All major tax inventives and subsidies you need to be aware of when starting a business in France.

Green industry tax credit (C3IV) : how to benefit?

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Green industry tax credit (C3IV) – Abstract –

 

The green industry tax credit (in French Crédit d’Impôt au titre des investissments pour une industrie verte – C3IV) is designed to support investment in the production of clean technologies. It can be worth up to €150 million, or even more in some cases. Below is a summary of the scheme.

 

Which companies are eligible for the green industry tax credit?

 

Industrial and commercial companies, taxed according to a real system or temporarily exempted, are eligible for this green investment tax credit, subject to prior approval.

They must, among other things,

  • Not to be in difficulty according to European Union regulations,
  • Commit to operating eligible assets for 5 years (large companies), 3 years (others).

 

What expenses are eligible?

 

Investments eligible for the green industry tax credit are

  • not only those used to manufacture batteries, solar panels, wind turbines and heat pumps,
  • but also those that enable
    • manufacture the components essential to the production of this equipment and machinery and/or
    • add value to the critical raw materials used in the manufacture of the above-mentioned components, equipment and machines.

These suppliers must, however, generate at least 50% of their sales with companies downstream of the production chain.

The following diagram summarizes the value chain.

C3IV - Green investment tax credit

C3IV

These include capital expenditure incurred for

  • The acquisition of assets from unrelated companies
    • Property, plant and equipment (buildings, installations, equipment, machinery and land needed to operate the equipment) and
    • Intangible assets (patents, licenses, know-how or other intellectual property rights),
  • The acquisition of temporary occupation permits for plots of land on which the production facilities will be built.

 

What ceilings and rates apply

In principle, the green industry tax credit cannot exceed €150 million. The standard rate is 20% for large companies, 30% for SMEs and 40% for VSEs (as defined by the EU).

By way of exception, these ceilings and rates are increased respectively by

50 million and by 5 points for investments in regional development zones in mainland France,

200 million and by 20 points for investments made, mainly in French overseas departments and territories.

 

C3IV - Green investment tax credit

Green investment tax credit

 

Approval process 

 

To qualify for the green industry tax credit (C3IV) scheme, a request for approval must be submitted jointly by the tax authorities (DGE+ DGFIP) and ADEME (The French Agency for Ecological Transition) before building work begins.

Only expenses incurred after approval are eligible for the tax credit. Approval will be granted until December 31, 2025.

 

Reimbursement and accumulation with other schemes

 

The tax credit is deducted from the corporation tax. The excess is reimbursed immediately.

It can be combined with other innovation grants (CIR, Young Innovative Status (JEI), CII).

 

Reduced taxation on software (IP BOX): how can you benefit?

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Reduced taxation on software (IP BOX)  – Abstract

After having detailed the basic conditions in the article IP BOX – how can you benefit, we now turn to the application conditions for benefiting from the reduced rate of taxation on software, a complex scheme that is little-known to software publishers, especially subsidiaries of Foreign companies and startups.

 

About the conditions of application

Formal requirements

The decision to opt for this system must be made at the latest when filing the tax return and is evidenced by the completion of appendix no. 2468-SD (CERFA no. 16008). A company that ceases to file this declaration permanently loses the benefit of the option not only for the year in question but also for subsequent years.

The option applies to all concession products. In other words, the company waives the right to place them totally under the ordinary law regime.

Lastly, per article 13 BA of the General Tax Code (CGI), the company must provide documentation justifying the calculation method chosen by the company for each asset or group of assets: this includes in particular

  • The organization of the company’s research and development activities, as well as the process for determining taxable income for assets transferred or licenses granted (see substantive conditions below),
  • A full description of the intangible assets concerned, a discussion of the application of a reduced tax rate and the method of allocating costs to each asset (see substantive conditions below),

Documentation must be (i) accessible in a compatible electronic format to facilitate exchange and reading by the administration, excluding “PDF image” formats from scans, (ii) written in French or translated if necessary, (iii) contain verifiable electronic data for calculations and analyses.

 

 Background requirements

 As the spirit of the system is to ensure traceability between the asset and the associated source of revenue, the option cannot be global but only per software or group of software, following organizational and commercial logic (coherence between research activity and segmentation of the commercial offer).

The methodology for segmenting taxable income at the reduced rate must remain consistent from one year to the next. In short, there must be permanence in the methods used to determine taxable income at a reduced rate over time.

Reduced taxation on software: detailed calculation

 

The 2 aggregates used in the calculation are net income and the Nexus ratio.

 

Income and expenses included in net income

 

It is determined as follows:

  • Income from disposals or concessions relating to the asset concerned,
  • R&D expenditure incurred indirectly by the company in connection with the creation of the asset.

Broadly speaking, they correspond to direct R&D expenditure. Unlike the Research Tax Credit, indirect expenditure is excluded, notably

  • Operating costs, regardless of whether they are determined on an actual or flat-rate basis,
  • Expenditure to protect industrial property rights,
  • Technology watch expenses incurred during R&D operations.

The CIR does not reduce R&D expenditure.

The expenses to be taken into account are all those incurred as from the exercise of the option. Expenses incurred before the year in which the option is exercised cannot be taken into account.

 

The Nexus ratio

The result as determined above is multiplied by a Nexus ratio, which aims to neutralize R&D expenses invoiced by companies or branches linked to the entity benefiting from the IP Box, in order to retain only those invoiced under arm’s length conditions.  As an exception, expenses rebilled without margin by affiliated companies can be retained.

