Innovation tax credit in France –  Overview

The innovation tax credit in France (in French “Crédit d’Impôt Innovation” (C.I.I.)) is a tax measure that enables a partial funding of outlays incurred to enhance the functionnalities of any device on a given market; it can be in the form of a reimbursement or a reduction of corporate tax.

International French group branch offices or subsidiary companies, provided thay are SME under the European definition, can obtain from the French state the reimbursement of up to 30% of their spending to embed new functionnalities on devices, in the same conditions as French companies.  Branch offices are also concerned, that is to say, unincorporated foreign stable establishments in France.

Because the innovation tax credit in France is a tax measure, it is not subjected to any regulatory framework and is not taken into account for the limit of European public fund aids.

How does it work?

Scope of spending…

The spending engaged has to relate to the set up or conception of new prototypes or design of new products. Hence, a new product should meet a couple of criteria. First, it must not be made available to customers. Second, It outperforms technically those existing on the market.

…and calculation of innovation tax credit in France

The spending eligible for CII are the following:

• Salaries and related social expenses,
• Depreciation allowances for assets used in innovation projects,
• Operational expenses,
• Intellectual protection expenses (patents costs),
• The costs of subcontracted research entrusted to public research entities, to scientific experts and private structures approved by the Ministry of Industry.

The innovation tax credit and staff expenses

• Gross salaries and the employers’ social tax costs for researchers (executives and technicians),
• Gross salaries and employers’ social tax costs for managing directors (in French “mandataires sociaux”),
• Salaries of trainees,
• All staff costs not belonging to the company, provided they are charged at cost price, (prorated to the time spent on Innovation programs only).

… And depreciation allowance

• The depreciation allowance assigned to all Innovation programs are included in the base of calculation.

… And running costs

• Staff expenses as defined above benefits from an increase to a rate of 43%,
• Depreciation allowance benefits from an increase of 75% within operating costs.

… And subcontracted research

• The innovation expenses entrusted to private organisms, which are listed and hence authorized by the Ministry of Indutsry’s Website.

The subsidies related to the program must be susbtracted for the above mentionnned expenses.

The maximium innovation tax credit you can get..

All the expenses are capped to 400 K€ incurred per calendar year . Hence the Innovation Tax Credit cannot ovetake 120 K€

..and its repayment

The tax credit will reduce corporate tax owed by the company. Any excess is refunded immediately.

How to legally optimize and secure the Innovation tax credit (CII)?

Companies that want to secure their CII in France can file a prior notice request (rescrit fiscal in French) to the tax authorities before starting innovation operations. This procedure is highly recommended. The opinion will constitute a position on the part of the tax authorities standpoint, although it keeps its right to control the reality and the amounts of the expenses eligible.

The company has to submit evidence attesting the reality of their innovative programs. This submission takes the form of a write-up laid out according to the requirements of the Oslo Manual.

The innovation tax credit and other taxes incentives

The status can be accumulated with all other tax incentives, especially the CIR, the Video-Game tax credit and the Young Innovative Statut (JEI). For further information on this, please look up  tax credits – what you need to know. 

The innovation tax credit in France : to sum up..

Tax incentices

Tax credits in France – General objective

Tax credits in France can be likened to subsidies granted by the French Government. They are aimed at dicreasing most of the time the overall cost of labor signicantly when they can be combined to each other (up to 50%).

Tax credits in France – How does it work in brief?

Applicability, calculation and repayment..

First, applying for them assumes the entity pays corporate tax in France. Practically, branches and companies can claim tax credits. Liaison offices cannot claim them as they do not pay income tax in France.

Second, and as a result of the first paragraph, they often are calculated partially or even totally on gross salaries.

Third, they are never subject to corporate tax. Indeed, they are always deducted from the taxable profit. This feature makes them totally different from all other grants and subsidies. Prize-winning awards, subsidies and loans (whey they are not refundable any longer for certain conditions) are always included in the basis of calculation of the corporate tax.

Finally, they are deducted from the tax bill any company has to pay each year. The excess of tax credits over the tax bill is either repaid immediately or maximum after 3 years, if the company has not been in a position to apply it to tax bills after this 3-year period. The terms of refund hinges either (i) on its size (a SME or not)  and/or the type of tax credit.

Possible combination of tax credits?

The tax credits that are worthwhile to apply for can be added to each other with no restrictions. In other words, a company does not have to choose between certain tax credits.

Taxonomy of tax credits in France.

Wage tax credits…

There are on one hand the competitiveness and employment tax credit (in French CICE) and on the other hand all other major tax credits (Research, Innovation and video-games andx tax credits).

The CICE can be applied by all companies, whereas the second group finances specific sectors, especially the high tec one.

