TAX STRUCTURING OF REAL ESTATE INVESTMENTS: SA, SARL, SCI OR PERSONAL PURCHASE?
Is it fiscally more attractive to own real estate assets on a personal basis, through an SCI or by means of a SA or SARL? The answer to this question depends in particular on the objective of the investment: is it to own a principal residence or to own rental property? In this case, is it simply a question of generating rental income or is it more a question of aiming to grow the portfolio by realising capital gains?
Preamble: reminder of the tax status of SCIs (property management companies)
First of all, it should be remembered that an SCI has no specific tax status and has no tax effect in itself. It is described as "transparent" (or translucent) from a tax viewpoint and its role is limited to determining a result which will then be taxed at the level of each partner. There is therefore no advantage (nor disadvantage) from a tax point viewpoint in setting up a SCI, so its creation will only be justified it is legally advantageous, namely to allow several people to own the same property without having to go through the system of joint ownership and all the disadvantages that this entails.
In short, the SCI does not in itself confer any tax benefit
Determination of rental income
Whether the assets are held through an SCI, a SARL, a SA or even on a personal basis, the taxable income will always be determined according to the rule: taxable income = generated rents - related expenses. The amount of the charges will be approximately the same in each situation, with only one real difference - the calculation of the depreciation charge:
SA/SARL: company tax rules require a company to depreciate a property over its foreseeable period of use. The period expected by the administration for building depreciation is 40 to 60 years, i.e. a depreciation rate of 1.5% to 2.5%;
SCI or personal ownership: The depreciation rates offered to private individuals to determine their rental income range from 1.5% to 6% depending on the nature of the building (residential or business premises) and the age of the building. Moreover, the depreciation period is here unlimited, whereas it is limited to the period of use of the asset for corporate tax purposes.
To sum up, for the purpose of determining rental income, it is much more attractive to own real estate assets on a personal basis (or through an SCI) than through an SA or SARL.
Taxation of property capital gains
In calculating capital gains, a distinction must be made between short-term and long-term capital gains.
Short-term capital gain (less than 2 years)
The rules for determining income in household taxation are in this case more or less the same as those in force in company taxation (no allowance, etc.). The tax base will therefore approximately similar in both situations. However, since the personal income tax scale is a progressive scale with a maximum rate of around 42% while the corporate tax rate is around 27%, there is a clear advantage in carrying out the operation through an SA/SARL rather than on a personal basis or through an SCI.
Long-term capital gain (more than 2 years)
The rules for determining the taxable capital gain are in this case more favourable to individuals than to companies since in the case of SAs/SARLs, the capital gain is equal to the sale price less the net book value of the property, which tends to decrease over time (depending on the depreciation applied); - In the case of SCIs or personal holdings, the capital gain is equal to the sale price less the revalued acquisition price. This revalued acquisition price does not tend to erode over time (contrary to what happens in corporate taxation) and the calculated capital gain will therefore be mechanically lower. In addition, the taxpayer is allowed to make deductions (e.g. €50,000 every ten years) and the final income is taxed at half the overall rate (i.e. a maximum of 21%).
To sum up, the situation is more mixed with regard to generating capital gains and it is ultimately preferable to structure an investment by means of a SA/SARL when it is a question of taxing a short term capital gain and on the contrary on a personal basis if it is a question of taxing a long term capital gain.
