Crowdfunding

Verified 03 July 2024 - Directorate for Legal and Administrative Information (Prime Minister)

Crowdfunding or crowdfunding is a alternative to bank lending classic. It allows a project holder to raise funds on the Internet, through a online platform dedicated, with contributors to finance a specific project.

For whom?

Crowdfunding is for everyone ! The project owner can be a professional (individual entrepreneur or business), an individual, an association, a community, etc.

It is particularly suitable for company creators and buyers who find it difficult to mobilize the funds needed to implement their project through traditional funding methods. As such, crowdfunding can serve as aleverage effect on other financing (honorary loan, bank lending, grants, etc.).

Crowdfunding may also be of interest to entrepreneurs who wish to test their project with the market building a community of potential customers or users.

For what project?

Crowdfunding helps finance any type of project (cultural, solidarity, environmental, entrepreneurial...). The difference with traditional financing methods lies in the affective dimension linking contributors (donors, lenders or investors) to the project owner.

Example :

Crowdfunding can finance the following projects: a business, a technological invention, a food product, a film, a concert, an exhibition, a musical project, a book, a business game, a ready-to-wear collection, a real estate project, a mobile application, a humanitarian project, scientific research...

To launch its crowdfunding campaign, the project owner has the choice between 2 types of platforms :

  • Platforms general practitioners finance any type of project by attracting a large audience (e.g. Ulule, KissBankBank, Kickstarter, Indiegogo)
  • Platforms specialized target a more specific and qualified public, with a better knowledge of the sector of activity (e.g. Fundimmo, Homunity or Wiseed for real estate projects, Miimosa or Blue Bees for agricultural or food projects, Tudigo or Sowefund for investment projects, Lendopolis and Enerfip for energy transition projects).

Each platform has its own mode of operation : commission levied on the amount of the sums collected (0 to 12%), obligation or not to achieve the financial objective to access the sums collected, support of the project leader in the implementation of his campaign (interlocutors, experts, coaches...), ergonomics and fluidity of the user journey on the site...

If the platform offers interest-bearing lending services (crowdlending) or for subscription of securities (crowdequity), the latter must have the new European statute for crowdfunding service provider (PSFP). The register shall be managed by theESMA: titleContent and can be viewed online.

Consult the Register of Crowdfunding Service Providers (European accreditation)

We have to distinguish 3 shapes Crowdfunding:

  • Donations with or without consideration
  • Loans with or without interest (“crowdlending”)
  • Subscription of securities unrated (‘crowdequity’)
Donations

To finance a project, a project owner can raise money in the form of donations by contributors. Depending on the nature of the project, these donations may be totally disinterested or result in the award of counterparties.

A quid pro quo is a non-financial return, offered to donors during a campaign to thank them for their support. The consideration may be:

  • symbolic (e.g. name of donor registered in store, dedicated photo of the team, access to preview exhibition)
  • or material (e.g. a CD for a musician, a t-shirt for a stylist, vegetables for a market gardener). In the case of a pre-purchase, it may even be the product or service resulting from the project financed by the crowdfunding campaign.

Counterparties play an important role in the success of crowdfunding. They make it possible to arouse the curiosity of as many people as possible andengage donors more intensively by making them privileged members.

A consideration that is proportional to the amount donated will encourage potential donors to give more in order to get better consideration.

Warning  

The law does not fix no ceiling for the amount of the donations. On the other hand, the maximum amount that can be raised by the project owner is set at €5 000 000 over 12 months.

Loans

To finance a project, a project owner can raise money in the form of loans by contributors. We talk about “ crowdlending ”.

The project owner shall act asborrower and concludes a loan agreement with each lender, in writing or on a durable medium (e.g. email, secure personal account).

The lender opens an online account on the platform and pays its contribution. The loan may be granted with or without interest :

  • A loan with interest may not exceed €2,000 by lender and by project and its duration may not exceed 7 years. The maximum amount that can be borrowed by a project owner is set at €5 000 000 by project. The platform must have the European statute of crowdfunding service provider (PSFP). The register shall be managed by theESMA: titleContent and is available for consultation online.
  • A loan interest-free may not exceed €5,000 by lender and by project, without limitation of duration. The maximum amount that can be borrowed by a project owner is then set at €1 000 000 by project.

Please note

Most often, the funds raised are not released by the platform to the benefit of the project owner only at the end of the campaign, when all the loans needed to carry out the project have been met.

The contract signed between the lender and the project owner must indicate whether or not there is right of withdrawal for the benefit of the parties and, where appropriate, specify its starting point, duration and operating procedures. The contract must also specify whether the project owner has a early repayment facility.

Subscription of securities

To finance a project, a project owner can raise money in the form of subscriptions of securities by contributors. We talk about “ crowdequity ”.

Within the framework of crowdequity, an investor contributes a sum of money to the business of the project owner and receives in return of business securities (shares) issued by the latter.

During this period capital increase, the investor becomes shareholder of the business carrying the project. It has a right of information to the company and participates in general meetings. He collects dividends and possibly a capital gain on the future sale of the securities.

Please note

The law does not fix no individual ceiling for the subscription amount. On the other hand, the maximum amount that can be raised by the project owner is set at €8 000 000 over 12 months.

