Investing in Madagascar via an SCI: Benefits and Pitfalls

Published on October 4, 2025 and written by Cyril Jarnias

Investing in Madagascar Real Estate Through a SCI

Diving into Madagascar’s real estate market through a Société Civile Immobilière (SCI) may seem like an enticing venture for investors looking to capitalize on the unique opportunities and captivating landscapes of this fascinating island.

While the promises of attractive returns and portfolio diversification are appealing, it’s crucial to skillfully navigate through regulatory complexities and remain vigilant about potential pitfalls that could hinder your investment ambitions.

Optimizing Legal Structure for Investment in Madagascar

The main legal structures available in Madagascar for real estate investment through a Société Civile Immobilière (SCI) are as follows:

Legal Structure	Specifics
Société Civile Immobilière (SCI)	Includes at least two partners, civil activity only, flexible management, liability proportional to contributions. Allows collective ownership and management of properties.
Société en Commandite Simple (SCS)	Two types of partners: general partners (managers with unlimited liability) and limited partners (capital contributors with liability limited to their contributions).
Economic Interest Grouping	Non-commercial, association of companies to facilitate or develop economic activity of its members without making profits itself.
Sole Proprietorship	Single entrepreneur, merging personal and professional assets—not recommended for real estate due to personal asset risk.

Advantages of Using a SCI to Manage Real Estate Investments

• Tax optimization: The SCI allows choosing between income tax or corporate tax based on partners’ strategy.
• Flexible management: Articles of association can freely organize manager powers and rules regarding collective decision-making.
• Facilitated transfer: Indirect ownership allows gradual transfer of shares between heirs with generally favorable taxation.
• Private asset protection: Liability limited to capital contributions except in cases of gross negligence.

Legal and Administrative Steps to Create a SCI in Madagascar

1. Drafting articles of association specifying share distribution, internal operations, and management mode.
2. Depositing share capital with a local bank.
3. Notarized registration or private signing as applicable; notary involvement often recommended for legal security.
4. Registration with the commercial registry at the Business Formalities Center (CFE).
5. Publication in a local legal announcements newspaper to ensure enforceability against third parties.

Madagascar-Specific Points & Vigilance

• Corporate purpose must remain exclusively civil; any commercial activity exposes to legal reclassification.
• Minimum of two partners required; careful attention during statutory changes that could break this legal quorum.
• Strict verification during land acquisition regarding compliance by foreigners or foreign companies concerning direct land ownership access.

Common Mistakes in Legal Structuring

• Using inappropriate structure like sole proprietorship that exposes all personal assets in case of financial difficulty
• Self-drafting articles of association without professional guidance when they should anticipate all eventualities
• Omitting certain post-creation reporting obligations that could lead to penalties or temporary/permanent loss of right to legal action
• Confusing civil purpose with commercial acts in daily operations

To ensure compliance:

• Get assistance from a local accountant from the drafting stage;
• Perform all mandatory annual tax formalities;
• Systematically update all statutory changes with competent authorities.

Practical Cases – Successes & Challenges

A family investor established a SCI so each member could easily hold their share in several rental properties distributed between Antananarivo and Nosy Be; this allowed early estate transfer through gradual gift-sharing avoiding any inheritance blockage.

Difficulties nevertheless arise when some investors forget that only certain activities are eligible for “civil” status; thus, after including some furnished rentals in their corporate purpose that are fiscally/commercially classified as commercial activities—their company had to be reclassified leading to tax adjustments.

Practical Summary:

• Adaptable taxation
• Flexible management
• Optimized transfer

Vigilance Checklist:

• Strictly civil purpose
• Essential professional guidance

Success relies on: rigorous drafting of articles of association + continuous regulatory monitoring + guidance by local professionals specialized in Malagasy real estate law!

Tax Benefits of a SCI for Investing in Madagascar

Real estate investment in Madagascar through a SCI presents numerous tax benefits that deserve investors’ attention. This legal structure offers a particularly favorable framework for optimizing real estate asset management on the island.

