Tax reduction (IR-SME) for subscription of a business' capital

Verified 01 February 2024 - Directorate for Legal and Administrative Information (Prime Minister)

A natural person who subscribed in cash to a business' capital may benefit from tax reduction. Since 1er january 2024, this “ Madelin discount ' shall also benefit payments intended for young innovative companies (JEI or JEIR).

General case

Subscription to the capital consists in carrying out a cash contribution (deposit of money) to a business. From this contribution, the subscriber (or provider) becomes a partner or shareholder and obtains the rights attaching to that capacity (right to dividends, right to vote...).

Please note

One current account advance (loan from partner to business) does not open the right tax reduction.

In order for the tax reduction to be effective, the subscriber, the business receiving the subscription and the subscription itself must meet specific criteria.

Subscriber Terms

In order to benefit from the tax reduction, the subscriber must comply with the following conditions :

  • Being a natural person individual business (specific or specific)
  • To be domiciled for tax purposes in France
  • Undertake to keep the securities received in exchange for the subscription (shares or shares) for 5 years.

Please note

The tax reduction benefits in particular company creators who bring the funds of their own business. The capital increases are also affected by the scheme, but on condition that they are new members or shareholders.

Conditions attached to the business benefiting from the subscription

The beneficiary business of the subscription must complete all of the following conditions :

  • She's a SMB.
  • It has been created since under 7 years.
  • It shall have its seat in a Member State of theEuropean Union or in a State of theEuropean Economic Area.
  • It shall be subject tobusiness tax (IS) or would be subject to the same conditions if its activity were carried on in France.
  • It carries on a commercial, industrial, craft, liberal, agricultural, except for the following activities: :
    • Activities providing guaranteed revenues due to the existence of a regulated feed-in tariff
    • Financial activities
    • Movable assets management activities
    • Real estate activities, including the construction of buildings with a view to their sale or rental.
  • It's not calledcompany in difficulty. Specifically, the company must not have lost more than half of its share capital or be the subject of a collective proceedings (backup, recovery or judicial liquidation).
  • She employs at least 2 employees at the end of the financial year following the subscription or at least 1 employee in the case of a craft company.
  • She doesn't own of assets predominantly constituted (i.e. more than 50%(b) precious metals, works of art, collectors' items, antiques, racehorses or competition horses or, except where the object of its activity consists in their consumption or retail sale, wines or spirits.
  • She's not admitted to a regulated market (i.e. not listed on the stock exchange).

Conditions attached to the subscription

Subscription must meet all of the following conditions :

  • It is carried out in cash (deposit of money).
  • It is carried out either during the constitution of the business, or during a capital increase provided that they are new members or shareholders.
  • It confers only rights attaching to the status of shareholder. Subscription must not offer any additional consideration (e.g. preferential rates for goods or services of the business).
  • She's not no capital guarantee agreement to members or shareholders in return for their subscription. This condition must be satisfied on the date of subscription and continuously until the end of 5e the year following the year of such subscription.
  • It's not done after a refund of contributions in favor of the subscriber made by the business within the preceding 12 months.
  • The total amount of payments received by the beneficiary business shall not exceed €15 million.

Please note

Capital subscriptions of a host holding business qualify for the tax advantage where the holding company is incorporated and has controlled at least one subsidiary for at least 12 months.

The tax reduction for subscription to the capital of a SMB must respect various limits and ceilings.

Applicable rate

For payments made until 31 december 2025, the amount of the tax reduction shall be 25% payments made in respect of subscriptions to the capital of SMB.

For payments made after that period, the rate shall be 18%.

Maximum amount of reduction

The amount of the tax reduction is subject to a tax double capping, 2 limits are applied one after the other.

On the one hand, the amount of the payments taken into account for the calculation of the tax reduction shall be limited as follows:

  • €50,000 / year for a single, widowed or divorced person
  • €100,000 / year for a married or former couple subject to common taxation

The portion of payments that exceeds this first limit is eligible for the tax reduction for the following four years within the same limits.

On the other, this tax reduction shall then be taken into account in the overall cap on tax benefits may be granted for income tax purposes. This overall limit is set at €10,000 per year. It is also possible to carry forward the excess of income tax owing in subsequent years up to and including the fifth year.

Example :

In May 2023, a single person starts a business and subscribes to the capital of the company up to €70,000. The applicable rate shall be 25%.

