Over the past few years, the French government has introduced an increasing number of measures aimed at ensuring the long-term future of businesses in the country's economic fabric. The Dutreil Pact, created to encourage the transfer of businesses within a family framework, is one of them.
Definition of the Dutreil system
The Dutreil pact is a preferential scheme that has become a must for business owners wishing to transfer their company free of charge. It provides partial exemption from transfer duties. For direct line transfers, the rate can be as high as 45% above 1.8 million euros per taxable share.
Governed byArticle 787 B of the French General Tax Code, the Dutreil Pact is designed toensure the long-term future of businesses by reducing the tax cost of transferring ownership within a family context. This is a necessity for the manager in the short term, if he wishes to pass on the business to his children, for example, but also in the long term, if his death or that of his partners has not been anticipated.
What conditions must be met?
It is possible to use the Dutreil pact provided the following 3 criteria are met.
1. A collective undertaking to retain shares
To take advantage of this exemption, the manager must agree with one or more partners or shareholders to hold the shares for at least 2 years from the date of tax registration of the deed, or from the date of signature if the deed is notarized.
The commitment must relate to at least 17% of the financial rights and 34% of the voting rights issued by the company if it is listed. It must concern at least 10% of the financial rights and 20% of the voting rights if the company is unlisted.
2. An individual undertaking to retain shares
The retention commitment is twofold, since each heir, donee or legatee must individually undertake to retain the shares transferred for a further 4 years.
3. Holding a management position within the company
During the entire term of the collective undertaking to retain and for 3 years following the transfer, the company must be managed on a continuous basis by one of the donees, heirs, legatees or by one of the partners who signed the collective undertaking.
Pacte Dutreil: what formalities must be completed?
At the time of transfer, the deed of gift or the declaration of inheritance must be sent to the tax department, enclosing the following 3 supporting documents:
- A copy of the deed recording the collective undertaking;
- A copy of the individual commitment made by the beneficiaries;
- A certificate stating that the collective commitment is in force and that the commitment concerning the share of shares is respected.
This certificate must be sent to the tax authorities by April 1 of each year, to ensure compliance with each commitment.