In a nutshell,

  • in the numerator, R&D expenditure excluding affiliated companies,
  • in the denominator, R&D expenditure excluding affiliated companies,

The ratio is calculated on a cumulative basis from the origin of IP Box expenditure.

 

Schematically, the income required to benefit from reduced taxation on software (IP Box) is determined as follows:

reduced-rate software taxation

Reduced taxation on software

Reduced taxation on software: example

 

 

A software company based in France begins an R&D program in fiscal year N. In fiscal year N+2, this program leads to the receipt of royalties. During fiscal year N + 2, this program leads to the collection of royalties in N + 2, enabling the publisher to opt for the tax treatment provided for the reduced taxation on software. The first revenues generated by patent X are recognized in fiscal year N + 3: R&D expenditure and royalties are as follows:

 

The data

 

reduced-rate software taxation

Reduced taxation on software

 

And the solution

 

IP BOX - Tax break on software

Reduced taxation on software

French IP BOX : how to benefit from this regime?

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French IP BOX – Abstract

The French IP BOX or the taxation of software royalties at a reduced rate (10%), and more broadly of industrial property products, offers substantial corporate tax savings. However, their implementation is complex and subject to certain conditions. In this first part, we will look at the economics and the substantive and formal conditions of this scheme, which is little-known to companies, especially start-ups and subsidiaries of foreign groups.

French IP BOX: How does it work in a few words?

 

The French IP BOX is an optional scheme that allows income from the sale or sublicensing of patents and fixed assets to be taxed at a rate of 10%.  It establishes a direct link between the tax advantage and the amount of R&D expenditure incurred to create these fixed assets.

 

Eligibility requirements

 

About software…

 

The software (or patents) must be

On this last point, the fact that research and development costs have been expensed is not an obstacle to benefiting from the system. In fact, the Chart of Accounts allows them to be capitalized.

The company that benefits from the French IP Box must carry out a substantial activity linked to the work’s use, valorization or development, patent or right concerned. This activity is assessed on the basis of criteria such as the number of qualified employees dedicated to it, or R&D expenditure.

 

…And contracts

 

They must

  • Taking the form of contracts
    • licensing, i.e. allowing a third-party licensor to exploit the software for a fee,
    • or sale, i.e. the disposal of an asset, depriving the seller of a future source of income.
  • Have not been assigned to an entity
    • Not at arm’s length from the licensor,
    • Located in a territory that has not signed an administrative assistance agreement with France.

IP BOX: Background conditions – to sum up

 

French Patent Box

French IP Box

Short-term rentals and RSI: Should you abandon the flat rate taxation?

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Abstract – Short-term rentals and RSI

Do short-term rentals and the RSI mean a substantial increase in your tax and social security contributions? This is what was feared with the lowering of ceilings and allowances under the flat-rate system from January 1 2024.  But it was not adopted.  However, this lowering will be probably enacted in 2025.  This postponement is an opportunity to consider the switch to the simplified tax regime (régime simplifié d’imposition (RSI)).  Paradoxically, whatever your sales figures, this system can reduce your tax and social security contributions compared with the flat-rate system even though you are a non-resident in France.  Here’s how it works.

Short-term rentals and RSI:

 

What legislators had to change in 2024…

To encourage investors to switch to long-term rental, the legislator had made a distinction between tense and non-tense zones for seasonal or RBNB renters. In the 1st   category, the sales threshold below which the lump-sum scheme could still be applied was to be lowered from €188,700 in 2023 to €77,700 in 2024, and the deduction on revenues from 71% in 2023 to 50% in 2024. In non-tensioned zones, this same sales figure of €188,700 was to be lowered to €50,000, and the tax allowance rate was to remain unchanged at 71%.

 

…And what’s changed in 2024…

On the other hand, the Finance Act 2024 has, retroactively to January 1 2023.

  • For unclassified furnished tourist accommodation lessors, lowered the ceiling and allowance from 77,700 and 50% respectively to €15,000 and 30% (cf. article 50-0 of the General Tax Code (CGI) 1° and 2° b).
  • An additional 21% allowance has been created for renters of furnished tourist accommodation in rural areas.

 

Short-term rentals and flat-rate taxation – summary

 

RBNB rentals and RSI:

Short-term rentals and RSI:

What are the consequences if you exceed the thresholds?

 

If you exceed the applicable thresholds, you are automatically taxed under the simplified tax regime (RSI), in the BIC category. In other words, your income is the difference between earned income and earned expenses. Earned income means income and expenses generated during the year in question. The fact that these revenues and expenses were not received or disbursed during the year in question is irrelevant. In other words, you are required to keep (or have kept) accounting records on an accrual basis and are no longer taxed on a percentage of your income.

 

Is it very penalizing in terms of taxation?

Short-term rentals and RSI are not necessarily a penalizing combination. Recording actual expenses can result in an expense ratio of over 50%, or even 71%. In particular, you can deduct (i) depreciation on real estate assets, (ii) transaction costs on said assets and (iii) URSSAF contributions (as long as your acquired (or realized) sales exceed €23,000 in a full year). Better still, you may discover that you should have abandoned the flat-rate tax regime long ago ….

 

And what about social security contributions?

With the switch to the simplified tax system, you can no longer contribute based on a percentage of sales. Instead, you contribute on the basis of your actual taxable profit. And unlike the flat-rate system, these URSSAF contributions are tax-deductible (see paragraph above). You will be subject to them only if your turnover exceeds €23,000.

What if I sell a property after switching to the simplified tax system?

