The real estate investment company (SCPI) is a collective investment company whose mission is to acquire and manage a rental property portfolio by issuing shares to the general public. This type of structure is particularly advantageous because it is easily accessible and inexpensive, which makes it very attractive. 

What is a SCPI? 

A real estate investment company is a collective investment organization that takes the form of an unlisted company (not to be confused with an SCI). The SCPI is governed by the Monetary and Financial Code as well as by the General Regulations of the Financial Markets Authority (AMF). 

It collects funds from numerous investors in order to acquire and manage real estate assets intended for rental, thus allowing investors to benefit from the rental income generated by these properties without having to worry about their direct management. 

There are two main categories of SCPI: 

• Office SCPI: It buys and manages buildings intended for commercial use. 

• Residential SCPI: It buys and manages buildings intended for residential use. 

The choice of the legal form of these companies is often motivated by tax considerations, because it allows them to avoid corporate tax. 

What are the missions of this company? 

The responsibilities of the SCPI are as follows: Acquisition of real estate: Identify and buy properties to build its portfolio. Search for tenants: Find and select tenants for the acquired properties. 

Establishment of inventories: Carry out detailed inspections of the properties before and after rental. Payment of charges: Pay the costs related to the management of the properties (taxes, insurance, etc.). 

Carrying out work: Supervise and finance the necessary maintenance and renovation work.

Rent collection: Collecting rent from tenants.

Management Fees: It is important to note that in return for these services, investors must pay management fees when subscribing to the shares and also each year. This organization allows investors to diversify their real estate portfolio while benefiting from the professional expertise of the SCPI in the management and maintenance of real estate. The real estate held by the company includes: 

• Properties rented or leased upon their acquisition by the company; 

• Buildings constructed, rehabilitated or renovated for rental purposes; 

• Bare land located in urban areas or areas in the process of urbanization, delimited by an urban planning document. 

What is the difference between the SCPI and other civil companies? 

It is crucial to differentiate the SCPI, the civil company and the real estate company. The civil company is a legal structure that does not carry out commercial activities. The Société civile immobilière (SCI) is a company whose objective is the rental or management of real estate. These distinctions are essential to understand the specificities of each type of company and their respective function in the real estate field. The SCPI, for its part, aims to generate income for investors or to allow tax savings through real estate investment. 

What are the steps of creation? 

To create a SCPI, it is necessary to: 

• Fulfill the legal conditions; 

• Complete the administrative formalities.

Legal conditions to be met: The legislator has defined specificities relating to the organization of SCPIs. The conditions to be met are as follows: 

• Hold a minimum share capital of €760,000; 

• Obtain approval from the Financial Markets Authority (AMF); 

• Provide proof of a bank guarantee approved by the AMF; 

• Ensure the management of the SCPI by a management company. These steps and conditions are essential for the creation and proper functioning of a SCPI, thus ensuring its legality and viability on the real estate market. 

Formalities: To create a SCPI, it is first necessary to prepare all the required documents. Then, the legal notice must be drafted and the file filed with the registry. 

Drafting the Legal Notice: The costs for publishing a legal notice vary depending on the department, the publication medium and the number of words. The average cost is €118, but it can be higher. The information to be included in the legal notice is as follows: 

• The date of signature of the company’s statutes; 

• The legal form of the company; 

• The amount of the share capital and the maximum/minimum number of shares if the capital is variable; 

• The company name; 

• The address of the head office; 

• The first and last name of the manager; 

• The lifespan of the company. After drafting the legal notice, the manager receives a certificate of publication that he must file with the registry.

Creation File with the Registry: Once the legal notice has been drafted and published, the SCPI creation file must be filed with the registry to finalize the creation procedure. The file is filed with the registry of the commercial court of the department where the head office is located. In general, this corresponds to the registry of the department concerned. To process this file, a cost of €70.39 is to be expected. 

The documents to be provided are as follows: 

• A copy of the statutes signed and dated; 

• The deed of appointment of the managers; Proof of enjoyment of the premises (lease, title deed); 

• A certified copy of the identity card of the manager and partners; 

• A declaration of no conviction and filiation dated and signed by the manager; 

• An M0 form; 

• The certificate of publication in a legal notice medium.

How to Invest in a SCPI? 

Investors can buy SCPI shares in two ways: 

• Direct purchase: A direct investment relationship is established when a subscriber buys shares directly from a management company, a portfolio manager or a bank. Under the Pinel law, an investor can benefit from an income tax deduction if the direct action in SCPI concerns a new property. 

• Indirect purchase: Indirect purchase consists of collecting funds from investors. This makes it possible to invest in rental properties and then pay net rental income to each investor. 

Investing in SCPI has both advantages and disadvantages, while remaining very attractive. 

