France Taxation FUNDS AND FUND MANAGEMENT Taxation. Fonds Communs de Placements (FCP) Fonds Communs de Créances (FCC)

Transcription

1 France Taxation FUNDS AND FUND MANAGEMENT Taxation In France open-ended mutual funds are constituted as Organisme de Placement Collectif en Valeurs Mobilières (OPCVM), which takes the form of the following: Sociétés d'investissement à Capital Variable (SICAV) Sociétés d'investissement à Capital Variable d entreprise Fonds Communs de Placements (FCP) Fonds Communs de Créances (FCC) Fonds Communs de Placements à Risques (FCPR) Fonds Communs de Placements dans l Innovation (FCPI) Fonds Communs d Intervention sur les Marchés à Terme (FCIMT) Fonds d Investissement de Proximité (FIP) Fonds Commun de Placement d Entreprise (FCPE) A SICAV is exempt from corporate tax on its portfolio income whatever their origin; that is, fixed income instruments, such as bonds and negotiable notes (called Titres de créances négociables, TCN) or variable income instruments, such as dividends. It has no obligation to distribute its profit. A FCP, because it is a co-ownership entity without legal personality, is considered, for tax purpose, as a transparent entity and is not liable to tax itself. Each unitholder is deemed to receive directly the FCP income. A FCC is a co-ownership entity which invests into securitization products (banking or commercial receivables). A FCIMT can be assimilated to a hedge fund subject to a strict regulation.

2 2 France Taxation The French Government adopted an ordinance in October 2005 to create Organismes de Placement Collectif dans l Immobilier (OPCI). The incomes deriving from the OPCI will be, upon option, treated either as dividends or as real estate incomes, provided that the OPCI is more than 60 percent invested in real estate and holds at least 10 percent of its liquidity. 3.1 Taxation of resident unitholders/investors in a resident fund Companies A company is taxed on distributions received from a fund and on yearly increase of value of the fund from one year to the next. In this latter case, the company must, in principle, include in its taxable income the difference in the realization value of the fund from one year to the next (application of the markto-market method). By exception, it is not taxed under the mark-to-market method at each financial year-end, when it holds shares in: funds set up in France or in the European Union which involve investment of more than 90 percent in shares or investment certificates issued by French or EU entities; and FCPR (see Section 3.7). The company is taxed on the basis of gains from the disposal of fund units at the standard corporate tax rate which stands at a maximum of percent corresponding to 33 1/3 percent plus the 3.3 percent social contribution, which is levied if: the amount of corporate income tax exceeds EUR 763,000; and the company has a turnover higher than EUR 7,630,000. However, since companies are taxed at each financial year end under the markto-market rule, taxable capital gains/losses must be determined by taking into account the gains/losses already taxed/deducted by way of an increase/decrease in the realization value and reduced/increased accordingly. Capital gains realized upon disposal of units in a FCPR (long-term capital gains) are, under specific conditions (inter alia after a minimum holding period of five years), tax exempt since 1 January The exemption of the capital gain realized on securities lending transactions (opérations de prêt de titres) and on réméré transactions applies when such transactions are realized on French mutual funds units.

3 3 France Taxation The French funds distributing French-source income deriving from real estate held through real property listed companies, called SIIC, indirectly benefit from the favorable tax regime applicable to SIIC. The SIIC can benefit from a corporate tax exemption, under specific conditions. Under this regime, the company is exempt from corporate income tax, subject to the fulfillment of the three following distribution conditions: Profits from the rental of real estate must be distributed at 85 percent before the end of the financial year following the financial year during which they were realized. Capital gains on the disposal of real estate, their rental or leasing activity, equity investments in the companies referred to in article 8 of the French tax Code having a purpose identical to that of the SIIC or the shares of the subsidiaries subject to corporate income tax, and having elected for the regime, must be distributed at 50 percent before the end of the second financial year following the financial year during which they were received. Dividends received from subsidiaries having elected for the regime must be distributed in full during the financial year following the financial year during which they were received. The same rule applies since 1 January 2007 for the dividends received from another SIIC on condition that the shareholding represents at least 5 percent (both voting and financial rights) and has been held for at least two years. As from 2008, this regime is extended to shareholdings in foreign companies with an equivalent exempt status. Individuals Investors are not taxed on capitalized income. By exception, when an individual owns either, directly or indirectly, 10 percent of an FCP, the capital gains realized by the FCP itself on its underlying assets are, in principle, taxable at the level of each investor even though said capital-gains are not distributed. The sums distributed by a SICAV have the nature of dividends, except if the SICAV elect in favor of the creation of special coupons in order that the sums distributed keep their origin nature at the individual investor s level. The sums distributed by a FCP, because it is a transparent entity, keep always their own nature. Dividends received from the fund up are subject to: progressive income tax rates for 60 percent of their amount (a 40 percent rebate is granted to the individual investors; and the 12.1 percent( for income paid as from 1 January 2009) additional social contributions (corresponding to the 8.2 percent CSG, the 0.5 percent

