FRANCE Law and Practice Contributed by: Rima Maitrehenry, Fabrice Rymarz, Charles-Xavier Vincenti and Stein Mpassi Loufouma, Racine
French AIFs Outside the Scope of CIT (“French Transparent AIFs”) Scope of tax transparency These AIFs are not subject to CIT (and are there - fore considered “tax-transparent”): • because of their legal status – most of these funds have no legal personality (FPS set up as FCP, FPCI, SLPS, etc); or • because of a specific tax provision – SLP have a legal personality (contrary to SLPS) but French tax rules provide that their tax regime is identical to the one applicable to FPCI (which are tax-transparent funds). French Tax Regime Applicable to Investors of Because of their tax transparency, income dis - tributed by French Transparent AIFs keep their nature (dividends, interest, capital gain) and their source (French/non-French). French tax residents of certain French Transpar - ent AIFs (FCPR, FCPI, FIP, FPCI, SLP, SLPS) can benefit from a tax-favourable regime provided that these funds comply with a tax investment quota (the “Tax Quota”), when at least 50% of their assets correspond to shares issued by companies that: • are located in the EU or the European Eco - nomic Area (EEA); • carry out a commercial/industrial activity; and • are liable for corporate income tax in their country of establishment. Individual investors residents in France French Transparent AIFs Preliminary comments When the French Transparent AIF does not meet the Tax Quota criteria, the following applies.
on the nature and source of the underlying income, as follows. Non-French-source income should not be sub - ject to any taxation in France, as such income is not considered as having its source in France. French-source dividends (dividends deriving from French subsidiaries of the fund) follow the same tax regime as the one explained above for dividends. French-source interest should not be subject to any withholding tax in France unless such inter - est is wired in a bank account located in a non- cooperative state or territory. French-source capital gains are, in principle, exempt from French taxation unless the inves - tor holds, directly or indirectly, an equity stake exceeding 25% over the five-year period pre - ceding the disposal of the French company by the French Exempt AIF. Otherwise, a taxation would apply (12.8% for a foreign individual, 25% for a foreign corporate investor). Specific rules may apply when the investor is a foreign invest - ment fund (exemptions under certain conditions) or when the capital gain derives from the sale of a French real estate rich company. Capital gain deriving from the sale of the French AIF’s shares In principle, capital gains are exempt. As an exception, any investor holding more than 25% of the French AIF’s shares might be subject to taxation in France under the same rules as those explained above for French-source capital gains distributed by the fund.
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