Furnished lettings in an SCI: the mistake that triggers corporate tax

Furnished lettings in an SCI: the mistake that triggers corporate tax

An SCI (société civile immobilière) is, by its nature, a civil company - built to hold and let property, not to run a business. That single fact is behind one of the most common and costly mistakes families make with an SCI: letting the property furnished. For tax purposes, furnished letting is a commercial activity, not a civil one, and a civil company that carries on a commercial activity is pushed by law out of the income-tax regime and into corporate tax (impôt sur les sociétés, IS) - with the amortisation-recapture and no-taper exit bill that the corporate regime carries on a future sale. A family that furnishes an apartment for a better yield, or lets it as a short-stay rental, can convert its SCI to corporate tax without ever deciding to, and lose the private capital-gains taper it was counting on. This guide sets out why furnished letting is commercial, how it forces an SCI into IS, the thin tolerance that is the only margin, the consequences, and how to stay out of the trap.

The subject matters because the trap is easy to fall into and hard to climb out of. The change of use looks purely practical - buy some furniture, raise the rent - but its tax effect is structural and, in substance, lasting: the SCI becomes a corporate taxpayer, its future sale is taxed as a professional gain, and reverting is itself a taxable event. For an international family holding French property through an SCI, understanding that "furnished" is a tax word, not merely a description of the furniture, is what prevents an ordinary letting decision from quietly rewriting the company's entire tax position.

Why furnished letting is a commercial activity

The starting point is a rule of tax characterisation that surprises many owners. The people who let, directly or indirectly, habitable premises furnished carry on an activity that falls within the category of business profits (bénéfices industriels et commerciaux, BIC) and not within property income (CGI Art. 35) - and it is not necessary, for this purpose, that the furniture appear on the balance sheet of the letting company. So the moment a property is let furnished, its rental income leaves the property-income world and enters the commercial one, regardless of the scale of the operation or the accounting formalities. Bare letting is a civil activity; furnished letting is a commercial one. The distinction is not about how much furniture there is or how the landlord keeps its books - it is a categorical line the tax law draws between the two kinds of letting.

That characterisation is consistent across the tax code, which is why it reaches beyond income tax. For the wealth tax on real estate (impôt sur la fortune immobilière, IFI), too, the activity of a furnished-letting landlord is treated as a commercial activity - a point that matters for the professional-asset exemption examined below. So "furnished" carries the same commercial meaning whether the question is which income-tax category applies or whether an asset counts as professional for the wealth tax. The single practical lesson is that furnishing a let property is never a neutral, purely practical step: it changes the tax nature of the activity, and for a civil company that change has consequences that go to the heart of how the company itself is taxed.

How that pushes a civil company into corporate tax

The link from "commercial activity" to "corporate tax" is what turns a letting decision into a structural one. An SCI is not, by its form, within the scope of IS - but it becomes subject to that tax where it carries on operations of a commercial character, whether commercial by nature or by determination of the tax law. Furnished letting is exactly such a commercial operation, so an SCI that lets furnished is carrying on, within a civil company, the kind of activity that draws the company into the corporate-tax regime. The mechanism is not an option the family chooses; it is a subjection imposed by the nature of the activity. A company that was translucent - paying no tax itself, its result taxed on the members as property income - becomes a corporate taxpayer, computing and paying IS on its own result.

The consequence is the corporate regime in full, with its holding-period attractions and its exit cost. On the one hand, the SCI can now depreciate the building and deduct all its charges, often sheltering the furnished rent at the low corporate rates of 15% up to €42,500 and 25% above. On the other, the reckoning comes on sale: the disposal of the property is a professional capital gain, with no exemption for the length of ownership, and the depreciation taken while holding is recaptured into the taxable gain. A contribution of property into the company is taxed at 5%, and the members are taxed on distributions at the flat levy. So a family that furnished its apartment to improve the yield finds that it has not merely changed the rent - it has swapped the whole tax architecture of its SCI, trading the private capital-gains taper it would have had on a bare-let property for the corporate regime's exit bill. The furniture, in tax terms, is the switch.

Is your SCI at risk of the furnished-letting trap?

Not every furnished arrangement is the same. Pick what describes yours - the check explains the risk.

The 10% tolerance - and why it is a thin margin

There is one margin, and it is narrow. The tax authorities do not subject a civil company to corporate tax the moment it earns a euro of commercial income; by tolerance, a civil company is not subjected to IS so long as the amount, excluding tax, of its commercial-nature receipts does not exceed 10% of the amount, excluding tax, of its total receipts (CGI Art. 206). So an SCI whose income is overwhelmingly bare rents can absorb a small amount of furnished or otherwise commercial income - up to a tenth of its total receipts - without being tipped into the corporate regime. This is the only safety margin the rule allows, and it is the reason a modest, incidental furnished element need not, by itself, be fatal.

