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If you plan to sell your company's shares in the future, it is essential to understand the contribution and transfer regime and its tax advantages.
In this article, we explain in detail how this device works, how benefit from the tax deferral provided for by article 150-0 B ter of the General Tax Code (CGI) and the conditions associated therewith.
We also answer questions frequently asked by entrepreneurs who wish to benefit from this regime.
I. How does the contribution and transfer regime work?
In a context where you plan to sell the shares of your company, a significant tax on the capital gain is in principle imposed.
Indeed, when you sell your shares and realize a capital gain, you are subject to one of these two tax regimes:
- Single flat-rate direct debit (PFU) : 30% (Rate of 12,8% + social contributions of 17,2%)
- Progressive income tax scale: 0%, 11%, 30%, 41% or 45% + social security contributions of 17,2%
However, the contribution transfer mechanism provided for in Article 150-0 B ter of the CGI can allow this tax to be deferred under certain specific conditions.
It is therefore imperative to assess and plan accordingly the potential tax impact of the sale of your company's shares.
The use of contribution-transfer requires compliance with a specific procedure.
You must first transfer the shares of your company to a holding company, of which you have control, realizing a capital gain.
A holding company is an entity specifically designed to hold the shares of other companies, allowing for centralized management.
You must exercise effective control over this holding company, which involves holding the majority of voting rights or profits, or having the ability to significantly influence decision-making in the company.
Subsequently, the holding company will sell these shares to a third party. If certain conditions, developed below, are respected, you may be able to defer taxation on the capital gain resulting from the sale of shares.
Thus, the contribution-transfer regime represents an optimal solution for minimize the tax impact when selling your shares.
II. How can I benefit from the transfer transfer regime and therefore from the tax deferral provided for by article 150-0 B ter of the CGI?
STEP 1: CONTRIBUTION OF SHARES TO A HOLDING
has. The contribution must be made in one of the following places:
- In France
- In a member country of the European Union
- In a country that has concluded a tax treaty with France to combat tax fraud and tax evasion
b. The company receiving the contribution (the holding company) must meet the following criteria:
- Be subject to corporation tax (IS)
- Be controlled by the contributor (the manager)
vs. The entrepreneur transfers his shares to the holding company and realizes a capital gain.
STEP 2: THE ASSIGNMENT OF SHARES BY THE HOLDING
The holding company must transfer the financial securities it has acquired to a buyer. Here are the conditions that govern this process:
has. If the sale takes place after three years following the acquisition of the securities :
There is no particular constraints to respect. In other words, the holding company can use the profits from the sale (also called “sale proceeds”) as it sees fit without having to worry about a possible tax deferral.
b. If the sale occurs less than three years after the acquisition of the securities :
The holding company is required to reinject at least 60% of the gains from the sale into activities qualified as “economic”, within two years after the sale.
In practice, it is difficult for an entrepreneur to predict exactly when he will sell his securities and at what price. In fact, the sale price will determine how much he will have to re-inject into his business.
This is why the acquisition of securities and their sale often occur at the same time. In this case, the holding company must reinvest at least 60% of the sale proceeds within two years of the sale. This is called “reuse of proceeds of sale”.
STEP 3: REUSE OF THE SALE PROCEEDS
If the holding company sold its securities less than three years after acquiring them (scenario b), it is required to reuse at least 60% of the amount resulting from this sale, within two years following this sale.
Here are the conditions of this reuse:
has. Take control of one or more companies:
These companies must have their head office in France, or in the European Union or in the European economic area having a tax convention with France. They must be engaged in an economic activity, whether commercial, industrial, artisanal, liberal, agricultural or financial (with the exception of activities relating to the management of own assets, movable or real estate).
b. Participate in the creation of a company or increase the capital of one or more companies (under the same conditions as above).
vs. Invest in units or shares of investment funds (FPCI: professional investment capital funds; FCPR: risky mutual funds; SLP: free partnership company) or in SCRs: venture capital companies.
Please note that these investment funds must respect, after a period of 5 years, certain conditions concerning their composition:
They must have invested 75% of their assets in operating companies (under the same conditions as mentioned above).
Two thirds of these 75% must be invested in unlisted companies or listed on a regulated market for small and medium-sized companies.
Fund units must be held until the end of this period of at least 5 years.
III. What are the situations that put an end to the deferral of taxation on the capital gain, authorized by the transfer contribution?
The capital gains tax deferral ends in certain specific cases, for example:
- The holding company sells the shares received as a contribution less than 3 years after receiving them, and does not reinvest at least 60% of the proceeds from this sale within 2 years.
- The entrepreneur moves abroad, thus changing his tax residence.
- The entrepreneur sells, buys back, is reimbursed or cancels the shares of the holding company that he obtained in exchange for his contribution.
IV. When can the deferral of taxation on the capital gain, permitted by the transfer contribution regime, be transformed into a tax exemption?
There are two scenarios where tax deferral can turn into tax exemption:
If the entrepreneur donates the shares of the holding company that he received in exchange for his contribution, then the tax liability for the carryover is transferred to the person receiving the donation. If that person holds the shares for at least 5 to 10 years, as the case may be, they may be exempt from capital gains tax.
If the entrepreneur dies, the capital gain made on the shares is canceled for his heirs. They should not be taxed on this capital gain.
For more information on our investment solutions eligible for the 150-0 b ter system, do not hesitate to contact NextStage AM.
