The Monegasque “Société Civile Immobilière” (SCI) and “Societe Civile Particuliere” (SCP) are popular vehicles for owning French residential properties.
Although they are called differently, they are both the same civil companies.
These companies allow for a simple structure of ownership which does not require a lot of formalities or costs.
Indeed, an SCI/SCP which does not generate any income and whose sole activity is to provide its shareholders with the free use of the French residential property is, without doubt, the simplest and least expensive company to run.
However, owning a French residential property through a Monegasque SCI/SCP, triggers French tax issues, in particular in respect of the 3% tax. The company must therefore comply with some tax filing requirements in France.
In addition, keeping annual financial statements will be essential to determine the value of the shares of the company for French tax purposes.
The following information provides an overview of the French tax filing and book keeping requirements for Monegasque SCIs/SCPs when owning French Residential property.
The 3% tax filings are, by far, the most important tax filing requirements that the company must comply with. In order to avoid unexpected tax liabilities, the formalities must be taken very seriously.
In addition, the company might also have to submit annual tax returns if it generates income.
Under French tax legislation, foreign companies (such as Monegasque SCIs/SCPs) which own French real estate directly or indirectly are potentially subject to an annual 3% tax applied on the market value of the real estate, unless an exemption can apply.
A number of exemptions apply in particular to foreign companies incorporated in a country which has signed a treaty with France which either provides appropriate administrative assistance provision to prevent fraud and tax avoidance between both countries or contains a non-discrimination clause.
The Tax Treaty between France and Monaco dated 18 May 1963 provides for such an administrative assistance provision.
Therefore, provided that the Monegasque SCI/SCP complies with certain filing requirements it would not be subject to the 3% tax.
Generally speaking, in order to benefit from the exemption, the foreign company must either send an annual 3% tax return (2746 Form) to the French tax authorities disclosing certain information or take the undertaking to provide this information on the French tax authorities' request.
The easiest way to deal with these formalities is to send to the tax authorities an undertaking to provide the information (in order to avoid the need to file a 3% tax return every year).
The undertaking has to be sent to the French tax authorities within two months following the acquisition of the French property.
Given the fact that the tax becomes payable in case of late or incomplete filing (e.g. return lodged after the deadline or incorrect information disclosed on the return), the undertaking is definitely the safer solution to deal with this tax.
It is also the simplest one (in particular since 2021 where the 3% tax return must be filed online which make the formalities much heavier to deal with).
Once the undertaking has been filed, the French tax authorities may request the information (but not necessarily).
If they do so, they have to send the Monegasque SCIs/SCPs a formal notice requesting the information and the company has to reply within two months.
The information which must be provided, is the same which must be disclosed on the 3% tax form:
Once the information has been provided, it is not necessary for the company to file a 3% tax return or another undertaking.
The undertaking took on acquisition of the property is valid until it has not been denounced.
For companies which have been filing 3% tax returns every year, it is possible to provide an undertaking during the course of a tax year in order to stop filing further 3% tax returns for the future.
A Monegasque SCI/SCP must in principle file a tax return annually, determining the profits made by the company.
However, in respect of SCIs/SCPs whose sole activity is to put the free use of the property at the disposal of its shareholders, and which are not subject to French corporation tax, the filing requirements are very simple.
An income tax return must be sent to the French tax authorities in respect of the tax year of the incorporation of the Monegasque SCI/SCP.
This tax return will disclose the details of the shareholders and assets owned by the company and will, importantly, inform the French tax authorities that the property is put at the disposal of the shareholders free of charge.
Once this first tax return has been filed, the Monegasque SCI/SCP will not need to submit a tax return every year as long as, in a tax year:
In practical terms, this means that a Monegasque SCI/SCP which has filed an undertaking to benefit from the 3% tax exemption and lodged a tax return after its incorporation, does not need to file any other returns (provided, of course, that it does not generate profits).
The ongoing filing requirements of an SCI/SCP may then be very limited.
Under Article 9-1 of Law No. 797 of 18 February 1966, Monegasque SCIs/SCPs are required to record all operations they perform in the form of a statement of revenue and expenses and keep the supporting documentation, including bank statements, for at least five years.
It is highly advisable for the company to keep regular annual financial statements.
In particular if there is an issue with the value of the shares in the company, the annual accounts will be very helpful to prove the existence of the debts of the company and for determining the net value of the shares for tax purposes.
The financial statements are also necessary in case of transfer of shares to determine the net value of the share on which stamp duties apply.
The law does not require accounts to be prepared by an accountant.
It is however advisable that the accounts of the Monegasque SCI/SCP are prepared by a chartered accountant.
Indeed, it is important when dealing with the French tax authorities that the accounts are prepared by a fully qualified professional.
This definitely gives more weight to the accounts if they have to be provided to the French tax authorities in the context of a tax reassessment or before a Court.
We can help and assist with French tax advice and the administration of Monegasque SCI/SCPs.
Please do not hesitate to us contact for more information:
Frederic Mege: frederic.mege@mri.mc
Moores Rowland
4-6 Rue des Lilas
98000 Monaco
T +377 9797 0022 – F +377 9325 2412