form to choose.
Wishing to rent to students, they prefer to rent furnished to increase their chances of finding the ideal tenant. Consequently, opting for an SCI subject to the income tax is not an option. In fact, an SCI can only engage in furnished rental activities if it is subject to corporation tax. SCIs subject to corporation tax are reserved for bare-rental activities.
However, as the two brothers still have moderate incomes, being taxed under the corporation tax regime does not seem appropriate to them, as their marginal income tax rate is lower than the corporation tax rate of 25%.
There is one last option open to them: the family limited liability company. Such a corporate form enables the company to carry on a furnished rental business while remaining subject to income tax.
L’équipe Roche & Cie
Professionnels ou particuliers, français ou internationaux, depuis 1948, le cabinet Roche & Cie accompagne les clients de tous horizons.
contact@cabinet-roche.com
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