SCI taxed under income tax (IR) or corporate tax (IS): which structure for your rental property investment?

The SCI is one of the most widely used setups for holding real estate in Paris — and one of the most misunderstood. The question of the tax system, IR (Income Tax) or IS (Corporate Tax), is often decided by default or mimicry, even though it determines your entire net profitability: your annual tax burden, your capacity to reinvest, and above all, the taxation upon resale — which can vary the net result by tens of thousands of euros over time.

This guide gives you the keys to understanding both systems, identifying the one that fits your profile, and avoiding irreversible mistakes.

Why create an SCI rather than buying directly?

Before choosing between IR and IS, you need to understand why an SCI is necessary in certain situations and not in others.

In your own name, you are the direct owner of the property. This is the simplest solution for a first, isolated investment. But as soon as the project evolves — a second property, a partner, a desire to pass it on — the limitations become real.

In joint ownership (indivision), any major decision (sale, heavy renovation work, refinancing) requires unanimous or qualified majority agreement from the co-owners. When one of the partners wants to pull out, you must either sell the property or buy out their share with a notarized deed. The bill adds up quickly.

With an SCI, it is not the property that is divided — but the shares of the company that owns it. Transferring shares to a third party or an heir does not require a real estate transfer, but simply a share transfer deed: a 5% registration fee on the value of the transferred shares, compared to 7 to 8% for a standard real estate transfer.

Critical point: an SCI that rents furnished properties for more than 10% of its revenues automatically switches to IS, without a voluntary option. If your project is oriented towards furnished rentals, it is better to go directly with an SCI under IS or opt for direct ownership under the LMNP status.

SCI under IR: the default system

The SCI under IR is the tax system that automatically applies upon creation, without any particular procedure. Each partner declares their share of the income on their personal tax return, proportionally to their shares in the company.

How taxation under IR works

Rental income flows directly to the partners as property income (revenus fonciers). Two schemes apply depending on the amount of revenue: micro-foncier (30% deduction if the annual rents of the entire household remain under €15,000) or the real scheme (deduction of actual expenses: mortgage interest, property tax, maintenance work, management fees).

The net taxable income is then subject to the progressive scale of the IR — plus social security contributions at 17.2%. For a partner in the 30% marginal tax bracket, the total tax burden on net rental income reaches 47.2%. At 41%, it climbs to 58.2%.

The decisive advantage of the IR: capital gains upon resale

This is the point that many investors underestimate. In an SCI under IR, the real estate capital gain benefits from the individual tax scheme: progressive deductions based on the holding period, with a total income tax exemption after 22 years and social security contribution exemption after 30 years.

For an investor who plans to resell in the medium term (less than 15 years), or who has a low marginal tax rate (11% or lower), the SCI under IR often remains the most advantageous solution in the long run.

The limits of the IR

The IR does not allow for the accounting depreciation of the property — unlike the IS. Deductible expenses are real but limited to actual expenditures. The generated property deficit is capped at €10,700 per year, which can be deducted from overall income (excluding mortgage interest) — a limit that can prove restrictive for owners carrying out major works. For highly taxed partners (marginal tax rate of 41% or 45%), the annual tax burden can quickly become high.

SCI under IS: the depreciation system

The IS option is irrevocable after five years — this is the most binding decision of the setup. It must be made beforehand, with a thorough simulation, not during operation.

How taxation under IS works

It is the SCI that pays the tax — not the partners directly. The taxable income is calculated after deducting all expenses, including the accounting depreciation of the property. The applicable rates for 2026 are:

💡 The reduced rate of 15% is accessible under three conditions: revenue below €10M, fully paid-up share capital, and at least 75% of the capital held by individual persons. For almost all family rental investment SCIs, these conditions are met without difficulty — provided that the capital is fully paid up from the start.

Depreciation: the core leverage of the IS

This is where the IS takes the lead over the IR for highly taxed investors. The real estate property is depreciated for accounting purposes over 20 to 30 years (excluding the land, which cannot be depreciated), and furniture and equipment over 5 to 10 years. These depreciation allowances reduce the taxable profit each year — without any actual cash outflow.

