FCPI/ FIP
FCPI and FIP: supporting SME/SMI while enjoying tax benefits
FCPI and FIP are mutual funds belonging to the Private Equity category. Specifically created for France, they are designed for private clients and informed investors.
Innovation-focused mutual funds (FCPI) were created by the 1997 Finance Act in order to support the development of innovative SME/SMI. The 2002 and 2006 Finance Acts extended this plan until December 31, 2010.
Proximity Investment Funds (FIP) were created by the Dutreuil Law for the Economic Initiative on August 1st, 2003 to help finance regional SME/SMI.
FCPI are subject to very specific regulations, with particular regards to limits on the holding of assets and the distribution of risk within portfolios. FCPI are also subject to approval and auditing by the French financial markets authority (Autorité des marchés financiers - AMF).
Why invest in a FCPI or FIP? |
Investing in a FCPI or FIP allows you to access the private equity markets through high-risk yet supervised by the AMF, investment vehicles. These products also enjoy significant tax benefits and provide you with the opportunity to diversify your portfolio while contributing to the development of non-listed companies. Over the last 10 years, the private equity market has delivered high returns compared to the performances of other asset classes (equities, bonds, money market, etc.)
A FCPI is an innovation-focused mutual fund which must invest at least 60% of its assets in innovative companies’ securities.
The innovative nature of a company can be assessed according to its spending on research and development, or whether it has been approved by the French research and innovation agency (Agence Nationale pour la Valorisation de la Recherche - ANVAR-OSEO).
A company is considered innovative if it meets one of the following two criteria:
| - have had cumulated R&D expenditure in the course of the 3 previous financial years, equalling at least one third of the highest turnover figure during those 3 financial years;
- be able to provide evidence for the creation of innovative products, processes or techniques which economic development potential has been demonstrated (assessed by the ANVAR-OSEO over a three-year period), and the corresponding financing requirements.
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FCPI can invest in the following companies:
| - unlisted companies or companies with a market capitalisation below 150 million euros and which shares are listed on a financial market of a European Economic Area Member State, but up to a limit of 20% of the Fund's assets for those listed on a restricted financial market;
- companies having their head office in a Member State of the European Community;
- companies subjected to corporation tax under common law or would be liable for corporation tax under common law if their activity was exercised in France;
- companies with less than 2,000 employees;
- companies which capital is not mainly held, directly or indirectly, by one or more legal entities linked to other legal entities;
- companies that can be a holding of innovative companies, representing at least 75% of the capital of the companies held.
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| - An FIP (Proximity Investment Fund) is a savings instrument which promotes partnerships between local authorities and private investors (individual and institutional) in order to fund the development of companies located in a specific region.
An FIP must invest:
- at least 60% of its assets in non-listed innovative French regional SME/SMI, from three neighbouring regions and at least 10% of these companies must be less than five years old;
- the remainder (up to 40%) can be freely invested in financial instruments (mainly mutual funds of renowned management firms, that may include equities, bonds and monetary securities).
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Which are tax benefits of FCPI and FIP? |
FCPI offer a double tax advantage.
| - Taxpayers having their tax residence in France who invest in FCPI shares in year n can benefit from year n+1 onwards from a reduction in their income tax equal to 25% of the cash subscriptions (gross amounts paid, inclusive of subscription charges)
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FCPI
FIP | Payments ceiling | Reduction in personal income tax |
| Single person | €12,000 | 12,000 (25%) = €3,000 |
| Married couple | €24,000 | 24,000 (25%) = €6,000 |
| - The capital gains are also exempted from capital gains tax and are only subjected to social security contributions, provided that the FCPI units are held for at least 5 years from the subscription date.
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FIP benefit from the same tax conditions as FCPI, i.e. tax reduction of up to €6,000 for a couple subject to joint taxation and total exemption of the capital gains tax when the units are sold off (after a 5-year holding period and excluding social security contributions).
Can you combine tax benefits of both FCPI and FIP? |
The tax benefits of FCPI and FIP (two-fold increase in your tax reduction ceiling) can be enjoyed at the same time and allow to diversify an investment due to differentiation of financed companies categories.
FCPI
FIP | Payments ceiling | Reduction in personal income tax |
| Single person | €24,000 | €24,000 |
| Married couple | €48,000 | 48,000 (25%) = €12,000 |
How do we select the products? |
HSBC Private Bank France, joining forces with specialist teams of HSBC France, offers a variety of FCPI / FIP to meet your requirements. HSBC Private Bank France's wealth planning team selects its partners on the basis of:
| - an extended personal contacts network in the private equity field;
- a rigorous and established selection process;
- a track-record of over 5 years and success stories;
- an open finance management policy for the UCITS (OPCVM) part of the fund.
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Are FCPI and FIP risky investments? |
FCPI and FIP belong to the high-risk mutual fund investment category and are therefore complex products designed for well-informed investors only. The fund invests at least 60% of its assets in innovative companies with fewer than 2,000 employees in which one or more legal entities do not hold a majority shareholding. The remaining 40% will possibly be invested in financial instruments authorised under current regulations, in equities or funds for instance.
The performance of the fund will depend on the success of these companies' projects. Given the innovative and risky nature of the projects, you must be aware that those investments carry a high level of risk. The potential return from these innovations and the tax benefits are also offset by the risk of loosing money.
Funds can invest to some extent in non-listed companies. The Net Asset Value (NAV) of the units will be calculated by the asset management firm according to the method described by the fund regulation and under the supervision of the fund auditor (the NAV calculation can prove to be delicate).
What are the constraints to fulfil? |
You must be a French tax resident individual and a well-informed investor for the full duration of the investment. Non-French individuals residents will not qualify for a tax break on income earned in France.
To benefit from the tax advantage, the previously mentioned 60% threshold must be met within a maximal period of two financial years and the units subscribed must be held for at least five years. However, the optimum investment period is not linked to this tax constraint due to the fact that the fund invests in companies that might take longer to reach maturity.
What are the consequences of early redemption? |
Early redemption (before the end of the 5-year period), will mean losing the product's tax benefits: the 25% tax reduction must be paid back and the capital gains will be taxed, other than in one of the following three cases:
| - death of the subscriber or his/her spouse;
- 2nd or 3rd degree invalidity of the subscriber or his/her spouse;
- redundancy of the subscriber or his/her spouse.
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The redemption conditions may depend on the fund's ability to sell its assets quickly. It may not agree to immediate redemption and may offer a price lower than the last published net asset value. If the units are sold to another unit holder, the selling price may also be lower than the last published net asset value.
