Holding a property in France through an SCI by a Swiss resident: tax impact

On December 13, 2022, the Swiss Federal Supreme Court (ruling 2C_365/2021) validated a still relatively uncommon practice of the Vaud Cantonal Tax Administration (ACI). This practice consists of taxing real estate assets located in France in Switzerland when they are exempt from the real estate wealth tax (IFI) in France. Here is an analysis of this decision and its consequences.

Taxation of real estate located in France

Real estate located in France is subject to the IFI, regardless of the owner’s place of residence. Thus, a Swiss resident owning real estate in France must pay this tax if the tax value of his or her assets exceeds the threshold of 1.3 million euros.

When these assets are owned directly by a Swiss taxpayer (natural person), they are not taxed in Switzerland as assets, since they are already subject to the IFI in France. On the other hand, when they are held indirectly via a real-estate company (e.g., a French SCI), Switzerland may reclassify them as securities and tax them as assets.

New case law redefines SCI taxation

For the first time, the Swiss Federal Court has upheld the IFA’s right to tax a taxpayer from Vaud holding French real estate assets via an SCI. The value of the assets in question was less than 1.3 million euros, and therefore exempt from IFI in France.

This case law could prompt Swiss taxpayers owning real estate in France to reassess the structure of their asset holdings. Indeed, when the IFI does not apply in France, Switzerland considers that it is legally possible to tax the value of the shares in the SCI as movable assets.

Tax consequences and optimization strategies

This new approach poses a tax risk for Swiss residents holding real estate in France through a company, if the net value of the property is less than 1.3 million euros. Although such property is exempt from the IFI, indirect ownership opens the door to taxation in Switzerland.

If this practice spreads to other cantons, direct ownership could prove more advantageous from a tax point of view for small owners. In accordance with Article 24 § 1 of the Franco-Swiss Double Taxation Treaty, property held directly in France cannot be taxed in Switzerland as capital.

On the other hand, if the property is held via an SCI, it may be considered a movable asset and therefore subject to wealth tax in Switzerland, if its IFI exemption in France excludes it from taxation in that country.

Towards asset restructuring?

This case law encourages Swiss taxpayers owning property in France to rethink the way they hold their assets. However, the liquidation of an SCI can have complex tax consequences, particularly in terms of capital gains and income tax. A thorough assessment is therefore required to determine whether the wealth tax savings offset the tax costs associated with restructuring.

In conclusion, Swiss taxpayers owning property in France need to anticipate this tax change, which could call into question the benefits of holding property via an SCI, depending on the value of their assets and their individual situation.

Based on the article by Michel Abt & Romain Baume (FBT Avocats), whose main points we have summarized and reformulated. Source: https://www.fbt-avocats.ch/limposition-biens-immobiliers-francais-suisse/