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Purchasing French real
estate property through a company vehicle (Part I)
Prospective
purchasers often raise the possibility of purchasing French real estate
property through a company vehicle. This
issue of the week looks at the possible advantages of doing so as well as
the type of vehicle that could be envisaged.
Part 2 of this issue of the week will look at the problems that can
be encountered. It is to be
stressed that each individual situation is different and it is crucial to
seek full advice before proceeding with a purchase in the name of a
company, be it a French company or otherwise.
It
should be noted from the outset that by using a company French inheritance
tax is not, in principle, avoided. This
is due to reporting obligations in relation to such companies where the
owners are non-French resident which ensure that the French fiscal
authorities are aware of any transfer of ownership due to decease and can
tax accordingly.
What
could be the advantages of using a company vehicle to purchase property?
The
advantages gained by purchasing in this way will very much depend upon the
individual circumstances of the purchaser(s) and the intended use of the
property, amongst other things. There
follows a brief synopsis of certain advantages:
1)
To avoid certain rules of French inheritance law in the situation
where the purchaser is not going to become domiciled in
France
for inheritance purposes (the definition of domicile
being very close to residence). This
is due to the fact that the shares will pass under the law of that
person’s domicile as they are moveable property (this will depend upon
where exactly the person is domiciled).
This may be desirable where a parent wishes to disinherit a child,
for example, which he or she would not otherwise be able to do under
French law;
2)
To facilitate the ownership and management of property where there
is a group of purchasers, especially if they are unrelated.
By using a company, changes of ownership by sale or transfer of
shares occur under the rules of the company.
With direct ownership of a property by individuals, it can be
difficult, expensive and time consuming to alter the deed.
In addition, the company provides a concrete structure and rules to
facilitate the administration of the property;
3)
In certain cases, there may be a tax advantage to using a company
where, for example, the possibility of corporate taxation is more
interesting than taxation of the owners as individuals in terms of the
income to be generated.
What
sort of company structures can be envisaged?
A
French property holding company (an SCI)
This
type of company is specifically designed for the ownership of real estate
in
France
and is designed to work on rules similar to that of a
partnership whilst benefiting from its own corporate identity.
Its rules are thus less onerous and formal than other types of
French company.
Other
types of French company (SARL…)
It
may be possible to envisage using such a structure, especially where there
is a commercial aspect to the ownership of the property (the SCI not being
commercial in object).
Companies
from other jurisdictions (UK Ltd. Co…..)
The
use of companies from other jurisdictions is permissible in
France
(subject to the precise nature and origin of the
same). It should, however, be
borne in mind that such a company will have been constituted under
corporate rules often very different to those applicable in France.
Difficulties can thus be encountered with, for example, the French
fiscal administration unfamiliar with such vehicles.
In addition, the language of the statutory documents will usually
not be French which can pose problems in its own right.
Can
an offshore company be used to buy French property?
If
the company is that of a country with whom
France
does not have a double taxation treaty preventing
fiscal fraud, punitive taxation will be applied to the company.
An annual tax of 3% of the value of the property owned by the
company will be levied against it, regardless of whether or not the fiscal
administration has been notified of who the actual owners are.
It is thus very wise to avoid the use of such companies.
24/06/2003
- Issue of the week
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