In the year of payment (year N), the amount of payments taken into account is limited to €50,000 (the €20,000 the remaining amount will be taken into account in the following year). The taxpayer therefore benefits from a reduction of €12,500 (25% of €50,000), capped at €10,000 per year. The excess fraction is equal to €2,500 is carried forward to the following year.

The following year (N+1), the taxpayer receives a reduction of €5,000 for the remaining part of the payments (25 % of € 20 000) and a reduction of €2,500 corresponding to the carry-over from year N. Thus, to year N+1, the taxpayer benefits from a total reduction of €7,500.

However, where the amount of the tax reduction is greater than the amount of the tax for which the taxpayer is liable, the portion which could not be charged may not give rise to neither a refund nor a deferral on the tax due in respect of subsequent years.

In order to benefit from the tax reduction, the subscriber must attach his annual income tax return one individual state provided by the business to whose capital it has subscribed.

This individual state must include the following information :

  • The object for which this state is established
  • Reason, purpose and registered office of the business
  • Identity and address of the subscriber
  • Number of securities subscribed and their amount and date of subscription
  • The amount and date of the payments made under subscription.

The individual statement must also state that the beneficiary business fulfills all the requirements (SMB, unlisted, created less than 7 years ago, etc.).

FYI  

The subscriber must be able to produce, at the request of the tax authorities and for 5 years after the investment, any document such as to justify the length of detention of his titles.

The tax reduction is not final step. It can be questioned when various events occur. This is referred to as " resumption ”.

Thus, the tax reduction granted is questioning in the following cases:

  • The business repays the contribution to the subscriber before 31 December of 7e year following the year of subscription. Reimbursement may take place in particular during a reduction in share capital.
  • The subscriber surrender all or part of its securities before 31 December of 5e year following the year of subscription. In other words, it is not fulfilling its commitment to keep the securities for five years. However, whatever the cause of this transfer, the tax reduction is not not questioned if the following conditions are met:
    • The subscriber has retained the securities for at least 3 years after their subscription.

    • The subscriber reinvests the entire sale price securities sold (less taxes generated by the sale) for the subscription of new eligible business securities, within a maximum period of 12 months from the sale.
    • The new securities thus subscribed shall be retained until the end of the initial period of 5 years.

Please note

The tax cut is not questioned in the event of dismissal, death or invalidity of 2e or 3e the subscriber's category. The same shall apply in the case of the winding-up of the business, its merger or the donation of securities if the donee takes over the obligation to keep the securities.

Subscription to the capital of a JEI

Subscription to the capital consists in carrying out a cash contribution (deposit of money) for a young innovative company (JEI). From this contribution, the subscriber (or provider) becomes a partner or shareholder and obtains the rights attaching to that capacity (right to dividends, right to vote...).

Please note

One current account advance (loan from partner to business) does not open the right tax reduction.

In order for the tax reduction to be effective, the subscriber, the business receiving the subscription and the subscription itself must meet specific criteria.

Subscriber Terms

In order to benefit from the tax reduction, the subscriber must comply with the following conditions :

  • Being a natural person individual business (specific or specific)
  • To be domiciled for tax purposes in France
  • Undertake to keep the securities received in exchange for the subscription (shares or shares) for 5 years.

Please note

The tax reduction benefits in particular company creators who bring the funds of their own business. The capital increases are also affected by the scheme, but on condition that they are new members or shareholders.

Conditions attached to the business benefiting from the subscription

The beneficiary business of the subscription must be a young innovative company (JEI) meet the following conditions:

  • She's a SMB.
  • It has been created since under 8 years.
  • She's doing research and development (R&D) expenditure representing at least 15% of its charges. This rate does not take into account the costs of disposals of shares or bonds, exchange losses and expenses incurred with other JIU carrying out R&D projects.
  • Its capital must be held for at least 50% by the following persons or entities:
    • Natural persons: individual entrepreneur (EI), individual
    • Other JEIs held at least 50% by natural persons
    • Associations or foundations recognized as being of public interest of a scientific nature
    • Public research and educational establishments or one of their subsidiaries
    • investment businesses
  • She exercises a new activity, i.e. it was not created by concentration, restructuring, extension or take-over of existing activities.