4 4 France Taxation CRDS, the 2 percent prélèvement social and a (1.1 percent contribution additional to the prélèvement social). Individuals can benefit from a free annual allowance of EUR 3,050 for married couples or EUR 1,525 for single persons where the dividends are derived from shares in French companies. As from 1 January 2005, these allowances applied on foreign source dividends benefiting from the rebate indicated below, that is. dividends distributed by companies having their head office in the European Union or in a state which entered with France into a double taxation agreement including an administrative assistance clause against tax evasion. As from 2008, individuals may elect for a final levy of 18 percent plus the 12.1 percent additional social contributions, that is, a 30.1 percent aggregate rate, paid in full discharge from income tax on dividends. The capital gains derived by individuals from the sale of units in the fund are subject to the 18 percent income tax fixed rate, plus the 12.1 percent additional social contributions (for capital gains realized as from 1 January 2008); that is,., a 30.1 percent aggregate rate. No capital gain tax is due where the global yearly transfers of securities (shares, bonds, monetary instruments), including funds units, does not exceed a certain amount per household (EUR 25,830 for 2010). The capital-loss can be carried-forward for a 10-year period on the same type of securities income insofar as yearly transfer of securities exceeds the said threshold (EUR 25,830 as from 2010). Under certain conditions, there is a capital gain exemption on the transfer of mutual fund units mainly invested in French or EU shares held through a Plan d Epargne en Actions, PEA, which is a securities bank account. The maximum amount of the sums to be invested in a PEA - applicable to each member of a household - amounts to EUR 132,000. Further to the Financial Law for 2004, the units of EU mutual funds of which 75 percent of the financial assets are securities that are allowed in a PEA may be eligible therefore, on the condition that such mutual funds are located in an EU or an EEA Member State (except Liechtenstein) where, in accordance with EU Directive no. 85/611/EC of 20 December 1985, they qualify as UCITS. 3.2 Taxation of resident unitholders/investors in a non-resident fund Companies A company subject to corporate tax is, in principle, liable to tax every year on the spread of the realization value of the foreign fund units (see Section 3.1). French CFC s rules do not apply in principle. These rules provide for the taxation of a company on the profits realized by foreign funds subject to a favorable tax regime in which it holds, directly or indirectly that is, through a

5 5 France Taxation chain of participations (in the case of interposed companies) - at least 50 percent as from 1 January Individuals Distributions from a non-resident fund are treated as dividends income from overseas shares by Article of the French general tax code, regardless of the nature or origin of income (dividends, interest, or capital gain). A resident shareholder is therefore liable to tax on distributions received on the net income received. In principle, an individual is not liable in respect of income or gains of a nonresident fund which are rolled up, that is, not distributed. By exception, the French CFC s rules provide for the taxation of an individual on the profits realized by foreign funds subject to a favorable tax regime in which he holds, directly or indirectly that is, through a chain of participations (in the case of interposed companies or with his family (spouse, children, and parents) - at least 10 percent. The profit taxable at the investor s level is computed by multiplying the part of each individuals net assets (corresponding to the rights of the individual investor involved) by a rate equal to that allowed as a deduction for interest. This rate - equal to the yearly average of the rates applied on variable-rate longterm loans granted by financial institutions - amounted to 6.21percent for the FY As from 1 January 2006, the taxable income is subject to tax for 125 percent of its amount. Where there is an effective distribution from the foreign entity, such a distribution is not taxed up to the previous deemed distribution. By exception, if an administrative assistance clause is concluded with the country of the foreign fund, the taxable notional income is equal to the profit that would be realized by the foreign fund in application of the rules if this foreign fund was subject to corporate tax in France. However, these CFC rules do not apply with respect to the foreign entities that are UCITS with registered office located in the EU and which are managed pursuant to the rules of the EU Directive 85/611 dated 20 December A resident unitholder (individual) is liable to tax at the rate of 30.1 percent including the 12.1 percent additional contributions, on gains realized on the sale of units in a non-resident fund except if the yearly transfers of securities (shares, bonds, monetary instruments), including funds units, do not exceed EUR 25,000 in 2008, and EUR 25,730 in 2009 and EUR as from The tax withheld by the non-resident fund from a distribution may give rise to a tax credit in France which cannot exceed the rate provided by the relevant double tax treaty in respect of dividends (Administrative Note 30 July 1963, BOCD and BOE ).

