Holding SCI | Advantages, Assembly and Limitations

Do you have real estate property that you want to develop or give away? Are you thinking of ways to manage this in a customized way? Setting up SCI Holding may concern you.

What is “SCI Holding Company”?

A holding company is a company holding shares in other companies. SCI is a civil real estate company whose corporate objective is to hold, acquire and manage real estate properties. When a company (parent) holds shares in civil real estate companies (daughter companies), we will refer to “SCI Holding”. As a traditional holding company, SCI Holding Company makes it possible to screen between physical partners and SCI and benefit from benefits.

Establishment of an SCI holding company is often used in real estate investments. This makes it possible (thanks to the tax advantage) to limit the taxation arising from the acquisition of new goods. These will be taxed at the level of holding and not on the individual tax returns of the partners. It is a tool to expand one’s heritage.

SCI Holding Company is also used for the protection and communication of real estate. This arrangement makes it possible to separate capital from power and to adjust the voting rights of the heirs and therefore the conditions of transmission. The continuity of the company can be ensured, especially in the event of the death of the founder.

Why Create an SCI Holding Company and What are its Benefits?

Forming a holding company can provide many tax, legal and operating benefits.

tax benefits

You can benefit from tax benefits by creating an SCI holding. Most important to know is the parent-daughter regime and tax consolidation. These mechanisms are alternatives, so there is no compulsion for all companies to choose the same mechanism. They can also be combined.

mother daughter diet

The parent-daughter regime makes it possible to avoid double taxation of profits (at the level of the SCI, then at the level of the holding company). Composed primarily of rental income or sale proceeds, they would be able to receive tax exemption (with a deduction of only 5% for costs and fees. For this, both (holding and subsidiary) be subject to corporation tax and the holding company must hold at least 5% of the share capital of SCI. It is possible for only one of the subsidiaries to opt for the parent-daughter regime, but all companies must be subject to IS.

tax consolidation

Creation of SCI holding (subject to conditions) will allow availing of tax consolidation mechanism. Thanks to this, the taxation of the group is centralized. In practice, instead of each SCI being taxable individually, the gains and losses of each will be aggregated and therefore can be offset. This is a significant advantage which reduces the tax payable.

However, be careful to respect the terms of benefit of this tool. It must be subject to corporate tax, that the SCI holding company holds at least 95% of the company’s capital, and that the respective companies’ accounting years are synchronized.

Fiscal Mechanism to Optimize Transmission

The SCI Holding Company is also a tool to facilitate the transmission of real estate assets through contribution-transfers and donations prior to transfer.

• contribution assignment (Article 150-0 B Ter of CGI) , The contribution-transfer mechanism involves the contribution of SCI shares to the holding company (often for sale). It is the holding company that will then take care of the resale. Capital gains received by the contributor are taxable, but subject to compliance with the conditions of Article 150-0B Ter of CGI, it will benefit from tax deferment. In addition, the tax treatment applicable on resale will be decided as per the rules of the year of contribution, thereby avoiding the risk of tax escalation. Be forewarned though, if the resale is made within three years of the contribution, the tax deferral is subject to special rules for reinvesting part of the proceeds of the sale. See here for more information on the legal framework for contribution-transfer.

• Donations before transfer: A pre-transfer gift is a great way to pass on your assets to your heirs while benefiting from tax benefits. This makes it possible to apply a reduction (100,000 euros per child) on the value of titles transmitted free of charge. The donation, when made prior to the sale, will wipe out capital gains on the securities. Hence the payer will not be taxable on it. There will also be no capital gain if the recipients subsequently bring the securities to SCI Holding Company at the same value as the donation. Only donation fees that would have been reduced thanks to this mechanism would be paid.

Legal Benefits of SCI Holding Company

By incorporating a “screen” company between the SCI(s) and the holders of the shares, the SCI Holding Company offers the possibility of controlling its assets by limiting its individual investments. Without a holding company, the shares are held by the partners individually. In order to have control over the assets, it is necessary to hold a majority of SCI shares, which is a substantial investment. To maintain control by limiting its investments, it is sufficient to hold a majority of the shares of the holding company, with each holding the majority of the subsidiary’s securities itself.

