When you are renting out your chalet in France, the choice of legal status can be a real headache – SCI, SARL or LMNP? It can all seem very complicated.
Offering your chalet as a holiday let is a wise choice if you want to generate income or make a profit on your investment. However, the status under which you rent will have a real influence on the conditions of the rental management and the tax you pay on your holiday rental property.
This comprehensive guide explains the different statuses, to help you make the right choice for your business.
Please note, due to official legislation guidance, in some instances, we are only able to link to French versions of external web pages.
The various statuses for holiday rental
The Société Civile Immobilière or SCI
A société civile immobilière is a legal structure made up of at least two partners, the purpose of which is to manage one or more properties.
The SCI owns the property and the partners receive shares in proportion to their contribution. The SCI has articles of association or rules for its operating procedures. Its manager will be responsible for the day-to-day management of the company’s property.
However, the SCI is a property company. By definition, it is intended to carry out a civil activity. However, furnished rental is a commercial activity. As a result, the SCI would usually rent out an unfurnished property. Therefore, it is not usually suitable for a furnished property.
There are two exceptions to this rule:
Become an SCI subject to corporation tax (IS)
It is possible to register your SCI for corporation tax and to pay that instead of income tax. In this case, the company pays tax on the profits.
The SCI will be able to deduct its expenses from its income and it, not the shareholders, will be taxed on its profits.
In addition, an SCI subject to corporation tax can write off the purchase of the property. In this case, if you rent a furnished property, there will be no distinction between the rental income from an empty property and that of a furnished property.
Advantages: The SCI will be able to deduct its expenses from the income and pay tax just on the profits from its activity. The company will be able to account for the depreciation of the purchase of its properties on the balance sheet.
Please note: If you choose to set up a company subject to corporation tax, you will have to comply with the system’s tax and accounting obligations. In particular, you will have to keep full accounts and draw up annual accounts.
Remain subject to income tax (IR) while having limited rental income from furnished rentals
In this particular case, it is the partners who will pay tax on the profits, according to the shares they hold in the company. However, the income from the letting of the furnished property must not exceed 10% of the total income of the SCI.
Therefore, it will only be possible to choose the SCI status if the business is not the company’s main activity.
The Société à Responsabilité Limitée or SARL
The SARL or limited liability company
A SARL is a commercial company set up to buy, manage and operate one or more real estate properties.
The SARL consists of a minimum of two partners and a maximum of 100. Each partner is only liable for the company’s debts up to the amount of their contribution. No minimum capital is required.
The SARL status can be used for seasonal rental of mountain chalets. It’s also possible to create a family limited liability company, where the partners are members of the same family.
To create a SARL you will need to:
- Draw up articles of association mentioning:
- The corporate form (SARL)
- The company name
- The registered office
- The company’s purpose
- The amount of share capital, etc
- Insert a notice of incorporation in a legal publication.
- Proceed with the registration of the SARL in the National Register of Companies (RNE) and the Trade and Companies Register (RCS).
As a rule, the SARL is subject to corporation tax. However, it is possible to opt for the income tax system, provided certain conditions are met – you can check these out here.
When you opt for income tax, each shareholder will pay tax according to his share of the profits.
The advantages
- It’s possible to create a company with little capital – the amount of capital is agreed upon by the partners.
- The liability of the partners is limited to the value of their contributions.
- The family nature of the company is recognised.
For more information about this status, please consult the economie.gouv.fr. website.
Focus on the family SARL
The family SARL is not a particular form of company, but a tax option decided by all the partners.
A family SARL is one whose members are from the same family – this includes children, parents, grandparents, brothers and sisters as well as spouses or partners.
The activity of the family SARL should be industrial, commercial or artisanal, and must not be a liberal activity (one that provides services based on personal qualifications).
This tax option will allow all partners to be taxed under income tax.
Non-professional furnished rental or LMNP
The conditions
Renting a furnished property:
The status of the non-professional furnished landlord (LMNP) applies to owners who rent out their fully-furnished property.
There must be enough furniture to meet the needs of daily life, and the tenant will just bring their personal belongings.
Click here to find out what you must provide to meet this condition.
Non-professional
This applies to someone who rents one or several rooms of their house, or who rents occasionally. On the other hand, a professional landlord is someone who usually rents out several properties.
The rental income must either be less than £23,000 per year (for all members of the tax household), or not exceed the total income of the tax household which is subject to income tax in the following categories:
- Salaries and wages
- Industrial and commercial profits
- Agricultural profits
- Non-commercial profits
If these ceilings are exceeded, the status will change to that of a professional furnished landlord (LMP).
How the LMNP status works
The LMNP must declare the creation of an enterprise or the start of activity on the business formalities website within 15 days of the start of activities. You will then receive a SIRET number and can choose a tax regime. You will publicise your activity and can manage all formalities on this platform.
The LMNP is subject to the “cotisation foncière des entreprises” (CFE) and must declare their rental income and deductible expenses on their annual tax return.
Income from the premises that you own is subject to income tax in the category of “industrial and commercial profits” (BIC). You will have to choose between the “micro” regime and the “real” regime.
Click here to find out more about the tax advantages of these two systems, depending on your activity.
Choose the status that suits you best
The choice of status for your seasonal rental will differ according to:
- The objectives you have set yourself: reducing your taxes, passing on your assets, having regular income etc
- Your tax situation (tax rate etc): some statuses are more advantageous than others
- The duration of the investment: some statuses are more suitable for a long-term investment and others for a short-term investment
Where to find more information
Here are some links to official websites which further explain the various statuses available for your business:
- The service-public.fr website has all the information you need on the statuses. You can find information on the formalities you need to complete and the conditions for each status.
- The impots.gouv.fr website provides information on the various taxes to which you may be subject, particularly in relation to property rental. You will also find information on the different tax regimes and possible tax benefits.
- The website for the Chambre des Notaires de France gives information on the different legal statuses available for letting out property.
- The website for the Agence Nationale pour l’Information sur le Logement (ANIL) provides information on the rules for renting out a property, particularly with regard to taxation.
Choosing the right legal status for your chalet rental experience is important. Each status has its advantages and points to take into consideration. Therefore, it’s vital to examine and compare them carefully to find the right one for you.
It is a good idea to seek the advice of a professional to help you make the right decisions and to make the most of your real estate investment in the mountains.
OVO Network can then work with you to reach your objectives and create a successful holiday rental business in the Alps. Arrange a call to speak with one of our experts today or find out how much you could earn with our short-term rental income calculator.
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Please note: We recommend that you always seek the advice of tax and asset management professionals to make the most appropriate choice for your personal situation. The information given above is purely informative and we accept no responsibility for the accuracy, completeness and updating of the content.
