FRANCE Law and Practice Contributed by: Rima Maitrehenry, Fabrice Rymarz, Charles-Xavier Vincenti and Stein Mpassi Loufouma, Racine
When the French Transparent AIF meets the Tax Quota Criteria, the following applies, and French corporate investors may benefit from a tax-favourable regime. An exemption from the Mark-to-Market Rule is available, provided that investors undertake to keep the French Transparent AIF’s securities for at least five years from the subscription/acquisi - tion date. Asset allocations are deemed to be in priority and a non-taxable repayment of capital contri - butions. The amount exceeding such repayment is treated as long-term capital gain for tax pur - poses when the French Transparent AIF’s secu - rities held by the investor were issued by the fund for more than two years on the date of the distribution. If so, the capital gain may benefit from a full CIT exemption when the asset allocation derives from the sale of companies in which the fund held at least 5% of the share capital for at least two years. However, this exemption is not appli - cable in certain cases (notably when the fund sold real estate-rich companies); instead, a 15% reduced rate may apply. The capital gain generated upon the sale/ redemption of the fund’s securities can benefit from the long-term capital gain regime when the investor holds these securities for at least five years. If so, the capital gain is: • exempt from CIT in proportion to the fund assets corresponding to securities of compa - nies in which the fund has held at least 5% of the capital for at least two years; and • subject to a 15% CIT for the remaining amount.
Note: dividends and interest distributed by the fund still remain subject to CIT at the investors’ level. Non-resident investors Their tax regime is similar to the one applicable to non-resident investors of French Exempt AIFs that ventilate their income. Regarding French-source income distributed by the funds, it is worth mentioning that tax treaties concluded between France and the investor’s state of residence would likely limit the amount of withholding tax applied in France, since the investor is deemed to have directly received the income. French AIFs Subject to CIT Other French AIFs can be set up as French companies subject to CIT under standard rules (notably, a French société par actions simplifiée – SAS). These funds are therefore subject to tax at a 25% standard rate (increasing to 25.83% if the additional CIT contribution applies). Investors of French Other AIFs set up as compa - nies subject to CIT are taxable when the Other AIF distributes dividends. Please refer to above discussion of French Exempt AIFs, which are subject to certain differences – in particular, as follows. • French corporate investors can benefit from the parent-subsidiary regime, provided that they hold at least 5% of the French Other AIF’s shares for two years. Dividends are therefore exempt from CIT at their level, apart from a lump sum equal to 5% of the divi - dends. • Foreign corporate investors may rely on the provision of the EU Parent-Subsidiary Direc - tive to obtain a full withholding tax exemption.
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