66.2%
Maximum marginal tax rate on French rental income under the personal IR regime (45% income tax + 17.2% social charges + up to 4% exceptional contribution) vs approximately 50.5% through an IS company distributing dividends at the highest rate.
3.9%
Approximate annual amortisation rate for a Paris apartment under the IS component-amortisation method (structure + façades + technical installations + fixtures) — available to IS companies but completely unavailable under the personal IR revenus fonciers regime.
0
Duration-based abatement available under the IS regime when an IS company sells a property it has held for 22+ years — unlike the IR regime, which provides full income tax exemption after 22 years and full social charge exemption after 30 years.

Two Regimes: IR Direct Ownership vs IS Company

When a natural person owns French rental property directly — whether as an individual or through a fiscally transparent company such as a standard SCI (société civile immobilière) — the rental income is taxed in their personal income tax return as revenus fonciers. This is the IR regime. Alternatively, property can be held through a company that has opted for or is subject to the impôt sur les sociétés — corporation tax. This is the IS regime. The two regimes operate under fundamentally different rules and produce dramatically different outcomes depending on the investor's situation, time horizon, and objectives.

The choice is not always free. A standard SCI is translucent by default — its results pass through to the shareholders as personal income. But the same SCI can opt for IS treatment (or be mandatorily subject to it if it carries on commercial activities), transforming from a transparent to an opaque entity. Once made, the IS option is generally irrevocable. An operating company such as a SAS, SA, or SARL is subject to IS by default.

Rental Income Under the IS Regime

Under IS, rental income enters the company's taxable result and is taxed at the IS rate: 15% up to €42,500 of profit (for qualifying SMEs) and 25% on the excess. All charges are deductible at their actual cost without forfeit allowances. The key charges deductible under the IS regime include: management and insurance costs; all applicable taxes (taxe foncière); loan interest; amortisation of the buildings; repair and maintenance costs; improvement works (amortised over time); acquisition costs (notarial fees, transfer duties — deductible immediately or amortised); and staff costs and directors' remuneration (CGI Art. 39, 1).

The IS regime has no restriction on deducting acquisition costs or directors' remuneration — both are unavailable under the personal revenus fonciers regime.

The IS Advantage: Amortising the Building

The single largest structural advantage of the IS regime over personal ownership is the right to amortise the building. Under the IR revenus fonciers regime, no amortisation of the property is permitted (with narrow exceptions). Under IS, the construction value of the property is amortised annually over its useful life using the amortissement par composants (component amortisation) method (Règl. CRC n° 2002-10; PCG Art. 214-9 and 214-10).

The land element is never amortised — it has an indefinite useful life. The building is decomposed into components, each amortised at its own rate:

Example: Component Amortisation on a €10M Paris Apartment Building

Purchase price: €10,000,000. Land portion: 50% = €5,000,000 (not amortised). Construction value: €5,000,000, decomposed into components:

Structure: 50% × €5M = €2,500,000 ÷ 80 years = €31,250/year
Façades and roofing: 25% × €5M = €1,250,000 ÷ 20 years = €62,500/year
Technical installations: 15% × €5M = €750,000 ÷ 15 years = €50,000/year
Fixtures and fittings: 10% × €5M = €500,000 ÷ 10 years = €50,000/year
Total annual amortisation: €193,750 (≈ 3.9% of construction value)

This €193,750 of annual tax deduction — entirely unavailable to a personal IR taxpayer — directly reduces the company's taxable profit. On a property with €300,000 of annual net rental income, the amortisation brings the taxable profit down to approximately €106,250, saving roughly €22,000 of IS per year (at 25%) compared to an IS position with no amortisation.

Acquisition costs — notarial fees, transfer duties, agents' commissions — can be deducted immediately or capitalised and amortised. Immediate deduction is generally preferable since it reduces the first-year taxable result; any resulting deficit carries forward without time limit in the IS regime.

The IS Trap: Capital Gains on Sale

The IS regime's advantage on rental income comes with a significant exit cost. When an IS company sells a property, the capital gain is calculated as the difference between the sale price (net of disposal costs) and the property's net book value — its original cost minus all amortisation claimed to date. There is no duration-based abatement under the IS regime: an asset held for 30 years is taxed on its full gain at the normal IS rate exactly as an asset held for two years (CGI Art. 39).

