When selling real estate through SCI under IS (Société Civile Immobilière subject to corporate tax), capital gains tax applies. However, the calculation of this tax has specific features: the accounting value of the property (reduced by depreciation) is considered, inflation is not factored in, and the taxation system differs from that applied to individuals (IR — Impôt sur le Revenu, income tax). Let’s explore how this works with examples and comparisons.
🏛 SCI under IS: Tax Calculation Features
Capital gains are calculated as the difference between the sale price of the property and its Valeur Nette Comptable (VNC), or accounting value.
📌 Formula for IS:
Capital Gain = Sale Price - VNC
• VNC (Valeur Nette Comptable) is the original purchase price of the property minus the total depreciation over the ownership period. • Since depreciation reduces VNC, the taxable base (capital gain) increases over time.
🔍 Example Calculation for IS:
A company purchased a property for €500,000. Depreciation amounted to €50,000. The property was sold for €600,000. 1. Determine VNC:
VNC = €500,000 - €50,000 = €450,000
2. Calculate the capital gain:
Capital Gain = €600,000 - €450,000 = €150,000
3. The tax is levied on this amount (€150,000), with no adjustment for inflation.
💡 Impact of Depreciation: If depreciation increases to €100,000, then: • VNC = €500,000 - €100,000 = €400,000 • Capital Gain = €600,000 - €400,000 = €200,000
Thus, higher depreciation results in greater capital gain and a larger taxable base.
🏛 SCI under IR: Calculations with Special Features
If the SCI is taxed under the IR scheme (income tax), capital gains tax is calculated according to the rules for individuals, offering several advantages.
📌 Formula for IR:
Capital Gain = Sale Price - Original Purchase Price (with adjustments).
🔑 Key Differences of the IR Scheme:
1. Ownership Duration Discounts: The longer you own the property, the more tax benefits you receive: • Reduction in capital gains tax after 5 years of ownership. • Full exemption from tax after 22 years. 2. Reductions on Social Contributions: Social contributions on capital gains (17.2%) decrease after 30 years of ownership. 3. No Depreciation: Accounting depreciation is not applied, so the taxable base does not artificially increase.
🔍 Example Calculation for IR:
Suppose the property was purchased for €500,000 and sold for €600,000 after 10 years. 1. Calculate the capital gain:
Capital Gain = €600,000 - €500,000 = €100,000.
2. Apply ownership duration discounts (10 years): • A 6% discount applies for each year starting from the 6th year. • 5 years × 6% = 30% discount. 3. Determine the taxable base:
Taxable Base = €100,000 × (1 - 0.3) = €70,000.
4. Tax is only levied on €70,000, not the entire capital gain.
📉 Accounting for Inflation
One of the main drawbacks of the IS system is the lack of inflation adjustment in calculating the taxable base.
🔍 Example with Inflation:
The property was purchased in 2000 for €500,000 and sold in 2024 for €900,000, with an average inflation rate of 2%. 1. Inflation-adjusted value:
€500,000 × (1 + 0.02)^24 ≈ €800,000.
2. Real capital gain (adjusted for inflation):
€900,000 - €800,000 = €100,000.
3. Nominal capital gain (without inflation adjustment):
€900,000 - (€500,000 - Depreciation).
Under the IS system, tax is levied on the nominal capital gain, significantly increasing the tax burden.
🛠 Practical Recommendations
1. Choosing the Tax Regime: • If long-term ownership is planned, the IR scheme is preferable to take advantage of ownership duration discounts. 2. Optimizing for IS: • Plan depreciation carefully and consider its impact on capital gains. 3. Legal Structure: • In some cases, converting SCI from IS to IR may be advantageous, especially for long-term strategies. 4. Consult Experts: • Assessing tax specifics and analyzing individual situations can help minimize tax liabilities.