Concrete example — a Parisian apartment worth €250,000 (including €30,000 for the land):

These €8,800 are deducted every year from the SCI's profit — before calculating the IS. For a property that generates €12,000 in annual rental income net of expenses, the depreciation can bring the taxable profit down to under €3,000, resulting in an IS of only €450.

Under the IR, the same investor with a 41% marginal tax rate would have paid around €5,500 in tax on those same net €12,000. The difference is significant, and it compounds year after year.

Mortgage interest: an additional advantage under IS

Under the IR, mortgage interest only creates a deficit deductible from overall income up to €10,700 per year. Under the IS, it is fully deducted from the SCI's profit, with no cap. On a €250,000 mortgage over 25 years at 3.8%, the interest represents 40 to 50% of the monthly payment in the first years — a substantial deductible expense.

The trap of the IS: capital gains upon resale

This is the downside of the IS system — and it is a major one. Under the IS, the capital gain is calculated based on the net book value of the property (purchase price minus deducted depreciation) and not on the initial purchase price. As a result: the more you have depreciated, the higher the accounting capital gain — and it is taxed at 25% (flat IS rate), with no deduction for holding period.

Example:

• Apartment bought for €300,000, resold for €450,000 after 20 years

• Accumulated depreciation over 20 years: €160,000

• Net book value: 300,000 − 160,000 = €140,000

• Taxable capital gain: 450,000 − 140,000 = €310,000

• IS on capital gain: 310,000 × 25% = €77,500

Under the IR, the same capital gain (450,000 − 300,000 = €150,000) would have been completely exempt after 22 years of ownership.

⚠️ The IS option is irreversible after five years. This is the most binding decision of the SCI setup. It is relevant for investors who do not plan to resell, or who will sell company shares rather than the property itself. It is risky for those who might be led to resell in the medium term.

SCI and furnished rentals: an incompatibility you must know

This is the most common mistake made by owners wishing to combine SCI and LMNP. An SCI under IR cannot engage in furnished rentals on a regular basis. As soon as furnished rental revenues exceed 10% of the SCI's total revenues, it automatically switches to IS — with no voluntary option, and irreversibly.

For an owner wishing to rent furnished in Paris — particularly under a Civil Code lease to corporate clients — holding in their own name under LMNP status with the real scheme often remains more efficient than an SCI under IS, unless the asset transmission goal takes priority.

SCI and transmission: the true structural advantage

This is probably the main reason why Parisian investors create an SCI — and this is where the structure shows its full value, regardless of the chosen tax system.

In France, gift tax can reach 45% in direct line beyond exemptions, and 60% for non-direct heirs. Each parent can give each child up to €100,000 in shares every 15 years free of tax. By dividing the ownership shares (usufruct/life interest for parents, bare ownership for children), parents retain the income while progressively transferring the estate — with a reduced valuation of the bare ownership shares depending on the age of the usufructuary.

💡 Exceptional 2026 Exemption: an additional exemption of €300,000 applies until December 31, 2026, for certain donations. This temporary scheme is worth studying with your notary if you are planning a transfer of assets in the coming months.

IR or IS: how to decide?

There is no universal answer. The right system depends on four combined parameters: your marginal tax rate, your holding horizon, your exit strategy, and your wealth-planning goal.

⚠️ The IS option is irreversible — no retrospective simulation can correct a tax system mistake. Before creating your SCI or opting for the IS, a numerical simulation over 10, 15, and 20 years with a chartered accountant or a wealth management advisor is essential.

What BAUVAUT can do for you

BAUVAUT manages properties for owners who hold their assets in various structures — in their own name, in family SCIs, or through corporate entities. Our role is not to advise you on the legal structure — that is the role of your notary, chartered accountant, or wealth management advisor. Our role is to maximize the rental performance of your property regardless of the structure that holds it: optimized rental marketing, selection of matching tenant profiles (corporate, expatriates, relocation), drafting leases, and daily management.

For owners who hold through an SCI and target corporate clients or expatriates — typically via a Civil Code lease — our network of relocation partners gives you access to profiles that the mass market will not offer you.

Would you like to optimize the rental performance of your property in Paris?

BAUVAUT assists Parisian owners with renting out and managing their properties — regardless of the ownership structure. Contact us for an initial, free consultation.