But the margin is thinner than it looks, for two reasons. First, it is measured on receipts, not on profit or on floor area, so a small furnished flat that commands a high rent can consume a surprising share of the 10% quickly, especially in an SCI whose bare rents are modest. Second, crossing the line does not tax only the excess - it subjects the whole company to corporate tax, retroactively for the exercise, so there is no proportionate penalty for a small breach: the consequence is the same total conversion to IS whether the tolerance is exceeded by a little or a lot. The tolerance is therefore a cliff, not a slope. A family relying on it must monitor the ratio of commercial to total receipts year by year, keep the furnished element genuinely incidental, and understand that the price of misjudging the 10% is not a marginal adjustment but the conversion of the entire SCI to the corporate-tax regime.

The consequences: corporate tax and its exit bill

Once furnished letting has tipped the SCI into corporate tax, the company is in the full IS regime - the same regime a family might otherwise opt into deliberately, but arrived at by accident. During the holding period the effects can look benign, even favourable: the company depreciates the building and deducts all its charges, so the furnished rent is often sheltered at the low corporate rates and the members' personal tax is deferred until a distribution. It is on the way out that the cost lands. The sale of the property is a professional capital gain, with no exemption for the length of ownership, and because the building has been depreciated its written-down value swells the taxable gain - the rent sheltered while holding is recaptured on sale. The proceeds distributed to the members are then taxed again as a dividend. A family that furnished for yield can, years later, meet a capital-gains bill on sale that a bare-let, income-tax SCI would never have faced, having lost the private taper that removes the tax after twenty-two and thirty years.

Reverting is not a simple undo, either. A voluntary corporate-tax option can be renounced within a limited early window, but an SCI forced into IS by a commercial activity is in the regime because of what it does, so the route back is to cease the commercial activity - to stop letting furnished - rather than to withdraw an election. And the passage out of the corporate regime is itself a change of tax regime, which in principle carries the tax consequences of a cessation, so a family cannot furnish for a few years and then quietly switch back without a reckoning. The practical position is that furnished letting inside an SCI is best treated as a decision with lasting effect: easy to trigger, structurally significant while it lasts, and costly to reverse. This is precisely why it is described here as a mistake - not because furnished letting is bad, but because doing it inside a civil company, without intending the corporate-tax consequences, so often is.

What does furnished letting cost your SCI?

The furnished trap has effects across several taxes. Pick the one you are asking about - the check explains it.

The wealth-tax angle: commercial, but the exemption is narrow

Because furnished letting is treated as commercial across the tax code, it also touches the wealth tax on real estate - and here the picture is more nuanced than the income-tax trap. For the IFI professional-asset exemption, the activity of a furnished-letting landlord is a commercial activity, so premises let furnished, or intended to be let furnished, can in principle escape the IFI as professional assets. But the exemption is available only under strict conditions of scale and involvement. Where the owner carries on the activity as their principal activity, the premises are exempt only if the owner realises more than €23,000 of annual receipts from the furnished letting and derives from it more than half of the household's income within the meaning of the IFI - measured across salaries, business, agricultural and non-commercial profits, and manager's income. Only premises that are let furnished, or destined to be furnished by the landlord, qualify; premises let bare with a view to the tenant furnishing them do not.

For most family SCIs, this exemption will be out of reach, which is the practical point. A family that holds a home or a modest let property through an SCI, and derives most of its income from employment or a business elsewhere, will not meet the €23,000-and-more-than-half test, so furnished letting does not shelter the property from the IFI for them - it merely triggers the income-tax conversion to corporate tax without delivering the wealth-tax relief. Only the genuine, substantial furnished-letting operation, where the activity is the household's main source of income, reaches the professional-asset exemption. So the wealth-tax angle does not rescue the ordinary family from the furnished trap: it offers a real benefit to the professional furnished-letting business, and nothing to the incidental furnished let inside a patrimonial SCI. The two should not be confused when a family weighs whether to furnish.

How to stay out of the trap

The ways to avoid the furnished-letting trap are straightforward once the risk is understood:

• Keep the SCI's letting bare. A civil company doing a civil thing stays in the income-tax regime, keeps the private capital-gains taper, and takes a property contribution free of duty.
• Keep any furnished element genuinely incidental and comfortably within the 10% tolerance, monitoring the ratio each year so an unnoticed drift does not tip the whole company into IS.
• Hold furnished letting outside the SCI where it is actually the goal - in a structure designed for commercial letting - rather than forcing it through a civil company that was never built for it.

The through-line is that the choice to furnish should be made with the tax consequences in front of you, not discovered afterwards. Furnished letting is not a mistake in itself; it is a legitimate, often profitable activity. The mistake is doing it inside an SCI without intending, or even realising, that it converts a civil, income-tax company into a corporate taxpayer, forfeits the private capital-gains taper, and is costly to reverse. A family that wants both an SCI and furnished letting can usually have both - by keeping them apart. Taking advice before furnishing, rather than after a tax notice, is what keeps a sensible letting decision from quietly rewriting the family's entire property-tax position. That, in the end, is the whole lesson of this pillar: with an SCI, "furnished" is a decision about tax structure, and it deserves to be treated as one.

Furnished letting in an SCI - at a glance

Frequently Asked Questions

This article is for general information only and states French law and tax rules in force as published in the sources available at the date shown above. It does not constitute legal or tax advice. Whether a letting subjects an SCI to corporate tax depends on the activity, the receipts and the facts. Always seek qualified legal and tax advice before letting an SCI's property furnished.