OWNS YOUR HOME YOUR COMPANY

WANT TO BUY VIA A COMPANY?

WE CAN FINANCE REAL-ESTATE HOLDING COMPANIES

TYPES OF FRENCH COMPANIES FOR PROPERTIES

  • Broadly speaking there are 5 types of different legal structures that can be used for single, joint or multiple ownership of French property – 3 of which can be via a corporate structure and be equally financed by French banks for overseas clients:
  • SCI – Société Civile Immobilière
  • SARL de famille – Société à Responsabilité Limitée 
  • EURL – Entreprise Unipersonelle à Responsibilité Limitée   
  • ‘En Indivision
  • En Tontine

Note that for each of the above ICE Finance is able to access the finance product through French banks that allows our overseas ‘non-resident’ clients to construct the purchase to their own particular wishes. 

SOCIETE CIVILE IMMOBILIERE (SCI)

  • An SCI (Société Civile Immobilière) is a ‘Special Purpose Vehicle (SPV)’  and is a specialist type of French company (société) that is constituted for the ownership and management of property (immobilière).
  • The fact that it is also civile means that it is a non-trading company, thereby distinguishing it from a company set up to pursue commercial objectives.
  • The company will have a distinct legal identity from that of its shareholders, although except in very particular circumstances it has no separate fiscal identity. For this reason it is said to be ‘fiscally transparent’.
  • Where an SCI is used for the purchase of a private home the owners effectively then become non-paying tenants or occupants of the property owned by the company.
  • The company may also hold more than one property in it, including main and second homes, as well as properties to for letting.
  • Many French and international buyers choose to buy a French property through an SCI because of the advantages it offers over ownership.
  • The main reasons are:
  • * To allow purchase of the property by multiple persons;
  • * To provide stability and continuity in the ownership and management of family property;
  • * To facilitate the transfer and ownership of property;
  • * To avoid the constraints of French inheritance laws;
  • * To create tax advantages;
  • * To protect the family home from business creditors.

For those not married and/or who have children from a previous relationship, you need also to consider buying through a property company – ICE Finance can be you in touch suitable English-speaking French Legal Professionals.

La SARL de famille

  • A ‘SARL de Famille’ is a ‘Special Purpose Vehicle (SPV)’  and is a specialist type of French company (société) that is constituted for the ownership and management of property (immobilière).
  • It is a classic French limited company ( ‘société à responsabilité limitée’ ) whose shareholders are members of the same family.
  • One of the main advantages of this SPV is that the shareholders can opt to be taxed under French income tax ( ‘impȏt sur le revenu’ ) as if the company was a partnership limited company (‘société de personnes’ ) rather than for the company being taxed under French corporation tax.
  • The company shareholders must be members of the same family: first and second-degree relatives, by marriage or civil partnership.
  • an SARL de famille can be a good effective estate planning “tool”. A parent can give to each of his/her child(ren) €100,000.00 and €31,865.00 to his/her grandchild(ren)tax free.
  • The SARL will be the legal entity owning the property.
  • French lenders, depending on personal circumstances of the purchasers, will be happy to lend to a SARL de famille whose members are non-residents.

For those not married and/or who have children from a previous relationship, you need also to consider buying through a property company – ICE Finance can be you in touch suitable English-speaking French Legal Professionals.

ENTREPRISE UNIPERSONNELLE A RESPONSIBILITE LIMITEE (EURL)

  • A EURL is a ‘Special Purpose Vehicle (SPV)’  and can be used as a specialist type of French company (société) that is constituted for the ownership and management of property (immobilière).
  • A EURL is a limited company in the ownership of one person.
  • Under an EURL the business is wholly owned by a sole trader and managed through a separate limited company.
  • The company can be established with as little capital as €1, after which the owner’s liability for debts is limited to the value of their investment, unless other personal guarantees are given.
  • Capital can be entered by way of cash or assets and for a small business there is no need for an independent valuation of assets entered as capital.
  • In relation to taxation, an EURL can choose whether to be taxed through the personal income tax system (so no distinction between profits of business and income of owner), or to pay company tax on profits.
  • If the latter, your remuneration is a deductible expense from company profits.
  • You can also choose to have some of your remuneration paid as dividends, which has some fiscal advantages. 

