FRANCE Law and Practice Contributed by: Rima Maitrehenry, Fabrice Rymarz, Charles-Xavier Vincenti and Stein Mpassi Loufouma, Racine
the Scope of CIT (“French Transparent AIFs”) below. Dividends distributed to investors are subject to CIT under standard conditions in respect of the fiscal year in which such income is distrib - uted. The French parent-subsidiary regime is not applicable to these distributions. Corporate investors should be able to deduct tax credits attached to non-French source income generated by the French AIF (only if this AIF is entitled to ventilate its income). Capital gain realised upon the sale of a French AIF’s shares is also subject to CIT at the stand - ard rate. Corporate investors cannot benefit from a favourable tax regime (such as the long-term capital gain regime implemented in France). Non-resident investors In principle, dividends distributed by French AIFs are subject in France to a withholding tax of 25%, upon their distribution to investors. Dif - ferent applicable rates may, however, apply: • 12.8% when the beneficiary is a non-resident individual; • 15% when the beneficiary is a non-profit organisation (subject to certain conditions); • 75% if the dividends are paid in a non- cooperative state or territory (the French tax authorities have published a list of these states/territories, which is updated from time to time); and • 0% when the beneficiary is a foreign invest - ment fund deemed to be “comparable” to a French fund, by having similar regulatory and legal characteristics. When a fund is ventilating its distributions (SICAV), the applicable tax regime will depend
If more favourable, investors may elect to tax their investment income (dividends, interest, capital gains) according to the progressive scale of individual income tax. This election is global and annual. Foreign-source income distributed to investors (in situations where a SICAV is ventilating its income) may also be subject to tax in France. The investor should, however, be able to deduct all or part of the tax credits attached to the income/gains redistributed by the fund. Capital gains resulting from the sale of redemp - tion of the French Exempt AIFs’ shares are also subject to the PFU, unless the investor has elect - ed to apply the progressive scale of individual income tax. Legal entities’ investors resident in France French companies’ investors subject to CIT are required to retain a “mark to market” approach for shares held in French Exempt AIFs (the “Mark- to-Market Rule”). As a consequence, unrealised gains or losses must be taken into account on a fiscal year basis for CIT computation purposes. CIT applies at a 25% rate (increased to 25.825% when the social contribution of 3.3% applies). The Mark-to-Market Rule does not apply to: • French companies whose main activity is life insurance or capitalisation insurance, and to non-profit organisation; and • stakes held in French Exempt AIFs invest - ing more than 90% of their commitments in companies located in the EU and subject to corporate income tax. Note: a specific exemption exists for certain tax-transparent funds meeting specific invest - ment criteria. Please see French AIFs Outside
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