I. Definition of an FCPI
The Mutual Fund for Investment in Innovation (FCPI) is an investment vehicle accessible to all well-informed investors which allows them to invest in innovative companies. Tax exemption product par excellence, it gives its investors access to significant tax reductions.
II. What is an FCPI?
The FCPI is a category of investment fund which was created by the finance law of 1997 to support innovation in our country.. The money invested is placed at least 70% in innovative SMEs. The remaining 30% can be invested in other media: shares, bonds, money… The investor must agree to keep his shares for a period of 5 years. In return for this effort, he may benefit, subject to conditions, from an income tax reduction of up to 25%.
Le innovative business criterion is awarded to companies that meet one of the following two conditions:
- Justify that at least 10% of its expenses are spent on research and development (R&D).
- Obtain the Bpifrance “innovative company” label valid for 3 years. For this, it is necessary to justify the creation of products, processes or techniques deemed to be innovative; or have an in-house R&D (Research & Development) team. In this hypothesis, the R&D activity must generate a significant turnover and be strategic for the company.
To be eligible, innovative companies must meet certain criteria:
- To answer the European definition of an SME (company with less than 250 employees and turnover < €50M or balance sheet total < €43M)
- Have their registered office in the European Economic Area, Iceland or Norway
- Capital not majority held by a legal entity
- If the company is listed, its market capitalization must be less than €150 million
- If the company is a holding company with no R&D activity, at least 75% of its subsidiaries must be innovative
Please note that FCPI (Fonds Commun de Placement dans l'Innovation) and FPCI (Professional Capital Investment Funds) should not be confused, both of which designate investment funds that allow investment in unlisted companies but whose rules management and tax benefits are very different.
III. What are the tax advantages of an FCPI?
1. A reduction in income tax (IR) up to a rate of 25%
Unitholders of an FCPI have the entitled to an income tax reduction of up to 25% payments made within the annual limit of €12 for a single person and €000 for a married couple subject to joint taxation.
Attention, the rate of 25% is only achieved if the FCPI invests 100% of its funds in innovative SMEs. If it invests only 70% of its funds in innovative SMEs, then the tax reduction will only be 17,5% (0,7 x 25% = 17,5%).
In the best case, a single person reduces their taxes by €3 (000 x 12% = €000).
In the best case, a married couple subject to joint taxation reduces their taxes by €6 (000 x 24% = €000).
2. Exemption from capital gains tax on disposal
In the event of a gain, unitholders of a FCPI are exempt from tax on the capital gain they realize by selling their share when they decide to exit the fund.
Only social security contributions of 17,2% are due.
IV. What are the disadvantages of investing in an FCPI?
To benefit from significant tax reductions granted to FCPI unitholders, the latter must keep their shares for at least 5 years.
FCPI funds being at least 70% invested in innovative SMEs, you have to be prepared to take a certain degree of risk.
Le risk taken is proportional to the high performance expected. FCPIs do not provide protection against the vagaries of the market and an investor could thus lose all or part of his investment.
FCPIs present other risks such as credit risk or liquidity risk. It is advisable to consult the rules of the FCPI for more information on the risks.
V. How to choose in which FCPI to invest?
To determine which FCPI to choose, the investor must first consider the quality and experience of the managing company of the FCPI. To do this, he may contact various management companies to ask them for a presentation appointment. In addition, he can find a lot of information on the sites of management companies. The objective is to be able to assess the performance of the management company over time.
The investor must then understand whether the FCPI strategy corresponds to its expectations. Depending on his appetite for risk, some FCPIs will suit him better than others.
Indeed, some investment strategies will seek to make big performances by betting on young growth companies with strong potential. This can be highly profitable in return for accepting greater risk.
Other strategies will be more conservative and rely on more mature companies that have already proven the robustness of their business model. When the manager believes that one of these companies is undervalued by the market, he will bet on the latter.
There is no better strategy between the two presented. Indeed, in periods of growth, the first strategy will be favoured. On the other hand, in times of crisis, the second strategy will be much more effective. The main thing is that the manager proposes a coherent and assumed strategy.
Please contact the management company, CGP or distributor for any advice able to inform you about the different types of investment vehicles.
Contact NextStage AM for more information on its FCPIs.
NB : the above description is not exhaustive and does not constitute investment advice. Before making any investment decision and in order to properly assess the tax deferral and potential exemption regime as well as the risks involved, it is recommended that you consult your usual legal, tax or financial adviser or contact the company management for more information.
VI. frequently asked Questions
1. Who can invest in an FCPI?
The FCPIs are open to all well-informed investors : natural or legal persons or other entities, French or foreign.
2. Why invest in an FCPI?
It is interesting to invest in an FCPI for the double tax advantage that this can confer.
- A potential income tax reduction of up to 25% payments made within the annual limit of €12 for a single person and €000 for a married couple.
- In the event of a gain, you can benefit from an exemption on the capital gain realized during the sale of your units of the FCPI, only social security contributions of 17,2% are due.
In addition, it allows you to help support innovation in our country.
3. What is the retention period of an FCPI?
Investors in an FCPI must keep their titles for at least 5 years to take advantage of the income tax reduction of up to 25% and to benefit from the tax exemption on the capital gain realized on the sale of their securities.
4. What is the tax reduction rate for an FCPI?
The income tax reduction rate can reach 25% if the FCPI is 100% invested in innovative SMEs. On the other hand, if only 70% is invested in innovative SMEs, then the tax reduction will be 17,5% (25% x 0,7 = 17,5%).
5. How to declare an FCPI?
It is necessary to declare the sums you have invested in an FCPI in your tax return. You must declare the appropriate amount in the "other tax reductions and credits" section of the complementary declaration n°2042 RICI, indicated in a tax certificate issued by the management company that manages the FCPI in which you are invested.