Advantageous Tax Regimes in Madagascar

Madagascar offers an attractive tax environment for real estate investors, notably with a corporate tax capped at 20%, one of the lowest rates in the region. This reduced taxation constitutes a major asset for SCIs wishing to develop their activity in Malagasy territory.

Registration duties in Madagascar are also competitive, which reduces real estate acquisition costs and improves overall investment profitability.

Choosing the SCI Tax Regime

Characteristics	SCI with Income Tax	SCI with Corporate Tax
Income taxation	Taxation at partners’ progressive income tax rate	15% rate up to €42,500 and 25% beyond
Expense deduction	Acquisition and maintenance costs deductible	Real estate depreciation possible
Profit distribution	Immediate taxation of partners	Flexibility in dividend distribution
Capital gains	Progressive allowance based on holding period	Taxation at corporate tax rates without duration allowance

The SCI offers great tax flexibility since it allows freely choosing its taxation regime. By opting for corporate tax, partners can modulate dividend distribution according to their personal tax situation, favoring years when their professional activity generates less income.

Benefits for Rental Income

• Possibility to deduct all costs related to property acquisition and maintenance
• Income distribution among partners proportional to their participation
• For SCI with corporate tax, possibility to depreciate real estate assets, thus reducing taxable base

Optimizing Real Estate Capital Gains

For SCI with income tax, capital gains benefit from a progressive allowance system based on holding period, particularly advantageous for long-term investments (22 to 30 years). This mechanism significantly reduces taxation during property resale.

Investment Case Study

A French investor establishes a SCI to acquire a property in Madagascar worth €200,000. By opting for corporate tax in Madagascar (20%), he benefits from reduced taxation on his rental income. After deducting expenses and depreciation, his taxable income is considerably reduced. He can also choose not to distribute dividends certain years to avoid personal tax overload.

Precautions and Recommendations

• Conduct thorough tax simulation before choosing between income tax and corporate tax
• Evaluate whether savings on rental income compensate for potentially higher capital gains taxation in corporate tax regime
• Consult international tax expert to optimize structure based on investors’ personal situation
• Regularly verify developments in Malagasy tax legislation

The SCI therefore constitutes a particularly suitable investment vehicle for investors wishing to develop real estate assets in Madagascar, offering tax flexibility and asset protection in a competitive tax environment.

Pitfalls and Common Mistakes When Buying Real Estate in Madagascar

Common Mistakes When Buying Real Estate in Madagascar

• Negligence in verifying property titles: Many buyers omit checking the existence and validity of land titles. Absence of clear title or presence of unmarked land frequently generates conflicts, particularly in case of disputes with third parties or administration. Requiring authentic land title is essential.
• Inaccuracies about local regulations: Malagasy law prohibits direct land ownership by foreigners; they can only acquire usage rights through emphyteutic lease (99 years). This legal specificity is often ignored, exposing investors to total property loss in case of strict contract non-compliance (for example, delay in periodic payment).
• Lack of due diligence on surrounding infrastructure: Buyers sometimes neglect the actual condition of road access, electrical or water networks. This omission can transform an attractive investment into permanent source of unexpected expenses to make the property actually usable.
• Absence of precise estimation of additional costs: Notary fees and registration duties are often underestimated or forgotten during overall real estate project calculation. These additional costs can heavily impact final budget.

Common Mistake	Possible Consequence
Non-verification of land title	Disputes with neighbors/third parties; potential cancellation
Unawareness of local laws	Total property loss for foreigner
Omission infrastructure due diligence	Significant unexpected expenses
Underestimation notary/registration fees	Substantial budget overrun

Concrete Examples

– A foreign investor acquired land without verifying that the land was titled and marked. After full payment to seller, he discovers that several families already claimed this same lot, making any regularization impossible.

– Others signed an emphyteutic lease but didn’t strictly respect deadlines required by Malagasy law: at first month delay in required periodic payment, their lease was terminated without legal recourse possibility.