For those not married and/or who have children from a previous relationship, you need also to consider buying through a property company – ICE Finance can be you in touch suitable English-speaking French Legal Professionals.

OWNERSHIP OF FRENCH PROPERTY ‘EN INDIVISION’

  • This is the most common method of joint ownership and in English law is equivalent to a ‘tenancy in common’.
  • The property is purchased by two or more persons, with each one holding a stake in the property in whatever terms that may be decided between them.
  • In the case of a couple this would normally be in equal shares but, where there are more than two purchasers, it may be in proportion to the amount each person contributed in financing the purchase e.g. 70% / 20% / 10%.
  • Where the property is purchased in unequal shares then you may wish to ensure that the source of funds from each party is clearly identified to avoid possible later difficulties with the French tax authorities concerning gifts tax.
  • If you wish to own in equal shares, but with different contributions, then make it clear in the legal documentation that the larger contribution is not a gift, but a loan.
  • The issue is also important from the perspective of later separation or divorce. Unless, at the time of purchase the different contributions of each party are reflected in the ownership structure the property will be owned on an equal basis by all owners, and the later sale proceeds of the property will be divided in equal shares between all owners.

For those not married and/or who have children from a previous relationship, you need also to consider buying through a property company – ICE Finance can be you in touch suitable English-speaking French Legal Professionals.

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OWNERSHIP OF FRENCH PROPERTY ‘EN TONTINE’

  • A tontine clause (or clause d’accroissement as it is also called) is used to avoid the entrenched inheritance rights of children in French law, so that no part of the property passes to them during the lifetime of any of the existing owners.
  • Accordingly, where a property is purchased by a couple en tontine then, on the of death of one of the parties, the surviving spouse/partner becomes sole owner, and is retrospectively regarded as having been so since the acquisition of the property.
  • In effect, the purchase of the property is made to the benefit of the last survivor.
  • Since August 2015, a European law has made it possible to avoid the entrenched inheritance rights of France altogether and, through a Will, adopt the inheritance laws (but not taxes) of your home country.

For those not married and/or who have children from a previous relationship, you need also to consider buying through a property company – ICE Finance can be you in touch suitable English-speaking French Legal Professionals.

MORTGAGES FOR PROPERTY COMPANIES IN FRANCE

  • Real-Estate Holding Co. mortgages in France are now available for up to 80% of the current market value of the property.
  • Only available for Main Residency homes or Second Holiday homes.
  • No commercial links must be connected with the new property – purely residential with private lettings. 
  • Both Repayment Type mortgages & Interest Only type mortgages are available.
  • Up to 25 years repayment duration possible.
  • French mortgage interest rates are generally 1-3% below the UK/USA equivalent, so it may be cheaper to borrow the money in France.
  • Also, it is generally accepted that it is safer to have your exchange rate risk based on the monthly mortgage payment of the value of the entire property.

TRANSACTION COSTS

  • If you set up a new ”SCI’ or ‘SARL de famille’ or ‘EURL’ at the same time as the purchase of a property then expect to pay in the order of €1500/€2000 in additional taxes and notaire fees over the amount that would be payable by buying indivision or en tontine.
  • This figure is likely to increase substantially if you also seek advice from an avocat or specialist lawyer.
  • If you already own the property and you wish to transfer it to an SCI/SARL/EURL then expect to pay fees and stamp duty, charged as a percentage of the value of the property. This is likely to be an expensive exercise.
  • The creation of a SCI/SARL between man and wife is also best carried out through a notaire, to avoid the risk of the tax authority declaring the creation of the company to be a disguised gift designed to avoid gift tax – ICE Finance can put you in touch with appropriate Legal Professionals.
  • There are also transaction costs to plan for when considering if your current property value is high enough for the project to make sense via a French registered Real-Estate holding company.
  • French banks will typically charge up to 1% as a fee to set up the loan.
  • You will also have to open a French bank account in the name of the new French Corporate Entity – if you do not already have one which will have an annual fee of approximately €100 per year.
  • ICE Finance charges a fee as specialists which will be payable on acceptance of your mortgage offer.
  • The advice of a good specialist French property lawyer, French accountant, avocat, or notaire, who has an understanding of international law as it relates to an SCI  or an SARL de famille is imperative.
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FINDING OUT HOW MUCH YOU CAN BORROW

