FRANCE Law and Practice Contributed by: Rima Maitrehenry, Fabrice Rymarz, Charles-Xavier Vincenti and Stein Mpassi Loufouma, Racine
For distribution of dividends, interest and capi - tal gains, French individual investors are sub - ject to a 30% overall taxation (up to 34% for high-income investors) unless they elect to apply the progressive scale of individual income tax. Investors should benefit from any tax credits attached to non-French-source income. By way of exception, capital gains are taxable upon their realisation by the fund (even if they are not distributed to individual investors) if at least one individual investor owns at least 10% of the fund’s securities. For allocation of assets ( répartitions d’actifs ), some French Transparent AIFs (eg, SLP, SLPS, FPCI, FCPR) are entitled to distribute a portion of their assets in cash (they correspond to the sale price of the shares held in the French Transpar - ent AIF) or in securities. Asset allocations to French individual investors are non-taxable up to the amount of the inves - tors’ contributions into the fund. The portion exceeding the contribution made by the investor to the fund (or the acquisition price of its shares) is treated as capital gain subject to the same tax regime as the one mentioned above for distribu - tion of capital gains by the fund. Capital gain generated upon the sale/redemp - tion of the French Transparent AIF’s securities follows the same tax regime as the one applica - ble to distribution of capital gains. When the French Transparent AIF meets the Tax Quota criteria, the following applies. French individual investors can benefit from a favourable tax regime if they comply with these conditions:
• subscribing the fund’s shares (and not acquir - ing existing shares) and undertaking to hold such shares for at least five years from the subscription date; • the amounts allocated by the fund to an individual investor during this five-year period must be immediately reinvested by this inves- tor in the fund; and • investors must not hold, directly or indirectly, alone or with their spouse, ascendents and descendants, an equity stake of more than 25% in companies invested by the fund (and at any time in the five years preceding the subscription date). If so, French individual investors are exempt from French individual income tax on: • income/capital gains distributed by the French Transparent AIF; and • capital gains deriving from the sale/redemp - tion of the AIF’s securities. However, 17.2% security contributions remain due. Legal entities’ investors resident in France When the French Transparent AIF does not meet the Tax Quota criteria, the following applies. French corporate investors must apply the Mark-to-Market Rule unless one of the exemp - tions applies. CIT is applicable at standard rates to all distri - butions of the fund (dividends, interest, capital gains, allocations of assets; note that tax credit attached to these distributions can be deducted) and to capital gains generated upon the sale/ redemption of the French Transparent AIF’s securities.
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