SCI under corporate tax: the capital-gains trap on resale

Quick answer. In an SCI subject to corporate income tax, depreciation lowers the yearly tax bill but also reduces the property's net book value. On resale, the capital gain (price minus net book value) absorbs these reclaimed depreciation charges, with no allowance for holding period. The annual tax saving is paid back at the time of sale.

The sales pitch for an SCI taxed under corporate income tax (IS) is well known: depreciating the building eases tax during the rental phase. What is less often shown is the exit bill. The more you have depreciated, the larger the taxable capital gain on the day of sale. Here is why, with a full calculation, and what we check before deciding.

In an SCI under corporate tax, the building (excluding land, which is not depreciable) is depreciated over its useful life. This depreciation is a deductible expense: it reduces taxable profit, and therefore corporate tax, every year.

But depreciation also reduces the property's net book value (NBV) in the SCI's accounts. And on disposal, the business capital gain is calculated as sale price minus NBV. The NBV equals acquisition cost minus depreciation taken.

The mechanical consequence: the more you have depreciated, the lower the NBV, and therefore the higher the taxable capital gain. This is the recapture of depreciation. The corporate-tax saving collected each year resurfaces, aggregated, on the day of sale.

Take an SCI under corporate tax that buys premises for 300,000 EUR, of which 60,000 EUR is land (not depreciable) and 240,000 EUR is the building. Straight-line depreciation of the building over 30 years, i.e. 8,000 EUR per year. The SCI resells after 20 years for 450,000 EUR.

The surprising point: the taxable gain is not 150,000 EUR (the difference between sale price and purchase price) but 310,000 EUR. The 160,000 EUR of depreciation deducted over the years is reintegrated into the calculation. And there is no allowance for holding period: 20 years or 2 years, the rate scale is identical.

In total, between corporate tax inside the SCI and the flat tax at the partner level, the exit tax burden reaches 147,589.50 EUR on a 310,000 EUR gain, around 47.6%. That is the hidden cost: what depreciation saved year after year reappears, in part, in this double layer.

An SCI under corporate tax is a company: the gain stays inside as long as it is not distributed. While the proceeds remain in the SCI, only corporate tax applies.

But the day the partners want to recover the cash, the dividend distribution is subject to the flat tax of 31.4% in 2026 (12.8% income tax and 18.6% social levies on investment income). Hence two successive layers of taxation. To understand how this trade-off is built right from incorporation, see our comparison of an SCI under corporate tax versus income tax.

An SCI under income tax falls under the individual capital-gains regime (French Tax Code, art. 150 U): 19% income tax and 17.2% social levies, but with an allowance for holding period leading to income-tax exemption after 22 years and social-levy exemption after 30 years. A surtax (art. 1609 nonies G) applies above 50,000 EUR of gain.

The practical reading: an SCI under corporate tax rewards long holding with rent collection; an SCI under income tax rewards long holding followed by resale. The bad scenario for corporate tax is precisely the resale of a strongly appreciated, heavily depreciated asset. We develop this reasoning for business premises in our analysis of an SCI under corporate tax versus income tax for the company director.

The choice between corporate tax and income tax is not an accounting choice, it is a bet on your time horizon. An SCI under corporate tax is rational when the property is meant to stay in the company's assets and produce rent for a long time, with no planned resale. As soon as a disposal looms in the medium term on an appreciating asset, the exit cost can erase much of the advantage collected during the rental phase.

We regularly see the following flawed reasoning: optimising the tax of the first years without ever quantifying the exit. Depreciation is not a gift, it is a deferral. Before switching an SCI to corporate tax, the right reflex is to simulate both regimes over the real intended holding period. This is the purpose of our corporate and director tax advisory mission in Paris.

The most frequent trap is not corporate tax itself: it is discovering the amount on the day of the sale agreement, when nothing can be arbitrated any more. At that stage the regime is fixed, the depreciation has been taken, the NBV is what it is. The only moment to act is before.

Another blind spot: believing that an SCI under corporate tax that has never distributed has avoided tax. It has only postponed the second layer. The flat tax waits for the distribution. While the sale proceeds remain locked inside the SCI, the partner receives nothing.

There is no miracle recipe, and none of these options can be decided out of context. Presented cautiously, here are the levers we examine:

1. Choose corporate tax or income tax at incorporation, depending on the holding horizon and the intention to resell. This is the most powerful lever, because it is the only fully free one.
2. Anticipate the exit tax before selling, by simulating the gain several years ahead, not at the time of the sale agreement.
3. Consider selling the shares rather than the property: registration duties are 5% on disposals of shares in property-dominant companies (French Tax Code, art. 726 I 2). The trade-off must still be studied case by case, as the taxation of share gains differs.
4. Do not distribute the proceeds immediately, in order to control over time when the flat tax is triggered.

• Check the land / building split from acquisition (land is not depreciable).
• Keep a record of accumulated depreciation to know the NBV at any time.
• Quantify the latent capital gain once a year, as a steering indicator.
• Identify the real horizon: hold, transfer, or resell.
• Have the exit transaction reviewed in advance by your chartered accountant.

These levers fit into a broader wealth strategy: see our director wealth management offering.

The reduced corporate-tax rate of 15% up to 42,500 EUR of profit (art. 219 I-b) is not automatic: it assumes turnover below 10 million EUR and fully paid-up capital held at least 75% by individuals. Above the threshold, the rate is 25%. The authorities also check the consistency of the land / construction split, because overstating the building to depreciate more is then paid back through a larger gain, and exposes the company to a risk in case of audit.

A couple owns an SCI under corporate tax holding the business premises, bought for 300,000 EUR some twenty years ago and largely depreciated. When the time comes to sell to fund their retirement, they discover that the taxable gain is not calculated on the gap between sale price and purchase price, but on the gap with a very low NBV. The corporate-tax bill, then the flat tax on distribution, exceeds their expectations. It could all have been anticipated: a simulation three or four years earlier would have clarified the trade-off between selling the property, selling the shares, or holding. On this premises-and-operating-company pattern, also read our analysis of holding business premises in an SCI.