Do you have a property in France or would you like to buy one under the legal status of an SCI (Société Civile Immobilière) as a French fiscal resident or as a non-resident?
Many of you are wondering whether accounting should be held for a French SCI. Here is all you need to know to for an SCI under French domestic tax law.
An SCI is in French a Société Civile Immobilière, which is frequently used as a means to acquire property in France, and is appropriate for both French fiscal residents just as it is for non-residents.
Some foreign and French resident clients contacted us wondering whether accounting should be held for a French SCI. These clients have had different replies from different practitioners.
The purpose of this article is to show the necessity for tax purposes to prepare annual accounts as well as statutory books.
The question of preparing annual accounts for an SCI (Société Civile Immobilière) appears to be clear under French domestic tax law. If accounts and statutory books for an SCI are prepared, the Company has real substance. Any questions from the French tax authorities as to the SCIs real existence are satisfied.
It is essential that the annual accounts are prepared with the filing of appropriate tax declarations. This is necessary to avoid a potential tax demand with further penalties and other consequences. The non-filing of returns can result in an annual tax of 3 percent of the value of the property as well as late interest and fines. There are grounds/arguments from the tax inspector to justify a tax Investigation if they are not prepared.
SCIs are registered companies and must file specific tax forms. According to the French General Tax Code, an SCI must provide the tax authorities with any accounting documents proving the reality of the figures mentioned in the annual tax forms filed by the SCI. Practically this means an income and expenditure account as well as a balance sheet with supporting bookkeeping records and invoices etc.
In case of a tax audit, it is fundamental that the SCI’s annual accounts can prove the substance of the company. In a case law, the tax authorities audited the accounts of an SCI. They tried to prove that the taxpayer had hidden some income. To prove this tax evasion, the tax authorities assessed the taxpayer’s personal income tax liability and revised the income declared in the SCI’s annual accounts.
An SCI’s director’s principal obligation is to present a report to the SCI’s shareholders during the annual general meeting. This details the results of the company. The new wealth tax declaration IFI is also obligatory for a market value assessed over €1,300,000. and should not be overlooked. The accounts will determine the value for IFI purposes.
Accounting of an SCI therefore is very important; this allows associates to keep themselves informed on their respective obligations and to make it easier to bring in a future partner or to sell their companies parts. It also enables the owner to answer any questions from the tax authorities as well as enable future estate planning.
At Anthony & Cie, we strongly recommend to take professional advice. Every case is unique and requires an individual analysis.
Our team of Wealth and Property administrators can coordinate all aspects of your acquisition or investment so that you do not need to worry about the more technical details. We can also advice on cross-border tax matters and more specifically tax issues related to real estate. In the end, it is all about owning your property and enjoying the French life style while we do the worrying for you.
FOCUS – Interest to hold accountancy in a SCI
• Proof of the real income situation as well as filing correctly the tax return.
• Presentation of the annual accounts to the partners: which necessitates preparing a balance sheet and an income statement as well as helping estate planning.
• Buying or selling shares needs a valuation of the shares (this entails reconciling the shareholders current account, any debts, or claims in respect of the SCI) however this could result in tax savings.
It is clear, that accounting in an SCI is not only obligatory but also useful. This is important when financing with a bank, calculating values for wealth tax, looking a future capital gains tax. This gives the ability to the partners to know their financial and fiscal situation making it easier to bring in a partner and to answer any questions from the tax authorities or third parties. There is tapering relief for capital gains tax on selling the property based on the time owned. How do you sell the shares if one does not know their value?