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The contribution of real estate to an SCI may escape proportional registration duties entirely, or be fully taxable. Everything depends on the tax regime of the receiving company, the nature of the contribution and, where applicable, the undertakings given by the contributor. Here is a structured map of the exemption cases and their conditions.

1. Background and Questions

An individual is considering contributing real estate to a société civile immobilière (SCI) and wishes to know in which cases the contribution can be made without payment of the proportional registration duty (droits d’enregistrement) of 5% (or 5.60% for certain properties in Île-de-France).

The question specifically concerns:

1. Contributions to SCIs that are tax-transparent for income tax (IR) purposes, where pure contributions of real estate or rights in real estate may in certain cases be registered free of duty.
2. Contributions to SCIs that are subject to corporate income tax (IS), where a relief regime may allow registration free of duty or subject to a fixed duty, in particular on the incorporation of a sole proprietorship into a company or on the contribution of all business assets, subject to certain undertakings (retention of shares, continuation of the activity, etc.).
3. Special regimes or restructurings (merger, demerger, partial contribution of assets, intra-group transactions) that may neutralise or mitigate transfer duties on the contribution of real estate to an SCI.

The aim is to map out in a structured way the cases in which proportional duties are eliminated (or almost eliminated), and to set out the conditions of application (nature of the contribution, status of the contributor, tax regime of the SCI, undertakings, time limits) as well as the consequences of non-compliance.

2. General Principles of Transfer Duties on the Contribution of Real Estate to an SCI

Duty rate on the contribution of real estate

• As a general rule, the overall rate is 5% where a contribution of real estate or rights in real estate to a company is subject to duty (increased to 5.60% for office, commercial or storage premises in Île-de-France).
• The duty is calculated on the real market value of the property on the day of the contribution.

The distinction between pure contributions, contributions for consideration and mixed contributions

• Pure contribution (apport pur et simple): the consideration consists exclusively of company rights, with no financial counterpart (no assumption of the contributor’s personal debts beyond the debt attached to the contributed asset, no balancing payment and no cash).
• Contribution for consideration (apport à titre onéreux): the company assumes debts of the contributor or provides a counterpart that can be equated with a purchase price (balancing payment (soulte), cash payment, assumption of debts unrelated to the contributed asset).
• Mixed contribution (apport mixte): a combination of both, each part following its own regime (contribution duty / transfer duty on the part made for consideration).

The significance of the SCI’s tax regime

• SCI not subject to IS (transparent for IR purposes): as a general rule, pure contributions of assets of any kind are exempt from registration duty.
• SCI subject to IS: certain contributions of real estate made by persons not subject to IS are treated as transfers for consideration and are subject to the special duty of 5% (or 5.60%), unless a relief regime applies in return for an undertaking to retain the shares and subject to conditions of business use.

3. Contribution of Real Estate to an SCI Not Subject to IS (SCI Transparent for IR Purposes)

3.1. Principle: Exemption for Pure Contributions

Basic rule. Where the receiving company (the SCI) is not subject to corporate income tax, pure contributions of assets of any kind are exempt from registration duty.

• No proportional duty of 5% / 5.60% is therefore payable on a pure contribution of real estate to a tax-transparent SCI, provided that the transaction does not include a part made for consideration.

Main conditions:

• Nature of the SCI: a civil-law company not subject to IS (no election for IS, non-commercial activity for tax purposes).
• Nature of the contribution: pure contribution, remunerated exclusively with shares, with no balancing payment or monetary counterpart.
• Debt: the SCI’s assumption of the debt attached to the property does not in itself prevent qualification as a pure contribution, where the debt is linked to the contributed assets (e.g. a property loan linked to the property).

3.2. Limitations: Contributions for Consideration or Mixed Contributions

Assumption of debt that is “foreign” to the contributed asset. Where the SCI, in addition to the debt attached to the property, assumes other debt obligations of the contributor (personal debts, debts relating to inventory, etc.), the corresponding part constitutes a contribution for consideration, which is subject to transfer duty as a sale (5% or 5.60% on the part attributable to the property).

Partial consideration in cash or through a creditor account. If the contributed net value is not remunerated exclusively with company rights (but also with cash or by opening a positive current account), the specific exemption linked to the relief regimes does not apply, and the part made for consideration is subject to transfer duty.

Practical consequences. In a transparent SCI, the contribution of real estate is fully exempt from proportional transfer duty if:

• the SCI is not subject to IS, and
• the contribution is entirely pure.

As soon as part of the transaction is made for consideration, that part is taxed at the applicable rate (5% or 5.60% for real estate), with no possibility of exemption merely through an undertaking to retain the shares, since that exemption regime is reserved for certain specific regimes.

