Brexit and private investment

France

The French tax authorities publish their guidelines to help investors

Since 1 January 2021, stock or UCITS issued by a British issuer have no longer been eligible for tax cuts and exemptions pertaining to EU-based companies or UCITS funds.

In most cases however, British stock or UCITS held on 31 December 2021 may remain eligible for a few extra months (the extension varies from one measure to another).

The French tax authorities have just explained and supplemented the measures initially set by December 2020 governmental order and implementing decree.

Stock savings plan

For British Stock or UCITS which were already held under a stock savings plan on 31 December 2020 investors will have until 30 September 2021 to either sell them or withdraw them from the plan.

In the latter case, a cash payment will have to be paid into the plan to compensate and the stock or UCITS’s purchase price will become their fair market value upon withdrawal.

The French tax authorities add that stock or UCITS may be withdrawn from the plan without any cash compensation. If so, such an operation will be regarded as a disinvestment and will lead to the following consequences:
  • For an under-five-year plan, the plan will be terminated with the attached tax cost (income tax and social taxes) ;
  • For an over-five-year plan, the income tax exemption will be granted but social taxes will remain due to the extent of the capital gain included in the withdrawal.
  • The dividend tax exemption will be retained until stock or UCITS are sold or withdrawn, by 30 September 2021 at the latest.
Finally, until 30 September 2021, EU-based UCITS funds may keep British instruments to meet the 75% minimum investment in EU financial instruments.

Private equity

For some private equity funds, a minimum EU investment is required for tax breaks to apply (50% or 70% of the fund’s assets must be EU-based).
The French tax authorities acknowledge that British instruments that had been held on 31 December 2020 will permanently remain an eligible investment for the sake of the minimum investment threshold.

This rule applies to most private equity funds (FCPR, FPCI, FIP, SCR and SLP).
As far as FCPI and FIP are concerned, British instruments which have been bought since 1 January 2021 may be eligible if they result from a shareholders’ agreement that was made before 1 January 2021.

Regarding FCPR, tax breaks may apply where a minimum 50% is invested in unlisted EU-based companies’ stock. Yet, this minimum investment is deemed to be met where a maximum 20% investment is made in listed EU-based companies’ stock whose market capitalization does not exceed € 150 million. On the one hand, British instruments held on 31 December 2021 will remain eligible on a permanent basis for the sake of the 50% investment threshold. On the other hand, for the sake of the 20% investment threshold, they’ll stop being eligible on 31 December 2021.

Income (and former wealth) tax cuts granted for an investment in a SME

Investments made in a British SME as of 1 January 2021 no longer entitle the holder to the income tax cut. Yet, the French tax authorities point out that income and wealth tax cuts granted for investments made before 31 December 2020 will not be challenged as long as the SME’s shares are kept for a minimum five years (another legal requirement to be granted the tax cut).

Regarding an investment in a FIP or FCPI (private equity fund), the income tax cut will be granted where British instruments were held on 31 December 2020.

Carried interest

The specific income tax treatment granted to carried interest will remain applicable to British shares bought or subscribed before 31 December 2020.

Endowment and life-insurance

For British endowment contracts or life-insurance policies, the yearly tax rebate and 7.5% flat income tax rate may apply if the contract/policy is fully or partially bought back by 30 September 2021 at the latest.

Finally, investments in British instruments under “DSK” and “NSK” contracts or “vie-génération” life-insurance policies are granted specific adjustments.