6 6 France Taxation 3.3 Taxation of non-resident unitholders/investors in a resident fund A non-resident unitholder is not liable to French tax on income distributed by a FCP in principle where such income is derived from overseas sources since the FCP is considered as a transparent entity. In principle, where such income is derived from a SICAV, it will be subject to the 25 percent WHT applicable to dividends paid to a foreign tax resident beneficiary subject to relief under double tax agreements. The withholding tax rate is equal to: 18 percent for dividends paid to individuals domiciled in the European Union, in Ireland, and in Norway, dividends paid to European Union. 15 percent for dividend paid to EU non-profit organizations (under some conditions) as from 2010, 50 percent in case of payment in a non cooperative country as from 1 March It may also be possible to have tax paid in the source state (that is to say in the foreign third country in which the French resident fund invested in underlying assets) credited against the French WHT so as to reduce the French WHT. This is dependent on the terms of double tax agreements. A SICAV can create special coupons for certain financial products which are exempt from income tax. These products are also exempt from the 25 percent WHT. Where a SICAV derives its income entirely from French bonds, on distribution of its income it is regarded as being bond interest income. The interest remuneration of bonds issued since 1987 benefit from a WHT exemption. Distributions by a FCP of French source income are subject to withholding tax according to the nature of the financial product, distributed at the relevant rates as described above, subject to double tax agreements. A non-resident unitholder in a SICAV is not liable to capital gains tax in France on the disposal of his units unless he has held more than 25 percent of the shares in the SICAV in the previous five years. Financial investments such as bonds, stocks, are specifically exempt from wealth tax (Impôt de Solidarité sur la Fortune) if held by non-residents. Concerning the taxation of FCC non-resident unitholders, they are specifically exempt from relevant WHT (that is, 18 percent for bonds and receivable claims) on the interest received but are subject to a 18 percent WHT on the liquidating dividends, subject to the provisions of the relevant double taxation agreement.

7 7 France Taxation French inheritance tax and gift tax may apply to the disposal of units by a nonresident unitholder in a French SICAV on the basis that the units would be regarded as an asset located in France. A credit for foreign duty in respect of such assets is available and the tax charge is related to the provisions of double tax agreements. 3.4 VAT applicable to fund management/custodian companies Management companies are taxable in the same way as all French companies. Fees and commissions received through the issue and placement of FCP units are VAT-exempt without any possibility to elect for VAT taxation. On the other hand, management fees and commissions paid to the managers and the depositary of FCP units are exempt from VAT but can be subject to VAT upon election. This election is no longer irrevocable but covers a five-year period, renewal by tacit agreement for five more years. The regime applicable to SICAVs is the same as the FCP one. Thus, fees and commissions on the issue of SICAV shares are exempt from VAT without the possibility of an option 1. On the other hand, management fees to SICAV are VAT-exempt as from 1 July 2005 but may be subject to VAT upon election. The election is subject to the same conditions as those required for FCP. According to case-law, SICAVs, whose sole purpose is the collective investment in transferable securities of capital raised from the public, are taxable persons within the meaning of Article 4 of the Sixth Directive, so that services supplied to SICAVs established in a Member State other than that of the supplier are deemed to be provided at the place where the said SICAVs have established their business. According to case law, such a VAT-exemption may also apply, under conditions, to management fees charged by a third party entity that can be in charge of the back-office duties. The implementation of a tax timetable based on crossborder delegations of administrative and/or financial management functions may allow for VAT optimization based on the combination of the delegation of the administrative and/or financial management functions, the EU case law, and the territorial rules applicable to intra-eu supplies of services. The management fees of a FCC can also be subject to VAT upon election. Custodian fees are also subject to VAT. Insurance fees, fees for entering, and leaving the fund are exempt from VAT, without the possibility of electing for VAT payment. 1 Article 260 C80 of the FGTC.