Conditions attached to the subscription

Subscription must meet all of the following conditions :

  • It is carried out in cash (deposit of money).
  • It's done between 1er january 2024 and december 31, 2028.
  • It is carried out either during the constitution of the business, or during a capital increase provided that they are new members or shareholders.
  • It confers only rights attaching to the status of shareholder. Subscription must not offer any additional consideration (e.g. preferential rates for goods or services of the business).
  • She's not no capital guarantee agreement to members or shareholders in return for their subscription. This condition must be satisfied on the date of subscription and continuously until the end of 5e the year following the year of such subscription.
  • It's not done after a refund of contributions in favor of the subscriber made by the business within the preceding 12 months.
  • The total amount of payments received by the beneficiary business shall not exceed €15 million.

Please note

Capital subscriptions of a host holding business qualify for the tax advantage where the holding company is incorporated and has controlled at least one subsidiary for at least 12 months.

The tax reduction for subscribing to the capital of a young innovative company (JEI) must comply with a ceiling.

Applicable rate

The amount of the tax reduction is equal to 30% payments made in respect of subscriptions to the capital of the JEI.

Maximum amount of reduction

The amount of the payments taken into account for the calculation of the tax reduction shall be limited as follows:

  • €75,000 for a single, widowed or divorced person
  • €150,000 for a married or former couple subject to common taxation

The fraction of a year exceeding the ceilings shall not be not reportable in subsequent years, this fraction shall be lost.

Example :

In January 2024, a single person starts a business and subscribes to the capital of the company up to €80,000. The applicable rate shall be 30%.

In the year of payment (year N), the amount of payments taken into account is limited to €75,000 (the €5,000 remaining are lost). The taxpayer therefore benefits from a tax reduction of €22,500 (30% of €75,000).

In order to benefit from the tax reduction, the subscriber must attach his annual income tax return one individual state provided by the business to whose capital it has subscribed.

This individual state must include the following information :

  • The object for which this state is established
  • Reason, purpose and registered office of the business
  • Identity and address of the subscriber
  • Number of securities subscribed and their amount and date of subscription
  • The amount and date of the payments made under subscription.

The individual statement must also state that the beneficiary business fulfills all the requirements (SMB, created less than 8 years ago, 15 % of R&D expenses, etc.).

FYI  

The subscriber must be able to produce, at the request of the tax authorities and for 5 years after the investment, any document such as to justify the length of detention of his titles.

The tax reduction is not final step. It can be questioned when various events occur. This is referred to as "resumption”.

Thus, the tax reduction granted is questioning in the following cases:

  • The business repays the contribution to the subscriber before 31 December of 7e year following the year of subscription. Reimbursement may take place in particular during a reduction in share capital.
  • The subscriber surrender all or part of its securities before 31 December of 5e year following the year of subscription. In other words, it is not fulfilling its commitment to keep the securities for five years. However, whatever the cause of this transfer, the tax reduction is not not questioned if the following conditions are met:
    • The subscriber has retained the securities for at least 3 years after their subscription.

    • The subscriber reinvests the entire sale price securities sold (less taxes generated by the sale) for the subscription of new eligible business securities, within a maximum period of 12 months from the sale.
    • The new securities thus subscribed shall be retained until the end of the initial period of 5 years.

Please note

The tax cut is not questioned in the event of dismissal, death or invalidity of 2e or 3e the subscriber's category. The same shall apply in the case of the winding-up of the business, its merger or the donation of securities if the donee takes over the obligation to keep the securities.

Subscription to the capital of a JEIR

Subscription to the capital consists in carrying out a cash contribution (deposit of money) for a young innovative research company (JEIR). From this contribution, the subscriber (or provider) becomes a partner or shareholder and obtains the rights attaching to that capacity (right to dividends, right to vote...).

Please note

One current account advance (loan from partner to business) does not open the right tax reduction.

In order for the tax reduction to be effective, the subscriber, the business receiving the subscription and the subscription itself must meet specific criteria.

Subscriber Terms

In order to benefit from the tax reduction, the subscriber must comply with the following conditions :

  • Being a natural person individual business (specific or specific)
  • To be domiciled for tax purposes in France
  • Undertake to keep the securities received in exchange for the subscription (shares or shares) for 5 years.

Please note

The tax reduction benefits in particular company creators who bring the funds of their own business. The capital increases are also affected by the scheme, but on condition that they are new members or shareholders.

