- Simplification of the various tax regimes
Capital gains realized in 2013 may be:
- subject to the progressive income tax rates table (this is the case for standard regime of capital gains as well as for capital gains realized by entrepreneurs),
- or fully or partially exempted, subject to certain conditions, in certain specific cases (sales of shareholding within a family, sales of shares in “young innovative companies" i.e.,JEI or when certain managers of SMEs retire).
The 19% flat rate that was previously applicable to certain entrepreneurs (the regime for so-called “Pigeons”) has been ended as of January 1, 2013.
As of 2014, the special regimes for full or partial exemptions are also eliminated. The capital gains for these situations are now subject to the progressive income tax rates table. Only tax base allowances will vary depending on the situations.
- Reform of allowances for holding periods
The standard allowance, which is applicable to capital gains realized as of 2013, is set at 50% of capital gains on securities held for at least 2 years and 65% of capital gains on securities held during at least 8 years.
In certain case, the increased allowance is available: it is equal to 50% of capital gains on securities held during at least 1 year, 65% of capital gains on securities held during less than 4 years and 85% of capital gains on securities held during at least 8 years. This increased allowance is applicable:
As of 2013, to capital gains realized by entrepreneurs from sales of securities in a company:
- created less than 10 years before the date of acquisition or subscription of the shares (without being the result of a concentration, reorganization, extension or taking over of pre-existing activities),
- which respects the definition of SMEs within the EU-law meaning and which is mentioned in the Madelin system (maximum of 250 employees and turnover of less than €50 million or an annual balance sheet of less than €43 million) on the year-end date of last fiscal year preceding the date of subscription or acquisition of the securities or, if no fiscal year has ended, on the date of the first fiscal year ended after the date of subscription or acquisition of such shares.
- which, continuously since the date on which the company was formed,
- has not granted any capital guarantee to its partners or shareholders,
- has been subject to taxes on profits or an equivalent tax,
- has had its registered office in a Member State of the EU or in another State that is a party to the EEA that has concluded an administrative assistance treaty with France to fight against fraud and tax evasion,
- has exercised a commercial, industrial, artisanal, self-employed or agricultural activity, with the exception of managing its own personal or real estate assets.
Beginning in 2014, subject to certain conditions:
- to capital gains realized by managers of SME who retire after a global flat allowance of €500,000,
- to sales of shareholding within a family group.
When the company whose shares are sold is an active holding company, compliance with these two conditions is assessed vis-à-vis the holding company and each of the subsidiaries.
It is not required that the shareholder hold a management position. Any shareholder, even an employee or someone who does not hold a position in the company, can claim the benefit of the increased allowance if all other conditions are satisfied.
Click here to view table.
The calculation of the holding period is made date-to-date (by using the “first in first out” method, taking into account prior sales of the relevant company’s securities).
- Particular provisions regarding OPCVMs
Generally speaking, since January 1, 2013, capital gains realized byOPCs (mutual funds) can be distributed, whereas previously they had to be capitalized [except for FCPRs (high risk investment funds), which were already authorized to distribute fractions of assets].
Distributions to individuals of the net capital gains from sales of securities made by OPCs [OPCVMs (UCITS) and FIAs (alternative investment funds)] and entities of like nature, incorporated under foreign law, are henceforth included in the tax base of capital gains that create a right to an allowance, i.e., subject to the graduated income tax schedule, possibly after application of the ordinary law allowance for a retention period (the increased allowance is not applicable to capital gains derived from OPCs).
Subject to certain conditions, the same rule applies for sales of shares inFCPRs, FPCIs (professional capital investment funds) and SCRs (venture capital companies) or equivalent foreign entities that represent carried interest or distributions of carried interest performed by these same entities.
The following are not affected by this reform:
- distributions benefiting from the exemption of capital gains realized in the management of an FCP (French mutual fund) provided that no individual acting directly, through an intermediary or via a trust holds more than 10% of the funds’ shares,
- and distributions benefiting from the exemption of capital gains realized in an FCPR (commitment to retain the shares for at least 5 years).
In practice, when an individual holds shares in an OPC, he can realize capital gains in two ways: if he sells, asks that his shares be redeemed or when the OPC is liquidated or if the OPC distributes to him a fraction of the capital gains that it has realized. In both cases, the base allowance depending on the holding period is applicable only if the OPC invests more than 75% of its assets, in shares or in company shares, no later than by the end of the fiscal year after the fiscal year in which the OPC was created (or for OPCs created before January 1, 2014, no later than by the end of the first fiscal year that begins as of such date) and it does so continuously until the capital gains are realized. This quota is not required for application of the allowance to capital gains from carried interest,FCPRs, FPCIs, FCPIs and FIPs (these funds are already subject to their own underlying investment terms).
The retention period is calculated as of the acquisition date of the shares of the OPC. However, if the OPC was created before January 1, 2014, the retention period begins to run as of the date on which the OPC meets the quota, if such date is after the date of acquisition of its shares.
- Elimination of the deferred taxation regime subject to reinvestment
Article 17 also eliminates, for capital gains realized as of January 1, 2014, the mechanism for deferring taxation subject to reinvesting at least 50% of the proceeds within 2 years, as provided by Article 150-0 D bis of the FTC.