Investing through a company subject to corporation tax (IS)

“Alexis, I already pay 41% income tax on my earnings. If I buy another flat in my own name, between property tax, the 17.2% social levies and my income tax, I’ll have nothing left to repay my loan. How can I build capital without the State taking everything along the way?”

This is the starting point for the majority of the wealth-planning strategies we craft at Balmont Conseil. For the seasoned investor, the question is no longer simply what to invest in, but how to hold the asset.

Investing through a company subject to corporation tax (IS) has become the linchpin of capitalisation strategies. Whether via an SCI subject to IS, a family SARL or a holding company, this arrangement makes it possible to decouple the taxation of your investment from your personal taxation. Here is the complete guide to mastering this powerful lever.

Bespoke analysis

Understanding how corporation tax (IS) works

Investing through an IS structure means creating a "tax screen" between the profits generated by your assets and your personal portfolio. Unlike Income Tax (IR), where you are taxed on the profit even if you do not take it out of the company, IS taxes only the legal entity.

The trade-off between income tax (IR) and corporation tax is not merely a matter of comparing percentages. It is the choice between enduring an immediate deduction or keeping your capital to make it grow.

The corporation tax rate (IS): A capitalisation lever

1. The mechanics of the rates: A launch pad

The French system offers a genuine growth opportunity for wealth structures.

15% (reduced rate): It applies up to €42,500 of profit. This is the ideal "engine" for financing new assets (real estate, securities) with minimal tax friction.

25% (standard rate) : Beyond that threshold, the rate remains well below the top brackets of income tax.

2. The differential in available "cash flow"

The strength of IS lies in the net amount you are left with to reinvest. For €10,000 of profit generated:

Under IR (marginal rate 41% + social levies): You are left with only €4,180 after tax. Your investment capacity is cut by more than half.

Under IS (reduced rate): You are left with €8,500. You have twice as much capital to generate compound interest.

3. Steering the tax base

Unlike property or investment income held directly (IR), a company subject to IS can optimise its taxable base:

Accounting depreciation: In real estate, the depreciation of the asset often brings taxable profit down to zero, making the income virtually painless from a tax standpoint for many years.

Deduction of expenses: All costs relating to management (advisory fees, study trips, head-office costs) are deductible from the result, which is impossible for a private individual.

Control over personal income : You pay tax personally (30% flat tax or the progressive scale) only on the dividends you actually decide to pay yourself. The rest works for you within the structure.

SCI subject to IS vs SCI subject to IR: The head-to-head comparison

The choice of SCI tax regime is one of the most structuring decisions for an investor.

The comparison table

Characteristics	SCI subject to IR (Property Income)	SCI subject to IS (Industrial & Commercial Profits)
Taxation of income	In the partners' hands (marginal rate + 17.2%)	At company level (15% or 25%)
Depreciation of the asset	Not possible	Possible (Reduces taxable profit)
Deduction of expenses	Limited (acquisition costs not deductible)	Broad (full SCI deductible expenses)
Capital gains (Resale)	Private-individual regime (Long-term exemption)	Professional regime (Calculated on net book value)
Cash	Available immediately	"Locked in" the company (Flat tax on withdrawal)

The major advantage: Real-estate depreciation

This is the "Holy Grail" of investment tax optimisation. Under IS, you are entitled to record the depreciation of the building in your accounts each year (around 2 to 3% of the asset's value).

This notional charge is added to the SCI deductible expenses (interest, taxes, works), often making it possible to report a nil or loss-making tax result even while cash flow is positive.

Analysis of SCI deductible expenses

Under IS, the scope of deductible expenses is far broader than under IR. You can deduct:

Acquisition costs (notary fees, registration duties) from the very first SCI financial year.
Management and accounting fees.
The manager's remuneration (and the related social contributions).
Renovation and maintenance works, without distinction of "nature" (unlike the property-income regime, where certain extension works are excluded).

Accounting rigour: Accrual accounting and the SCI

Switching to IS is not only a tax choice, it is a shift in administrative paradigm. Accounting for an SCI subject to IS is heavier and more demanding.