This has a counterintuitive consequence: the amortisation deductions that reduced taxable income throughout the holding period effectively increase the capital gain on exit by exactly the same cumulative amount. On a property held for 25 years where €193,750 per year was amortised, the accumulated amortisation of approximately €4.85 million becomes additional taxable gain on sale. At 25% IS, this represents a deferred tax liability of approximately €1.2 million.

FeatureIS regime (company)IR regime (personal / transparent SCI)
Acquisition cost deductionImmediately deductible or amortisableNot deductible from revenus fonciers
Building amortisationYes — component method, ~3–4% paNot permitted
Improvement worksAmortised over useful lifeDeductible for residential; not for commercial
Manager/director payDeductibleNot deductible
Rental income tax rate15% or 25% ISUp to 45% IR + 17.2% social charges (66.2% maximum)
Capitalisation (no distribution)Possible — retain profits at IS rateNot possible — profits taxed immediately
Capital gain on property saleFull gain (cost minus accumulated amortisation) taxed at IS rate — no duration abatementDuration abatements: full IR exemption after 22 years; full social charge exemption after 30 years
Deficit carry-forwardUnlimited in time (capped at €1M + 50% of excess profit per year)10 years on foncier income; 6 years on global income (capped at €10,700/year)
IFI treatmentCompany not taxable; shareholders' shares taxed at immoveable fractionOwner taxable on full property value (or barème fraction if démembred)

The IS regime is most favourable where: the investor has a high marginal income tax rate and intends to retain profits within the company; the holding period is medium-term (5–15 years, before accumulated amortisation creates a large exit tax); or the investor is building a portfolio within a corporate structure. The IR regime is most favourable where the investor intends to hold long-term (20+ years), when duration abatements eliminate most of the IR capital gain, or where the asset is a primary or secondary residence.

Special Rule: Personal Use of a Company-Owned Property

An IS company that owns a property used by its director as a résidence d'agrément (holiday home, secondary residence) faces two specific fiscal constraints. First, the company cannot deduct the costs of maintaining such a property against its taxable profit (CGI Art. 39, 4). Second, if the director uses the property without paying a market rent, the free use constitutes a hidden benefit (avantage occulte) taxable in the director's hands as investment income under Article 111(c) CGI — taxed at the flat 12.8% rate (or progressive rate on option) plus 17.2% social charges, applied to 125% of the assessed benefit.

The practical solution is for the director to pay the company a market-rate rent. This eliminates the hidden benefit question and simultaneously allows the company to deduct all property charges — including the amortisation of the building — against the rental income received (CE 27-5-1988 n° 62764). The rent paid by the director is deductible for the company but is personal expenditure for the director without any fiscal deduction.

The Société à Prépondérance Immobilière (SPI)

The concept of the société à prépondérance immobilière (SPI) — a property-heavy company — has specific tax consequences when shares in such a company are held by another IS company and are subsequently sold. An SPI is any company whose assets consist of more than 50% of their real value of real property, real rights, construction leases, or shares in other SPIs. Property used in the company's own operational activity is excluded from the 50% test (CGI Art. 219, I-a sexies-0 bis).

For an IS company holding shares in an SPI, the tax treatment depends on whether the SPI shares qualify as titres de participation and whether the SPI is listed:

  • Shares in a listed SPI held as titres de participation for at least two years benefit from the long-term rate of 19% on the capital gain
  • All other SPI share disposals — unlisted SPIs, listed SPIs not meeting the two-year test — are taxed at the normal IS rate (15% or 25%)

For provisions against declining SPI share values, a specific cap applies: the deductible provision is limited to the net loss across the category, preventing cherry-picking of individual loss positions.

The SCI Non-IS Between Personal Ownership and IS: A Hybrid Strategy

An intermediate strategy uses a standard (transparent, non-IS) SCI to hold the property, with that SCI owned by an IS company. During the ownership phase, the SCI's rental results are computed under IS rules — including amortisation — because Article 238 bis K CGI applies the IS company's tax regime to the SCI's results as attributed to the IS company shareholder. This gives the IS company the benefit of full IS deductions (amortisation, acquisition costs) during the holding period.

