A civil real estate company (in French, société civile immobilière - SCI) is a company whose purpose is to carry out purely civil transactions, such as the management of real estate assets. An SCI can indeed buy, own and rent unfurnished real estate properties. However, any commercial trading activity is excluded, such as furnished rental or property dealer activity. In the latter cases, another type of company, such as a limited liability company (société à responsabilité limitée - SARL), should be chosen.

An SCI has the following features:

• there must be at least two partners, who may be either natural persons or legal entities with legal personality;
• it requires a manager, who may be one of the partners;
• the partners of the SCI have unlimited, non-joint and several liability for the debts of the SCI in proportion to their shareholding in the share capital;
• it is not necessary to be a Monegasque or a Monegasque resident to create an SCI under Monegasque law;
• there is no minimum share capital required.

In terms of legislation, the Monegasque SCIs are governed by:

• the Civil Code (articles 1670 to 1711);
• law no.797 of February 18th, 1966 on civil companies, as amended;
• law no.1.385 of December 15th, 2011 on various measures to update the legislation on public limited companies (sociétés anonymes – SAM), civil companies, trusts and foundations;
• Ministerial Order 2012-182 of April 5th, 2012 implementing the above-mentioned law no.1.385.

But why set up an SCI rather than owning a property in your own name?

This question arises most often in two cases:

• when several people plan to acquire a property as an investment. In such cases, the SCI is an optimal solution to avoid the difficulties associated with a shared purchase. It avoids indivision, a potential source of difficulties, between the various partners. The manager of an SCI can make his or her own decisions despite the blockages caused by disagreements between the partners.  However, care must be taken to define the scope of his or her decision-making powers, as in the event of mismanagement by the manager the partners are personally liable.
• when one is thinking about one's succession and there are several beneficiaries. When the bequeathed property is allocated to an SCI, there is no joint ownership of the estate, thus avoiding the difficulties that could arise, as it is not the property itself that is passed on but the shares in the company.

The interest of the SCI is therefore both to acquire a property more easily, to protect this inheritage and to develop it. This is why the vast majority of SCIs are created for purely patrimonial purposes and serve as a tool for managing and passing on family property assets.

When these assets are located in the Principality of Monaco, the creation of a Monegasque SCI is obvious. But this is also the case when they are located in France.

Indeed, with the aim to acquire a property in France, for inheritance and tax reasons, the Monegasque SCI is often better suited than a French SCI, particularly with regard to the partners' place of residence.  

Monegasque taxation is indeed more favourable and there is an exemption from inheritance tax in France for Monegasque residents, depending on their nationality as explained below. Indeed, a Monegasque SCI is subject to a more flexible and simpler tax treatment than a French SCI, especially since 2011 when the French rules regarding the taxation of donations and inheritance have been tightened.

However, certain reporting obligations must be met in France in order to avoid the application of the 3% tax on the market value of the property. These include the declaration no. 2072-S. This declaration, which must be made within two months of the acquisition or each year in mid-May, will specify the percentage of shares held by the partners as well as the composition of the assets held by the SCI and, if the SCI let the assets available to its partners free of charge or if the assets are rented, the income received.

The shares of a Monegasque SCI of a Monegasque tax resident will be subject to Monegasque inheritance law on his death and not to French inheritance law. This can be very advantageous as the tax rates applicable to inheritance or transfer under Monegasque law can range from 0 to 16% as shown below:

 

By comparison, in France, the calculation is done by brackets (according to the fraction of the net taxable share, after application of the allowances) according to the following rates:

It comes from the convention between France and the Principality of Monaco relating to the settlement terms of successions (and not donations) signed on April 1st, 1950 that the partners of a Monegasque SCI take advantage of. 

This was decided by the highest appeal court, the “Cour de Cassation”, on October, 2nd, 2015 which will go down in history. Indeed, it ruled that the shares of a Monegasque company, owner of real estate in France, having belonged to a Monegasque resident who died in France and reverting to his or her heirs who are French residents, are not subject to inheritance tax in France. The shares of a SCI are movable property, regardless of whether the company is composed of mainly French real estate, and the applicable tax regime is the Monegasque one.

This decision should benefit most nationalities on the basis of the principle of non-discrimination, subject to the existence of agreements between France and the country of the Monegasque resident and provided, of course, that the deceased was resident for at least five years in the Principality.

