Small and medium-sized enterprises as well as medium-sized enterprises (SMEs and ETIs), the vast majority of which are family-owned, are an essential link in the value chain of the French economy. However, their transmission remains difficult, for psychological and economic reasons: out of approximately 68,000 companies to be sold, 17,000 disappear each year, for lack of buyers. The pandemic and its uncertainties have not improved the situation by forcing managers and potential buyers to wait and see: disposals fell by 16% in 2020 compared to 2019.
However, this is a real national issue: the proper transmission of SMEs and ETIs within the French economic fabric makes it possible to avoid a loss of French know-how that would result from the takeover by a foreign competitor or the disappearance business outright. Since 2021, thanks to the good post-Covid-19 economic recovery, company valuations have reached record highs. With the 2022 finance law, the State has further relaxed the legal framework for the transfer of businesses. We have rarely seen a more favorable context than today for transferring a business.
A window that could close
The best time to start thinking about the transfer of your business or to implement it is therefore now. Especially since several factors suggest that this favorable context will not last: the rise in the price of raw materials, interest rates and international tensions with the war in Ukraine raise fears of a tightening of the taxation of companies and shareholders medium term. Current national political uncertainties may also tip the scales in this direction.
Business leaders who so wish therefore have every interest in planning their succession now, particularly if it takes place in the family sphere, so that it takes place under the best conditions and at the best price.
The Dutreil pact works well
Remember that only 17% of business transfers take place within the family circle in France, compared to 65% in Germany and 76% in Italy, even though this is the scenario that opens up the most tax advantages. Thus, when the manager of a company transfers it to a first-degree relative, thanks to the Dutreil pact, he benefits from a tax reduction of up to 75% of the value of the company. This allowance can also be combined with a 50% reduction in gift tax, if the donating executive is under 70 and has full ownership of the company.
Even if the transfer of the company takes place outside the family circle, the tax advantages remain significant, since the managers who transfer their company can choose the tax regime to be applied to the capital gains on their securities: either a single flat-rate levy of 30%, to which must be added, where applicable, the exceptional contribution on high incomes of 3 or 4%, or the progressive tax scale. The second choice may prove to be more advantageous beyond a certain holding period of the securities.
To fully benefit from these tax advantages, it is therefore crucial for managers of French SMEs and ETIs on the way to retirement to take advantage of this medium-term window of opportunity.
Johan Gaulin is partner, EY Société d’Avocats, Business Tax Services, co-head of the family business market.
–