It also makes it possible to bring in investors at the level of the SCI and the holding company and therefore to increase the financial capacity of the group while remaining in the majority (maximum 49% of the shares required to be given it). The SCI holding structure therefore allows you to benefit from the financial leverage effect by increasing your investment potential.

Last point, the creation of an SCI holding company (as in a civil company) provides the possibility of giving title to the heirs while retaining management because it is legally possible to define rules for the appointment of managers and to organize rights. makes. Vote of successors. For example, it is possible to grant greater voting rights to a specific heir. This is a good way to maintain control over the subsidiaries while preparing the transfer of assets to the heirs.

operating profit

SCI Holding Company makes it possible to oversee and simplify the management of subsidiaries by centralizing it within itself. You can then decide on a general policy for subsidiaries so that they pursue similar objectives. Administrative and accounting management of your real estate assets may also be managed by the SCI Holding Company for all subsidiaries if you choose a leading holding company.

Then the procedures are simplified and less expensive.

The holding company also allows you to make cash agreements to balance your subsidiaries with each other financially. It is a powerful operational and financial management tool.

Your choice is made, you want to set up an SCI holding company to manage your real estate assets. The assembly is simple, it would be a question of setting up a holding company so that it would hold and manage the equity securities held or wish to acquire in SCI for you. The arrangement consists of creating this intermediary company and providing it with securities.

build from above or below

The SCI holding company arrangement requires the formation of a so-called real estate holding company. It can be made from above or below.

building from above

We talk of creation from above when the holding company is formed from the securities of the already existing company. In exchange for the contributed shares, the holding company’s shares are allotted to the contributor.

building from below

This is the most frequent situation. This involves first setting up a holding company and then creating subsidiaries whose shares will be contributed.

Choice of legal status and corporate purpose

You must select the appropriate legal status for your holding company. Generally the most appropriate forms for holding companies are SAS, SC and SARL. For a real estate holding, the most relevant would be civil society. It benefits from simple construction and operation methods suited to the social purpose of SCI Holding Company.

For an SCI holding company, the corporate objective is to take, manage and hold shares in existing civil real estate companies or companies to be formed. You will need to determine whether your holding is passive or animating. In the second case, the character of the facilitator must be specified in the corporate objective, for example by adding services for the benefit of SCI.

See this article for more information on holding companies.

Creation of SCI Holding Company

With your legal status and corporate purpose defined, it is now necessary to form your company by respecting the classic steps:

• Drafting the articles of association (integration of object and corporate name; identification of partners; location of head office; appointment of managers; manner of voting and contribution of shares, date of closure of accounts);
• appointment of manager;
• Formation and deposit of share capital: Deposit of contributions in cash at a banking establishment, with a notary or with a cass des depots and consignments. For shares to be contributed, these must be valued and checked by an auditor (note the cost of this process);
• Publication of a legal declaration of incorporation (variable rate depending on the form chosen, €221 excluding tax for a civil company);
• Registration with competent CFE (RCS if civil society).

Risks and Limitations of SCI Holding Company

The SCI holding arrangement has not only advantages. It also presents some risks and limitations.

risk

They are above all financial. The big risk with SCI Holding Company is coming under the guise of abuse of authority by the administration. Cases of abuse of rights may arise in the event of hypothetical rentals or operations aimed at reducing the tax base. The case of the example of work in a building financed by income generated by another SCI, which may have made it possible to avoid the ISF. This is clearly illegal. So be careful to respect the legal framework of taxation.

If in doubt, don’t hesitate to seek professional advice.

Limitations

Setting up an SCI holding company isn’t for everyone. You need relatively substantial inheritance. If you only have one building, a simple SCI is sufficient. SCI is the cost of the holding company, typically the certification of consolidated accounts by two auditors (mandatory with this type of structure) or, if necessary, the contribution auditors’ fees.

Another limitation is that of VAT. It cannot be applied to all expenses as the holding company would receive single dividend income without it.

The other loss relates to the responsibility of the directors. Within the framework of a civil company, it may be committed on personal inheritance.

questions to ask