SCI or BIC: what choice to make for the real estate management of a building for an individual

LEGAL AND LEGAL OBLIGATION

  I The legal framework for the management of a building by an SCI

1. Definition and creation formality

The SCI is first and foremost a civil society. According to article 766 of the Code of Civil and Commercial Obligations (COCC) “Civil society is the contract by which two or more people pool contributions and constitute a legal entity to exploit them and share the profits or losses that will result from this activity. ". As such, a minimum of 2 people (natural or legal) is required to create an SCI. And like any company, it requires the establishment of statutes which will determine:

• The contributions of each partner: the constitution of a civil real estate company requires a common desire of the founding members (affectio societatis) to pool their resources through a contribution which can be made either in kind or in cash; which will constitute the share capital.

This contribution can also be made in industry but in this case, it cannot be taken into account in the share capital

• The name of the SCI: this is the company name which will identify the company
• Headquarters: which will make it possible to locate the fiscal and economic center
• Social capital :constitutes the contribution of the founding members and future associates of the company and the repair of said capital is carried out between them taking into account the value of the contributions of each.
• How it works: Founding members must provide the name of the leader(s).
• The social object: civil and real estate

When the SCI excludes any commercial activity, it allows its founders to profit from the rents of the real estate in this case it is not necessary after the creation to make a publication in a legal notices newspaper.

When its purpose is the purchase and sale of real estate, the provisions of the uniform act relating to commercial companies and the GIE are applicable to it and the publication of information concerning it in a legal notice journal becomes obligatory, after drafting the statutes.

• The role of the notary in an SCI

The obligation to contact a notary to create an SCI has not been defined by law, unless otherwise provided. However, considering the skills of the notary who has reserved expertise in real estate matters, he is the most appropriate person to inform and guide individuals legally on their real estate project while taking into account their specific requirements.

This is precisely the case in the event of the contribution of a registered building or when the purpose of the civil company consists of the purchase and resale of real estate which must be subject to the provisions of the Uniform Act on commercial companies. and the GIE; in either case, the intervention of the notary remains obligatory.

From a tax perspective, the accountant remains the best contact.

• The composition of an SCI

An SCI is made up of partners and managed by a manager:

• The associateshave the power to appoint or dismiss the manager. They participate in General Meetings and receive shares in exchange for their contributions in kind or in cash. They receive dividends when the company makes a profit. On the other hand, in the event of a loss, the distribution is made proportionally to the share that the partner owns in the SCI.
• The manager: The SCI can be managed by one or more managers, natural or legal persons. The manager ensures the day-to-day management (rent collection, payment of charges, tax declaration, etc.) of the SCI.

2. Management and management of an SCI

• Management

The operation of the SCI requires daily management, carried out through management. When a decision exceeds the powers of the manager, it is submitted to all the partners at a general meeting which decides on its application. Good internal management of an SCI is conditional on rigorous accounting monitoring and the proper application of the tax rules in force.

The company is managed by one or more people, partners or not, appointed either by the statutes, by a separate act, or by a decision of the partners. The manager is appointed for a period specified in the statutes and failing that for the life of the SCI.

If the statutes provide for it, the duration of the manager's functions can be fixed upon his appointment with termination of the mandate upon its expiration, without any particular formality. During the exercise of his functions, the manager may resign or be dismissed. If he is a partner, the dismissed manager may request to leave the company (unless otherwise provided for in the statutes) and request reimbursement of his social rights.

The dismissal of the manager does not result in the dissolution of the SCI (unless there is a statutory clause to the contrary).

• Powers and responsibilities of the manager
• Powers of the manager
• Regarding third parties, the corporate purpose of the SCI determines the powers of the manager, as well as its scope of action.

If the planned scope of activity is exceeded, the authorization of the partners is mandatory. Failing this, the company is not bound and may seek legal action to have the act declared void. However, an imprecise corporate purpose can bind the partners beyond their will.

It is appropriate for the latter to be vigilant when drafting the corporate purpose and to provide statutory clauses limiting the powers of the manager. These clauses are unenforceable against third parties. In other words, if the manager does not respect the limitations provided for in the statutes, the company is still committed to third parties in good faith.

