Since its application in 2008, the TEPA law has succeeded in encouraging more than 73,000 individuals to invest in SMEs and this number continues to grow. Why the fad? Because the taxpayer can benefit from a reduction in the tax on his real estate (ISF: Impôt de Solidarité sur la Fortune), depending on the amount he has invested in capital in an SME. Many property owners decide to invest in small, unlisted companies with fewer than 250 employees through FCP ISF.
The ISF mutual fund: definition
You can invest your money with an ISF or local investment fund that will invest this capital in SMEs. It is important to note that the ISF mutual fund cannot invest the sum in the capital of large companies. As mentioned before, it must be an unlisted SME with fewer than 250 employees. In addition to these criteria, the SME must be young (less than 5 years of existence), and practice only in the following fields: commercial, liberal, agricultural, industrial, craft or financial.
What are the 2 main advantages of investing in an ISF FCP?
The first big advantage is the fact that you can benefit from partial exemption from your taxes. This tax reduction is made in two stages: first, you benefit from an exemption of 50% of your wealth tax (ISF), and then you are also entitled to a 25% reduction on your income tax.
As far as the 50% reduction of the ISF is concerned, this is calculated according to the amount you have invested in an ISL FCP, up to a limit of €20,000 per year.
As far as the reduction in income tax is concerned, this represents an amount equal to 25% of the amount not used to reduce the wealth tax. The annual ceiling is set at €3,000 for a single person and at €6,000 for a married couple or a couple in a partnership.
The second main advantage is that you become a shareholder in one or more companies and you can expect to receive more or less substantial dividends. Indeed, small unlisted companies offer higher returns compared to large companies, ranging from 10% to 15% per year.
Is it risky to invest your money in an ISF FCP?
Investing in an ISF FCP is not without risk. As mentioned above, capital will be invested in small, relatively young companies with few guarantees.
Furthermore, it is not authorised to withdraw the capital of the FCP ISF for at least 5 years. In the event that an unfavourable wind blows in the market on which the SME operates (and in which your money has been invested by the FCP ISF), and that happens, for example, during the 4th year, you take the risk of losing money.
The risks are certainly not negligible if one wishes to invest in FCP ISF but it is quite possible to reduce these risks significantly to enjoy the maximum benefits offered under the TEPA law. Do not hesitate to ask about the FCP ISF to whom you are considering entrusting your investment. Follow up and ask your FCP ISF for as much information as possible on the SMEs in which the capital has been invested: monitor their results, keep an eye on market trends.