8 8 France Taxation 3.5 Taxation of savings income The EU savings directive aims at bringing about effective taxation of interest payment in the beneficial owner s Member State of residence for tax purposes, being stated that the European mechanism applies to individuals who invest in a Member State where they do not have their tax residence. The directive lays down the principle of an automatic and compulsory exchange of information between Member States. However, some countries (Belgium, Luxembourg, Austria, and third countries having concluded an agreement with the European Union to apply measures equivalent to those provided for by the Directive) can substitute a withholding tax to the exchange of information. The rate of this withholding tax is fixed at 15 percent for the first three years (2008), 20 percent for the following three (2011), and 35 percent as from In principle, incomes deriving from interest payment through a fund are interest. By exception, Member States have the option to exclude the said income from the definition of interest payment where the investment in debt claims of the funds has not exceeded 15 percent of their assets. France did not exercise this option. Incomes realized upon the sale, the refund or redemption of shares or units in a fund are interest provided that the fund invests more than 40 percent of its assets in debt claims. 3.6 Entitlement to income The unitholder is not considered to be in receipt of income when the income arises to the fund. Only distributed income is taxable and the unitholder is regarded as being in receipt of income when the income is effectively paid to him/her. By exception, French CFC s rules provide for the taxation of an individual on the profits realized by foreign funds subject to a favorable tax regime in which he holds, directly or indirectly that is, through a chain of participations (in the case of interposed companies or with his family (spouse, children and parents) - at least 10 percent (50 percent for companies). 3.7 Double tax agreements A SICAV may be entitled to the French double tax agreements depending on the wording of the relevant tax treaty. In principle, an FCP is not entitled to the benefits of French double tax agreements. Its individual unitholders may be entitled to claim such benefits under their own relevant double tax agreements in view of the transparency of the FCP. The same treatment applies to FCC s.

9 9 France Taxation Non-resident funds are treated as legal entities for French tax purposes and are excluded of the benefit from the new look-through approach adopted by the French tax authorities in respect of foreign partnerships (Guidelines n 4 H-5-07). However, certain specific tax treaties extend treaty advantages to French or foreign investment funds, either because the entities are deemed to be French residents, or because the shareholders have direct access to the convention. These treaties are principally those concluded with the United States, Germany, Netherlands, Belgium, Austria, Italy, and Switzerland. 3.8 FCPR Conditions for benefiting from a favorable tax regime Favorable tax rules apply to FCPR which assets consist of at least 50 percent of unlisted company shares. The FCPR can invest up to 20 percent of its assets in listed companies with a low capitalization (that is, the capitalization of the target company must not exceed EUR 150 million). The FCPR may now be used as an investment vehicle in international securities since it is entitled to invest in unlisted or listed securities issued by companies located in EEE countries (except Lichtenstein), The FCPR can invest in the target companies directly or indirectly through an unlimited number of qualifying intermediate holdings (located in EEE countries except Lichtenstein) or through no more than one intermediate fund (located in EU countries or in a state which entered with France into a double taxation agreement including an administrative assistance clause against tax evasion). Another favorable aspect of the FCPR regime is the modification of the period during which the 50 percent quota has to be met. Said quota has to be reached, in some cases, only at the termination of the second FY of the FCPR while, at the expiration of the fifth year following its creation, the FCPR can decide to modify its underlying assets as the 50 percent quota is no longer required. As a result, the period during which the 50 percent quota has to be satisfied would be limited from the third to the fifth FY following the incorporation of the FCPR. Lastly, for the valuation of the FCPR s assets, an option exists between their historical cost (that is, book value) and their market value. The conditions in which the securities are taken into account by the 50 percent quota have been liberalized by the Decree issued on 23 December Indeed, the consequences of the breach of the 50 percent quota are mitigated in some cases: in the event of dissolution of one of the companies held by the FCPR, the shares of the dissolved company are deemed to be maintained, for their

