You have certainly heard of SCI (Civil Society Real Estate), a tool that many investors use to invest heavily in real estate. But, like many people, you probably think it’s too complicated and that you will never be able to use this kind of technique?
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In this article, we explain the benefits of SCI and how to use the status of SCI to invest in your future real estate empire.
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The SCI: what is it?
The SCI (or Civil Real Estate Society) is, as its name suggests, a company. The creation of an SCI therefore requires at least 2 persons (natural or legal) who come together and agree to set up a business together.
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The creation of this company requires (as for any company) the drafting of articles that determine the rules of operation of the latter and also makes it easier to borrow.
How much does an SCI cost?
There are 2 types of fees to consider when creating an SCI:
These fees are mandatory . That is, you are obliged to pay them no matter what happens. They are of two kinds:
- The “ legal announcement ” fee: this is a small text that you must publish in a legal advertisement journal (JAL) and which aims to inform the outside world of the creation of your company. In general, the longer your ad text is, the more expensive it costs. On average, you can count between 150 and 350€ legal ad fees.
- Registration fees. These are the fees to be paid to the Crown to register your company. You can count around 70€ for the registration fee of the SCI.
These two types of expenses are therefore incompressible even for a family SCI.
The drafting costs are “optional”. This is the cost of drafting the articles if you have them written by a professional (such as a lawyer). In this case, you can count between 1,000 and 3,000 euros in fees if you go through a lawyer.
What should the articles of an IBS include?
Here is what must be included in the statutes:
- The names of the partners of the SCI
- The amount of contributions of each partner (in cash, in kind or in
- industry) The address of the registered office
- The registered capital
- The name of the SCI
- Its lifespan (up to 99 years)
- The corporate object (which cannot be commercial, but only civil)
- Operating rules (decision-making, transfer or disposal of shares, etc.)
- The name of the manager of the SCI (whose mission will notably be to convene the general meetings.)
- The declaration of beneficial owners (even if they are family SCI with members of the same family).
Writing smart statuses is an essential step to the success of an IBS. We therefore strongly recommend that you be advised by a professional (lawyer or accountant), since engaging in an IBS whose statutes are not clear can create many problems afterwards.
As you read just above, the corporate object of the SCI cannot be commercial, but only civil . Specifically, this means that you cannot engage in business with your SCI. Forget all buy/resale activity! It’s a commercial activity.
So you can only buy real estate that you plan to keep over time.
What are the objectives of an IBS?
The objectives of an IBS are to:
- Buy one or more real estate
- Put tenants in place in these properties
- Get the rents from the rental of
The benefits of an SCIproperty
The first advantage of this form of business is that it allows two individuals or legal entities to invest jointly while being mutually protected by a set of rules chosen together.
The second advantage of SCI is to facilitate the transfer of its heritage to its descendants.
And finally, the IBS is mostly used for its tax advantages.
Which tax system to choose for your IBS?
There are two tax regimes to choose from for your IBS:
- Income Tax
- Corporate Tax (IS Corporation)
The choice of your method of taxation must be carefully considered because it is definitive. Once you have opted for one or the other of these tax methods, it is impossible to to reverse.
We suggest you choose the scheme at the IS, as this scheme allows you to tax amortize the purchase price of the property (see below).
The SCI at the IS
By choosing this tax system, you will be taxed under the corporate tax system.
So be aware that if your SCI makes less than38,120 euros in profit, you will be taxed up to15%. If you exceed the €38,120 profit, you will be taxed at 33%.
To avoid this, it may be interesting to create several Real Estate Civil Society, in order to exceed as little as possible the ceiling of 38 120€ of profit.
By choosing the tax system at the IS,you will have the opportunity to amortize your propertyand thus Reallyreduce taxable profit on your real estate civil society.
A building is worth 100,000 euros. The life of the building is estimated to be 20 years.
The tax amortization will be €5,000 per year (100,000 /20).
The 5,000 euros will deduct the products generated by the Real Estate Civil Society (the rents you collect).
So, thanks to this mechanism, you can pay almost no tax on your rental income at first .
The SCI at the IR
The second type of taxation is income tax. In this case, rents will be taxed based on your income tax. It is therefore an excellent status that allows to greatly optimize your taxation and to invest in real estate of the best of manners.
Whatever your project, we strongly recommend that you seek advice from an expert before any approach to explain your particular case. Thinking carefully about its tax status can make all the difference between the success or failure of your investment project!