• With regard to the partners, It is in the statutes, or by subsequent collective agreement of the partners, that the powers of the manager are determined. Failing this, the manager may carry out all management acts required by the interests of the company. If these acts are contrary to the interests of the SCI, even if they fall within the scope of the corporate purpose, the manager is held liable.

If the manager consents to acts without this authorization, he becomes liable towards the partners and may be dismissed for just cause and ordered to pay damages. These restrictive clauses are unenforceable against third parties.

• Responsibilities of the manager
• On a civil level, in the event of infringements of laws and regulations or violation of statutory clauses limiting its powers or even management errors causing damage, the manager incurs liability towards third parties and the company. In the latter case, the partners can bring, in the name of the SCI but also in their personal capacity, an action for individual and personal liability against the manager.
• On the criminal level, the manager who commits criminal offenses, such as for example crimes of fraud, forgery and use of forgery, breach of trust, etc. incurs criminal liability. In addition, he may be personally ordered to pay the taxes owed by the SCI, if he intentionally prevented their collection.

In the case where the manager is a legal entity, it is its directors who are then subject to these conditions and obligations and who are exposed, as if they were managers themselves, to civil and criminal responsibilities.

3. Exit and breakup

• Rupture of the affectio Societatis

The affectio Societatis can be defined according to OHADA law, as being the desire of each partner to create the company by contributing goods in the common interest to share profits or benefit from the economy that may result.

Its rupture may be due to various factors that it would be impossible to list exhaustively. However, some reasons can be cited. It may be a disagreement between the partners making their cohabitation impossible in the company or quite simply that one of them does not respect his commitments to the company. It may also be the result of unfair competition emanating from one of the co-partners.           

• Transfer of shares in an SCI

Certain events may give rise to the wish for associates to leave the SCI. To leave the company, they can sell their shares or use the withdrawal procedure.

The transfer of shares must be recorded in writing. The latter can be carried out by a private deed or by notarial deed.

For married couples, this transfer must be carried out by notarial deed, or by a private deed having acquired a certain date other than by the death of the transferor.

1. In the case of management of a building via a natural person: Legal framework

When a building is managed by a natural person, the income generated by this real estate includes the taxable income of this natural person. This is made up of several categories of income (salaries, pensions, capital income, property income, etc.), each of which is reintegrated and taxed according to predefined rules.

Among these categories, we find the Industrial and Commercial Profits (or BIC).

1. Concept of Industrial and Commercial Profit (BIC)

Income tax is calculated based on the taxable income of the tax household.

The BIC tax is the tax which, subject to international double taxation conventions, applies to the overall annual profits made in Senegal or deemed to be made in Senegal by individuals and which comes from the financial year a lucrative industrial, commercial, artisanal profession or an agricultural profession.

2. Those subject to the BIC

The BIC is a categorical component of the applicable tax on overall income owed by individuals, who, as a reminder, are subject to income tax. The other categorical incomes being composed of land income, income from movable capital, salaries and wages, non-commercial profits and agricultural operating profits. (Art 117 I CGI).

Consequently, BICs are not taxable separately on the basis of a given rate like the IS: their taxation is integrated into that of the overall income of individuals.

The term natural person refers not only to individual operators, but also to members of partnerships and similar, de facto companies, joint ventures and GIE taxable on income and who have not opted for IS (Art 119)

When we speak of an industrial and commercial profession, the CGI refers to the habitual performance of operations of an industrial or commercial nature by persons acting on their own account and pursuing a profit motive. (Art 120)

APPLICABLE TAXATION

1. Taxation in an SCI
2. The SCI tax regime

Real estate companies can opt to be subject to corporate tax according to art 4, III CGI which stipulates that “de facto companies, GIEs, general partnerships, limited partnerships, SUARLs, can opt for their liability to corporate tax, professional civil companies and real estate civil companies”. The choice of this option must be notified to the Administration before the end of the fourth month of the financial year for which the legal entity wishes to be subject to corporate tax for the first time.