  • You are a non-professional (that is your turnover does not exceed €23,000)
    • Capital gains are subject to the personal income tax regime (régime des particuliers).
  • You are a professional (that is your turnover exceeds €23,000)
    • Regarding income tax, capital gains are subject to the system for professional capital gains. However, under certain conditions, you may be exempt from taxation.
    • The capital gain corresponding to the depreciation deducted for tax purposes is subject to URSSAF contributions. This is the case even if you are exempt from taxation (see above paragraph).

 

Short-term rentals and RSI – Example of a comparison with the flat-rate system

 

The data

 

Consider a “loueur en meublé professionnel” – one of our customers – with the following characteristics:

Sales €90,000 entirely in classified meublés de tourisme.

External expenses

Council tax: €2,317

Property taxes: €3,408

Condominium charges: €4,410

Electricity: €3,300

Internet: €1,510

Miscellaneous fees: €2,900

Non-occupant owner insurance (PNO) : €576

Platform commissions: €15,250

Miscellaneous expenses (small materials and equipment): €3,500

Janitors: €29,000

Interest: €4,740

URSSAF contributions (including regularization); €679 of which €242 non-deductible CSG/RDS (we will assume that the furnished lettings operator has switched to the actual tax system and pays URSSAF contributions as a self-employed worker from January 1 2023),

Building purchase price: €787,000, 65% of which is depreciable over 35 years (the land, estimated at 35% of the price, is not depreciable),

Purchase price of fixtures and fittings: €44,700 amortized over 12 years.

 

Summary Comparison of RSI and flat-rate tax system

 

As a result, the actual taxation system allows our customer to reduce

  • His/her personal income tax base of €19,444,
  • His/her URSSAF contributions of €4,721.
RNBN rentals and RSI

Short-term rentals and RSI

(1) Micro-bic: taxable income €90,000 x (1-71%); URSSAF contributions: €90,000 x 6%.

Short-term rentals and the RSI are a win-win situation: our customer should have switched to the real tax system at least as of January 1 2023!

 

Jean-Claude Armand et Associés can help you make the transition from flat-rate to simplified taxation regime (RSI).

 

Collaborative Tax Credit (CICO) : how to take advantage of it?

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Collaborative Tax Credit (CICO) : How can a foreign company benefit from it?

Abstract

The 2022 Tax Law enacted the Collaborative Tax Credit as of January 1, 2022, to compensate for the elimination of the doubling of expenses of chartered research organizations in the calculation of the Research Tax Credit ( Crédit d’Impôt Recherche (CIR)). While many provisions are common to both the CIR and the CICO, there are some differences. Here are some explanations.

 

Purpose of the collaborative tax credit 

It is to encourage the sharing of costs, risks and benefits on a project. It is based on a collaboration contract and not on a subcontracting project, which in return for the invoicing of a commercial margin, forbids the provider to use the acquired knowledge.

Which companies can benefit from the Collaborative Tax Credit?

All companies subject to corporate income tax in France. This definition is strictly identical to that of the recipients of the CIR. Hence, liaison offices, and branches of foreign companies not identified for tax purposes in France are excluded.

 

What types of contracts are eligible for the Collaborative Tax Credit?

The contract must be concluded

o Between January 1, 2022 and December 31, 2025, with an organization chartered by the Ministry of Research and Higher Education,

o Prior to the execution of the work,

o Allow for risk sharing and publication of the results obtained, which proscribes the possibility of the beneficiary being the sole owner of the work.

The work must be performed in the European Economic Area (AAE), directly by the research organization at cost price and not exceed 90% of the total expenses incurred.

What are the maximum rates and basis?

The CICO rate is 50% for companies that meet the definition of European SMEs, and 40% for others, for a maximum expenditure of €6 million. The CICO is therefore capped at €3M for SMEs and €2.4M for other companies.

 

How is the CICO reimbursed?

 

Like the Crédit d’Impôt Recherche (CIR)), the CICO can be deducted from the corporate income tax related to the current year. The surplus is

– Immediately refundable for European SMEs,

– Can be returned after 3 years if not applied to corporate income tax.

 

Can the CICO be accumulated with the research tax credit (Crédit d’impôt Recherche (CIR))?

A company can benefit in principle from the CICO and the CIR. However, the same expenses cannot be eligible for both the CICO and the CIR. Since the reimbursement rate for the CICO is higher (40%) than that of the CIR (30%), the former should be favored over the latter.

 

How do I know if the expenses invoiced by research organizations are eligible for the CICO?

Like the CIR, you can file a prior notice request with the tax authorities.

 

To sum up, the CICO

 

Collaborative tax credit: how to take advantage of it?

Innovation tax credit (CII) : how to benefit from it?

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Innovation Tax Credit in France –  Overview

The innovation tax credit in France (in French “Crédit d’Impôt Innovation” (C.I.I.)) is a tax measure that enables partial funding of outlays incurred to enhance the functionalities of any device on a given market; it can be in the form of reimbursement or a reduction of corporate tax.

International French group branch offices or subsidiary companies, provided they are SME under the European definition, can obtain from the French state the reimbursement of up to 30% of their spending to embed new functionalities on devices, in the same conditions as French companies.  Branch offices are also concerned, that is to say, unincorporated foreign stable establishments in France.

Because the innovation tax credit in France is a tax measure, it is not subjected to any regulatory framework and is not taken into account for the limit of European public fund aids.

How does it work?

Scope of spending…

The spending engaged has to relate to the setup or conception of new prototypes or design of new products. Hence, a new product should meet a couple of criteria. First, it must not be made available to customers. Second, It outperforms technically those existing on the market.