As a result, the same € of gross salary can give rise to both CICE and all other major tax credits.

Conversely, this situation never applies among all these latters. For instance, the same € of gross salary spent to get to the research tax credit cannot finance the video-games tax credit (and vice-versa).

…And the Young Innovative Enterprise (JEI) Status

The Young Innovative Enterprise Status (JEI) has a particular status. Indeed, it combines a corporate tax exemption over 24 months and a decrease in 2/3 of the social expenses on researchers’ salaries.  It can be applied by SME whose seniority is lower than 8 years.

The JEI status is always accumulated all other tax credit especially with the research tax credit. The corporate tax exemption (not the social advantage) is capped to 200 000 €.

Tax credits in France – A summary

Tax incentives France

For further information, see below about the

the CICE,

the research tax credit (CIR)

the Innovation Tax Credit

the video game tax credit

the movie tax credit

Incentives in France : background

France has been always a land of breakthroughts : the country invented, among others, photography and the combustion engine, pioneered the automotive and the aircraft industries. It also discovered radioactivity and certain major deseases.

Given the aforementioned facts, France started to support the high tec sector 30 years ago. The country beefed up the policy over the past years, by supplying a wide range of grants and tax credits.

Conditions to get these incentives

In general

As mentionned before, the company needs most of the time  to develop innovative technologies (Information and communication technologies (ICT), biotechnologies, renewable technologies, innovative materials, nanotechnologies, etc.).  However, if the sector in which they operate does not target innovation, some of them can be acquired, provided the company has ambitous objectives.

Depending on the programm, the incentives are restricted to Small or Medium Enterprise under the European definition (less than 250 employees, annual turnover below 50M€ or a total balance sheet below 43M€. No requirements exist regarding the shareholding.

Finally, the seniority of the company matters most of the time little, even not at all. For some of them, it is not required that the company be incorporated to apply for them. However, it needs to exist to cash the incentives.

..and applied to branches or subsidiaries of foreign small businesses

A newly subsidiary or branch founded by a foreign group can benefit from all these incentives as any French company if the consolidated turn-over and the balance sheet of the mother company it belongs to and all its subsidiaries remain below these thresholds.

Hence, foreign firms can hire people, especially engineers,  developpers etc.. working in the innovative sector at a very interesting value for money.

Taxonomy of incentives in France and economical effect – in brief

Incentives in France can be classified in 5 categories;  tax credits,  prize-winning awards, sudsidies and reimbursable supports, free-interest rate loans.

Most of time, there are no restrictions to add these incentives to each other. As a result, the support from French government can easily support over 50% of the outlays. In other words, they can significantly decrease the cost of labor.

Incentives in France – A Summary

For tax credits, for further information, click here

For prize-winning awards through contests, go to  The Worldwide Innovation Challenge (Concours Mondial de l’Innovation in French) that can award up to a 20 M€ grant,

As for Subsidies, click Reimbursable financial support or innovation subsidies,

And here for loans for innovation.

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WHAT ARE THE CONDITIONS TO GET THESE SUBSIDIES ?

Employment subsidies in France can also be substantial, especially if the subsidiary or the branch  belongs to a group considered as a Small or Medium Enterprise (SME)  under the European definition and develops one or several technological innovation (such as biotechnology, heavy metal recycling, marine resources valorization, vegetable protein and vegetal chemistry, individualized medicine, silver economy, big data operation valorization, etc.) : in general any recruitment can be eligible to government support. Foreign group’s liaison offices can benefit from employment subsidiaries under the same conditions than French group’s subsidiaries or French capital owned companies.

 These employment subsidies can be accumulated with the tax incentives such as the  research tax credit (CIR) or the statut JEI (Young Innovative Status).

WHAT ARE THE MOST INTERESTING EMPLOYMENT SUBSIDIES IN FRANCE AVALAIBLE TO COMPANIES?

PM’Up is the most attractive for executive staff recruitment because the employment subsidy can be drawn over a three year period and sum up to a total of 250 k€. Non executive recruitment also can benefit either from employment subsidies or from a financial support.

Moreover this subsidy  allows the recipient to have access to over 1000 parners and world-class corpoprations. Finally, the company benefits from the help for free of a counsellor over the aforementionned period.

Unlike PM’UP, which is aimed at financing innovation, employment subsidies in France target a wide range of fields of activity, most of which are industrial.   The recipient can acquire either a subsidy or a loan. Of course, should the support be a loan, it is interest-free and can sum up to 20 K€, that is three times as much as the maximum amount for a subvention (7 K€).