On exit, the IS company sells the SCI shares rather than the property itself. Since the SCI is not subject to IS at its own level, the property has never been taxed on amortisation within the SCI. The IS company's cost base for its SCI shares is their original acquisition value — not reduced by the amortisation deducted during the holding period. The accumulated amortisation does not increase the taxable gain at exit.

Example: The SCI non-IS Interposed in an IS Company Structure

M. Durand holds 100% of a SAS. He has held SCI parts (in the SCI that owns the rental property) for over 30 years. The parts are now worth €2,000,000 and generate €100,000 per year net rental income.

Option 1 — continue personal ownership: combined rate ~50% → €50,000 tax/year on rentals.

Option 2 — sell the SCI shares to the SAS (having held for 30+ years, no IR capital gain is due on the SCI share sale at the personal level). SAS acquires SCI at €2M. The SCI's income is now determined under IS rules within the SAS. IS on €100,000 at 25% = €25,000/year — saving €25,000/year.

When the SAS eventually sells the SCI shares, the gain is the sale price minus the €2M acquisition cost — with no adjustment for the amortisation deducted by the SAS during the holding period. The buyer of the SCI can sell the underlying property and benefit from the running of the full 30-year clock since the SCI's original property acquisition.

The Démembrement Plus IS Company Strategy: Buying the Usufruit Temporaire

One of the most sophisticated démembrement strategies combines the IS regime's amortisation advantage with the split-ownership structure. Instead of one buyer purchasing the full property, two parties jointly acquire the asset in démembrement. A natural person (or a transparent SCI) purchases the nue-propriété; a company subject to IS purchases the usufruit temporaire for a fixed term — typically 10 to 20 years.

Although the administration's general position is that an IS company holding a property in usufruit cannot amortise the underlying building, the courts have confirmed that the company can amortise the usufruit right itself as an intangible fixed asset with a determinate useful life (CE 24-4-2019 n° 419912 confirming CAA Nancy 22-2-2018 n° 17NC00780). The amortisation is spread over the term of the usufruit and is fully deductible from the company's IS result. The Nantes administrative court of appeal has confirmed that the tax authority cannot challenge these deductions as an abnormal management act, provided the usufruit acquisition had a genuine commercial rationale (CAA Nantes 15-4-2021 n° 19NT02197).

At the end of the usufruit, the IS company's right extinguishes automatically — there is no further tax event. The nue-propriétaire automatically becomes full owner of the property, having paid only the nue-propriété price at the outset.

Example: IS Company Buys Usufruit Temporaire — M. Durand's Offices

M. Durand owns 100% of an operating SAS currently leasing its offices. Commercial premises become available for €1,000,000. He structures the acquisition in démembrement for 15 years, with an economic (not fiscal barème) split.

SCI familiale (M. Durand, non-IS) buys nue-propriété: €300,000
SAS opérationnelle (IS company) buys usufruit temporaire for 15 years: €700,000

During the 15-year usufruit period:
— SAS deducts rental savings (its own rent avoided) plus amortises the €700,000 usufruit right over 15 years = €46,667/year IS deduction
— SCI familiale pays no IS; no rental income to declare; no IFI on the nue-propriété

After 15 years:
— SAS usufruit extinguishes — no further IS, no disposal charge
— SCI familiale becomes full owner of €1M+ worth of commercial property for €300,000 initial investment

The capital gain holding period for the SCI runs from the acquisition of the nue-propriété 15 years earlier — so after 22 total years from the nue-propriété purchase, the property can be sold at full capital gains tax exemption at the IR level.

Why This Strategy Works for Business Owners

The usufruit temporaire plus IS company structure is particularly powerful for a business owner who occupies the property in their operating company. The SAS pays no rent to a third party during the usufruit period — it already owns the right to occupy. The IS company (SAS) amortises the usufruit cost over the term, creating annual IS deductions that reduce the company's taxable profit. The property ultimately passes to the family SCI in full ownership at zero additional cost, with the full capital gains clock already running. For an owner-manager who wants to hold commercial property for their business while simultaneously building a family estate, this structure achieves both objectives tax-efficiently within a single structure.