…and calculation of innovation tax credit in France

The spending eligible for CII are the following:

  • Salaries and related social expenses,
  • Depreciation allowances for assets used in innovation projects,
  • Operational expenses,
  • Intellectual protection expenses (patent costs),
  • The costs of subcontracted research entrusted to public research entities, scientific experts and private structures approved by the Ministry of Industry.

The innovation tax credit and staff expenses

  • Gross salaries and the employers’ social tax costs for researchers (executives and technicians),
  • Gross salaries and employers’ social tax costs for managing directors (in French “mandataires sociaux”),
  • Salaries of trainees,
  • All staff costs not belonging to the company, provided they are charged at cost price, (prorated to the time spent on Innovation programs only).

… And depreciation allowance

  • The depreciation allowance assigned to all Innovation programs are included in the base of the calculation.

… And running costs

  • Staff expenses as defined above benefit from an increase to a rate of 43%,
  • Depreciation allowance benefits from an increase of 75% within operating costs.

… And subcontracted research

  • The innovation expenses entrusted to private organisms, which are listed and hence authorized by the Ministry of Indutsry’s Website.

The subsidies related to the program must be subtracted for the above-mentioned expenses.

The maximium innovation tax credit you can get..

All the expenses are capped at 400 K€ incurred per calendar year. Hence the Innovation Tax Credit cannot overtake K€ 120.

..and its repayment

The tax credit will reduce corporate tax owed by the company. Any excess is refunded immediately.

How to legally optimize and secure the Innovation tax credit (CII)?

Companies that want to secure their CII in France can file a prior notice request (rescrit fiscal in French) to the tax authorities before starting innovation operations. This procedure is highly recommended. The opinion will constitute a position on the part of the tax authorities’ standpoint, although it keeps its right to control the reality and the amounts of the expenses eligible.

The company has to submit evidence attesting the reality of its innovative programs. This submission takes the form of a write-up laid out according to the requirements of the Oslo Manual.

The innovation tax credit and other tax incentives

The status can be accumulated with all other tax incentives, especially the CIR, the Video-Game tax credit and the Young Innovative Statut (JEI). For further information on this, please look up tax credits – what you need to know. 

The innovation tax credit in France: to sum up..

 

Innovation tax credit

Tax incentives

Young Innovative Enterprise and research tax credit : the accumulated tax savings

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Young Innovative Enterprise and Research Tax Credit (CIR) – Abstract

The Young Innovative Enterprise Enterprise is a status that the subsidiary of a foreign company can accumulate with the research tax credit under certain conditions. See the example below.

An example of savings Young Innovative Enterprise status and CIR

The data

M, which has no other subsidiary than F, has declared for the fiscal year closed on December 31, 2022, a (euro equivalent) 35 M€ turnover, with 120 employees. F declared a 2 M€ turnover, with 23 employees, 1.25 M€ of gross salaries, of which 0.35 M€ of personnel costs for research operations, social taxes (@ 42% before any exemptions) and a 0.083 M€ of corporate tax. The company did not file for either the CIR or the JEI status at the end of 2021. What grant aid can the company still benefit from for the 2022 calendar year? If possible, how much can the aid be?

The answers

1)  F can still benefit from the JEI status until the 31st of December 2024 because,

  1. The company filed the JEI before it being acquired by M,
  2. It is an SME under the European definition (the parent company and the subsidiary company employ together less than 250 people),
  3. It is over 50% owned by physical persons and venture capital funds,
  4. R&D expenses represent 843 K€ (405+158 x 1,50), which is far above the threshold of  15% of the total charges.

2) It can also benefit from the research tax credit (CIR over the year 2022 as well).

3) it can get a corporation tax exemption, provided

  1.  the corporation tax expense does not exceed 200 K€
  2.  this is the first time the company records a pre-tax profit.

3) All in all it can save K€ 381 !!

 

Young Innovative Enterprise

Young Innovative Enterprise

 

Tax credits in France: what you need to know

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Tax credits in France – General objective

Tax credits in France can be likened to subsidies granted by the French Government. They are aimed at decreasing most of the time the overall cost of labor significantly when they can be combined with each other (up to 50%).

Tax credits in France – How does it work in brief?

Applicability, calculation and repayment..

First, applying for them assumes the entity pays corporate tax in France. Practically, branches and companies can claim tax credits. Liaison offices cannot claim them as they do not pay income tax in France.

Second, and as a result of the first paragraph, they often are calculated partially or even totally on gross salaries.

Third, they are never subject to corporate tax. Indeed, they are always deducted from the taxable profit. This feature makes them totally different from all other grants and subsidies. Prize-winning awards, subsidies and loans (whey they are not refundable any longer for certain conditions) are always included in the basis of the calculation of the corporate tax.

Finally, they are deducted from the tax bill any company has to pay each year. The excess of tax credits over the tax bill is either repaid immediately or maximum after 3 years, if the company has not been in a position to apply it to tax bills after this 3-year period. The terms of refund hinge either (i) on its size (an SME or not)  and/or the type of tax credit.

Possible combination of tax credits?

The tax credits that are worthwhile to apply for can be added to each other with no restrictions. In other words, a company does not have to choose between certain tax credits.

Taxonomy of tax credits in France.

Wage tax credits…

All major tax credits (Research, Innovation, video games tax credits) subsidy beforehand wages.

As a result, the same € of gross salary spent to get to a given tax credit cannot finance another one. For instance, the same € of gross salary spent to get to the research tax credit cannot finance the video-games tax credit (and vice-versa).

