Marchand de Biens: Status, VAT on Margin and Risk of Requalification

Buying a building, renovating or dividing it, then reselling it at a gain: the transaction looks simple, but it moves anyone who repeats it into a heavily regulated commercial activity. Many individuals and company directors think that a société civile immobilière (SCI, a French property holding company) is enough to structure these transactions, whereas an SCI that buys in order to resell is exposed to a costly tax requalification. The question of the VAT regime, and in particular VAT on margin, adds a layer of complexity that few have mastered. This guide explains how to distinguish the status of marchand de biens (property dealer) from the SCI, how to choose between the two, how VAT on margin works in practice with a worked example, and how to avoid requalification.

The status of marchand de biens: first and foremost a tax classification

Contrary to a widespread belief, the marchand de biens is not a regulated profession in the strict sense, as is the estate agent subject to the Hoguet Act of 2 January 1970. It is first and foremost a tax and commercial classification that follows from the nature of the activity carried on.

Speculative intent and habitual practice

The basis is found in Article 35 of the French General Tax Code (CGI), which places among industrial and commercial profits (BIC) the profits made by persons who buy real estate with a view to reselling it. Two criteria combine to characterise the activity:

• speculative intent at the time of purchase, that is, the intention to resell in order to make a profit, assessed at the date of acquisition and not at the date of resale;
• the habitual nature of the transactions, which presupposes a repetition of purchases and resales reflecting a genuine economic activity and not an isolated act of asset management.

These two elements are assessed on the basis of a body of indicators: number of transactions, brevity of the holding period, scale of the works carried out before resale, recourse to short-term financing, material and human resources deployed. A person who sells the family property received by inheritance does not become a marchand de biens. A person who buys two or three buildings every year to divide and resell them within a few months is carrying on, de facto, a commercial activity, even without having declared it as such.

The difficulty is that the classification applies objectively. The tax authorities may apply it against a person who never presented themselves as a marchand de biens, where the facts reveal a habitual and speculative buy-and-resell activity.

The obligations attached to the activity

Acting as a marchand de biens entails registration with the Trade and Companies Register (RCS), keeping commercial accounts and being subject to BIC (or to corporation tax where the activity is held in a company subject to corporation tax). The activity falls in principle within the scope of value added tax (VAT), with a specific regime detailed below.

A notable tax advantage accompanies the status: Article 1115 of the CGI allows a preferential regime for transfer duties (droits de mutation) where the purchaser gives, in the deed, an undertaking to resell the property within five years. The land registration tax (taxe de publicité foncière) is then reduced. Failure to comply with the period results in the benefit being withdrawn and the duties being payable at the ordinary rate, increased by late-payment interest.

SCI or marchand de biens: two opposing legal logics

The confusion between SCI and marchand de biens arises because both relate to real estate. Yet they rest on opposite logics: one is civil and concerned with holding property, the other is commercial and concerned with the circulation of property.

The SCI, a civil vehicle for asset management

The SCI has a civil purpose: acquiring, holding, managing and letting real estate. It is used to organise an estate, to facilitate its transfer, and to pool a rental investment between several partners. Its purpose is long-term preservation and enhancement, not quick resale. The advantages and constraints of this corporate form are set out in our article on the property holding company (SCI), its advantages and disadvantages.

For tax purposes, the SCI is by default tax-transparent: profits are taxed in the hands of the partners as property income (revenus fonciers), unless it elects for corporation tax. This transparency makes sense only for a letting activity, which is civil by nature.

Why the "SCI marchand de biens" is a misconception

The expression SCI marchand de biens is widely used, but it describes an unstable situation. An SCI that habitually buys with a view to resale carries on a commercial activity incompatible with its civil purpose. For tax purposes, this commercial activity moves it automatically to corporation tax, pursuant to Article 206 of the CGI: as soon as a civil company carries out commercial transactions within the meaning of Articles 34 and 35 of the CGI, it is subject to corporation tax.

In other words, an SCI is not "turned" into a marchand de biens by a simple statement in its articles. Either the company remains civil and confines itself to letting, or it buys and resells and becomes, for tax purposes, a commercial entity, with all the consequences that entails. Seeking to house a marchand de biens activity in an SCI therefore directly exposes it to the risk of requalification examined below.

For a deliberate buy-and-resell activity, the appropriate structures are commercial companies: the simplified joint-stock company (SAS), the limited liability company (SARL), or trading in a personal capacity for isolated transactions. These forms inherently reflect the commercial nature of the activity.

Marchand de biens status or SCI: how to choose

The choice between marchand de biens status or SCI is not a matter of convenience but a consequence of the actual project. The right question is not "which structure is the most advantageous?" but "what is the nature of my transaction?".

The SCI suits someone who wants to hold and let. A couple buying an investment building to collect rents for twenty years, siblings organising the holding of the family property, an investor building up a rental portfolio: in all these cases the logic is civil and the SCI is appropriate.