Selling Shares vs Selling the Property: The IS Latent Tax Problem

When an IS company sells its property directly, the capital gain (price minus net book value after amortisation) is taxed at 15% or 25% IS. If the shareholders then want to extract those proceeds, a second layer of tax applies — dividends or share buybacks are taxed at 30% flat (PFU) or on the progressive scale.

An alternative is to sell the company shares rather than the property. A buyer who acquires the SPI shares accepts the asset with its accumulated IS liability still within the company — the company may have significant past amortisation that will generate a taxable gain when the property is eventually sold. This IS latent (deferred IS liability) is a real cost and the buyer will typically negotiate a discount on the share price reflecting their share of the embedded IS. The IS latent is a structural disadvantage of the IS holding company structure that has no equivalent in the transparent SCI.

Where the shares are sold before the underlying property is sold, the shareholder's capital gain on the shares is taxed at the financial asset rates — 12.8% flat or progressive rate on option, plus 17.2% social charges — not at the real estate capital gains rates.

Key Points: IS vs IR for French Property Investors
The IS regime allows amortisation of the building (land excluded) at approximately 3–4% per year using component amortisation — reducing taxable rental income substantially. The IR revenus fonciers regime does not permit amortisation at all.
IS tax rates on rental income (15%/25%) are significantly lower than the maximum IR rate on revenus fonciers (45% + 17.2% social charges + up to 4% exceptional = 66.2%). At high income levels, an IS company that capitalises rather than distributes profits offers substantial deferral.
The IS regime's central disadvantage is the exit tax: no duration-based abatement applies to IS capital gains. Every year of ownership increases the accumulated amortisation and therefore increases the IS capital gain on sale. The IR regime eliminates the income tax component after 22 years and the social charge component after 30 years.
Acquisition costs (notarial fees, transfer duties) are fully deductible or amortisable under IS but not deductible under IR. Manager and director remuneration are deductible under IS but not under IR.
A director who lives in a company-owned property without paying market rent creates a hidden benefit taxable as investment income (CGI Art. 111(c)) at 125% of the assessed benefit. The solution is to pay a genuine market rent — which also allows the company to deduct all charges including amortisation.
The SPI (société à prépondérance immobilière) definition — over 50% of assets in real property — affects the IS rate on share disposals by IS companies. Listed SPI participation held 2+ years qualifies for the 19% long-term rate; all other SPI share disposals are at the normal IS rate.
Interposing a transparent SCI between the property and an IS company preserves the IS deductions during the holding period (CGI Art. 238 bis K) but avoids the IS latent on exit, since the SCI shares are sold at their original cost without reduction for amortisation.
The usufruit temporaire plus IS company strategy allows an operating company to buy and amortise the usufruit of a property — generating IS deductions equal to the usufruit cost spread over the term — while an individual or SCI holds the nue-propriété at a discounted price and eventually acquires full ownership free of further tax when the usufruit ends.
The courts have confirmed that an IS company can amortise the usufruit right itself (not the underlying property) as an intangible asset over the usufruit's term (CE 24-4-2019 n° 419912), and that this amortisation cannot be challenged as an abnormal management act where the acquisition had genuine commercial rationale (CAA Nantes 15-4-2021 n° 19NT02197).
For long-term holders planning to benefit from IR duration abatements, the transparent SCI remains superior. For income-focused investors with high tax rates and medium holding periods, or for business owners who want to occupy commercial property through their IS company, the IS regime or the split usufruit/nue-propriété IS structure offers significant advantages.
Deciding Whether to Hold French Property Personally or Through a Company?

The IS vs IR choice depends on your tax rate, holding period, intention to distribute or retain income, and whether you plan to occupy the property yourself. Our guides cover the complete French property tax framework for investors and business owners.

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This article is provided for general information and educational purposes only. It does not constitute legal or tax advice. The IS vs IR choice for French property investment depends on the specific facts of each investor's situation — their marginal tax rates, the intended holding period, whether income will be distributed or retained, the type of property and its use, and applicable bilateral tax treaties for non-residents. The usufruit temporaire plus IS company strategy requires careful structuring and documentation to withstand tax authority scrutiny. Always seek advice from a qualified French tax adviser or avocat fiscaliste before structuring any investment.