The advantages of SCPI:

Accessibility: 

• Investing in “paper property” is accessible to a wide audience. 

• Possibility of investing in a SCPI for yield or tax purposes for only €185. 

• No maximum investment limit. Risk pooling: Owning a share in each SCPI property allows risks to be spread. For example, even if a tenant defaults, the risk is offset by the other rents received. 

No management for the investor: 

• No cash management required. 

• The SCPI pays its partners net rents. 

• The investor does not have to manage the properties. 

Profitability: The SCPI is profitable, with a profitability often higher than that of direct real estate. 

• Flexibility when selling shares: 

• Possibility of selling part of your shares and keeping the other to continue to receive returns. 

The disadvantages of the SCPI: 

Risk of capital loss: 

• The value of the real estate portfolio depends on the real estate market. 

• The role of investors is mainly limited to the contribution of capital. 

Risk of rental deficiency: The distribution rate on market value is linked to the financial occupancy rate, which can lead to rental deficiency periods. 

Resale of shares not guaranteed: The resale of shares is not ensured by the management company. It is crucial to choose the SCPI in which you invest carefully. The management company is a key element of the SCPI, because it is responsible for the distribution of returns and investment decisions on the real estate market. There is a risk that the management company will go bankrupt, which could affect investments.

What are the different tax regimes applicable to SCPIs?

The tax rules applicable to SCPI investments vary depending on the nature of the gains and their geographical origin. 

Common law regime: This is the most common tax regime, comparable to the tax treatment of salaries and retirement pensions. Dividends from a SCPI must be declared as property income and are subject to income tax (IR) according to the progressive scale. This scale has four brackets ranging from 11% to 45%, to which are added social security contributions at a rate of 17.2%. 

Micro-land regime: This regime, created by the legislator to simplify the calculation of property income taxation, applies to savers receiving less than €15,000 in property income before deduction of property charges and loan interest. In this context, a flat-rate deduction of 30% is applied to the gross income received. Please note that this micro-foncier option is only possible if the investor receives « classic » rental income via the direct rental of an unfurnished dwelling. 

Foreign-source income: This refers to SCPI income from properties located abroad. To avoid double taxation, two scenarios are possible: 

• Income already taxed abroad gives rise to a tax credit in France equivalent to the French tax corresponding to this income. This income is thus removed from the taxable base but influences the average tax rate of the overall income. 

• Income taxed abroad is exempt from French taxation but is taken into account for the calculation of the effective rate applicable to other income from French sources, thus increasing the average tax rate of other income. This summary of the tax regimes applicable to SCPIs allows you to better understand the tax implications related to investing in this type of real estate investment.

Foreign Source Income: In general, foreign source income benefits from reduced taxation. The savings made compared to French income depends on the applicable tax bracket. In addition, this income is exempt from social security contributions.

Real Estate Capital Gains: Real estate capital gains are subject to a specific regime, with a flat-rate tax of 19%, to which is added 17.2% of social security contributions. For assets held for more than 5 years, a reduction mechanism applies: 

• Reduction of 6% per year from the 6th to the 21st year of ownership; 

• Reduction of 4% in the 22nd year. Thus, the asset is exempt from capital gains tax after 22 years of ownership. For social security contributions, the reduction is as follows: 

• 1.65% per year from the 6th to the 21st year; 

• 9% from the 22nd year. The total exemption from social security contributions is reached after 30 years of ownership. 

Additional Tax: An additional tax applies to taxable capital gains exceeding €50,000, with a rate varying from 2% to 6% depending on the amount of the capital gain realized. 

SCPI in Life Insurance: The case of SCPI held within the framework of a life insurance contract presents tax particularities, often offering additional advantages compared to direct investments. It is possible to invest SCPI shares in a life insurance contract, thus integrating these shares into the tax envelope of the contract. 

The income generated and potential capital gains are grouped together in a « common pot » which benefits from a tax exemption after 8 years: 

• Up to €4,600 of annual gains for a single person; 

• Up to €9,200 for a couple subject to joint taxation, with a flat rate of 7.5% beyond that; 

• Up to €150,000 in payments after 09/27/2017, with a rate increased to 12.8% beyond this amount. 

Recommended Investment Period for SCPIs: It is advisable to hold SCPI shares for a period of at least 10 years to optimize profitability and minimize risks. 

SCPI Yield in 2022: Net SCPI inflows increased by 45% in the first 9 months of 2022, with a majority of this inflow captured by office SCPIs.

The average annualized rate of return for SCPIs stands at 4.26% as of September 31, 2022. Main Motivation for Investing in SCPIs: Investing in SCPI shares provides protection against inflation. The performance of SCPIs is generally higher than inflation, and real estate is an investment that reacts favorably to price increases.