Some companies in France, such as SCI (Société Civile Immobilière), are automatically subject to IS (Impôt sur les Sociétés, Corporate Income Tax) under certain conditions.
1. SCI and IS: Who Must Pay?
An SCI, typically established for real estate management, becomes subject to IS if:
• The company engages in commercial activities,
• For example, renting out furnished properties or providing services related to commerce.
Example:
An SCI owns an apartment that is rented out fully furnished. Since this is considered a commercial activity, the income from this rental will be taxed under IS.
2. Exception: Commercial Activity Below 10%
An SCI can avoid taxation under IS if:
• Its commercial income accounts for no more than 10% of the company’s total income.
• The majority of its income comes from non-commercial activities, such as renting unfurnished properties.
Example:
An SCI rents out five properties: four are unfurnished, and one is furnished.
If the income from the furnished property is less than 10% of the total income, the company will not be subject to IS.
3. How Is an SCI Taxed Without Commercial Activity?
If an SCI exclusively conducts non-commercial activities (e.g., renting unfurnished properties), the company’s income is taxed at the level of its shareholders under IR (Impôt sur le Revenu, Personal Income Tax).
This is often more advantageous, as personal income tax rates are frequently lower than corporate income tax rates.
Practical Examples
Example 1: Renting Out a Furnished Apartment
The company SCI Example 1 owns an apartment in Paris, rented out long-term and fully furnished.
• Income: €15,000 annually from rent.
• Type of Activity: Renting out a furnished property is classified as commercial activity.
• Result: The SCI is automatically subject to IS.
Example 2: Mixed Income (Furnished and Unfurnished Properties)
The company SCI Example 2 owns three apartments:
1. Two apartments rented unfurnished — income of €40,000 annually.
2. One apartment rented furnished — income of €5,000 annually.
• Total Company Income: €45,000 annually.
• Share of Commercial Income (furnished rental):
5,000/45,000x100 = 11% .
• Result: Since the share of commercial income exceeds 10%, the SCI’s entire activity will be taxed under IS.
Example 3: Commercial Income Below 10%
The company SCI Example 3 rents out five properties:
1. Four apartments rented unfurnished — income of €80,000 annually.
2. One garage rented furnished — income of €5,000 annually.
• Total Company Income: €85,000 annually.
• Share of Commercial Income:
5,000/85,000x100 = 5.88% .
• Result: Since the share of commercial activity is below 10%, the SCI will be taxed under IR (Personal Income Tax), not IS.
Example 4: No Commercial Activity
The company SCI Example 4 rents out three apartments and one office:
• All properties are rented unfurnished.
• Total Income: €100,000 annually.
• Result: Since the company has no commercial activity, it is not subject to IS. Instead, its income will be taxed under IR through its shareholders.
Example 5: Ignoring IS Rules
The company SCI Example 5 rents out two fully furnished apartments but fails to declare the commercial activity on its tax return to avoid IS.
• Income: €30,000 annually.
• Result: The tax authorities reclassify the company’s income as subject to IS and impose penalties for incorrect reporting.
Why Is It Important to Comply with IS Rules?
If an SCI engages in commercial activities but does not adhere to IS taxation rules, it may face tax sanctions. Understanding the conditions of IS taxation helps to:
• Avoid penalties,
• Reduce the tax burden,
• Optimize real estate management.
What’s Next?
In the next article, we’ll dive into deductions and depreciation for SCIs under IS.
1. SCI and IS: Who Must Pay?
An SCI, typically established for real estate management, becomes subject to IS if:
• The company engages in commercial activities,
• For example, renting out furnished properties or providing services related to commerce.
Example:
An SCI owns an apartment that is rented out fully furnished. Since this is considered a commercial activity, the income from this rental will be taxed under IS.
2. Exception: Commercial Activity Below 10%
An SCI can avoid taxation under IS if:
• Its commercial income accounts for no more than 10% of the company’s total income.
• The majority of its income comes from non-commercial activities, such as renting unfurnished properties.
Example:
An SCI rents out five properties: four are unfurnished, and one is furnished.
If the income from the furnished property is less than 10% of the total income, the company will not be subject to IS.
3. How Is an SCI Taxed Without Commercial Activity?
If an SCI exclusively conducts non-commercial activities (e.g., renting unfurnished properties), the company’s income is taxed at the level of its shareholders under IR (Impôt sur le Revenu, Personal Income Tax).
This is often more advantageous, as personal income tax rates are frequently lower than corporate income tax rates.
Practical Examples
Example 1: Renting Out a Furnished Apartment
The company SCI Example 1 owns an apartment in Paris, rented out long-term and fully furnished.
• Income: €15,000 annually from rent.
• Type of Activity: Renting out a furnished property is classified as commercial activity.
• Result: The SCI is automatically subject to IS.
Example 2: Mixed Income (Furnished and Unfurnished Properties)
The company SCI Example 2 owns three apartments:
1. Two apartments rented unfurnished — income of €40,000 annually.
2. One apartment rented furnished — income of €5,000 annually.
• Total Company Income: €45,000 annually.
• Share of Commercial Income (furnished rental):
5,000/45,000x100 = 11% .
• Result: Since the share of commercial income exceeds 10%, the SCI’s entire activity will be taxed under IS.
Example 3: Commercial Income Below 10%
The company SCI Example 3 rents out five properties:
1. Four apartments rented unfurnished — income of €80,000 annually.
2. One garage rented furnished — income of €5,000 annually.
• Total Company Income: €85,000 annually.
• Share of Commercial Income:
5,000/85,000x100 = 5.88% .
• Result: Since the share of commercial activity is below 10%, the SCI will be taxed under IR (Personal Income Tax), not IS.
Example 4: No Commercial Activity
The company SCI Example 4 rents out three apartments and one office:
• All properties are rented unfurnished.
• Total Income: €100,000 annually.
• Result: Since the company has no commercial activity, it is not subject to IS. Instead, its income will be taxed under IR through its shareholders.
Example 5: Ignoring IS Rules
The company SCI Example 5 rents out two fully furnished apartments but fails to declare the commercial activity on its tax return to avoid IS.
• Income: €30,000 annually.
• Result: The tax authorities reclassify the company’s income as subject to IS and impose penalties for incorrect reporting.
Why Is It Important to Comply with IS Rules?
If an SCI engages in commercial activities but does not adhere to IS taxation rules, it may face tax sanctions. Understanding the conditions of IS taxation helps to:
• Avoid penalties,
• Reduce the tax burden,
• Optimize real estate management.
What’s Next?
In the next article, we’ll dive into deductions and depreciation for SCIs under IS.
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