SCI and LMNP: Is It Possible to Combine These Two Statuses?
Are you planning to purchase a property with LMNP status? Typically, it's not possible to do this with an SCI. However, under certain conditions, the law allows the combination of these statuses.
Are you planning to purchase a property with LMNP status? Typically, it's not possible to do this with an SCI.
However, under certain conditions, the law allows the combination of these statuses. This article will explain in detail.
Before diving into these details, if you want to create your own SCI or LMNP, Micco stands as an all-in-one financial platform tailored for business creators, facilitating a comprehensive array of services. These include streamlined procedures for company registration, professional bank account establishment, capital deposit management, and more.
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Table of Contents
- Legal Provisions on Combining SCI and LMNP Statuses
- Conditions for Combining SCI and LMNP Statuses
- Tax Implications for SCI
- Conclusion
1. Legal Provisions on Combining SCI and LMNP Statuses
An SCI (Société Civile Immobilière) is a legal structure used for real estate investment with multiple partners. It is an alternative to a family SARL or co-ownership, aimed at building and managing real estate assets. By definition, an SCI falls under the category of civil companies.
With LMP (Professional Furnished Rental) or LMNP (Non-Professional Furnished Rental) status, your income is taxed under Industrial and Commercial Profits (BIC), which is generally excluded from the SCI regime.
Therefore, an SCI cannot engage in commercial activities such as furnished property rental, whether professional or non-professional.
2. Conditions for Combining SCI and LMNP Statuses
In practice, the law allows some flexibility under certain conditions.
You can combine the SCI status with LMNP status if:
- The income from LMNP activities represents less than 10% of your SCI's total annual revenue. Occasional exceeding is tolerated if the average revenue of the current year and the previous three years remains below 10%.
- Your LMNP activity is occasional, meaning LMNP should not be the primary source of your SCI's income. You should conduct short-term rentals that do not recur over multiple years.
Note
If these conditions are not met, the SCI will have to switch from the individual income tax (IR) regime to the corporate tax (IS) regime.
3. Tax Implications for SCI
Complying with LMNP Income Limits
In this case, the SCI remains under individual income tax and retains the advantages of LMNP status:
- You will pay less capital gains tax when selling the property through the SCI.
- You benefit from the individual capital gains tax system and its deduction for holding periods.
- You can depreciate the property’s renovations and equipment over a specific period.
Under the individual income tax regime, you are not required to maintain accounting records for your company.
Exceeding LMNP Income Limits
If the conditions are not met, the administration will consider that you are conducting regular, not occasional, furnished rental activities. You will then be classified as a professional landlord, and your status will be redefined as LMP (Professional Furnished Rental).
Tax-wise, your SCI will be subject to corporate tax instead of individual income tax. The corporate tax rate is 25%, regardless of the revenue.
In some cases, you can benefit from a reduced rate of 15% on profits below €42,500.
Your income from furnished rentals will be doubly taxed: first at the company level and then at the partner level on their dividends.
Additionally, you will switch to the professional capital gains system and lose the advantageous individual real estate capital gains benefits.
Note
Switching to corporate tax also has several advantages:
- You can fiscally depreciate your real estate assets to reduce the taxable base for corporate tax.
- You can deduct certain expenses for tax purposes, such as the SCI manager's remuneration, notary fees paid during property purchase, and registration fees.
- You can offset potential deficits against the SCI's overall income.
In some cases, switching to corporate tax can reduce your tax burden, especially if you are heavily taxed initially.
The SCI and LMNP are two key statuses for real estate investment, and they can be combined under certain conditions. However, before embarking on such a project, be sure to understand the tax implications of this combination thoroughly.
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