Demembrement of SCI shares: tax advantages and risks

Demembrement of SCI shares is an operation that aims to separate the bare ownership from the usufruct. From a tax perspective, it allows for benefits from an SCI subject to income tax and corporate tax. However, it is necessary to take into account certain tax risks generated by such an operation.

Advantages of demembrement of SCI shares

In the case of a family SCI, the shares are exempt from taxes. In other words, the taxes related to the real estate transaction are deducted from the value of the property. There are limits to observe depending on the nature of the relationship of the family member to whom the share is transferred. For partners and usufructuaries of an SCI, demembrement allows for advantages with corporate tax during the period of repayment of bank loans and with income tax upon the resale of the property.

Risks related to demembrement

While demembrement represents tax optimisation, caution is needed regarding the risks linked to abuse of corporate assets and abnormal management acts as well as to law. Abuse of corporate assets or abnormal management acts are identified when financial operations are not justified by commercial interests. This is the case, for example, of income distributed without any allowance for bare ownership partners. As for abuse of law, it occurs when the beneficiary company receives only limited amounts from the SCI’s results. In this case, the distributions from demembrement are only intended to pay the corporate tax of the usufructuary and have no economic interest.

While demembrement of SCI shares proves beneficial in terms of tax, it is necessary to take certain precautions. To avoid falling into abuse of corporate assets and rights, this operation must have a genuine economic motivation.