Management
All heritage professionals are now asking themselves the question: should their rental investments be housed in a real estate company (SCI) subject to corporation tax?
There are almost only advantages to being subject to corporation tax, rather than acquiring a bine directly or through a classic SCI, subject to income taxation. The reason is mainly due to the tax burden, which is much lower for companies than for individuals.
1. Why land revenue is not a good option?
Whether directly or through an SCI subject to income tax (IR), the rents collected are added to the current income of the partners (calculated in proportion to their participation in the capital of the SCI) and its taxed according to their marginal tax bracket. For taxpayers subject to the marginal rate of 30%, the tax thus amounts to 47.20%, social security contributions of 17.20% included.
Regarding an SCI subject to corporation tax (IS), a change of scenery: profits are taxed at 15% up to EUR 38,120 per year (an amount that few landlords exceed), 28% beyond that. The main drain comes later, when the company distributes its results in the form of dividends. The partner then incurs the single flat-rate levy of 30%, including social security contributions. If it is possible to submit this income to the progressive scale, this is only interesting for people with little or no tax. In fact, the partner of an SCI subject to corporate taxation pays almost no tax during the life of the company.
2. What are the possible decisions?
Here is another highlight of the corporate income tax regime. With this choice, you can depreciate the value of the property, i.e. each year part of its price from the income collected. For an apartment of 300,000 EUR, for example, approximately 15,000 EUR will be deducted from the rents collected in the first year. The SCI will then post a negative accounting result, or a very slightly positive one, even though the rents will feed its cash flow well. It will therefore not be taxable, generally for several years.
In addition to depreciation, there are deductions that reduce taxable income, which are much more generous for corporation tax. Indeed, lessors subject to income tax can only deduct from their income loan interest, rental charges and distributions, while those resorting to corporation tax benefit from much more extensive possibilities. They also have the possibility of deducting the costs and rights of acquisition as well as the improvement work undertaken, for example, for the modernization of an old building. This further reduces the tax base, and therefore any tax due.
3. Which capital gains tax?
If you intend to resell the property to use the capital for other purposes, after a few years, the situation changes. Holding directly or through an SCI for income tax is often less penalizing than that carried out through an SCI for corporation tax. This, for two reasons.
First, only the actual capital gain is taxable, i.e. the difference between the resale price and the purchase price (plus acquisition costs and work).
You then benefit from an annual allowance which reduces the taxable capital gain. You are exempt from tax on it after 22 years of ownership, as well as social security contributions beyond 30 years.
With the SCI subject to corporation tax, the capital gain is calculated differently, with the realized depreciation being deducted from the purchase price. It will be considered that the purchase price of a property purchased for EUR 100,000, on which EUR 20,000 has been written off, will be EUR 80,000. As a result, the taxable capital gain is still very significant even if the price of the property has not changed.
However, this handicap must be put into perspective. The objective of a holding through an SCI for corporation tax should not be resale, then dissolution at the end. It is conceived from the perspective of long conservation – even if it means selling other purchases – followed, or not, by a transmission of the heritage.
