Over the last 22 years it has been a recurrent question asked by clients: can I use my foreign company to buy this real estate?
It is usual and logical that non-resident investing in France wish to use their existing company to buy and hold the French property. It is often driven by financial motivation as the company have sufficient cash flow and by tax reason as it avoids an unnecessary distribution of income and related taxation in their home country.
It is also simply coherent and could lead to economy of scale in the management of this additional asset.
Our role is therefore to understand how this foreign entity will be treated from a French tax point of view and basically, whether it will be assimilated to a civil company (SCI) or to a commercial one.
On 22nd July 2022, the supreme administrative court has ruled that a Swiss company in this situation should be treated as a commercial company from a French tax purpose whilst its social object was civil
Under Swiss company law and according to its social object the Swiss company was able to give free of disposal the property to its shareholders.
It stated that the judge should review all characteristics of this company under its foreign law and analyze to which French company it is the more similar. Strangely the judge excluded from these criterions the fact that the company has a civil or commercial object. To the contrary, the nature of the company under its law and the limited liability of the shareholders to their share in the capital were two determinant criterion which allowed the appeal court to decide that this company had to be considered as a commercial limited liability company called “Société anonyme”. This type of company being automatically subject to corporate tax in France, the Swiss company was also.
In consequences, the shareholder cannot benefit freely from the property as it would be considered as an abnormal act, contrary to the interests of the company.
In these circumstances, as most foreign companies that I came across in my career, they should register in France, get a registration number, declare a rental income, file a corporate tax form and respect French corporate tax rules.
If these forms are filled on time and thanks to the depreciation allowance of the property it is likely that there will be no corporate tax due. However late filling or non-efficient advice could lead to tax exposure, penalty, and long prescription period.
The corporate annual tax aspect should not hide the impact of this regime at the time of the sale of the property. This aspect remains, for us at Iron Conseil, the main driven for a re-structuring for property hold in this way.