 

…And the Young Innovative Enterprise (JEI) Status

The Young Innovative Enterprise Status (JEI) has a particular status. Indeed, it combines a corporate tax exemption over 24 months and a decrease in 2/3 of the social expenses on researchers’ salaries.  It can be applied by SMEs whose seniority is lower than 8 years.

The JEI status is always accumulated all other tax credits, especially with the research tax credit. The corporate tax exemption (not the social tax advantage) is capped at € 200,000 .

Tax credits in France – A summary

Tax incentives France

Tax credits in France

Tax incentives in France

For further information, see below about the

the research tax credit (CIR)

the Innovation Tax Credit

the video game tax credit

the movie tax credit

 

 

Innovation : subsidies in France dedicated to innovation

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Subsidies in France: General Overview

In the Parisian region (IDF: Ile de France in French), International groups wishing to start a business in France, in particular an innovative one, can profit from 4 financial support programs, two of which are national.  There are regional financial support programs in other regions comparable to those existing in the Parisian region.

Which criteria should be met to apply to these programs?

Depending on the program, the parent company (together with all its existing subsidiaries) shall be considered by the European legislation as either a medium-sized business (Turnover and balance sheet< 43 Million €, Staff members <250), or a small business  (turn-over and balance-sheet <10 Million €, staff members < 50).

Most of the time, the seniority of the newly founded subsidiary is not always required. The only exception is the PIA program which is dedicated to start-up companies.

Finally, the subsidiary has to operate preferably in a forward-looking sector. However, for some grants, it is not a prerequisite provided the subsidiary has ambitious projects in France.

How much can these subsidies in France finance innovation?

They can fund up to 70% of research programs [internal or exterior] intangible expenses, with a ceiling from 25 to 80k€ when granted in the form of subsidies and sometimes more when granted in the form of reimbursable advances. The body that finances all these subsidies is BPI. 

If these research programs are collaborative (i.e. they are managed by several companies), financial support can be even more substantial (several million Euros).

As opposed to the subsidy [which is in principle definitively granted to the company] the financial support is reimbursable if the financed program is a commercial success. In such a case, the reimbursement is always interest-free.

These grants can be accumulated with prize-winning awards such as the Worlwide Innovation Challenge (WIC), loans for innovation, and fiscal support for innovation, whether the company is eligible for the Research and Development Tax Credit (C.I.R: Crédit d’Impôt Recherche in French) or the Young Innovating Company status (JEI: Jeune Entreprise Innovante in French).

It can be summarized as follows:

Subsidies in France

Subsidies in France

Need more information?

Contact us

Incentives in France: what you need to know

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Incentives in France : background

France has been always a land of breakthroughts : the country invented, among others, photography and the combustion engine, pioneered the automotive and the aircraft industries. It also discovered radioactivity and certain major deseases.

Given the aforementioned facts, France started to support the high tec sector 30 years ago. The country beefed up the policy over the past years, by supplying a wide range of grants and tax credits.

Conditions to get these incentives

In general

As mentionned before, the company needs most of the time  to develop innovative technologies (Information and communication technologies (ICT), biotechnologies, renewable technologies, innovative materials, nanotechnologies, etc.).  However, if the sector in which they operate does not target innovation, some of them can be acquired, provided the company has ambitous objectives.

Depending on the programm, the incentives are restricted to Small or Medium Enterprise under the European definition (less than 250 employees, annual turnover below 50M€ or a total balance sheet below 43M€. No requirements exist regarding the shareholding.

Finally, the seniority of the company matters most of the time little, even not at all. For some of them, it is not required that the company be incorporated to apply for them. However, it needs to exist to cash the incentives.

..and applied to branches or subsidiaries of foreign small businesses

A newly subsidiary or branch founded by a foreign group can benefit from all these incentives as any French company if the consolidated turn-over and the balance sheet of the mother company it belongs to and all its subsidiaries remain below these thresholds.

Hence, foreign firms can hire people, especially engineers,  developpers etc.. working in the innovative sector at a very interesting value for money.

Taxonomy of incentives in France and economical effect – in brief

Incentives in France can be classified in 5 categories;  tax credits,  prize-winning awards, sudsidies and reimbursable supports, free-interest rate loans.

Most of time, there are no restrictions to add these incentives to each other. As a result, the support from French government can easily support over 50% of the outlays. In other words, they can significantly decrease the cost of labor.

Incentives in France – A Summary

Incentives In France

For tax credits, for further information, click here

For prize-winning awards through contests, go to  The Worldwide Innovation Challenge (Concours Mondial de l’Innovation in French) that can award up to a 20 M€ grant,

As for Subsidies, click Reimbursable financial support or innovation subsidies,

And here for loans for innovation.

Need more information?

Contact us

Worldwide Innovation Challenge

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What is the aim of the Worldwide Innovation Challenge?

The Worldwide Innovation Challenge (WIC) wants to achieve a couple of goals. The first one is to boost Innovation in France, by giving to the country broader exposure to innovation and technology. Second, it strives to attract talents, entrepreneurs and risk-takers from all over the world.

 This challenge can finance projects in 7 key fields (energy storage, heavy metal recycling, marine resources valorization, vegetable protein and vegetal chemistry, individualized medicine, silver economy, big data operation valorization).

Project initiators, including foreign companies that wish to apply to the WIC can be of foreign nationality. Moreover, it is not compulsory that the firm exists the day the application is submitted. However,  the project has to be developed and executed in France. The WIC can be broken into 3 stages

and its unwrapping:

1st stage (seed or start-up): for the first 100 appointees (out of 900-1000 applicants); up to 200k€ in subsidies. The date for the opening for the next round of this phase is not yet known but is supposed to be the end of the current civil year.