10 10 France Taxation historical cost, for a two-year period as from the defaulting company s dissolution; in case of an exchange (for example, after a take over bid), the shares received in exchange will be maintained for the historical value of the shares exchanged for a two-year period as from the exchange; and at last, in the case of a sale of the shares, the transferred shares are deemed to be maintained in the transferor s balance sheet for a two-year period (which corresponds to the period at the expiration of which the selling price has to be reinvested). In addition, if, notwithstanding the above favorable rules, the 50-percent quota is no longer reached by the FCPR, a regularization period up to the financial statement following that during which the breach of the 50-percent quota has been noted is available for the FCPR. Lastly, when a FCPR is dissolved, its unitholders are no longer obliged to accept, as a refund of their contributions, refunds in-kind (using the FCPR s underlying assets). Tax holidays for companies The FCPR s units are not subject to the valuation marked-to-market. The first payment by the FCPR and corresponding to capital gains realized by the FCPR are treated as a refund of the contribution. That is only when such payments exceed the investment that they are considered as taxable capital gain for the beneficiary. The capital gains on the FCPR s units sale or repurchase benefit under some conditions (inter alia, after a minimum holding period of five years) from an exemption, up to the underlying assets of the fund represented by participating shareholdings held for more than two years (except shareholdings in real estate companies, or in companies set up in non cooperative countries for tax years starting as from 1 January 2011).The exceeding portion of the capital gain is taxable at 15 percent. When FCPR parts have owned for less than five years, any capital gain is subject to the normal corporate tax rate. Tax holidays for individuals Individuals investing in such FCPR units can benefit from: income tax exemption on the dividends distributed by the FCPR and the disposal of FCPR units provided that:

11 11 France Taxation o o o it is immediately reinvested in the fund; remains blocked up to the termination of the following five years of unavailability; and the shareholder and his/her family hold, directly or indirectly, no more than 25 percent of the stock in companies in the FCPR s portfolio at any one time during the five years prior to the investment in the FCPR. income tax exemption from capital gains that may result from the FCPR s transfer provided that the units have been kept for an uninterrupted fiveyear period before their transfer. In addition, these exemptions, previously limited to the first five years, have been extended to the following years. This extension is useful since the financial institutions marketing such types of funds generally require that such funds be held by investors for periods varying between 6 and 10 years. Capital gains are never less subject to social security contributions. FCPR and FCPI units can be held through a PEA. Specific types of FCPR: FCPI, and FIP The purpose of the FCPI is to promote investments in small innovative companies located in EEE countries except Lichtenstein (hiring less than 2000 staff) whose the majority of shareholders are individuals investors, with high growth potential and whose activities imply important investment in research and development (agreed by the Ministry of Research or resulting from the eligibility of their activity to the research tax credit, Crédit d impôt recherche). At least 60 percent of the FCPI s units have to be invested in securities of said companies (no more than 20 percent of the FCPI assets can consist in listed shares in companies with a low capitalization). Individuals investing in FCPI units benefit from a tax credit equal to 25 percent of the acquisition price of their units up to a maximum of ceiling EUR 12,000/EUR 24,000 for single/married couple. In practice, the maximum tax credit is EUR 3,000/EUR 6,000.for single/married couple. The FIP are FCPR whose, at least, 60 percent of assets consist of securities (no more than 20 percent of the FIP assets can consist in listed shares in companies with a low capitalization), units and/or advances in current accounts of EU small-and-medium size undertakings that perform their activities in one or three geographical regions. The individual investors benefit from a tax credit equal to 25 percent of their subscription to such FIPs with a maximum of ceiling EUR 12,000/EUR 24,000 for single/married couple, that is to say a maximum tax credit of EUR 3,000/ EUR 6,000.

12 12 France Taxation 3.9 Transfer taxes, stamp duty, capital duty Increases in capital contributions to an FCP or to an FCC do not attract duty. There are no capital duties in relation to an FCP or an FCC. Redemptions by a SICAV or by an FCP or FCC are not subject to share transfer tax. Share transfers of overseas securities executed in France by a FCP, a FCC or a SICAV are not liable to share transfer tax Miscellaneous Wealth tax The fund units are included in the tax basis of the wealth tax at their market value when the taxpayer is liable to wealth tax. In France, companies are never liable to wealth tax. This tax only concerns individuals whose net worth exceeds EUR in 2008 (EUR 790,000 as from 2009). Gift and inheritance tax Companies are not liable to gift or inheritance tax. Individuals are liable to gift and inheritance tax on the fund units according to standard rules. Business tax A French fund falls within the scope of the business tax but benefits in practice from a much reduced taxable basis.

13 13 France Taxation Fidal Direction Internationale in France Yves Robert Fidal Direction Internationale 32, Place Ronde Paris La Defense Cedex France Tel. +33 (1) Fax +33 (1) The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.