David Anderson and François Mounielou both at Druces Solicitors LLP in London EC2 explain why a Monaco real estate company can be tax efficient vehicle for French succession tax purposes.
Please note this article is for general information. You should not rely on it without advice on the specific facts of your case.
Société Civile Immobilières (‘SCI’) companies are a popular way to own properties in France. They offer greater flexibility in that you own shares in the SCI rather than the underlying real estate, which can accordingly be transferred more easily. They also give a structured framework for the administration of the property, such as a company director, and Articles of Association setting the company’s rules, for example with rules restricting the sale of the shares outside the family.
Whilst SCI are not generally used for tax reasons, they can be tax efficient vehicles for residents of Monaco. This is because unlike shares in a foreign company holding property in France, shares in a Monaco SCI may escape French succession tax on the shareholder’s death.
When a resident of Monaco holds shares in a Monaco SCI which owns a French property, the France/Monaco double tax treaty on succession provides that succession tax is due in Monaco and not in France. This position was confirmed by the French Supreme Court on 2 October 2015.
As there is no inheritance tax in Monaco on assets passing to descendants, whilst French inheritance tax can be as high as 45%, it is easy to understand why Monaco SCIs are so commonly used for estate planning purposes.
Although the France/Monaco double tax treaty restricts its benefits to French and Monaco nationals, EU nationals and those of a country which has a double tax treaty with France containing a non-discrimination clause, such as UK after Brexit or Russia, can request the application of the French/Monaco double tax treaty on succession to avoid French succession tax on the Monaco SCI shares, provided they have been residents in Monaco for five years.
Monaco SCI are therefore particularly suitable for those who are Monaco residents or future residents, wishing to purchase real estate in France. It is advisable to analyse whether it is possible to benefit from the succession tax exemption.