Characteristics of real estate agents and developers
The real estate industry encompasses a wide array of stakeholders engaged in diverse activities, utilizing a variety of legal structures, including Special Purpose Vehicles (SPVs) like Property Development Companies (SCCV), Real Estate Investment Companies (SCI), and other entities. The choice of structure depends on the project’s nature, its financing method, and its stakeholders.
These undertakings typically demand substantial capital investments from one or more shareholders, and external financing or other external factors may lead to alterations in the intended use of the property compared to the original project, whether of a temporary or permanent nature (e.g., temporary leasing, redevelopment, or unaltered sales). Decision-making needs to be swift, requiring responsiveness and expertise of a dedicated real estate accountant who can guide and assist you in understanding and detrmining the tax and accounting implications of your choices.
The real estate sector is fraught with numerous tax risks, each carrying significant financial implications. This underscores the need for a deep understanding of real estate taxation, which can be provided by your real estate accountants or real estate statutory auditor. They can help you identify and evaluate these risks. For instance, factors like the property’s classification as new or old, the nature of the development (construction, renovation, expansion of living space), and its VAT status at the time of acquisition are pivotal in determining the applicable VAT scheme (VAT on the sale price or on the margin) at the time of resale. Furthermore, when financing a property through a lease agreement, the decision to exercise the purchase option can result in substantial tax consequences related to depreciation, irrespective of whether the entity holding the real estate project is fiscally transparent or not.
As an expert accountant or auditor, we are actively involved with various stakeholders in the real estate sector, including property traders, real estate developers, investment companies, and more.
We have a thorough understanding of the specificities and challenges that drive the real estate sector, particularly in terms of accounting and taxation. Our multidisciplinary approach enables us to provide you with a comprehensive service that addresses your concerns.
As a chartered accountant or statutory auditor, we offer a wide range of skills to support your property management or real estate development company
Beyond our mission of bookkeeping or accounting review, as a chartered accountant, we offer you a personalized service, anticipate your needs and proactively keep you informed about changes in social and tax regulations, allowing us to implement suitable solutions.
In our role as statutory auditors, we employ a constructive and adaptable approach. We conduct substantive testing and, more importantly, we thoroughly review your various processes in collaboration with your teams. This collaborative effort is designed to foster trust and establish us as a valuable source of recommendations for continuous process improvement.
Our firm’s growth in the accounting and auditing sector is underpinned by the technical expertise of our versatile and consistently trained team. Our partners and associates, who are certified chartered accountants and statutory auditors, are always close at hand and available to listen to your needs whenever they arise.
Accompanying your company and its managers as a chartered accountant for your real estate or property development company
Our mission of bookkeeping or accounting review for your real estate transactions or property development company is primarily expressed through assistance in:
- Establishing or acquiring a real estate development or property dealership enterprise,
- Ensuring the fiscal safety of your projects, particularly concerning VAT and financial charge deductibility.
- Analysing the economic outcomes of your projects by implementing cost accounting if required.
- Optimising your financial resources, including external funding.
To guarantee the reliability of produced financial information, we help you in implementing efficient data recovery and accounting processes, as well as the appropriate tools, enabling the monitoring of the value of real estate stocks and the future margin per project handled by your real estate development or property trading company.
We anticipate forthcoming challenges across the diverse range of projects we manage. To ensure comprehensive coverage, we break down complex ideas into smaller parts, exploring their accounting and tax implications.
If needed, we can connect you with tax specialists or notaries experienced in working with real estate developers and property traders on significant renovation, restructuring, or property creation projects, if our expertise does not fully cover all the issues that arise.
If your real estate business or property trading company is a subsidiary of a foreign group or is owned by venture capital firms, as chartered accountants, we prepare periodic reports for fund providers.
We manage the preparation of both regular and ad hoc tax returns for your real estate company. We meticulously analyze the context and purpose of every project to identify tax issues that could have an impact on the overall margin, particularly with regard to VAT. We provide assistance during tax audits and stay up-to-date with tax legislation, including updates during the various Finance Acts.
Houdart A&C possesses extensive knowledge of the collective agreements that apply to various activities within the real estate sector, thanks to our considerable client base, which includes real estate developers, property traders, and real estate investment companies.