In a decision of June 11th, 2003, the French Council of State, the highest administrative tribunal, allowed, for the first time, foreigners residing in Monaco (i.e. Monegasque residents of a nationality other than French or Monegasque), who own one or more assets in France, to avoid the lump-sum taxation applicable in France to non-residents pursuant to the principle of non-discrimination.

However, this principle is subject to certain conditions and to the analysis of each tax agreement between France and the national country of the Monegasque resident, and it only concerns certain residents of the Principality. For example, Russian nationals residing in the Principality will be able to benefit from this exemption because the Franco-Russian convention allows the application of the non-discrimination clause to Russian nationals living in a third country. 

Nevertheless, those who are not fortunate enough to be protected by an advantageous tax convention are still well advised to hold property in France through a Monegasque SCI instead of a French SCI to benefit from other advantages.

One of these advantages is the non-taxation in France of the partners' current accounts held in the SCI at the death of the partner and the other is the possibility of using this SCI to hold other assets such as bank accounts, pieces of art, property in the Principality, etc., without any taxation in France.

Another advantage of a Monegasque SCI compared to a French SCI is the confidentiality of information.

Unlike French SCIs, for which there is a public register that can be consulted at any time, those in the Principality do not have one. This means that information concerning the identity of the partners cannot be revealed and third parties only have access to information limited to the legal form, the registered office and the company name. Any other information, and in particular any information relating the administration of the company, may not be communicated to them, with the exception of magistrates and lawyers who may request it.

On the other hand, the Monegasque SCI also has its limits. For example, the advantage of a Monegasque SCI in relation to a French SCI in the event of resale is non-existent, quite the contrary. If it is the property itself that is sold, the sale is subject to French registration fees. On the other hand, if it is the shares of the Monegasque SCI that are sold, in addition to the French registration fees, there will be a fee of 1% on the total amount of the sale of the shares to be paid in the Principality. This can be interesting when the property has been held for a certain period of time by the Monegasque SCI, in order to minimise the taxation on the capital gain in the event of a future resale.

Likewise applies in case of rental properties. Indeed, the SCI does not allow you to benefit from certain tax systems linked to property income, such as the one linked to non-professional furnished rentals, which benefits from allowances when the property is held in one’s own name.

What are the formalities to be completed?

First of all, the articles of association must be drafted, which describe all the rules governing the operation of the company, either by private deed or by notarial act. 

The company must have a lawful corporate purpose and be established for the common interest of the partners, each of whom must contribute either money, other property or their industry (Article 1671 of the Civil Code).

The drafting of the articles of association is quite free, but it is important to include certain clauses relating, for example, to the scope of the manager's mandate, the rules of majority voting at meetings, to provide for specific regulations in the event of sale or exchange of shares, and to provide for approvals in the event of entry into or exit from the company.

A provision of the articles which specifies that only one of the partners may obtain the totality of the profits, or which exempts from any contribution to losses the sums or effects placed in the company's funds by one or more partners, is null and void (Article 1693 of the Civil Code).

Then, from the date of their signature by all the partners, these articles of association are submitted for registration within one month if they are privately signed and within 15 days if they are notarised. The registration fee is 1% of the share capital plus stamp duty. If this time limit is not respected, the deed will be subject to double registration fee. 

In addition, they will be considered null and void with regard to both partners and third parties if they have not been registered within the legal time limit, as well as all the various subsequent deeds.

Once the articles of association have been registered, a fee of € 65 and € 5 per registration certificate must be paid to the Trade and Industry Registry.

The creation of an SCI is not subject to publication in the “Journal de Monaco”, but it must be registered in the non-trading companies special registry within two months of its creation.

As soon as it is set up, the SCI are required to record accounting in accordance with the legislation: it must record all transactions it carries out in the form of a statement of income and expenses and keep the accounting records and the related supporting documents, including bank documents, at the registered office for at least five years.

To date, there is absolutely no formality for filing these documents with the Monegasque authorities, but the law provides for a financial penalty in the event of failure to comply with this conservation obligation, with the manager being liable to a fine from 18,000 to 90,000 euros.

Even though setting up an SCI in Monaco is relatively simple, it is recommended to approach professionals to find the most suitable solution for your situation. Indeed, other forms of company may be more appropriate depending on your situation and your objective, such as a trust, an association or a commercial entity. Furthermore, expert advice on drafting the articles of association will also be benefic.

Valeri Agency is surrounded by the best experts in real estate and tax law in the Principality and will make you benefit from its network. Our agency will also be your privileged partner to create and develop your assets, and increased their values.

Do not hesitate to contact us!