Both these subsidies can be summarized as follows:

Employment subsidies in France

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The french movie tax credit (crédit d’impôt cinéma)

Context: France is proud of its heritage and is determined to spread it worldwide although they already are the number one touristic destination in the world. Films and other fictions play a substantial part in this promotion. That is why the Ministry of Culture has set up important tax incentives for film producers, which are even more attractive for foreign companies.

French movies incentives for corporations based in France (including therefore subsidiaries of foreign groups)

The prequisites and conditions

The conditions to obtain a refund are (1) an agreement from the Centre National du Cinéma (2) the majority of the movie/episode has to be shot in French. In practice, the agreement is needed prior the launching of the French movie performance.

Moreover, the tax credit cannot cause all subsidies to overtake 50% of the overall budget.

The base of calculation…

The movie tax credit (Crédit d’Impôt Cinéma in French) allows any producer to collect a refund of certain expenses. Eligible expenses for the tax credit are royalties paid to authors, salaries and social costs paid for technical staff members, expenses incurred to cut/edit/ the movie… to sum up almost all expenses. The total of expenses entitled to this credit is capped at 6 M€

and the rate

The tax credit is calculated per episode or movie and represents up to 30% of the aforementioned costs, which means the movie tax credit is capped at 9 M€ accordingly.

and the refund

If the tax credit has not dedudted from the tax bill, it is immediately refunded.

French movies incentives for entities based outside France 

The conditions and the calculation of this tax credit (in French Crédit d’impôt pour production de films et ouvres audiovisuelles étrangers) are the same (agreement of the CNC, expenses capped at 30 M€, etc.) at the exception (1) that the movie/episode is required to highlight parts of the French heritage, but is not required to be shot in French.

Hence, the movie tax credit is capped at 9 M€ accordingly.

Tax incentives in France – French movies tax credits

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Young Innovative Company Status (JEI) – General overview

The status of Young Innovative Company (JEI) enables young companies very active in R&D to get significant financial support to get past the hurdle of the first and most difficult years of their development. It mainly consists in a social expense (tax) exemption researchers’ salaries and corporation tax exemption as well.

Conditions to acquire the JEI status

To acquire the JEI  (Young innovative company)  status, the company must fulfill 5 conditions:

• Be less than 8 years old,
• Be a SME according to the General Tax Code,
• Be independent (at least 50% directly or indirectly owned by physical persons, including venture capitalists),
• Practice an authentically innovative business,
• Dedicate at least 15% of the total company’s spending in R&D,

The calculation of R&D’s share of expenses is roughly the same as the research tax credit (CIR above mentioned).

To preserve its status, the company must maintain all these requirements for each fiscal year.

Subsidiaries of groups can benefit from the statuts if they were pre-existing companies. However, subsidiaires newly incorporated by groups are not eligible for it.

Exemptions granted by the Young Innovative Company Status

Companies that obtain the JEI status benefit during the eligible period of 3 types of exemption:

• Exemption of employers’ payroll taxes for research personnel salaries,
• The following tax relief:
  • Exemption on corporate income tax during 12 months over 8 years,
  • 50% tax allowance on profits for the following 12 months,
• Total exemption of two local businesses taxes (C.F.E. and C.V.A.E.)

These tax exemptions on corporate income tax are subjected to the European de minimis rule, which sets an upper limit on tax relief that a company can receive each year. These aids cannot exceed 200 K€ by company over a 3-year period.

Employers’ payroll tax exemptions are capped:

• For each employee, to the portion of revenue up to 4.5 times the SMIC   (minimal French pay) of the gross salary, which represent today 6 660€  per month in 2018,
• For each establishment, up to 5 times the social security’s annual (that is 199 880 € in 2018).

No other capping exists as far as the payroll taxes are concerned.

 How to optimize & secure the Young Innovative Company status?

In order to reduce the risk of queries from the tax authorities on the innovative nature of the research program, and consequently the statut JEI, it is highly recommended for companies to request from the Service des Impôts des Entreprises (SIE) “Corporate tax department” to which they file, to take a stand on the innovating nature of the project(s) by filing a prior notice request (rescript). The absence of answer from the Administration is worth agreement of its part. However, it can still control the reality and the amounts of the expenses.

Accumulation of the JEI status with other exemptions or subsidies

The company can accumulate the JEI status with the CIR (research tax credit) and innovation subsidies and employment subsidies.

THE YOUNG INNOVATIVE STATUS – IN BRIEF

Young Innovative Company

Our flexible and lean organization relies on experts and tax lawyers, who master the English language (and in some cases German) and have a confirmed experience of CIR. We assure you a quality of service comparable to that of large consulting firms, but at much lower rates. At Jean-Claude Armand and Partners, we consider that tax advantages should benefit above all the companies. For us, this is fundamentally a question of ethics!