We provide payroll processing services to employees of our clients in this sector, assist with URSSAF audits, establish DSN (Declaration of Social Data), and manage employee salary transfers.
We assist with the membership to appropriate pension schemes based on your company’s industry.
We offer guidance in case of any conflict with an employee or multiple employees and can link you up with a solicitor whom we are prepared to suggest in case of workplace disputes.
Our legal department offers support in the day-to-day and extraordinary legal matters of your real estate development or property trading company. We also are available to provide you with all the advice you, as a company leader in the real estate sector, may need in the conduct of your business. Our legal services include :
- annual legal secretarial services,
- drafting certain legal documents,
- preparing minutes for ordinary and extraordinary general meetings,
- issuing notices,
- statutory amendments (such as the transfer of the company’s registered office or change of the company name),
- and handling formalities with the relevant commercial court registry, among others.
Additionally, we assist you in carrying out share contributions, company transformations, mergers and demergers.
When an opportunity for external growth arises, we are able to conduct due diligence, either as advisors or as statutory auditors, prior to your decision-making process.
Support for Executives
Our mission goes beyond preparing the financial statements of your company. For our family-owned business clients, we provide guidance to the business managers to ensure that their business-related decisions, which have an impact on the company’s assets, are optimized for both them and their family.
The diversity of our skills enables us to assist you first and foremost with your personal tax returns. We prepare your French income tax returns, as well as any potential real estate wealth tax declaration..
We provide assistance in selecting individual and group health and heavy-risk insurance contracts. We ensure that the formalities for implementing the contracts cover the risk of tax and social security audits.
If necessary, we can assist you with your personal tax audits.
The acquisition of the company’s real estate is often an interesting way for the entrepreneurs to reconcile the interests of the business with the development of their personal assets.
We stand by the entrepreneur’s side from the initiation of the project and the investment decision, the decision to invest in real estate, the choice of investment structure, until the preparation of the necessary documents to apply for funding from financing organizations.
We have a significant network of specialized professionals in insurance brokerage, notary services, and lawyers specialized in labor or tax law, whom we can mobilize to complement our support.
Lastly, we accompany and analyze with our clients the various possibilities of social security and remuneration methods in order to optimize the executive’s remuneration from both a tax and social security schemes.
MyUnisoft, a digital, collaborative and innovative accounting software
We have an innovative, efficient, and collaborative accounting software, a true marketplace with an open API, which can be connected to most common apps used by entrepreneurs, such as digital neobanks, CRM tools, document management systems, data analysis tools, or payroll software.
Thanks to agreements with most banking institutions, we can set up automatic recovery of your bank flows in EBICS format with your bank.
We can provide your accounting teams with our software to collaborate on your financial data in real-time. We can also fully handle the accounting process if you do not have an accounting department.
Frequently Asked Questions related to the real estate sector, property traders, and developers
What is the tax regime applicable to an SCI subletting a leased building ?
The subletting of a building leased by a fiscally transparent SCI is subject to the Non-Commercial Profits (BNC) regime and not to the property income regime. This distinction is the reason behind the short-term capital gain resulting from a leasing option exercise by a transparent SCI subleasing the property. However, if the SCI has opted for the corporate tax regime, the tax regime of Industrial and Commercial Profits (BIC) applies.
What are the consequences of an SCI waiving its leasing option?
Firstly, the exercise of the option to purchase the premises, at the end of the leasing contract, entails the obligation to reinstate a fraction of the rents paid during the contract, pursuant to Articles 239 sexies et seq. of the French General Tax Code (CGI, corresponding to the difference between;
- The value of the property when the contract was signed, less the option exercise price,
- The amount of depreciation that the SCI would have applied if it had owned the property from the outset.
Secondly, in the specific case of a tax-transparent non-trading property company (SCI) owned by individuals, subletting a leased property, exercising the option leads, in addition to the reintegration of a portion of the rents, to the recognition of a short-term capital gain. By exercising the option, the SCI engages in rental activity (regime of rental income) rather than subleasing activity (regime of non-commercial profits). This is considered by the tax authorities as a transfer of the property from the business assets to the private assets, justifying, under Article 93 quater IV of the CGI, the recognition of this capital gain. The capital gain is determined as the difference between:
- The market value of the property at the date of exercising the option,
- And its cost price as defined after taking into account the reintegrated rents.
