French SCI Entity in 2025: Understanding Your Obligations

The Société Civile Immobilière (SCI) is a popular legal structure in France designed for the collective ownership and management of real estate. This entity offers a flexible approach to property ownership, allowing multiple partners to share responsibility and make decisions through majority votes, which can help avoid the complexities of joint ownership. However, setting up and managing a French SCI entity comes with specific legal and tax obligations.

In this article, we’ll explore the key aspects of the French SCI, its purpose, associated risks, tax implications, and the administrative responsibilities that come with managing this type of structure.

What is a French SCI Entity?

A French SCI entity is a non-commercial company primarily used for managing real estate. It allows several partners to collectively own property, such as residential buildings or apartments, and make decisions on its management or sale without requiring unanimous consent from all owners, as in the case of joint ownership.

The SCI is known for its tax transparency (unless the corporation tax regime is selected), which means the company itself is not taxed directly. Instead, the profits or income generated from the property are passed through to the partners and taxed based on their individual tax situations.

Why Set Up a French SCI Entity?

There are several reasons why individuals or families choose to create a French SCI entity:

1. Simplifying Property Ownership

The primary benefit of the SCI structure is that it simplifies the management of real estate owned by multiple partners. By establishing clear rules regarding decision-making, the SCI can avoid disputes that often arise in co-ownership situations where unanimous consent is required.

2. Managing Unfurnished Rental Properties

One of the most common uses of a French SCI entity is to rent out unfurnished properties. The income generated is shared between the partners based on their ownership shares and taxed at their individual rates.

3. Property for Personal Use

An SCI can also be used when the partners intend to use the property themselves without renting it out. The partners can enjoy the property without the need to declare a benefit in kind, provided no rent is paid.

However, it is important to note that the SCI is not suited for commercial activities, such as renting out furnished properties or engaging in seasonal rentals. If an SCI engages in such activities, it risks being taxed as a corporation, which can result in significant financial disadvantages.

Risks

While the French SCI entity offers flexibility in property management, it comes with certain risks, particularly in relation to taxation:

1. Subject to Corporation Tax

One of the major risks is that the SCI can inadvertently become subject to corporation tax. This can happen if the SCI engages in commercial activities, such as renting furnished properties. Once the SCI is taxed as a corporation, it loses its tax transparency and becomes subject to more complex and potentially higher tax rates.

2. Impact on Capital Gains Tax

If the SCI becomes subject to corporation tax, the calculation of capital gains tax changes. Under normal circumstances, real estate capital gains are taxed on a sliding scale with reductions based on the length of ownership, leading to full exemption after 30 years. However, when subject to corporation tax, the gain is calculated as the difference between the sale price and the depreciated book value of the property, leading to a higher taxable amount and no time-based exemptions.

Tax Implications of a French SCI Entity

The French SCI entity is typically a tax-transparent vehicle, meaning it does not pay taxes directly. Instead, the profits or income generated by the SCI are passed through to the partners, who are taxed individually. However, the tax implications depend on the activities of the SCI and the type of partners involved.

1. For Individuals

When the partners are individuals, income generated from the SCI’s rental activity is taxed as property income. The individual partners declare their share of the income on their personal tax returns, and it is subject to personal income tax.

2. For Companies

If one or more partners are corporate entities subject to corporation tax, the SCI’s income is calculated according to commercial tax rules. The corporate partners will be taxed on their share of the profits under the corporation tax regime.

3. For Personal Use

If the SCI holds property exclusively for the use of its partners and the property is not rented, there is no rental income to declare, and therefore, no tax to pay.

Reporting Obligations

A French SCI entity is required to meet several administrative and tax obligations to remain compliant with French law. These include setting up a tax account, filing annual returns, and declaring the use of the property.

1. Creating a Tax Account on impots.gouv.fr

After establishing the SCI, you will need to create a tax account on the French tax authority’s website, impots.gouv.fr. The SCI will be assigned a SIRET number, which is necessary for setting up the account. This account allows you to track tax filings, communicate with the tax authorities, and view property tax details.

2. Filing the 2072 Tax Return

Each year, an SCI involved in rental activities must file a 2072 tax return, which details the income and expenses related to the property. Since January 2020, this return must be submitted electronically. If the property is for personal use, the filing of the 2072 return is only mandatory in the first tax year and becomes optional thereafter.

3. Declaration of Occupancy

Due to the reform of the taxe d’habitation (housing tax) for primary residences, all property owners in France, including SCIs, must file a declaration of occupancy. This declaration must indicate whether the property is rented, used as a primary residence, or used as a secondary residence, and the identity of the occupant. This must be done through the SCI’s account on impots.gouv.fr.

Do French SCI Entities Need to Keep Accounts?

While SCIs are not legally required to maintain formal accounts, especially when the property is not rented out, doing so can provide several benefits:

  • Tracking Expenses: Keeping accounts allows you to accurately track property-related expenses, such as renovations or repairs, which can be deducted when the property is sold.
  • Ensuring Fair Contributions: In cases where partners contribute unequally to the SCI, bookkeeping can document each partner’s contributions and help resolve disputes, especially in legal situations like divorce or inheritance.
  • Wealth Tax (IFI): For those subject to the real estate wealth tax (IFI), maintaining accounts can help monitor the value of the property and associated debts, which can reduce the taxable value.

Conclusion

The French SCI entity offers a flexible and effective way for individuals and families to manage property collectively. However, it also comes with specific tax and administrative obligations that must be carefully managed to avoid penalties. From setting up a tax account to filing annual returns and keeping proper records, understanding these requirements is key to ensuring that your SCI operates smoothly and within the bounds of French law.