Société Civile Immobilière (SCI)
- What is an SCI?
- Multiple Ownership of French Property
- Transfer of French Property
- French Inheritance Laws
- Tax Implications
- Business Use
- Setting Up an SCI
- Running an SCI
6. Business Use of an SCI
There can be fiscal and other advantages in using an SCI in tandem with a business, but there can also be significant fiscal disadvantages!
The advantages may occur where the business property is held by an SCI to whom the business then pays a rental. If the business property is purchased using a mortgage, the mortgage payments can be offset against the rental payments, thereby reducing (or eliminating altogether) liability to income tax by the SCI.
This practice in not uncommon, but, beware that an unreasonable rent is unlikely to be accepted by the French tax authorities.
In the event of later sale of the business, it may be possible to then retain ownership of the property from which rental income would be received.
However, one of the disadvantages is that if the property has been depreciated in the business, there is the risk of creating a capital gain chargeable to the business on transfer of the property to the SCI.
If you have opted for company taxation in the SCI and not personal taxation, there is no capital gains tax relief for duration of ownership.
This option cannot be used where the business premises and your home are one and the same property.
If the SCI is also used as the business premises it can also be used to reduce or escape liability to wealth tax, for those fortunate few who may be liable. Business assets are not liable to wealth tax.
Some people have set up an SCI with a view to using the company as a 'firewall' between the business and the family home in the event that the business gets into financial difficulties.
While this is generally true, it may not always apply, as the SCI has legal transparency and could (possibly) be seized by a potential creditor.
If you wish to keep family interests separate from business interests then you may otherwise want to consider setting up a limited company for the business.
Alternatively, it is possible to obtain protection of the family home against business creditors by a simple declaration procedure that can be undertaken through a notaire, but even without doing so there is automatic protection granted in law against business creditors (provided you have not offered a personal guarantee).
The tax position in relation to an SCI for business use is complicated and professional advice is needed before you adopt this option.
In short, there is no need to set up an SCI to protect the family home if you are in business, as other options are available, and an SCI is not necessarily foolproof.
It is also possible to hold property in another type of limited company, called a SARL (de famille), but again, the legal and tax complexities of it mean that its use is rarely desirable.
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