2nd stage (support/Risk reduction): for 30 appointees, up to 2 M€ in subsidies. This phase is open from 2nd, December 2016 and will be closing on 15 February 2017. 

3rd stage (development): for 7 appointee(s), up to 20M€ subsidies.  A select number of Phase 2,  projects will be given support for mass production during the third phase, which will open in 2016.

Therefore, this contest can be likened to a corporate subsidy in France. Moreover, it can be accumulated with the research tax credit, the JEI Young Innovative Status, and employment and innovation subsidies.

This unwrapping can be summarized as follows

Worldwide Innovation Challenge

Worldwide Innovation Challenge

For further information: click here

 

Jean-Claude Armand & Partners assists you in preparing and winning the challenge

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Employment subsidies in France

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WHAT ARE THE CONDITIONS TO GET THESE SUBSIDIES?

 

Employment subsidies in France can also be substantial, especially if the subsidiary or the branch belongs to a group considered as a Small or Medium Enterprise (SME)  under the European definition and develops one or several technological innovations (such as biotechnology, heavy metal recycling, marine resources valorization, vegetable protein and vegetal chemistry, individualized medicine, silver economy, big data operation valorization, etc.): in general any recruitment can be eligible to government support. Foreign group’s liaison offices can benefit from employment subsidiaries under the same conditions as French group’s subsidiaries or French capital-owned companies.

 These employment subsidies can be accumulated with tax incentives such as the research tax credit (CIR) or the JEI (Young Innovative Status).

 

WHAT ARE THE MOST INTERESTING EMPLOYMENT SUBSIDIES IN FRANCE AVAILABLE TO COMPANIES?

 

PM’Up is the most attractive for executive staff recruitment because the employment subsidy can be drawn over a three-year period and sum up to a total of 250 k€. Non-executive recruitment also can benefit either from employment subsidies or from financial support.

Moreover, this subsidy allows the recipient to have access to over 1000 partners and world-class corporations. Finally, the company benefits from the help for free of a counsellor over the aforementioned period.

Unlike PM’UP, which is aimed at financing innovation, employment subsidies in France target a wide range of fields of activity, most of which are industrial.   The recipient can acquire either a subsidy or a loan. Of course, should the support be a loan, it is interest-free and can sum up to 20 K€, which is three times as much as the maximum amount for a subvention (7 K€).

Both these subsidies can be summarized as follows:

Employment subsidies in France - Innovation France

Employment Subsidies in France

 

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Innovation In France : loans to innovation sector

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WHAT ARE THE CONDITIONS TO GET LOANS TO INNOVATION SECTOR

 

From the instance a foreign group is considered as an Small or Medium Enterprise (SME) under the European definition and that their French branch or subsidiary develops an innovating technology, it can benefit from the following favorable term loans: first of all, loans can reach a high equivalent of the net equity and comparable funds (between 1 and 2). Moreover, the first reimbursement is deferred for at least 2 years and no guaranty is required. Lastly, the can be accumulated with employment subsidies, the  research tax credit (CIR in France) and/or the statut JEI (Young Innovative Status).

 

WHAT ARE THE MOST INTERESTING TYPES  OF LOAN TO INNOVATION A COMPANY CAN GET?

The first most interesting mechanism to apply to during the creation stage of the subsidiary is the seed loan (PPA: Prêt Pour l’Amorçage in French). To benefit from it, the entity has to initiate an R&D program and the group must have less than 5 years of existence. The loan ranges from 50 to 150k€ (but capped at the amount of net equity) over a 7-year period with a 36-month deferral for payback.

Subsequently, the loan for innovation (PPI: Prêt Pour l’Innovation in French) is by far the most interesting. To benefit from it, the group must have more than 3 years of existence and the subsidiary has to manufacture and sell an innovating technology. This loan can reach up to 3 M€ by 12 months periods and be equivalent to twice the amount of net equity (in other words, a subsidiary with a 1.5 M€ net equity can benefit from the maximum). The loan is based on a 7-year period with a 24-month deferral for payback.

Both these loans with favorables terms can be summarized as follows:

Innovation-in-France-Loans

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French Movies : how to benefit from the French movie tax credit

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Context: why the French Movie Tax credit? Because France is proud of its heritage and is determined to spread it worldwide although they already are the number one tourist destination in the world. Films and other fictions play a substantial part in this promotion. That is why the Ministry of Culture has set up important tax incentives for film producers, which are even more attractive to foreign companies.

French movie tax credit for corporations based in France (including therefore subsidiaries of foreign groups)

The prerequisites and conditions of the French movie tax credit…

The conditions to obtain a refund are (1) an agreement from the Centre National du Cinéma (2) the majority of the movie/episode has to be shot in French. In practice, the agreement is needed prior to the launching of the French movie performance.

Moreover, the tax credit cannot cause all subsidies to overtake 50% of the overall budget.

The base of calculation…

The movie tax credit (Crédit d’Impôt Cinéma in French) allows any producer to collect a refund of certain expenses. Eligible expenses for the tax credit are royalties paid to authors, salaries and social costs paid for technical staff members, and expenses incurred to cut/edit/ the movie… to sum up almost all expenses. The total of expenses entitled to this credit is capped at 6 M€.

and the rate

The tax credit is calculated per episode or movie and represents up to 30% of the aforementioned costs, which means the movie tax credit is capped at 9 M€ accordingly.

and the refund

If the tax credit has not been deducted from the tax bill, it is immediately refunded.

