Let's start with Local Investment Fund (LIF) and Innovation Mutual Funds (IMF)

Local Investment Fund (LIF) and Innovation Mutual Funds (IMF) are private equity products open to all types of investors in order to drain the savings of French individuals towards SMEs, the real engines of French and European growth, and which provide tax benefits to investors.

The Local Investment Fund (French 'FIP') are funds whose assets consist of at least 70% of young European SMEs, not listed, located in a geographical area comprising 4 neighbouring regions.

LIF came from the government's desire to give a boost to French SMEs and encourage direct investment of savings to unlisted companies. In return for a blocking of their investment for a minimum of 5 years, investors taxpayers benefit from a tax advantage that depends on the type of LIF chosen. There are 3 of which the investment zones differ, the Corsica LIF and Overseas LIF offering the most attractive tax measure.

An IMF (French 'FCPI') is a UCITS authorised by the AMF through which individuals can invest in the capital-investment: at least 70% of the assets collected must be invested in unlisted and innovative SMEs. The balance can be invested in other mediums: stocks or bonds or SICAV in order to ensure a regular return on this investment. These funds are inherently risky but can yield very attractive long-term returns.

By purchasing units of LIF or IMF and keeping them for a minimum of 5 years, you will receive an income tax reduction equal to 18% of the amount of your investment (capped at €2,160 for a single person and €4,320 for a couple) as well as an exemption on capital gains on exit (excluding social security contributions).

It should be noted that the expected holding period generally exceeds the minimum holding period (up to 10 years) to coincide with the maturity of investments in SMEs.

Overseas LIF & Corsica LIF

The mechanics of these 2 types of Local Investment Funds (LIF) are equivalent to that extent that the investment in goods will be in one case carried out in the French DOM-TOM (French overseas departments and territories), and in the second in Corsica.

It is only in 2017 that the law on Overseas real equality has opened to the metropolitan taxpayers the Overseas LIF device of tax exemption. Now, by investing in a local investment fund dedicated to ultramarine SMEs, investors have the opportunity to benefit from a particularly attractive tax system: a reduction in their income tax equal to 38% of their payments, in return for a lock-up period of at least 7 years of their investment.

The key points:

  • 38% income tax reduction
  • income tax reduction of € 9.120 max. for married or PACS-bound persons subject to joint taxation
  • income tax reduction of € 4,560 max. for singles, widowers or divorced
  • Subject to the global ceiling of 10.000 €
  • In return for a blocking period of 7 years that can be extended to 9 years
  • 0% on capital gains (no tax on any capital gains generated by this investment - excluding social security contributions)

French overseas departments and territories: a dynamic market

  • More than 5,600 SMEs in the French overseas departments
  • 2.75 million inhabitants
  • 55 billion euros of GDP

Girardin law

Tax systems were set up as early as 1951 to support the economic and industrial development of the French overseas departments and territories ('DOM-TOM'), the Girardin scheme having been introduced in 2003.

The purpose of the tax system introduced by the Girardin law is to provide tax assistance for investments in the sectors considered as priority for the economic, energy and social development of the overseas territories. This system of tax exemption overseas, ethical and solidary, even ecological, rewards the private investment in DOM-TOM with an immediate tax benefit: you invest this year and benefit from a tax reduction the following year.

The money invested is used for the purchase of equipment that will be rented for 5 years to a company overseas (at the end, the equipment is transferred to the user for a nominal price). You will not get this money back, but... In return, you benefit from a tax reduction higher than your subscription and valid the following year.

Example: the amount of your tax of year N+1 is estimated at € 15,000 €. You invest in year N on a Girardin offering a return of 15%. You bring € 13,050 €. Your tax reduction will be € 15,000.

You will have understood: the interest of this placement is purely tax based. You advance the amount of your tax and the State reimburses you this advance with a bonus: a return that can reach 15% over 12 months.

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