|
Purchasing
French real estate property through a company vehicle (Part II)
This
issue of the week looks at some of the major problems that can be
encountered when using a company vehicle to purchase French real estate
property. In certain
situations, the advantages gained can outweigh the disadvantages that may
be encountered but each case should be judged upon its own merits so that
an informed choice can be made.
TAXATION
CONSIDERATIONS
UK
tax residents and benefits in kind
The
UK Inland Revenue has determined that the ownership of French real estate
property by a director or shadow director of a company can be taxed in the
UK
as a benefit in kind on the grounds of the benefit
gained by the possibility of occupying the property.
It is fairly certain that the ‘gérant’ of an SCI (special
French real estate property company) would fall within this definition.
This is evidently a major potential tax burden for those that are
UK
tax resident.
UK
tax residents and possible denial of double taxation
relief
If
an SCI is used to purchase property, the Inland Revenue currently deems
such a vehicle to be fiscally opaque. This means that it will not look
behind the corporate veil to the individual shareholders for taxation
purposes. As a result, a
shareholder who has declared and paid tax in
France
on an individual basis could be denied double taxation
relief in the
UK
on the grounds that the income earned is not the same
type.
General
taxation considerations
Following
on from the aforementioned, if the company is not a French company or its
shareholders are not French resident, additional taxation issues can arise
in terms of income and capital gains tax.
FAILURE
TO ACHIEVE THE DESIRED OUTCOME
In
certain cases, people have opted for a company vehicle in order to avoid
certain rules of French inheritance law (should they wish to disinherit a
child for example). This
desired outcome can be negated should the shareholder(s) become domiciled
in
France
for inheritance purposes (in the sense that
France
becomes their permanent home) as the shares will
become subject to French law with all the consequences that this may have.
ADMINISTRATIVE
BURDENS
Company
vehicles have been used in
France
in the past to avoid taxation, the actual owners of
the property sheltering behind their corporate identity.
As a result, a number of laws have been introduced to prevent this
from occurring. Consequently,
for those companies that are not French or companies that are French but
of which the shareholders are resident in a country other than
France
, an annual declaration must be made to the
administration naming the owners of the company.
The purpose of this is so that the administration is informed of
any change of ownership and can tax accordingly (in the case of death of a
shareholder for example). If
this reporting obligation is not complied with, an annual punitive tax of
3% of the value of the property owned by the company can be applied
(mentioned in the previous issue in connection with offshore companies).
In
addition, with the SCI for example, there are a number of rules which
should be complied with to ensure that the company is kept alive and
functioning. If the company is
effectively dormant then the French administration can declare that it is
null and void on the grounds that it is fictitious.
The result of this would be that tax and fees would be payable on
the transfer of assets into the names of the individual shareholders which
could potentially be very costly.
PRACTICAL
CONSIDERATIONS
The
SCI (or SARL, SNC….) is a French company of which the memorandum and
articles of association will be in French and the corporate rules
applicable will be those of
France
. These can
be quite different from the corporate rules of other countries and as a
result a good level of French and a good understanding of the way that the
company operates is required to administer the company correctly.
The company could be put into the hands of a management agent but
evidently this would incur extra expense.
11/07/2003
- Issue of the week
BACK
TO NEWS
|