… and for entities based outside France 

The conditions and the calculation of this tax credit (in French Crédit d’impôt pour production de films et oeuvres audiovisuelles étrangers) are the same (agreement of the CNC, expenses capped at 30 M€, etc.) with the exception (1) that the movie/episode is required to highlight parts of the French heritage, but is not required to be shot in French.

Hence, the movie tax credit is capped at 9 M€ accordingly.

French movies

Tax incentives in France – French movie tax credits

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Video game tax credit : how to benefit from this tax incentive

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Video game tax credit : a powerful tax incentive for video creators

You are video game editor and you wish to implant yourself in Europe? Consider France, along with its skilled labor in this sector and its video game tax credit, which can go up to M€ 6 per year.

Background & Principle

To encourage numerous players to make their video games in France, it instituted the Video Games Tax Credit (CIJV).

To this end, the French cultural exception was put forward to obtain the agreement of the European Commission. As a result, the cultural aspect is paramount in this scheme.

The Crédit d’Impôt Jeux Vidéo (CIJV) is therefore designed to subsidize expenditures incurred by companies in developing and marketing video games that meet this cultural criterion.

Which companies can be eligible for the video game tax credit?

The company has to be subject to corporate tax in France. Hence, it can be either a branch or a subsidiary of a foreign or French corporation.

The tax credit is specifically designated for companies that create video games. As per the Movie Code, a company is  considered as a video game creator if it fulfills the following criteria: (i) it is responsible for the artistic and technical production of the video game, and (ii) it initiates and bears the expenses required to create the video game.

What are the video-games targeted by this tax credit ?

Video games must meet 4 cumulative conditions:

The video game must meet the definition set out in the French Cinema Code (artistic creation, interaction with users around a scripted and simulated storyline using moving images) and contribute to the diversity of French or European creation,

The video game must be (i) written in whole or in part (i) by the company or by authors of French or European nationality, (ii) with contextualized (non-excessive) violence (iii) promote French cultural heritage,

Development costs exceed €100,000, and the game is intended to be marketed to the general public or made available online,

In terms of form, the video game is subject to prior (or provisional) approval by the Centre National du Cinéma (CNC),
– a preliminary (or provisional) approval before execution,
– final approval,

The company’s relations with members of the CNC are likely to facilitate obtaining these approvals.

Calculation

In practice, (i) all necessary expenses, net of subsidies received in connection with the Video Game (VG), for the production of the VG  are eligible for this tax credit: personnel costs allocated to the creation of the game, copyright, depreciation of equipment, subcontracting if from the EU zone (capped at €2M), etc. On the last point, subcontracting outside the EU is not eligible for the CIJV in order to respect the European nature of the creation.

Expenditures become eligible from the date of provisional approval and cease to be eligible 36 months before the date of final approval.

Eligible expenses are capped at 20M€ over a 12-month fiscal year. It enables a 30% tax reduction. In other words, the tax credit can be as high as € 6 million per fiscal year.

Can the company this tax credit be accumulated with others?  

The company that claims it can also benefit from all innovation-oriented tax credits such as

However, the same expenses can be used for one scheme only. (Expenses of some programs may overlap each other)

 To sum up the video game tax credit

Video game tax credit - tax incentive

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Young Innovative Company Status – JEI : a powerful incentive

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Young Innovative Company Status (JEI) – General overview

The status of Young Innovative Company (JEI) enables young companies very active in R&D to get significant financial support to get past the hurdle of the first and most difficult years of their development. It mainly consists in a social expense (tax) exemption researchers’ salaries and corporation tax exemption as well.

Conditions to acquire the JEI status

To acquire the JEI  (Young innovative company)  status, the company must fulfill 5 conditions:

  • Be less than 8 years old,
  • Be a SME according to the General Tax Code,
  • Be independent (at least 50% directly or indirectly owned by physical persons, including venture capitalists),
  • Practice an authentically innovative business,
  • Dedicate at least 15% of the total company’s spending in R&D,

The calculation of R&D’s share of expenses is roughly the same as the research tax credit (CIR above mentioned).

To preserve its status, the company must maintain all these requirements for each fiscal year.

Subsidiaries of groups can benefit from the statuts if they were pre-existing companies. However, subsidiaires newly incorporated by groups are not eligible for it.

Exemptions granted by the Young Innovative Company Status

Companies that obtain the JEI status benefit during the eligible period of 3 types of exemption:

  • Exemption of employers’ payroll taxes for research personnel salaries,
  • The following tax relief:
    • Exemption on corporate income tax during 12 months over 8 years,
    • 50% tax allowance on profits for the following 12 months,
  • Total exemption of two local businesses taxes (C.F.E. and C.V.A.E.)

These tax exemptions on corporate income tax are subjected to the European de minimis rule, which sets an upper limit on tax relief that a company can receive each year. These aids cannot exceed 200 K€ by company over a 3-year period.

Employers’ payroll tax exemptions are capped:

  • For each employee, to the portion of revenue up to 4.5 times the SMIC   (minimal French pay) of the gross salary, which represent today 6 660€  per month in 2018,
  • For each establishment, up to 5 times the social security’s annual (that is 199 880 € in 2018).

No other capping exists as far as the payroll taxes are concerned.

 How to optimize & secure the Young Innovative Company status?

