Owner in own right or as a company: advantages and disadvantages according to the intercantonal or international context
Robert-Pascal FONTANET, notary in Geneva, and Philippe FRÉSARD, notary and lawyer in Berne
There are two ways of owing a piece of property: either directly in your own name or through a legal person which you control. The first solution is simple, but is it always preferable? By adopting the second, you transform immovable property into movable properties in your estate: securities or shares in the company. If your home, company and building are all located in the same place, the consequences will probably not be major, at least not in Switzerland.
For tax-related matters, it is usually better to be the owner yourself than working through a legal person: that is why, with a certain number of tax advantages available, many estate management companies were liquidated between 1995 and 2003. However, the consequences can be quite the opposite, and spectacular, if the operation is on the international level.
In civil law
For property owners, civil law rules are determined by the location of the building. If you own a piece of property on the French Riviera, French law determines your freedom to designate your heirs and the formalities needed for the transfer or division of your property.
In Swiss law, it is possible to sign an inheritance agreement with your heirs and freely agree how the succession will be settled. You can therefore attribute your shares – therefore your property – to whoever you want, without risk of a challenge after your death. Inversely, such a procedure is very difficult under French law if you are the personal owner of a property.
In Swiss law again, it is possible to designate an executor who will have the capacity to sell your property, according to your instructions and according to his/her/its appreciation, even though your heirs do not all agree. Here again, French law does not offer this faculty in property law, if you leave an heir with a claim to your assets.
However, when the property is owned by a legal person in which you own shares, your succession is based on the latter and not on the property itself. These shares are movable goods, subject to law applicable in your place of residence, or, even better, to the one you will have chosen in your will, if you are a foreign national! You can thus have more flexibility than afforded by the civil law applicable in the location of the property.
And tax law?
Under these circumstances, the creation of a property company can prove to be extremely attractive in fiscal terms too.
Indeed, successions or donations to the spouse are no longer taxed in Switzerland and, in all cantons except Appenzell (AI), Neuchâtel and Vaud, there is no tax on descendants either. In the cantons of Soleure and Grisons, there is a low tax on the inheritance value. In addition, there are considerable rebates and these duties are very low in Switzerland in comparison with other countries.
In French fiscal law, for example, direct heirs pay 5 to 40% tax, even once rebates have been deducted! Since 22nd August 2007, the surviving spouse is exempt from paying tax.
We can also reveal that international agreements to avoid dual taxation on successions are not applied on donations. Caution is therefore recommended!
Costs and formalities
To take advantage of this, an estate management company or “SCI” (société civile immobilière) must be set up in France. It is recommended to use the services of a French notary to create it. (what normaly cost around €2,500).
If you have opted for this solution at the time of purchase, it will not cost you anything more. However, if you already own the property you transfer to the new estate management company, you will need to pay extra costs. But this remains reasonable as, for a building valued at €300,000, this is estimated at around €7,500 (incorporation and transfer costs).
Creating a legal person to own property could be solution for you if this property is in a country where civil law is more restrictive and in a country or canton where the tax law is less favourable than in your place of residence. Even if you did not adopt this solution at the outset, it is probable that it is now worth the trouble.
To resolve matters in the best possible way, do not hesitate to consult your notary.
Geneva and Berne, 1st January 2011