Conditions attached to the business benefiting from the subscription

The beneficiary business of the subscription must be a Young Innovative Research company (JEIR) meet the following conditions:

  • She's a SMB.
  • It has been created since under 8 years.
  • She's doing research and development (R&D) expenditure representing at least 30% of its charges. This rate does not take into account the costs of disposals of shares or bonds, exchange losses and expenses incurred with other JIU carrying out R&D projects.
  • Its capital must be held for at least 50% by the following persons or entities:
    • Natural persons: individual entrepreneur (EI), individual
    • Other JEIs held at least 50% by natural persons
    • Associations or foundations recognized as being of public interest of a scientific nature
    • Public research and educational establishments or one of their subsidiaries
    • investment businesses
  • She exercises a new activity, i.e. it was not created by concentration, restructuring, extension or take-over of existing activities.

Conditions attached to the subscription

Subscription must meet all of the following conditions :

  • It is carried out in cash (deposit of money).
  • It's done between 1er january 2024 and december 31, 2028.
  • It is carried out either during the constitution of the business, or during a capital increase provided that they are new members or shareholders.
  • It confers only rights attaching to the status of shareholder. Subscription must not offer any additional consideration (e.g. preferential rates for goods or services of the business).
  • She's not no capital guarantee agreement to members or shareholders in return for their subscription. This condition must be satisfied on the date of subscription and continuously until the end of 5e the year following the year of such subscription.
  • It's not done after a refund of contributions in favor of the subscriber made by the business within the preceding 12 months.
  • The total amount of payments received by the beneficiary business shall not exceed €15 million.

Please note

Capital subscriptions of a host holding business qualify for the tax advantage where the holding company is incorporated and has controlled at least one subsidiary for at least 12 months.

The tax reduction for subscription to the capital of a young innovative research company (JEIR) must comply with a ceiling.

Applicable rate

The amount of the tax reduction is equal to 50% payments made in respect of subscriptions to the capital of JEIR.

Maximum amount of reduction

The amount of the payments taken into account for the calculation of the tax reduction shall be limited as follows:

  • €50,000 for a single, widowed or divorced person
  • €100,000 for a married or former couple subject to common taxation

The fraction of a year exceeding the ceilings shall not be not reportable in subsequent years, this fraction shall be lost.

Example :

In January 2024, a single person starts a business and subscribes to the capital of the company up to €60,000. The applicable rate shall be 50%.

In the year of payment (year N), the amount of payments taken into account is limited to €50,000 (the €10,000 remaining are lost). The taxpayer therefore benefits from a tax reduction of €25,000(50% of €50,000).

In order to benefit from the tax reduction, the subscriber must attach his annual income tax return one individual state provided by the business to whose capital it has subscribed.

This individual state must include the following information :

  • The object for which this state is established
  • Reason, purpose and registered office of the business
  • Identity and address of the subscriber
  • Number of securities subscribed and their amount and date of subscription
  • The amount and date of the payments made under subscription.

The individual statement must also state that the beneficiary business fulfills all the requirements (SMB, created less than 8 years ago, 30% of R&D expenses, etc.).

FYI  

The subscriber must be able to produce, at the request of the tax authorities and for 5 years after the investment, any document such as to justify the length of detention of his titles.

The tax reduction is not final step. It can be questioned when various events occur. This is referred to as " resumption ”.

Thus, the tax reduction granted is questioning in the following cases:

  • The business repays the contribution to the subscriber before 31 December of 7e year following the year of subscription. Reimbursement may take place in particular during a reduction in share capital.
  • The subscriber surrender all or part of its securities before 31 December of 5e year following the year of subscription. In other words, it is not fulfilling its commitment to keep the securities for five years. However, whatever the cause of this transfer, the tax reduction is not not questioned if the following conditions are met:
    • The subscriber has retained the securities for at least 3 years after their subscription.

    • The subscriber reinvests the entire sale price securities sold (less taxes generated by the sale) for the subscription of new eligible business securities, within a maximum period of 12 months from the sale.
    • The new securities thus subscribed shall be retained until the end of the initial period of 5 years.

Please note

The tax cut is not questioned in the event of dismissal, death or invalidity of 2e or 3e the subscriber's category. The same shall apply in the case of the winding-up of the business, its merger or the donation of securities if the donee takes over the obligation to keep the securities.