4. Contribution of Real Estate to an SCI Subject to IS

4.1. Pure Contributions Subject to the Special Transfer Duty

Principle: equated with a transfer for consideration. Pure contributions of real estate or rights in real estate to a legal entity subject to IS, made by a contributor who is not subject to IS, are in principle subject to a special transfer duty of 5% (5.60% for certain premises in Île-de-France).

• Covered are: real estate, rights in real estate, businesses (fonds de commerce), customer bases, leasehold rights or promises of lease.

Conditions for the special duty to become due. The special transfer duty becomes due when:

• the contribution is pure;
• it relates to assets covered by Art. 809 I-3° CGI (real estate, rights in real estate, businesses, customer bases, leasehold rights, promises of lease);
• the contributor is not subject to IS, or the contributor contributes assets that previously benefited from an exemption from fixed duty or a reduced rate on a prior contribution.

4.2. Exemption in Return for an Undertaking to Retain Shares and Business Use

General exemption regime for pure contributions to a company subject to IS. A contribution of real estate or rights in real estate to a legal entity subject to MAY be registered free of duty if the following cumulative conditions are met:

• Undertaking to retain the shares: the contributor undertakes to retain the shares (parts) received as consideration for the contribution for 3 years; the undertaking must be given in the contribution deed or in a document with a certain date at the time of registration.
• Business use of the properties: the properties and rights in real estate must form part of the contribution of all fixed assets attached to the conduct of a business activity; the contribution must include all of the fixed assets attached to the activity, and the property must form part of this whole (no isolated contribution of a property forming part of private assets).
• Notable limitation: the regime does not apply, for example, to the contribution of a property to an SCI that does not carry on a genuine business activity (e.g. pure asset management), as clarified in legal commentary and in a ministerial answer concerning contributions to an SCI.

Penalties for non-compliance with the undertaking. In the event of non-compliance with the retention undertaking (disposal, buy-back or cancellation of the shares within 3 years), the transfer duty becomes immediately due, with no possibility of payment in instalments.

Exception: no clawback applies on the contributor’s death or on a gift of the shares, if the donee takes over the retention undertaking in the deed of gift until the end of the 3 years.

4.3. Incorporation of a Sole Proprietorship into a Company with Assumption of Debt (Mixed Contribution)

Regime of Art. 809 I bis and 810 III CGI applied to SCIs. On a contribution to a company (including an SCI, whether or not subject to IS) by an individual of all fixed assets attached to the conduct of a business activity, the company’s assumption of the debt owed by the contributor is equated with a transfer for consideration, taxed at a rate of:

• 5% or 5.60%, where the debt is attributable to real estate or rights in real estate;
• 3% and 5% (in brackets), where the debt is attributable to businesses, customer bases, leasehold rights or promises of lease.

Possible exemption in return for an undertaking to retain shares. Where the contributor undertakes to retain the shares received as consideration for the pure contribution of the fixed assets for 3 years, the transfer duty that would have been payable on the assumption of the debt is replaced by a fixed duty of €375 or €500 (except on the formation of a company, where certain contributions may be exempt from these fixed duties).

Conditions:

• the contribution is made by an individual;
• the contribution includes all fixed assets attached to the conduct of a business activity, or an entire branch of activity;
• the contributed net value is remunerated exclusively with company rights (no cash and no assumption of debt that is foreign to the debt attached to the fixed assets).

Penalty: in the event of non-compliance with the retention undertaking, the transfer duties become immediately due, with no possibility of splitting; as for pure contributions, however, no clawback applies on death or on a gift accompanied by the assumption of the undertaking.

Limitations specific to SCIs.

• This relief regime does not in principle apply to the contribution of a property to an SCI where the property does not form part of the fixed assets of a sole proprietorship (e.g. a property forming part of private assets).
• Legal commentary has clarified that the contribution of a property to an SCI cannot benefit from Art. 809 I bis where the SCI does not carry on a genuine business activity.

5. Special Regimes and Restructurings Involving an SCI

5.1. Contribution of a Business Activity to an SCI (Subject to IS or Not)

Specific regime for civil-law companies: Mémento Sociétés civiles. On a contribution to a civil-law company (whether or not subject to IS) by an individual of all fixed assets attached to the conduct of a business activity, on the conditions laid down in Art. 809 I bis, the contribution for consideration (assumption of debt) is taxed at rates of 5% / 5.60% or 3% / 5% depending on the nature of the assets to which the debt is attributable.

Exemption in return for an undertaking to retain shares.

• The contribution is registered free of duty if the contributor gives an undertaking to retain the shares received as consideration for the contribution of the net assets (as a pure contribution) for 3 years.
• The conditions and the consequences of non-compliance with this undertaking are the same as for pure contributions subject to transfer duty (clawback of the duties, no clawback on death or on a gift with assumption of the undertaking).

Limitations in case law.

