FRANCE Law and Practice Contributed by: David-James Sebag, Donald Davy and Marie-Sophie Chevreteau, Gide Loyrette Nouel
SMEs), which provides personal income tax reductions for individuals investing in small and medium-sized businesses. The French Parliament very recently introduced (Finance Act for 2024 voted in December 2023) additional tax credits to incentivise individu - als to invest in Young Innovative Companies (JEI) or Particularly Innovative Young Com - panies ( Junes Entreprises Particulièrement Innovantes – see above). There are annual investment caps and overall limits on the tax reduction amount. • The Research Tax Credit (CIR – Crédit d’Impôt Recherche) tax incentive designed to encourage companies to invest in research and development activities within France. It allows eligible businesses to claim a tax credit on their R&D expenditures, which can be used to offset corporate tax liabilities or, in some cases, be reimbursed if the credit exceeds the tax due. The credit is calculated as a percentage of qualifying R&D costs, with different rates applicable depending on the size of the company and the amount spent. The CIR is a key component of France’s policy to foster innovation and support the competitiveness of its industries on a global scale, and has been fairly stable over the past few years. • The Innovation Tax Credit (CII – Crédit d’Impôt Innovation), which is a tax credit aimed at supporting SMEs that engage in innovative projects. It is similar to the above- mentioned Research Tax Credit (CIR – Crédit d’Impôt Recherche), but specifically targets innovation expenses. • The French IP box regime allows French companies developing eligible IP assets (eg, patents, patentable inventions, software pro - tected by copyrights, etc.) to benefit, under certain conditions, from a reduced corporate income tax rate of 10% applying to the net
income deriving from the licensing or transfer of said assets. 4.2 Tax Treatment Investment in growth/start-up/VC fund portfolio companies may entail certain tax advantages for both French individuals and entities subject to corporate income tax (CIT). French individuals may in that respect benefit from certain tax incentives, under certain condi - tions, upon investment or exit of growth/start- up/VC fund portfolio companies, as follows. • Upon entry – specific personal income tax reductions for eligible subscriptions in the share capital of SME ( “réduction d’impôt pour investissement dans les PME” ). This tax reduction generally amounts to 18% of the amount invested in the relevant SME (but may potentially be increased to 30% (or even 50%) for subscriptions in the share capital of companies qualifying as young or particularly young innovative companies (see 4.1 Subsidy Programmes ). • Upon exit – potential application to the favourable Plan d’Epargne en Actions regime (PEA) – French individuals may, under this specific tax regime, be exempt from personal income tax on the capital gain realised on their investment, provided that: (i) shares were subscribed to through this specific savings plan; and (ii) the shares or proceeds from the sale of the shares are not withdrawn from the PEA before the fifth anniversary of the PEA; however, social security contributions remain applicable at a rate of 17.2%. • The standard capital gains tax regime pro - vides for a flat tax of 30% assessed on any capital gains, potentially increased by a surtax on high income (referred to as the “contribution exceptionnelle sur les hauts
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