The exercised option is final and irrevocable. In the absence of this option, art 51, III CGI, allows the partners of the SCI to be personally liable for income tax depending on the

Shares of social profits that they hold. However, in the event of dismemberment of the property (that is to say, when the ownership of a property is divided between on the one hand a usufructuary, who has the right to use the property and to receive from it any income, and on the other hand a bare owner) of all or part of the shares, only the usufructuary is subject to income tax for the share corresponding to the rights in the profits conferred on him by his status of usufructuary. The bare owner is not subject to income tax on the income taxed in the name of the usufructuary.

Still according to the CGI, art 71, civil companies are required to provide before the April 30 each year, their tax declaration for the income of the previous year, to the tax service of the place of headquarters of the company.

2. Taxable income of SCIs

According to the CGI, to determine taxable income, taxable income must be taken into account as well as deductible expenses.

Taxable income is obtained by making the difference between “taxable income” and “deductible charges”, but also by adding “charges to be reintegrated”.

In the context of an SCI:

• Taxable income corresponds to:

Rental income

These are rents from the rental of buildings.

• The charges that can be deducted correspond to:

General expenses (of any kind)

Expenditures and fees other than investment expenses (maintenance, taxes, supplies, insurance, etc.)

Staff and Labor

Various remuneration paid or to be paid resulting from employment or work

Rents

Buildings of which the company is a tenant.

Financial expenses

Incurred through direct or indirect financing; exchange rate losses…

Payments made to organizations recognized as being of public utility

Charitable, charitable...

Insurance premiums

Those paid relating to staff, to companies approved and established in Senegal or to a pension fund

Taxes payable by the company

These are the taxes collected during the financial year

Depreciation and provisions

Are also deductible

Study and prospecting expenses with a view to setting up abroad

Those incurred for installation, as well as the charges supported for operation

Deduction of the deficit for a financial year and depreciation

The deficit of one financial year can be deducted from the profit of the 3 financial years, it is lost beyond this period. This time limit does not apply to depreciation

• Charges to be reinstated

Taxes payable by the company

Are to be reinstated: IS, IMF, IR and special taxes on private cars of legal entities, the tax on excess provisions

Transaction, fines, forfeitures and penalties

Not deductible for IS, to be reintegrated into the tax base.

1. Tax regime for a natural person
2. Profit tax regime

There are 3 tax regimes provided for by the CGI. It is :

• Normal real profit regime: which is aimed at natural persons carrying out operations of provision of services or delivery of goods, when their annual turnover including tax exceeds 100 million ; property dealers, natural persons carrying out sales and rental of buildings or property management operations.
• Simplified real profit regime: applies to natural persons who carry out operations providing services or delivering goods whose annual turnover including tax is included in 50 and 100 million.
• Single global contribution regime: it is established, for the benefit of the state and local authorities, a global taxation regime called CGU bringing together IR on BICs; minimum tax; patent contribution; VAT ; CFCE; liquor license.

Are subject to the CGU, natural persons whose Annual turnover including tax does not exceed 50 million.

However, according to article 136 of the CGI, it does not apply to natural persons whose activity falls into the category of non-commercial profits; “ to natural persons carrying out sales, subdivision, rental of buildings or property management operations.

2. Taxable income of BICs

According to art 65 CGI, income in kind corresponding to the provision of accommodation of which the owner reserves the use is not subject to income tax. Just like the expenses corresponding to these non-taxable income in kind, are not deductible for the tax base.

To determine the net taxable property income, we must first calculate:

Gross land income which is equal to the amount of revenue received by the owner, increased by the expenses normally falling to the latter, but borne by the tenant, reduced by the amount of expenses borne by the owner on behalf of the tenant.

Deductible property charges which correspond to the management costs and remuneration of guards and concierges borne by the owner; interest on debts contracted for the acquisition, construction, conservation or repair of properties ; a standard deduction equal to 30% gross revenues and representing maintenance and repair expenses, management fees, insurance and depreciation; the land contribution of built or unbuilt properties.

