Buying a property in France through a société civile immobilière

Important note: Citizen Avocats has produced this article as part of our collaboration. The contents do not constitute legal advice by SO Legal and are not intended as a substitute for legal advice.

Buying a property in France

While relocating to live a new life abroad still presents many exciting opportunities, British citizens face new challenges buying property in France in the post-Brexit era.

Buying property is always a significant investment – and can be especially tricky in an overseas country with different taxes and legal requirements.

In this article, Simon Deceuninck of Bordeaux-based Citizens Avocats explains the benefits of buying a property in France through a société civile immobilière (SCI).

Why acquire or transfer French properties using this specific corporate vehicle?

Along with "indivision" (the joint ownership regime whereby a property, divided into parts, is jointly and directly owned by several persons), the SCI is the most common method for several persons to buy a property in France. 

In simple terms, it is a company (société) of a non-commercial nature (civile), which purpose is the ownership and management of real estate (immobilière). You will find below the main reasons why it can be helpful.

1. Assets are owned in "pleine propriété" (undivided ownership)

When buying a property in France through an SCI, the ownership is not split-up between several persons. On the contrary, the company has ownership in full ("pleine propriété") over its assets. This means that, for example, in the context of a succession, there will be no need to address or resolve a divided property's fate (which can lead to mandatory sales in case of disagreement). 

The ownership of the property per se will hardly be affected by anything. The articles of associations can even protect the founders from the death of their counterpart(s) by granting them a right to buy the de cujus' shares so that the surviving founder(s) remain the only one(s) with direct control over the property.

2. Property transfers are greatly facilitated

Property transfers are much easier when an SCI has been set up. Indeed, in-order-to transfer the property, the shareholders only have to transfer their shares within the company. This does not require a notarial deed (making the transfer cheaper). In essence, the seller and the buyer execute a contract and amend the articles of association.

Sales of shares can be total (all shareholders sell their shares) or partial (only one or several shareholders do so). Shareholders are, of course, entitled to sell a fraction only of their shares, which gives them more flexibility and allows for better liquidity of the property.

3. Taxation over French properties can be optimised

Selling shares of an SCI is subject to overall weaker taxation than the ordinary direct sale of real estate properties. Indeed, the tax base is the profit made in the sale of shares, not in the sale of the property. This allows for better optimisation, as the debts of the company (a loan, for example) can be taken into account when determining the value of the shares. Like in a direct property sale, the shareholder can benefit from tax deductions corresponding to duration of possession thresholds.

In principle, SCIs are "transparent" vehicles from a tax perspective. This means that each shareholder will be personally taxed on their income for the profits made through the company. As long as the estate does not exceed a certain value, there will be no taxation if the activity of the SCI is merely to own the property without making profits of any kind. 

However, as the company develops and acquires more assets, its taxation can be further optimised by opting for subjection to corporate income tax (IS).

4. SCIs offer a fine balance between flexibility and control

SCIs are primarily designed as family companies. They are thus very private, in the sense that everything is done to preserve the control of the shareholders over whom enters the company. Every sale of shares (including amongst shareholders, unless provided otherwise in the by-laws) must be accepted by the other shareholders.

Therefore, holding property through an SCI constitutes a fine balance between flexibility (the possibility to liquidate) and control (keep the real estate within a closed circle).

5. SCIs are perfect for buying a property in France and managing or developing an estate

The SCI is great for estate management. It helps to mutualise the costs inherent to owning properties (e.g. repairs, local tax, neighbour disputes), to distribute profits (e.g. rentals, added value in sales), and channel decision-taking (e.g. signing of leases, quotations for works).

The SCI is also an excellent estate development tool. It is the vehicle designed for buying properties in France. 

The fact that it allows several people to gather investments while sharing a liability to debts constitutes a real acquisition leverage. This can greatly facilitate financings by obtaining more favourable loan conditions or facilitating the taking of securities. 

Besides, the assets of an SCI can quickly rise, which constitutes an incentive for further investors to join in or additional acquisitions to be made. 

6. SCIs offer relative liability protection to shareholders

Like most corporate vehicles, the SCI has a distinct legal identity from that of its shareholders. This means that creditors will have to seek the company's liability first before turning against its individual shareholders. 

However, the SCI is not a limited company: shareholders are said to be indefinitely liable for losses beyond their contributions. This means that when the SCI cannot meet its obligations, creditors are entitled to seek the recovery of their claims against the shareholders.

Nonetheless, unlike most French equivalents of partnerships, this individual liability is not joint and several. "Indefinitely" only means that shareholders do engage their own patrimony, but only to the extent of their equity proportion within the company. Creditors will thus have to seek recovery against all shareholders, not one only.

The risk of individual liability is usually mitigated by taking securities over the relevant property, such as mortgages. 

Much can be done to prevent the individual estates of the shareholders from being engaged.

7. Inheritance and transmission of French properties can be tailored

As family companies, SCIs help their founders tailor the transmission of their real estate assets. It is quite easy to progressively transmit shares within the company in anticipation of inheritance tax. The transferor can even benefit from tax deductions when the transfers of shares (up to a specific value)to their heirs are made periodically, every 15 years.

It is also possible to dismember the shares to organise or anticipate difficult situations. For example, so that the use and benefit of the property (usufruit), is preserved for the parents, but the disposal rights over it (nue-propriété) are transferred to the heirs. Some crossed dismemberment mechanisms can also be used to preserve the use of the property by a non-married cohabitant after their life partner has passed away.

8. The secretarial burden in SCIs is very moderate

Unlike commercial companies, SCIs are exclusively governed by the code civil, not the code du commerce, for matters relating to their creation and functioning. This implies a rather simplified functioning until the company grows or engages in commercial activities: 

• No filing of annual accounts
• Extensive freedom in the designation of the representatives
• A minimum of two founders to incorporate 
• Simplified accounting

This undoubtedly adds to the flexibility and ease of management offered by the SCI. The goal here is, of course, to simplify and optimise real estate management, not to make it over-complicated.

Buying a property in France?

SO Legal has an exclusive collaboration with Bordeaux-based law firm Citizen Avocats. The agreement affords our clients greater access to legal expertise in France and the EU while giving Citizen's clients enhanced access to our specialist legal services in the UK. Find out more here.

For more information on the collaboration between the two law firms, contact Hamed Ovaisi at hovaisi@solegal.co.uk or Simon Deceuninck at s.deceuninck@citizenavocats.com.