Contributors who have subscribed to the capital of the project-carrying business may benefit from a tax reduction (" Madelin discount ") equal to 18% payments made.

Warning  

The platform must have the European statute of crowdfunding service provider (PSFP) to offer crowdfunding investments in securities. The register shall be managed by theESMA: titleContent and is available for consultation online.

Please note

You can consult the crowdfunding barometer to compare the different forms of crowdfunding.

Reporting to the tax administration of funds raised during a crowdfunding campaign depends on the nature of those funds.

Donations

Funds raised during the crowdfunding campaign are: taxable, including where donations are made without consideration or with only symbolic consideration (e.g. thanks, signed photo).

The method of reporting varies depending on the shape of the project carrier company individual business (in person or business).

Individual business (including micro-entrepreneur)

The funds raised correspond to different categories of income depending on the type of consideration offered:

  • If the consideration given to the contributors is usually sold by the project owner through other channels, the funds raised will be considered as a sale of goods or a provision of services. In this case, the funds are taxable in the Industrial and Commercial Benefits (BIC).
  • If the consideration given to the contributors is not the subject of a normal commercial deed, the funds are taxable in the category of non-commercial profits (NBC).

Moreover, crowdfunding operations obey the “classic” rules of value added tax (VAT). Counterparties offered to contributors in exchange for their donation are considered by the tax administration as acts of commerce. If the company is subject to VAT, then VAT must be charged.

Thus, the VAT collected on each donation will have to be repaid to the State, so it is to be deducted from the funds raised. The applicable VAT rate varies according to the nature of the consideration provided (e.g.: 5.5% for the sale of books 10% for the sale of admission tickets to a cultural exhibition, 20% for the sale of business games).

Please note

If there is no consideration, the gift is not taxable for VAT purposes.

The project owner who meets certain turnover thresholds can benefit from the exemption from VAT. In this case, it is exempt from VAT declaration and payment.

Business

Funds raised must be included in the company outcome, either as operating income corresponding to the company’s current activity or as exceptional income. Expenses incurred in carrying out the project are deductible in the same way as other operating expenses.

Moreover, crowdfunding operations obey the “classic” rules of value added tax (VAT). Counterparties offered to contributors in exchange for their donation are considered by the tax administration as acts of commerce. If the company is subject to VAT, then VAT must be charged.

Thus, the VAT collected on each donation will have to be repaid to the State, so it is to be deducted from the funds raised. The applicable VAT rate varies according to the nature of the consideration provided (e.g.: 5.5% for the sale of books 10% for the sale of admission tickets to a cultural exhibition, 20% for the sale of business games).

Please note

If there is no consideration, the gift is not taxable for VAT purposes.

The project owner who meets certain turnover thresholds can benefit from the exemption from VAT. In this case, it is exempt from VAT declaration and payment.

Loans

As a borrower, the project owner must report any loan agreement (excluding interest) exceeding €5,000, by means of form 2062.

Where more than one loan agreement with a unit amount of less than €5,000 are entered into in a calendar year on behalf of the same borrower and their total exceeds €5,000, all contracts so concluded shall be reported by the borrower, using theAnnex 2062-A.

Loan contract declaration

In the declaration, the project owner shall indicate the following information :

  • Date of conclusion of the loan contract
  • Amount and duration of the loan
  • Interest rate on the loan

The project owner must submit the declaration to the company Tax Service (SIE)at the same time as the next annual declaration of results.

Who shall I contact

Failure to make a declaration within the prescribed period shall result in the application of a fine of €150. In addition, any omissions or inaccuracies found shall result in the application of a fine of €15 by omission or inaccuracy, without the total fines applicable being less than €60 not greater than €10,000.

Subscription of securities

The crowdfunding operation by subscription of securities follows the regime of thecapital increase. There is no specific declaration to be made to the tax authorities.

The funds paid to the project-bearing business by way of contribution shall be subject to deposit, within 8 days of their receipt, at a notary or at a dedicated bank account.

The company’s legal representative must conduct a publishing legal announcements in a medium and report the capital increase on the website of the company formalities office.

Company Formalities Window

Contributors who have subscribed to the capital of the project-carrying business may benefit from a tax reduction (" Madelin discount ") equal to 18% payments made.

During a crowdfunding campaign, the project owner must first define project providing the following information in a clear and precise manner:

  • Identity of the project owner
  • Nature and objective of the project
  • Use of funds raised

Please note

In the case of an investment project (e.g. real estate project), the project owner must indicate the risks associated with the investment, the repayment terms and any guarantees offered to investors.

The project owner undertakes to use the funds raised for the sole purpose of implementing the project as defined during the campaign. It must also to pay a commission to the crowdfunding platform (0 to 12% funds raised).

The project owner must ensure that the platform he uses for his crowdfunding campaign, is registered in the single register of insurance intermediaries. The register shall be managed by theORIAS: titleContent and can be viewed online.

Consultation of the register of insurance intermediaries

In addition, if the platform offers interest-bearing lending services (crowdlending) or for subscription of securities (crowdequity), the latter must also have the new European statute for crowdfunding service provider (PSFP). The register shall be managed by theESMA: titleContent and can be viewed online.

Consult the Register of Crowdfunding Service Providers (European accreditation)

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