  • The first step is to speak with a professional French mortgage broker like ICE Finance who will ask a few important questions to establish your eligibility with a number of different banks.
  • Initially we will want to understand your existing debt to income ratio. This is calculated by dividing your outgoings for debt payments by your gross income and should not exceed 33%.
  • In simple terms, this means that if you earn the equivalent of €3000 per month, a French bank will not allow your total payments for your existing borrowings and the future mortgage to exceed €1000 per month for a second home.
  • Request a pre-approval decision now and let us work out how much you could borrow.

PROPERTY COMPANY MORTGAGE PRODUCTS

  • French mortgage products for Real-Estate holding Companies are designed to maximise security for the borrower as this is what the market wants.
  • Therefore the majority of loans in the French mortgage market will be on a long term fixed rate or a capped variable rate.
  • These product types ensure you know how much you will pay each month – or in the case of a capped mortgage, what your maximum exposure could be.
  • Variable length mortgages
  • The majority of variable rate tracker loans are ‘elastic’ and can stretch the mortgage term by up to five years if rates increase so that your mortgage payment will remain the same even if rates increase by as much as 0.75%.
  • In addition, any increases to the mortgage payment are generally limited to the rate of inflation per year, meaning an overall increase of 2-3% per year.
  • Switching to a fixed rate
  • Further protection is offered by French law so that, should you take a variable rate mortgage, you will always have the option to call your bank and switch to a fixed rate for the rest of the term.
  • Please be advised that if you make this switch, you may have a penalty to pay and you will not be able to switch back to a variable rate mortgage.
  • Good levels of security
  • These extra features offer peace of mind to the prospective borrower in France but do vary from bank to bank.
  • It is important to get to the bottom of these features when comparing the different offers in the market.

APPLYING FOR YOUR SCI / SARL de famille/ EURL MORTGAGE

  • Following the changes in the mortgage application process of certain EU countries, obtaining a Property Company mortgage in France is no longer harder to do than in its neighbouring countries such as the UK.
  • Of course, the French are still very protective over the financial markets, including those relating to French second home mortgages products but in many ways this is why it is possible to source such favourable rates over such long periods.
  • This security means however that non-status lending and self-certification mortgages are not available.
  • Each of the French banks has a slightly different underwriting criteria and so requires a slightly different set of supporting documents.
  • Some banks may also require documents to be certified by a finance or legal professional – we will advise accordingly based upon your own personal circumstances and French property project.
  • In the case of a Real-Estate Holding Company type mortgage, you will need to show all of the Corporate related documents to the lending bank.
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CURRENT INTEREST RATES

  • Click here to view the latest interest rates available for overseas clients
  • Note that specific rates may apply to ‘Property-Company’ mortgages – please enquire within.

 

The Euro Interbank Offered Rate (EURIBOR) is a daily reference rate, published by the ‘European Money Markets Institute’ based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market (or interbank market).

It is used to determine the rate at which French banks and institutions lend money to each other.

Most French banks who offer a variable rate mortgage take the “Euribor 3 month” index number and add on their own margin.

The overall rate charged to a client is thus: the base rate at the time plus a margin: current examples for 2019: for one month (+ 0.9), three months (+ 1.2), six months (+ 1.6) and 12 months (+ 1.9) – each bank sets its own levels of rates charged.