Investing in an SCR: What Tax Benefits for Companies?
Sociétés de Capital-Risque (SCR, venture capital companies) are investment vehicles dedicated to financing unlisted SMEs. In France, they benefit from a specific tax regime designed to encourage equity investment in the real economy. For companies subject to corporate income tax (IS), investing in an SCR can allow for significant tax optimization. Still, it’s important to understand the exemption mechanisms, the conditions to meet, and the complementary schemes available. This article is specifically built on the French tax system, please reach out to your tax advisor for any question.
1. Tax exemption on income distributed by the SCR
When a company invests in an SCR, it may receive income in the form of dividends or capital gains distributions.
If the distributions come from capital gains realised by the SCR on the sale of eligible securities, they are fully exempt from corporation tax for the receiving company. Two conditions apply together: the securities sold must have been held for at least two years, and the SCR must have held at least 5 % of the issuing company’s capital for at least two years.
If those conditions are not met, the distribution falls under the 15 % long-term capital gains rate. Securities sold before two years fall outside the long-term regime altogether and are taxed at the standard corporation tax rate of 25 %.
This corporation tax exemption on distributions drawn from capital gains is a major tax advantage, since it lets the company avoid taxation on these gains, unlike distributions from a standard company subject to the parent-subsidiary regime.
Legal reference: Article 219, I, a sexies-1 of the French General Tax Code (distributions)
Note that, unlike the parent-subsidiary regime, which requires a minimum 5% stake, the company is not required to hold a minimum share of the SCR.
2. Favorable tax treatment on capital gains from the sale of SCR shares
Companies holding SCR shares can resell them and realize a capital gain. Depending on the holding period, the applicable tax treatment can be extremely favorable:
If the company has held the SCR shares for at least 5 years, the capital gain on the sale benefits from a corporate tax exemption on the portion corresponding to eligible securities (SME securities held by the SCR for more than 2 years).
If the SCR invested 80% of its assets in eligible SMEs, then 80% of the capital gain will be exempt from corporate tax for the selling company.
Taxation on the resale of SCR shares is therefore considerably reduced for companies investing over the long term.
Legal reference: Article 219, I, a ter and a sexies-2 of the CGI. The five-year condition comes from a ter; a sexies-2 sets the rate applying to the eligible fraction of the gain.
Valeureux’s first multi-asset fund is structured as an SCR, and Valeureux invests 100% in science-based SMEs located in France. All holdings are therefore eligible.
3. Conditions to meet in order to benefit from these advantages
For the investing company to benefit from these exemptions, certain conditions must be met:
Minimum holding period: SCR shares must be held for at least 5 years to benefit from the capital gains exemption regime. Securities sold by the SCR must be held for at least 2 years for the distributed income to be exempt from corporate tax.
Compliance with the SCR’s investment quota: The SCR must invest at least 50 % of its net book equity in securities of unlisted companies of the European Union or the European Economic Area, subject to corporation tax, for the investor to benefit from the exemptions. (As already noted, Valeureux’s first fund is well above this ratio.)
No majority stake: Holdings counted towards the quota must not give the SCR, or any of its direct or indirect shareholders, more than 40 % of the voting rights of the financed company. (This condition is monitored holding by holding.)
4. What about the parent-subsidiary regime?
The parent-subsidiary regime allows for a 95% exemption on dividends if the company holds at least 5% of a subsidiary for at least 2 years.
The parent-subsidiary regime does not add to the SCR regime: it is ruled out. Article 145, 6, h) excludes from the parent-subsidiary regime the net income and gains distributed by venture capital companies where they are exempt under 3° septies of article 208. This has no consequence for the investor: where the parent-subsidiary regime leaves a taxable share of costs and charges, the SCR exemption is complete.
Legal reference: articles 145 and 216 of the CGI. Article 145 sets the conditions; the 95 % figure comes from article 216, which sets the share of costs and charges at 5 %, reduced to 1 % within a tax-consolidated group.
In practice, however, this would only be worthwhile if a large portion of the holdings were not eligible for the exemption on dividend distributions or share sales.
The SCR regime therefore does better than the parent-subsidiary regime: the exemption is complete, where the parent-subsidiary regime leaves 5 % of the income taxable.
5. Why should a company invest in an SCR?
Diversifying investments: Investing in an SCR allows a company to allocate part of its cash reserves toward innovation and high-potential SMEs.
Tax optimization: The corporate tax exemption on dividends and capital gains makes this investment particularly attractive.
Contributing to the real economy: By financing startups and SMEs, the company contributes to entrepreneurial dynamism.
Conclusion
Investing in a Société de Capital-Risque (SCR) is a tax and strategic opportunity for companies subject to corporate income tax. The tax exemption on dividends and capital gains from share sales makes it an attractive investment vehicle for those looking to optimize their cash reserves while contributing to the development of French SMEs. However, it is essential to meet the specific conditions of the SCR regime in order to fully benefit from these advantages.
Legal references. This page describes French tax law. It applies to companies subject to French corporation tax (impôt sur les sociétés), and to securities of a société de capital-risque governed by French law.
- Article 219, I, a ter and a sexies of the CGI
- Article 145 of the CGI (parent-subsidiary regime)
- BOFiP BOI-IS-BASE-20-20-30-20 (regime for companies)
Would you like to optimize your tax situation while investing in the real economy? Consider SCRs and consult a tax expert to refine your investment strategy.
To join the Value-X SCR, Valeureux’s first multi-asset fund, benefit from this tax exemption, discover our first holdings, and take part in selecting the next ones, go directly here: invest.valeureux.com
Any investment in unlisted companies carries risks of illiquidity and capital loss.
Tax rules may change; consult official sources and a specialist.
This is neither tax advice nor investment advice. Please consider your own situation and, where appropriate, consult a tax or wealth management professional.