French Wealth Tax by investing in start-ups: Impôt sur la Fortune
The Wealth Tax (Impôt sur la Fortune) in France has long been a source of debate. Even today, it remains a sort of ‘tug-of-war’ between the political left and right. It is an applied tax on the wealth of “rich” people, which aims to increase the contributions to the state budget of people who are at the end of their professional career and thus no longer generate taxable income. It is a symbol of differences in ideologies, a point of strong debate between those who prioritize social justice vs those who value rewarding individual merits.
The Wealth Tax in France for non-residents only applies to assets located in France which have a total value exceeding €1,300,000 on 1st January of the tax year in question. Assets include property, business assets operating in France and liquid assets deposited into a regular bank account.
Let’s go into a bit of French history: In 1981, under the presidency of François Mitterrand, a simple calculation was established which was the value of the estate x % = Wealth Tax rate. Since then, certain amendments have been made:
- A list of exempt goods was introduced to preserve certain special interests (antiques, in the name of protecting the domestic market for works of art, large landowners in the name of protecting historical monuments etc.)
- All assets considered to have a professional purpose are exempt in order to encourage entrepreneurship
- The sum of private income tax and wealth tax is subject to a ceiling of 50% of the income for that year: it is the theory of the “fiscal shield” voted in during the term of a Republican President (N. Sarkozy)
- After much controversy, his Democrat successor (F. Hollande) increased this ceiling to 75 %.
In our opinion, the calculation formula will continue to evolve as a result of the constant evolution of the balance between the political forces. This development is part of the country’s tax culture. We will keep you posted, now that we know the programme of our new President.
The good news is, in order to reduce the amount of Wealth Tax payable, you can instead choose to benefit from the SME Wealth Tax scheme (ISF PME). This involves making a cash infusion into a French SME. The subsequent reduction will amount to 50% of the funds invested, with a ceiling of €45,000.
The idea behind this tax reduction is to stimulate the local economy, however there are numerous conditions in place which the SME must meet to prevent people abusing the system. These conditions are:
- It must be an SME as defined by EU directives (less than 50 employees and a balance sheet total not exceeding €43million or an annual turnover not exceeding €50million)
- The headquarters must be located within an EU state, also including Norway, Iceland and Liechtenstein.
- It must be subject to corporate tax in France and must not be listed on any regulated market, French or otherwise.
- It must employ at least 2 employees (or 1 employee for very small companies)
- At the time of the initial investment, the company must start from scratch or have been operational for less than 7 years after its first commercial transaction. If necessary, it must have a financing requirement in excess of 50% of its average annual turnover for the previous 5 years.
- The total amount of cash infusion received by the company must not exceed €15million, except after specific approval from the tax administration.
- Its assets must not consist of precious metals, works of art, collectibles, antiques, race horses or show-jumping horses.
- It is not qualified as a “business in a difficult financial position” (as defined by Article 2 (18) of Regulation (EU) No 651/2014 of 17/06/2014). Thus, the company must not be subject to a bankruptcy procedure or, in the case of a limited liability company; the accumulated losses generated by the company must not exceed 50% of the share capital.
- The company must not be operating within asset management or financial activity.
- You must remain a shareholder for 5 years. However, Article 37 of the 2017 Amending Finance Law has granted an exception which states the shares may be sold after 3 years, as long as the funds are reinvested into another eligible SME within 12 months.
At Maupard, we realise this is a long and exhaustive list, and finding a company which satisfies these criteria is not necessarily easy. Should this scheme appeal to you, we can help you identify such a company and even carry out investigative analysis on your behalf. Moreover, should you not wish your name to appear publicly, we can make your investment anonymous, using the title ‘Specialised funds – appointed by the Administration’.
It is important to note that the reduction must be declared within the 2725 form, the deadline for which is the 15th July, 2017. This particular declaration must be done manually (not online), which means that the form and adjoining cheque must physically be sent to the relevant Tax Office, or submitted in person.
Don’t worry, there is still time to take advantage of this scheme, as long as the forms are submitted in advance. We understand that doing this manual declaration can be time-consuming, which is why, at Maupard, we offer to carry out all of the necessary formalities on your behalf whilst keeping you up to speed via your personal client space found on our Company website.
However, should you just require our help with your Wealth Tax return, please visit “Filing of the Wealth Tax return (ISF) in France” to find out more.
Do not hesitate to contact us by telephone on +33 (0) 1 53 93 94 20 or by e-mail to [email protected], so we can work out the needs of your business. Our team of experts is here to answer any questions you may have.