The net property income which is the taxable base is obtained by making the difference between the gross property income and the property charges.

If the difference is negative, the deficit observed can be carried over to the net property income relating to the following years up to and including the 3rd.

SECTION 3: Case MX: What options are available to him?

1. Management via an SCI what are the advantages and disadvantages

BENEFITS

It makes it possible to circumvent the burden of joint ownership, by allocating shares to each partner, so that they have the enjoyment of a portion of the building. The SCI thus makes it possible to circumvent the relatively cumbersome mode of operation of joint ownership which requires the unanimity of the joint owners for any management decision, even the most minimal. If one of the partners wishes to withdraw, he will only have to transfer his shares in concert with the other partners.

The SCI offers the possibility of opting for subjection to IS. Also, when the corporate purpose consists of an allocation shared between the partners, they can benefit from advantageous taxation (exemption from registration fees for outright contributions)

The law does not provide for minimum capital, and offers freedom in the drafting of statutes

DISADVANTAGES

The burden of operating obligations because the company is required to follow a certain formality (keeping of accounts, management report, meetings or consultations of partners, etc.).

The indefinite liability of the partners of the SCI: The partners of the real estate company are indefinitely liable for its debts. This means that each person commits their personal assets to the repayment of any debts contracted by the SCI, in proportion to their shares held in the capital.

The proprietary CEL is very high

1. Management via a natural person: What are the advantages and disadvantages

BENEFITS

Simplified accounting and reduced obligation

DISADVANTAGES

Applies only to individual entrepreneurs. It cannot therefore concern either SARLs or even SAs

BIC can only be taxed at income tax (IR), while corporate tax (IS) can sometimes be more attractive, particularly when the marginal rate of IR (which is the rate at which any additional income) of the operator will be taxed and is higher than the IS rate.

OTHER OPTIONS THAT EXIST

1. Companies with a preponderance of real estate: Presentation

Companies whose assets consist of more than 50 % of their real value by buildings or rights relating to buildings, not allocated by these companies to their own industrial, commercial, agricultural or agricultural operations are considered to be predominantly real estate companies. to the exercise of a non-commercial profession.

To assess the proportion of 50%, it is appropriate to compare:

• The market value of buildings not allocated to the exercise of the commercial, industrial, agricultural or non-commercial activity of the company or rights relating to buildings. Also taken into account are the securities of companies that are themselves predominantly real estate registered in the assets of the company whose securities are sold. The predominant real estate character of the company whose securities are registered in the assets of the company whose securities are sold is assessed by applying the same provisions. Since the securities registered in the assets do not or no longer relate to a predominantly real estate company, their value should not be used for the assessment of the predominantly real estate character of the company whose securities are sold;
• The market value of all elements of the company's assets, including buildings allocated or not allocated to operations.

Buildings allocated by the company to its own industrial, commercial, agricultural operations or to the exercise of a non-commercial profession are not taken into consideration. This notion of assignment must be interpreted strictly.

1. Taxation of predominantly real estate companies

The transfer of shares in a company predominantly in real estate will be taxed like the direct transfer of the building.

It is common for buildings to be owned by companies. Under these conditions, the transfer of the building takes the form of a simple transfer of shares. However, the taxation of transfers of shares is more advantageous than the taxation of transfers of buildings. In the sense Transfers of participations in predominantly real estate companies are subject to a fixed duty of 5 % whether they are shares or shares. The basis is determined from the real value of the property or real estate rights, after deduction of the sole liability relating to the acquisition of this property or rights. Other Assets are retained for their actual value. The transferor will also be taxable for capital gains on transferable securities when the company is predominantly real estate on the condition that the company is subject to IS.

If the company is not predominantly real estate, when the shareholder decides to sell his shares, he will be taxed at the progressive IR scale, increased by social security contributions, on the capital gain thus realized after the application of a reduction for the duration of detention.

Taxation is therefore more interesting when the transfer concerns the corporate securities than when it concerns the real estate itself. We have therefore seen, in the interest of tax optimization, many companies holding buildings in a completely artificial manner.