Accrual accounting and the SCI

Unlike the SCI subject to IR, which often makes do with "cash" accounting (receipts/payments), the SCI subject to IS requires accrual accounting. This means that receivables and payables must be recorded as soon as they arise, and not at the time of payment. This requires:

Keeping a journal, a general ledger and a trial balance.

Drawing up a mandatory balance sheet and a profit-and-loss account at each close of the SCI's financial year.

The tax return package (form 2065 and its schedules) must be filed electronically each year with the tax authorities.

Real-estate valuation and the balance sheet

Real-estate valuation on the balance sheet of an SCI subject to IS is done at historical cost (purchase price). Each year, depreciation reduces this gross value. This accounting rigour allows an extremely precise view of the after-tax return of the operation, far removed from the approximations of holding in one's own name.

Capitalisation strategy: Why IS wins in the short term

Investing through a company subject to corporation tax is a pure capitalisation strategy.

Use of losses and carry-forwards

If your company generates losses (notably through notary fees in the first year or major works), these carry-forward SCI losses can be used with no time limit against future profits. This makes it possible to pay no tax at all for many years.

After-tax return and debt repayment

Under IR, you have to pay your taxes with money that should be used to repay the bank. Under IS, since the tax is almost nil thanks to depreciation, 100% of the cash flow is available for debt reduction. For a leveraged buy-to-let investment, the pace of repayment is multiplied many times over.

Tax deferral and losses

When an SCI subject to IS carries out significant works or deducts its notary fees, it generates a tax loss. This loss can be carried forward with no time limit against future profits. The use of losses is strategic: it makes it possible to pay no tax on the SCI's rental income for sometimes 10 or 15 years. The cash flow thus preserved is used entirely to repay the principal of the bank debt, creating a cumulative capitalisation effect.

Tax deferral on capital gains

In certain complex holding-company arrangements (contribution-disposal), the tax deferral (article 150-0 B ter) makes it possible to dispose of securities without paying tax immediately, provided the proceeds are reinvested in an economic activity (such as real estate under IS) within 2 years. This is where Balmont Conseil's engineering comes fully into its own.

The limits and the pitfalls: The other side of the coin

While IS is attractive during the operating phase, it carries constraints that a wealth-management adviser must anticipate.

The taxation of capital gains on resale

This is the main drawback. Under IS, the capital gain is calculated on the difference between the sale price and the Net Book Value (NBV).

Example: You buy an asset for €500,000. You depreciate it by €200,000 over 10 years. The NBV is €300,000. If you resell for €600,000, your capital gain taxable at 25% is €300,000 (600 - 300).
Under IR, you would have been taxed on €100,000 with allowances for length of ownership. IS is therefore a long-term investment where holding is preferred to a quick resale.

The cost of management (balance sheet...)

A company subject to IS requires accrual accounting, a mandatory annual balance sheet and the holding of general meetings. Engaging a chartered accountant is essential, which generates annual costs (around €1,500 to €2,500).

Double taxation when taking cash out

To enjoy the money personally, you must pay yourself dividends (after IS). These earnings then bear the Flat Tax (30%) or the income-tax scale. IS is ideal for reinvesting, less so for consuming rental income immediately.

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For which profiles is this arrangement suitable?

Few advisers point it out, but the inbound expatriate enjoys a breath of fresh air on their real-estate wealth.

The senior executive or the liberal professional (marginal rate 30%+)

If your goal is to build up a supplementary retirement income without increasing your current tax burden, IS is the sovereign solution. It allows you to "store" wealth in a dedicated structure.

The business owner (Holding company and Group Tax Regime)

Using a holding company subject to IS to hold real-estate subsidiaries makes it possible to benefit from the group tax regime (or the parent-subsidiary regime). You can thus reinvest the profits of your operating company into real estate with tax friction of only 1.25%.

The SCPI investor through a company

Buying SCPI units through a company subject to IS makes it possible to neutralise the heavy taxation of foreign or French property income thanks to the depreciation of the units (subject to certain accounting conditions). This is an increasingly sought-after investment tax strategy.

SCI real-estate capital gains: The point to watch

This is where the tax rules become less favourable to IS over the very long term.