• The exemption does not apply where the contributed net assets are not remunerated exclusively with company rights (payment of cash, assumption of debt other than that attached to the contributed assets).
• The regime does not benefit the contribution of a property to an SCI that merely manages a property portfolio without carrying on a business activity, except in special cases where the letting forms part of an integrated business whole.

5.2. Contribution of Real Estate in Connection with Mergers, Demergers and Partial Contributions of Assets

The documents provided mainly address the special regime for mergers and partial contributions of assets as regards IS and capital gains taxation, subject to approval, rather than registration duties on contributions to SCIs.

Relief regime subject to approval for partial contributions of assets and demergers (CGI Art. 210 B). Where the transaction does not involve the contribution of an entire branch of activity, partial contributions of assets and demergers may benefit from the relief regime (IS and registration duties) subject to approval, provided that:

• the transaction is justified by an economic purpose (independent activity, improvement of structures, combination between the parties);
• an undertaking has been given to retain the shares received as consideration for the contribution for 3 years;
• the transaction does not have as its principal objective fraud or tax evasion;
• the detailed terms ensure future taxation of the gains whose taxation is deferred.

This regime is aimed in particular at trading companies and group restructurings; its application to an SCI (in particular an SCI subject to IS) is not described in detail in the extracts provided, but the general principles (retention undertaking, economic purpose) are similar.

Effects on transfer duties. The doctrinal texts cited place greater emphasis on IS and capital gains taxation than on the complete neutralisation of transfer duties on real estate contributed to an SCI; on the information available, it is not possible, on the basis of these extracts alone, to establish a systematic exemption from transfer duties on the contribution of real estate to an SCI as part of a merger or a partial contribution of assets.

5.3. Other Regimes Mentioned but Not Directly Applicable

Partial exemptions from gift tax / inheritance tax (Art. 787 B CGI). The texts on Art. 787 B (Dutreil agreements) concern gratuitous transfers of shares or securities and not directly the contribution of real estate to an SCI; they do not in themselves neutralise transfer duties on transfers for consideration or contribution duties.

Partial exemption on the transfer of new properties (Art. 1055 bis CGI). Art. 1055 bis concerns certain first transfers for consideration of newly built buildings and not pure contributions to an SCI; it therefore cannot be transposed directly to the contribution of a property to an SCI.

Contribution of bare ownership (nue-propriété) to an SCI. One document states that the contribution of bare ownership of a property to an SCI does not necessarily trigger contribution duty, but without setting out the conditions relating to the SCI’s tax regime or the link with the IS regimes; the scope of this exemption is not sufficiently specified in the extracts provided for it to be generalised.

6. Summary Table of the Main Exemption Regimes

7. Application to the Present Case and Summary

SCI not subject to IS (transparent for IR purposes). If the contribution of the property is entirely pure (remunerated exclusively with shares, with no balancing payment or assumption of personal debt foreign to the property), and the SCI is not subject to IS, the contribution is registered free of duty: no proportional transfer duty of 5% / 5.60% is payable.

SCI subject to IS. In principle, a pure contribution of a property to an SCI subject to IS by a contributor who is not subject to IS is subject to the special duty of 5% (or 5.60% for certain premises in Île-de-France). To avoid this proportional duty, the following must be satisfied:

• the property must be contributed together with all fixed assets attached to a business activity in which it is used;
• the contributor must give an undertaking to retain the shares received for 3 years;
• and the transaction must not be distorted by cash consideration or assumption of debt foreign to the business asset.

Incorporation of a sole proprietorship or overall contribution of business assets. Where the property forms part of the business assets of a sole proprietorship that is incorporated into an SCI (subject to IS or not), the assumption of the debt is in principle taxed at 5% / 5.60% (or 3% / 5% for certain assets). This taxation can be neutralised (replaced by a fixed duty) if the contributor undertakes to retain the shares received as consideration for the contribution of the net assets for 3 years, provided the conditions are strictly complied with (contribution of all fixed assets, consideration exclusively in shares, no foreign debt, etc.).

Restructurings (merger, demerger, partial contribution of assets). The regimes subject to approval (Art. 210 B CGI) allow favourable treatment as regards IS and capital gains, subject to an economic purpose, a 3-year retention undertaking and the absence of a fraudulent purpose; however, the extracts provided do not make it possible to establish an automatic exemption from transfer duties on the contribution of real estate to an SCI in this context, since the assessment must be made case by case.

In practice, full exemption from the proportional duties of 5% / 5.60% on the contribution of a property to an SCI therefore depends mainly on:

• the tax transparency of the SCI and the strictly pure nature of the contribution, where the SCI is not subject to IS;
• or, for an SCI subject to IS or on the incorporation of a sole proprietorship, on demanding relief regimes based on an overall contribution of business assets and a firm undertaking to retain the shares for 3 years, with clawback in the event of non-compliance.