At Fynis International Mortgages, we also facilitate mortgages for the purchase of real estate in France with the help of an SCI. For cohabiting partners and married couples, an SCI is a solution for jointly purchasing a property while keeping assets separate. An SCI can also be a solution for the purchase of a property in France with multiple families or business partners. Due to the costs of establishing and maintaining it, an SCI is used for properties in a relatively high price range (from EUR 1 million). In this article, we will discuss the concept of an SCI, the different types of SCI, and the advantages and disadvantages of using it. We will also cover what is involved in establishing an SCI, the associated costs, and the administrative requirements. If you are interested in the mortgage that we can offer, please contact us by phone or send us a message. Please see the form at the bottom of this page.
What is an SCI?
An SCI is a French holding company that manages and owns real estate. The SCI is the owner of the property. The owners of the SCI hold shares in the SCI, making them shareholders. Shareholders thus indirectly own a portion of the real estate held by the SCI. Shareholders determine the distribution of shares and the importance of each shareholder.
What types of SCI are there?
There are different types of SCI that buyers can choose from, such as an SCI à capital variable and an SCI de gestion. The most common type is the SCI familiale. This type of SCI is often used by families or family members who want to buy a vacation home together. Families who want to own a vacation home in France together usually prefer this type of SCI. In the rest of this article, we will focus exclusively on the SCI familiale and delve deeper into its advantages and disadvantages.
A French mortgage for an SCI familiale?
It is entirely possible to finance the purchase of a property with an SCI familiale with a French mortgage. By pooling resources, individuals can afford to buy a vacation home in France that would otherwise be outside their financial reach. Fynis International Mortgages can arrange a mortgage for an SCI familiale of up to 85% of the purchase price, based on annuities or temporary interest-only payments. The term of the loan is similar to that of a traditional mortgage, ranging from 7 to 25 years.
The amount that can be borrowed depends on the percentage of shares that each member of the SCI holds and the borrowing capacity per member. If a family or partner owns a smaller percentage of the shares of the SCI, for this family or partner, a lower income is required than for one with a larger shareholding. In that case, the family or partner with the smaller percentage of shares also needs to contribute a smaller portion of the total equity required. The family with the highest percentage of shares must have sufficient income to pay the full mortgage. This is the bank’s perspective for obtaining a mortgage.
Advantages of Buying Real Estate in France with an SCI Familiale
Using an SCI familiale to buy real estate in France can offer several benefits. Individual buyers are limited in liability, making it a safer investment. An SCI familiale can simplify the transfer of ownership in the future, especially in the case of inheritance or property sale. Unlike a property, only shares need to change ownership. An SCI familiale offers advantages in terms of estate planning and tax savings. Each member can gradually transfer a certain amount, free of tax, of shares to another shareholder, such as a child. This makes it possible to prepare for the transfer of ownership during life while one of the parents can retain ownership management. A specialist can inform you about other advantages in this area.
Disadvantages of Buying with an SCI Familiale
One significant disadvantage of working with an SCI is the cost involved in setting it up and maintaining it. It is important to comply with French tax reporting rules. Using an SCI familiale can lead to possible conflicts between individual buyers. Disputes can arise, for example, over how the property is managed or how rental income is divided. It is important to establish clear rules and guidelines for property management and the SCI to minimize these conflicts.
Taxation of Rental Income
Rental income from French real estate is subject to French income tax, regardless of whether you reside in France or abroad. However, the tax treatment of rental income for a property purchased directly in an individual’s name differs from when the property is purchased through an SCI familiale. If the property is owned by an individual, rental income is subject to French income tax. If the property is owned by an SCI, rental income is subject to corporate tax. As an individual, you have the choice of how to tax the rent and which costs you can deduct from the received rental income. Exemptions apply. With an SCI familiale, rental income is taxed as income from a business. Interest and costs for loans can be deducted from rental income. Seek advice and information from a specialist who is knowledgeable about tax legislation in France.
Buying with an SCI and how to set it up
As an individual buyer, you can sign a purchase contract, and transfer the buyer’s rights to an SCI later, while the purchase contract is still active. The purchase contract must include a replacement right (“droit de substitution”) for this purpose. During the period when the purchase contract is active, the SCI can be set up and a mortgage can be applied for on behalf of the SCI. It is best to submit the concept of the articles of association to the bank from which a mortgage is being applied for. The nature of the SCI, such as whether it is an SCI familiale or not, is contained in the articles of association. Banks only give a final agreement for financing once the SCI has been fully established. It is not possible to start with financing in the name of the buyers themselves and later convert it to financing in the name of the SCI.
To set up an SCI, there must be at least two partners, each with capital, a manager must be appointed, and a name must be chosen. Setting up an SCI is broadly similar to setting up a B.V. in the Netherlands with some specific things for the French. Articles of association must be drawn up. The SCI must be registered with the tax office, and a notice of the establishment of the SCI must be published in the “journal d’annonces légales” (JAL). The SCI must also be registered with the Chamber of Commerce. After these steps, a SIREN number, a SIRET number, and K-Bis are available. The articles of association must describe the purpose, name, capital, duration, contributions, partners, form, address details, and working method of the SCI.
How much does it cost to set up and maintain an SCI familiale?
The costs of setting up an SCI vary from €500 to €2,000. For the annual costs of maintaining an SCI, you should expect an amount between €1,000 and €3,000. Costs depend on how you have organized management, administration, and tax returns. Various administrative tasks must be performed annually, such as holding an annual general meeting. The SCI must also have an accounting system to document income and expenses. The high costs for an SCI mean that using it is only profitable for the purchase of a home in a high price range (starting from €1 million).
If you are looking to buy a holiday home in France from abroad, in a higher price range, with the goal of separating assets and liabilities, you may consider using an SCI familiale. An SCI familiale offers various benefits, but also has potential drawbacks. It is essential to seek professional advice and ensure that the SCI is set up correctly so that all legal and tax obligations are met. Buyers must carefully weigh the pros and cons of using an SCI before deciding whether it is the right choice for them. If you would like to receive information on financing options, please call us or fill in the form below; we will contact you within one working day.