Absence of Local Legal Expertise

Total or partial absence of assistance by specialized local lawyer frequently exposes to:

• Late discovery that some signatures were falsified
• Subsequent legal impossibility to register property
• Costly multiplication of legal procedures to assert rights

A buyer who acted without appropriate legal counsel found himself engaged in several years of litigation before local courts to prove his ownership – spending much more than initially anticipated.

Essential Recommendation

Always consult beforehand:

• An experienced local notary
• A lawyer specialized in Malagasy land law
• Independent technical experts (surveyors)

Using these professionals allows not only rigorous verification but also effective anticipation facing local bureaucratic and regulatory specificities before any definitive signature.

Understanding Corporate Law in Madagascar for Effective Investment Strategy

In Madagascar, common legal structures for holding and managing real estate assets include the Société Civile Immobilière (SCI), preferred form for organizing land or rental investments. The SCI, civil company by nature, must not exercise commercial activity but focuses on managing real estate properties and their enhancement.

Legal and Tax Advantages of SCI for Foreign Investors:

• Facilitates collective acquisition of real estate properties between several partners (minimum two).
• Allows flexibility in asset transfer: shares can be transferred more easily than the real estate asset itself.
• Partner liability limited to proportion of their contributions to share capital towards other partners, but unlimited towards social debts on their personal assets.
• Possible tax optimization through taxation at partner level rather than company level (tax transparency), which can allow foreign investors to adapt personal tax strategy according to their residence or applicable tax treaties.

Legal Requirements for Creation and Registration:

Procedure	Detail
Minimum number of partners	2
Minimum share capital	No legal threshold; freely set by articles of association
Contributions	Cash, kind (assets), industry (skills – doesn’t increase capital)
Articles of association	Mandatory drafting specifying partner identity, contributions, corporate purpose
Shares	Mandatorily equal

Registration with Malagasy Business Formalities Center with deposit of signed articles of association and registration in commercial registry.

Common Tax Obligations:

• Annual results declaration.
• Possible payment of property income tax if building is rented.
• Profits are taxed in partners’ hands according to their respective shares.

Shareholder/Partner Rights and Responsibilities:

• Right to profits proportional to their shares.
• Possibility to transfer shares subject sometimes to unanimous or majority consent according to articles of association.
• Joint obligation regarding debts towards third parties: each partner may see personal assets engaged if insufficient company assets.

Tax Optimization/Asset Protection Advice:

Optimization:

• Prefer structure where each partner holds shares through own structure adapted to personal situation to optimize inheritance/gift/family transfer while limiting potential international tax friction.
• Carefully draft partnership agreement providing precise terms regarding transfers/entries/exits to avoid future conflicts.

Protection:

• Use competent local notary to secure land acquisitions against risks related to sometimes incomplete/poorly updated cadastre in Madagascar.
• Include in articles of association clause limiting individual powers to avoid unauthorized commitments engaging entire SCI before third parties.

Practical Case Study:

Two European investors create Malagasy SCI without minimum capital requirement. Each contributes half/half; they acquire land intended for building then renting several apartments. They appoint local manager charged only after common written agreement before each commitment exceeding certain amount set in articles of association. In case of death or early withdrawal, agreement provides preferential buyback by survivor or heirs—guaranteeing family real estate project continuity while controlling local taxation on rental income thus legally repatriated via dividends directly paid to each according to declared share.

Potential Pitfalls/Critical Aspects When Investing via SCI:

• Rigorously verify land titles and legal history because frequent disputes over actual ownership
• Protect against local corruption during administrative/cadastral procedures
• Anticipate bureaucratic delays that could postpone definitive registration
• Properly frame manager powers in articles of association/internal agreements
• Monitor regulatory developments likely to influence tax regime/real acquisition possibilities by non-residents

In summary: The SCI offers asset/tax flexibility but requires increased caution regarding real estate title legal security and precise framing of relations between co-partners as well as towards Malagasy administration.