SCI Corporate Tax vs Income Tax vs Direct Purchase Comparator

Rental property investment in France can be carried out under three main legal structures, each with its own tax and estate logic. The choice between direct purchase (personal name), SCI subject to income tax (SCI a l'IR) and SCI subject to corporate tax (SCI a l'IS) is a structuring decision that has a lasting impact on the profitability of your investment, the taxation of your rental income and the treatment of capital gains on resale.

Direct purchase: simplicity first

Direct purchase is the most common solution for a first rental investment. The investor directly owns the property. Rental income is declared as property income (revenus fonciers for unfurnished) or BIC (for furnished). Taxation is transparent: net rental income is subject to your marginal tax rate (TMI) plus 17.2% social contributions. For an investor at the 30% TMI bracket, this represents a total tax rate of 47.2% on net rental income.

The major advantage of direct purchase lies in its simplicity: no articles of association to draft, no corporate accounting, no annual management fees. Capital gains benefit from holding period allowances: full income tax exemption after 22 years and full social contributions exemption after 30 years. This is a considerable advantage for investors planning a long-term hold.

SCI (Income Tax): tax transparency and estate flexibility

The SCI subject to income tax operates under "tax transparency": the company itself does not pay tax. Profits (or losses) are distributed among the partners in proportion to their shares and declared in their personal tax return. The taxation of rental income is therefore identical to direct purchase (TMI + 17.2% social contributions).

The benefit of the SCI (IR) is not strictly fiscal -- it is related to estate planning. The SCI allows holding property between multiple partners, progressively transferring shares through gifts (with a 10 to 20% discount on share value), splitting bare ownership from usufruct, and organizing management through the articles. Capital gains benefit from the same regime as direct purchase (holding period allowances). The additional cost is limited: approximately 500 euros per year for the 2072 tax return and formalities.

SCI (Corporate Tax): the savvy investor's fiscal weapon

The SCI subject to corporate tax radically transforms the taxation of the investment. Rental income is no longer taxed at the progressive income tax scale but at the corporate tax rate: a reduced rate of 15% on the first 42,500 euros of profit, then 25% above that. Moreover, the property (excluding land) can be depreciated, which considerably reduces the taxable result: a property worth 200,000 euros excluding land generates approximately 5,500 to 6,000 euros of annual deductible depreciation.

In practice, depreciation can reduce the taxable result to zero or near-zero for many years, virtually eliminating tax on rental income. This is a major advantage for investors in high tax brackets (30%, 41%, 45%) who would face confiscatory taxation under income tax.

The downside is at resale. Under a corporate tax SCI, capital gains are calculated on the difference between the sale price and the net book value (NBV), i.e. the purchase price minus accumulated depreciation. A property purchased for 200,000 euros and depreciated by 100,000 euros has an NBV of 100,000 euros. If sold for 250,000 euros, the taxable gain is 150,000 euros (not 50,000 euros as under the individual regime). This gain is subject to corporate tax, then the distributed amounts to partners are subject to the 30% flat tax (PFU on dividends). There is no holding period allowance under a corporate tax SCI.

The importance of the holding period

The holding period is the determining factor in the choice of structure. Over a short period (5 to 10 years), direct purchase is generally the most advantageous as the SCI structure costs are not amortized and capital gains allowances are low. Over an intermediate period (10 to 20 years), the corporate tax SCI gains the upper hand thanks to the tax savings on rental income. Over a very long period (20 to 30 years), the income tax SCI (or direct purchase) becomes interesting again thanks to capital gains exemption.

The impact of your marginal tax rate

Your marginal tax rate is the second key factor. At 0% or 11% TMI, direct purchase or income tax SCI are almost always preferable: rental income taxation is low and the corporate tax depreciation advantage does not provide sufficient benefit to offset accounting costs and the capital gains trap. At 30% TMI, the choice depends on the holding period and rental income amount. At 41% or 45% TMI, the corporate tax SCI very often becomes the best choice once the holding period exceeds 10 years, as the taxation gap on rental income (15% corporate tax vs 58.2% to 62.2% under income tax + social contributions) is considerable.

This simulator calculates year by year the cash flow, taxation and net wealth for each scenario. Here are the assumptions and methodology:

• Mortgage: Constant annuity repayment schedule. Loan interest is deductible in all three scenarios.
• Direct / Income Tax: Rental income = rent - expenses - interest. Taxed at TMI + 17.2% social contributions. Rental deficit can be offset up to 10,700 euros against total income.
• Corporate Tax: Taxable result = rent - expenses - interest - depreciation - accounting fees. Corporate tax at 15% then 25%. Losses carried forward without limit.
• Depreciation (Corporate Tax): Component-based depreciation: structural works (50 years, 50%), roofing (25 years, 15%), technical installations (15 years, 20%), fixtures (10 years, 15%). Land portion not depreciable.
• Capital gains (Income Tax / Direct): Holding period allowance. Full income tax exemption after 22 years, social contributions after 30 years.
• Capital gains (Corporate Tax): Sale price - NBV (net book value). Corporate tax on the gain, then 30% flat tax (PFU) on distributed dividends.
• IRR: Calculated using Newton-Raphson method on annual cash flows, including the net sale proceeds in the final year.