The status of marchand de biens applies, whether one wants it or not, as soon as the aim is to buy in order to resell in the short or medium term, on a repeated basis. Someone who buys a dilapidated building to renovate it, divide it into lots and resell each apartment within two years is carrying on a marchand de biens activity, whatever label they put on their structure.

Three questions make it possible to decide in advance:

• Holding or resale? If the intention at purchase is to resell, the activity is commercial.
• Isolated or habitual? A single transaction may escape the classification; repeated transactions trigger it.
• Rental income or resale margins? Rents are civil; quick resale gains are commercial.

A frequent case deserves attention: the SCI that, after years of letting, sells a property. This sale remains in principle an act of asset management falling within the capital gains regime, provided that it remains occasional and does not reflect an initial speculative intent. The shift occurs when the SCI strings together quick acquisitions and resales. The boundary depends on intent and habit, assessed case by case. On the calculation of taxable capital gain and the allowances for length of ownership, including in the particular case of the SCI, see our analysis of property capital gains in 2026.

VAT on margin explained with a worked example

The marchand de biens VAT on margin (TVA sur marge) is probably the most technical point and the greatest source of disputes. Understanding its mechanism avoids heavy reassessments.

The principle: VAT on the total price or on the margin

As a rule, a sale of a building made by a taxable person in the course of their economic activity is subject to VAT on the total price. By exception, Article 268 of the CGI allows VAT to be calculated on the margin alone, that is, on the difference between the selling price and the purchase price, in one specific case: where the reseller's acquisition of the property did not give rise to a right to deduct VAT.

In practical terms, VAT on margin typically applies where the marchand de biens bought from a non-taxable seller (an individual, for example), with no recoverable VAT on the purchase. It would be unfair to tax the resale on the total price when no VAT could be deducted on the way in: the base is therefore reduced to the margin.

A worked example (illustration)

Take a deliberately simplified transaction by way of illustration. A marchand de biens buys an apartment from an individual for a price of €200,000. As the seller is a non-taxable individual, the purchase bears no deductible VAT. After some works, the dealer resells the apartment for €260,000.

The gross margin is €260,000 less €200,000, that is €60,000. This margin is understood to include VAT. To extract the VAT at the rate of 20%, the margin inclusive of VAT is divided by 1.20:

• margin excluding tax: 60,000 / 1.20 = €50,000;
• VAT on margin due: 60,000 less 50,000 = €10,000.

If VAT had been calculated on the total resale price (€260,000), it would have represented a much higher amount. The benefit of VAT on margin is therefore considerable, but it is strictly circumscribed. These figures are provided for educational purposes only; the applicable rate depends on the nature of the property and of the transaction.

The condition of legal identity: the point that tips reassessments

Case law has clarified a decisive condition that was long underestimated: VAT on margin presupposes an identity between the property acquired and the property resold, both in its physical characteristics and in its legal classification. The Court of Justice of the European Union (CJEU) so held in its judgment in Icade Promotion of 30 September 2021 (Case C-299/20), and the Conseil d'État has drawn the consequences.

The issue is concrete for division operations. Where a dealer buys land already classified as building land and resells it as building land, identity is respected: VAT on margin may apply. By contrast, where a dealer buys a built property, demolishes it and resells building land, or where it changes the legal nature of the property between purchase and resale, identity is lacking and VAT on margin is refused: VAT is then due on the total price.

This subtlety is behind many reassessments. A marchand de biens who applies VAT on margin without checking the legal identity between input and output is exposed to a VAT adjustment on the whole of the selling price, together with interest and penalties. The land registry and planning classification of the property on purchase and on resale must be checked transaction by transaction.

The risk of tax requalification

Requalification is the sanction for the gap between the structure chosen and the reality of the activity. It most often affects SCIs that have drifted into buying and reselling and individuals who have multiplied transactions without declaring themselves.

When the authorities requalify an SCI or an individual

The tax authorities rely on the body of indicators already described to requalify as a marchand de biens activity. The signals that trigger an audit are well identified:

• acquisitions and resales close together in time;
• short holding periods, often less than a few years;
• substantial renovation or division works systematically preceding resale;
• financing by short-term credit suited to a quick resale;
• a repetition of transactions revealing a quasi-professional organisation.

Where an SCI that had placed itself under the property income regime or the individuals' capital gains regime is requalified, the authorities consider that it was in reality carrying on a commercial activity. The same reasoning applies to an individual who declared individuals' property capital gains while engaging in habitual buying and reselling.

The consequences of requalification

The effects are heavy and cumulative. Requalification entails a move to industrial and commercial profits or to corporation tax, retroactive liability to VAT on the sales concerned, loss of the favourable individuals' capital gains regime, as well as late-payment interest and, where applicable, surcharges for deliberate breach. The reassessment may cover several financial years within the limits of the authorities' right of assessment.

For the SCI, there is in addition the move to corporation tax provided for by Article 206 of the CGI as soon as commercial transactions are carried out, with the consequences specific to that regime, in particular on the taxation of profits and on the treatment of unrealised gains. The combination of these effects often makes requalification more costly than correct liability would have been from the outset.