This capital gain is not subject to taxation if the SCI has opted for corporate tax (IS) prior to the expiry of the leasing contract.
However, if the partners wish to maintain the partnership tax regime while waiving the option to purchase, it is possible to request a deferral of the capital gain tax through an express option. The capital gain will be deferred until the date of transfer of the property, transfer of all or part of the SCI’s shares, or the dissolution of the SCI.
What are long-term contracts in accounting ?
Long-term contracts are typically lengthy contracts specifically negotiated for a unique project involving the construction, realization, or, where applicable, subcontracting of a complex set of goods and services, with the execution spanning at least two accounting periods. The entity’s right to collect contractual revenues is based on compliance with the contract for the work performed.
Long-term contracts are commonly found in the following industries: construction, engineering, information technology, shipbuilding, aerospace, etc.
For long-term contracts, there are two methods of recognising turnover: percentage-of-completion or completion.
What is the method of recognition of the result at completion ?
The completion method is a method of accounting for turnover associated with a long-term contract. It consists in recording turnover only when the contract is fully executed. Work-in-progress is valued and recorded as inventory based on the costs incurred in the project during the year. Therefore, no turnover is recorded as and when these are recorded. However, potential losses on completion are provisioned when they become probable and can be estimated with sufficient precision.
What is the percentage of completion method ?
This method consists of recognizing partial turnover at the end of the financial year through the recording of invoices to be issued, based on the progress of the contract, whether the projected margin is positive or negative.
At the end of each financial year, a portion of the turnover associated with the contract is recorded based on the percentage of completion of the work. The completion percentage is determined in relation to the total projected cost of the work. The completion percentage at the end of year N is determined as follows: cost of work completed at the end of year N / total projected cost.
What is the VAT regime for real property sales ?
- New buildings
Sales made by a VAT-registered professional of buildings completed no more than 5 years ago are generally subject to VAT at a rate of 20% on the total sale price.
- Old buildings
Sales made by a VAT-registered professional of buildings completed more than 5 years ago are generally exempt from VAT.
By derogation, according to Article 268 of the French General Tax Code (CGI), the supply of building land or a building completed more than five years ago is subject to VAT on the margin when the option for VAT is exercised and it is established that the acquisition by the seller did not give rise to a right to deduction.
- Building land
Sales of building land are automatically subject to VAT when made for consideration by taxable persons acting as such, regardless of the status of the purchaser.
When the sale of building land falls under VAT, the tax is generally based on the total sale price of the land. However, the taxable base is reduced to the margin realized by the seller in accordance with Article 268 of the CGI when it is established that the land acquired by the seller did not give rise to a right to deduction on that acquisition
What is a Société Civile de Construction Vente (SCCV)?
A Société Civile de Construction Vente (SCCV) is a non-trading company whose purpose is to build one or more buildings with the intention of selling them in their entirety or in fractions. They are governed by Articles L.211-1 and following of the French Construction and Housing Code.
The renovation of a building does not fall within the scope of its corporate purpose, unless the reconstruction is such that it is legally assimilated to the creation of a new building.
This form of company is used by real estate developers for new building construction projects, allowing each project and its financing to be isolated in a separate structure called a Special Purpose Vehicle (SPV). The partners of the SCCV are taxed based on their share of the results according to the applicable regime, i.e. property income or business income (BIC) for companies subject to corporate income tax. The SCCV is fiscally transparent
Why engage a specialized firm in real estate ?
Whether you run a real estate development company or a real estate trading firm, your business is characterized by complex tax issues with significant financial stakes.
In addition to assisting you with the preparation of your annual financial statements and tax returns, you expect a chartered accountant specialized in the real estate sector to provide you with advice, technical know-how and the ability to anticipate tax risks and the consequences of your management decisions, so that you can accurately monitor your margins on completion or resale of the property. Additionally, they will be able to assist you in choosing the legal status of the structures carrying your projects.
Choosing a real estate auditor ensures a constructive risk-based approach, and the ability to identify tax implications. In addition to conducting substantive tests, they can provide recommendations for implementing processes to improve your internal controls and the reliability of financial statement production.