Taxation of capital gains on resale

Under IS, SCI real-estate capital gains are calculated under the professional capital-gains regime.

The calculation: Sale price - Net Book Value (NBV).
The pitfall: The more you depreciate the asset (which reduces your annual tax), the lower the NBV falls, and the more the taxable capital gain mechanically increases. Unlike under IR, there is no capital-gains exemption for length of ownership. Under IS, you are "married" to the asset. The aim is not to resell to pocket the cash, but to reallocate in order to reinvest in a new project, or to pass on the company shares.

Mitigation strategies

To work around this friction on resale, wealth-management experts recommend:

Selling the company shares rather than the building.
Splitting ownership (usufruct/bare ownership) from the outset to purge part of the value.
Keeping the asset in the portfolio to generate lifetime income.

Setting up the arrangement: The key steps

Setting up an IS structure should not be seen as a mere administrative formality, but as laying the foundations of a capitalisation vehicle.

Drafting the articles of association: Choosing a suitable form (SCI, SAS or SARL)

The choice of legal form defines your flexibility of management. The SCI is ideal for family transmission, whereas the SAS offers total freedom to organise powers and financial flows (preference shares). The family SARL, although subject to IR by default, can be a valuable transitional tool.

The option for IS: A strategic choice that becomes irreversible over time

If you set up an SCI, it is by default subject to IR (fiscal transparency). The option for IS must be made to the Business Tax Office (SIE). Note: since 2019, this option is revocable up to the fifth financial year. Beyond that, the switch to IS becomes definitive, setting the tax strategy in stone.

Contribution or Financing: Managing the Shareholder Current Account (CCA)

This involves determining the amount of share capital and, above all, the shareholder current-account contribution. The CCA is a major lever: it allows the partner to be repaid by the company as a priority and with no personal taxation on the first profits generated, even before any dividends are distributed.

Opening the financial year: Accounting consistency

Set the closing date (often 31 December). A first financial year may exceptionally run up to 24 months, which makes it possible to spread the start-up costs (notary fees, works) over a longer period and to optimise the first balance sheet.

The corporate purpose: Legal security

It must be drafted broadly enough to include the management of financial and real-estate assets, thereby avoiding any challenge to the deductibility of expenses by the tax authorities.

Balmont Conseil: Your Expert and Facilitator

At Balmont Conseil, we put in place the structural, financial and investment solutions best aligned with your context. With my expertise and ALTA, the AI-augmented wealth engineer, my mission is to turn your taxation into a strategic striking force, optimising every lever of your wealth holding company to secure and pass on your legacy with unrivalled precision. Investment tax optimisation cannot be improvised on the back of an envelope. A mistake in the choice of tax regime or a poor assessment of wealth transmission can cost tens of thousands of euros.

Why work with us?

At Balmont Conseil, we act as the architects of your fortune. As AI-Augmented Wealth Engineers, we do not merely create companies. We use artificial intelligence to:

Produce bespoke IR vs IS comparisons over 20 years, incorporating resale assumptions.

Model the tax impact on the partners according to the evolution of their overall income.

Anticipate wealth transmission through the splitting of the company's shares between usufruct and bare ownership.

We are the bridge between your chartered accountant, your notary and your financial ambitions. Our role is to ensure that your capitalisation strategy remains fluid, lawful and, above all, highly profitable.

FAQ: Everything you need to know about investing under IS

Can I switch an existing SCI from IR to IS?

Does IS make it possible to reduce the IFI (Real-Estate Wealth Tax)?

What exactly is accounting depreciation?

How do you take money out of a company subject to IS?

Can the loss of an SCI subject to IS reduce my personal income tax?

What are the risks of "aggressive tax optimisation" through IS?

What is the advantage of a SARL subject to IS over an SCI?

IS, the tool of wealth builders

Investing through a company subject to corporation tax is the sovereign arrangement for anyone wishing to reinvest their profits to build a real-estate or financial empire. It demands accounting rigour and a long-term vision, but offers an unrivalled after-tax return during the growth phase.

Alexis Sagnier

With more than 17 years of expertise in financial engineering, Alexis Sagnier supports business leaders and expatriates in securing their cross-border matters.

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