The preliminary sale agreement with a marchand de biens: points requiring care

Whether one sells to a marchand de biens or buys one of its lots, the preliminary sale agreement (compromis de vente) with a marchand de biens calls for particular care, both for the individual seller and for the end purchaser.

For the individual who sells their property to a marchand de biens, several clauses deserve careful reading. The substitution clause allows the dealer to substitute another person or a company before the notarial deed is executed: its scope must be assessed. The conditions precedent, in particular those relating to obtaining financing or planning consents, must be defined precisely as to their subject matter and their time limit. The price, finally, by its nature includes the resale margin expected by the dealer; the seller must make sure that it corresponds to the real value and not to an excessive discount.

For the purchaser of a lot resold by a marchand de biens (for example an apartment resulting from the division of a building), the points requiring care are different. The regularity of the division and of the planning consents must be checked, as must the conformity of the works carried out and the extent of the guarantees. A marchand de biens who has had substantial works carried out may be bound by specific guarantees; the exact nature of the seller and the VAT regime applied to the sale determine the final cost for the purchaser. The reference to the VAT regime in the preliminary contract, VAT on the total price or on the margin, is not neutral and must be consistent with the legal situation of the property. The regime governing the sale of a building to be renovated, its boundary with the VEFA (sale of property off plan) and the obligations it places on the seller are set out in our dedicated article.

In every case, review of the preliminary contract by a professional before signature avoids poorly controlled commitments, because the compromis already fixes most of the parties' obligations.

Conclusion

The central message of this guide fits in one sentence: the structure does not determine the regime, the actual activity does. Seeking to house a buy-and-resell activity in an SCI to benefit from civil flexibility is a design error that almost always leads to requalification and an additional tax cost. An SCI holds and lets; a marchand de biens buys to resell. As soon as speculative intent and habit are present, the commercial classification applies, with its accounting obligations, its liability to BIC or corporation tax, and its own VAT regime.

On VAT on margin, prudence dictates never presuming that it applies. The condition of legal identity between the property acquired and the property resold, established by European case law, is the point that turns a cash-flow saving into a reassessment. Each transaction must be analysed on its own, checking the classification of the property on the way in and on the way out.

Before setting up a structure or signing a first purchase intended for resale, have your project qualified by an adviser: describe precisely the number of transactions envisaged, the holding periods and the scale of the works, then have the choice of structure and the VAT regime validated transaction by transaction. It is at this stage, and not after the tax audit, that the security of the whole is determined.

Frequently asked questions

Can an SCI buy and resell real estate? An SCI has a civil purpose and is not designed for habitual buying and reselling. If it carries out commercial transactions of buying with a view to resale within the meaning of Article 35 of the CGI, it moves to corporation tax pursuant to Article 206 of the CGI and is exposed to requalification as a marchand de biens activity. An occasional sale after a long period of letting, by contrast, remains an act of asset management.

What is the difference between VAT on margin and VAT on the total price? VAT on the total price applies in principle to sales of buildings made by a taxable person. VAT on margin, provided for by Article 268 of the CGI, applies only to the difference between the selling price and the purchase price, and applies where the acquisition did not give rise to a right of deduction, for example a purchase from a non-taxable individual. It presupposes a legal identity between the property bought and the property resold.

How is the VAT on margin of a marchand de biens calculated? The margin is determined by subtracting the purchase price from the selling price, this margin being understood to include VAT. The VAT is then extracted by dividing the margin inclusive of VAT by the coefficient corresponding to the applicable rate. On a margin of €60,000 at the rate of 20%, the VAT due comes to €10,000. The exact rate depends on the nature of the property and of the transaction.

What criteria lead to a person being classified as a marchand de biens? Two criteria combine: speculative intent assessed at the date of purchase and the habitual nature of the transactions. The authorities rely on a body of indicators: number of transactions, brevity of holding periods, scale of the works, method of financing, resources deployed. The classification applies objectively, even to a person who has never declared themselves as such.

Should one choose an SCI or marchand de biens status to invest in real estate? The choice depends on the intention. To hold and let over the long term, the SCI is appropriate. To buy in order to resell in the short or medium term on a repeated basis, the activity is commercial and falls within the marchand de biens category, carried on in a personal capacity or through a commercial company such as an SAS or an SARL. Seeking to combine the two within an SCI exposes it to requalification.

What is the risk in the event of requalification as a marchand de biens? Requalification entails a move to BIC or corporation tax, retroactive liability to VAT, loss of the individuals' capital gains regime, as well as late-payment interest and possible surcharges for deliberate breach. The reassessment may cover several financial years within the limit of the authorities' right of assessment. For an SCI, the move to corporation tax is added.

What precautions should be taken in a preliminary sale agreement with a marchand de biens? The individual seller must examine the substitution clause, the precision of the conditions precedent and whether the price matches the real value of the property. The purchaser of a resold lot must check the regularity of the division, the planning consents, the conformity of the works and the VAT regime applied. Review of the preliminary contract by a professional before signature is strongly advised, because the compromis already fixes most of the commitments.