SCI under Income Tax or Corporate Tax: The Investor's Dilemma

Once the legal structure of your Société Civile Immobilière (SCI) is established, a major fiscal decision arises: choosing between Income Tax (IR) and Corporate Tax (IS). This choice, often irreversible, determines the net return on your investment and the tax liability upon resale. At Fairway Luxury Real Estate, we break down these mechanisms to clarify your wealth strategy.

1. SCI under Income Tax (IR): Fiscal Transparency

By default, an SCI is subject to personal Income Tax (IR). It is called a "transparent" company because it does not pay tax itself: the result (profit or loss) is directly reported on the partners' personal tax returns.

Advantages of IR

Exemption based on holding period: This is the major asset. In the event of resale, you benefit from the private real estate capital gains regime. According to Article 150 VC of the French Tax Code, capital gains are fully exempt from tax after 22 years and from social levies after 30 years.
Offsetting rental deficits: If your expenses (mortgage interest, renovations) exceed your rents, you can reduce your overall taxable income (up to a limit of €10,700 per year).

Drawbacks of IR

Annual tax pressure: Income is taxed at your Marginal Tax Rate (TMI), which can reach 45%, plus 17.2% in social levies. For high-income taxpayers, the total can exceed 60%.

2. SCI under Corporate Tax (IS): The Capitalization Tool

Choosing Corporate Tax (IS) transforms the SCI into an autonomous fiscal entity. The company pays its own tax on profits.

Advantages of IS

Accounting Amortization (Depreciation): This is the most powerful fiscal lever. You can deduct a portion of the building's value each year (approx. 2-3%). This "fictional" expense significantly reduces taxable profit, often resulting in zero tax for 15 to 20 years.
Reduced Tax Rates: The IS rate is 15% on profits up to €42,500, and 25% thereafter. This is often much lower than the personal income tax brackets for high-net-worth individuals.
Deduction of acquisition costs: Notary and agency fees can be written off as expenses immediately.

The Resale Risk: "Net Book Value"

Upon exit, IS taxation is heavy. The capital gain is calculated on the difference between the sale price and the net book value (purchase price minus accumulated depreciation). Example: A property bought for €1M, depreciated by €400k, and sold for €1.2M. The taxable gain will be €600k (€1.2M - €0.6M) instead of €200k.

3. Comparative Table: Which Regime for Which Project?

Criteria	SCI under Income Tax (IR)	SCI under Corporate Tax (IS)
Property Use	Primary or secondary residence	Rental investment only
Annual Taxation	Personal Bracket (up to 45%) + 17.2%	Reduced rates 15% or 25%
Capital Gain on Resale	Exemption over time (very advantageous)	Heavy taxation (based on depreciation)

Conclusion: The Fairway Perspective

For a heritage property that you intend to keep for more than 20 years or pass on to heirs, IR is almost always preferable. However, for portfolio development financed by debt where cash flow is a priority, IS is a powerful tax engine.

Please Note: The option for IS is now revocable for the first 5 years, but becomes permanent after this period. We strongly recommend consulting our partner accountants and tax lawyers before making any decision.