In order to reduce the risk of queries from the tax authorities on the innovative nature of the research program, and consequently the statut JEI, it is highly recommended for companies to request from the Service des Impôts des Entreprises (SIE) “Corporate tax department” to which they file, to take a stand on the innovating nature of the project(s) by filing a prior notice request (rescript). The absence of answer from the Administration is worth agreement of its part. However, it can still control the reality and the amounts of the expenses.

Accumulation of the JEI status with other exemptions or subsidies

The company can accumulate the JEI status with the CIR (research tax credit) and innovation subsidies and employment subsidies.

THE YOUNG INNOVATIVE STATUS – IN BRIEF

Young Innovative Company statuts

Young Innovative Company

 

Our flexible and lean organization relies on experts and tax lawyers, who master the English language (and in some cases German) and have a confirmed experience of CIR. We assure you a quality of service comparable to that of large consulting firms, but at much lower rates. At Jean-Claude Armand and Partners, we consider that tax advantages should benefit above all the companies. For us, this is fundamentally a question of ethics!

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Foreign companies : how to profit from the research tax credit in France?

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Research tax credit in France –  Overview

The research tax credit in France (in French “Crédit d’Impôt Recherche” (C.I.R.)) is a tax measure that enables a partial funding of research, development and experimentation (R&D) for companies; it can be in the form of a reimbursement or a reduction of corporate tax.

International French group branch offices or subsidiary companies can obtain from the French state the reimbursement of up to 30% of their spending on research, experimentation and development operated in France, in the same conditions as French companies.  Branch offices are also concerned, that is to say, unincorporated foreign stable establishments in France.

Because the research tax credit in France is a tax measure, it is not subjected to any regulatory framework and is not taken into account for the limit of European public fund aids.

How does it work?

Scope of spending…

The spending engaged has to present non-controllable technical risks and allow an increase of knowledge in the considered technical domain.

…and calculation of research tax credit in France

The spending eligible for CIR are the following:

  • Salaries and related social expenses,
  • Depreciation allowances for assets used in research projects,
  • Operational expenses,
  • Intellectual protection expenses (patents costs),
  • Technology watch expenses assured by the researchers,
  • The costs of subcontracted research entrusted to public research entities, to scientific experts and private structures approved by the Ministry of Research.

The expenses are not capped!

You must substrate all subsidies received from the expenses engaged.

The research tax credit and staff expenses

  • Gross salaries and the employers’ social tax costs for researchers (executives and technicians), up to double the amount for young PhD possessors under specific conditions,
  • Gross salaries and employers’ social tax costs for managing directors (in French “mandataires sociaux”),
  • Salaries of trainees,
  • All staff costs not belonging to the company, provided they are charged at cost price, (prorated to the time spent on R&D operations only).

The research tax credit and depreciation allowance

  • The depreciation allowance assigned to all R&D operations are included in the base of calcultation.

… And running costs

  • Staff expenses as defined above benefits from an increase to a rate of 50%,
  • Depreciation allowance benefits from an increase of 75% within operating costs.

… And subcontracted research

  • The research expenses entrusted to private organisms are limited up to twice the total amount of other eligible expenses, and capped either (i) to 10 M€ per company provided it is independent on the subcontracter, (ii) to 2 M€ otherwise.
  • The listed of authorized subscontracted can be looked up on the Ministry of Research’s Website.

…Intellectual property

  • The fees incurred to protect and maintain patents up to 60 000 €.

…and technology watch

  • All external outlays up to 60 000 €. Note that staff’s costs are not taken into account.

The research tax credit repayment

The tax credit will reduce corporate tax owed by the company. Any excess is refunded immediately if the company is considered as a SME under the European’s Union definition.

Otherwise, it will have a 3-year carryforward. At the end of 3, years, it becomes refundable in cash.

How to legally optimize and secure the research tax credit (CIR)?

Companies that want to secure their CIR in France can file a prior notice request (rescrit fiscal in French) to the tax authorities before starting research operations. This procedure is highly recommended. The opinion will constitute a position on the part of the tax authorities standpoint, although it keeps its right to control the reality and the amounts of the expenses eligible.

The company has to submit evidence attesting the reality of R&D operations. This submission takes the form of a write-up laid out according to the requirements of the Ministry of Research.

The research tax credit and other taxes incentives

The status can be accumulated with all other tax incentives, especially the CICE, the Video-Game tax credit and the Young Innovative Statut (JEI). For further information on this, please look up  tax credits – what you need to know. 

Practical effects of the research tax credit in France

Assuming the gross salary of a researcher is 100 € (145 € all social expenses included), the subsidy amounts to (145*1.5)*30%=65.25 €. The research tax credit stands for up to 45% of the overall cost of a researcher.

Accumulated with the tax reduction entailed by the expenses, (145/3)=48 €, the overall tax credit amounts to 65.25+48 = 113 €.

Hence, the residual cost born by the company amounts to 148-113 € = 35 €, that is 24% of the overall costs!

The research tax credit in France : to sum up..

Research tax credit in France

Research tax credit in France

Our firm assists you for the following services:

  1. Building the procedures to obtain a secure CIR    (scientific record, financial record, tax record…),
  2. Setting up the prior notice request (rescript) if necessary,
  3. Calculation of CIR,
  4. Assistance in case of tax authorities claim or control.

Our flexible and lean organization relies on experts and tax lawyers, who master the English language (and in some cases German) and have a confirmed experience of CIR. We assure you a quality of service comparable to that of large consulting firms, but at much lower rates. At Jean-Claude Armand and Partners, we consider that tax advantages should benefit above all the companies. For us, this is fundamentally a question of ethics!

 

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