What are the tax implications of search funds in France?

The French tax framework for search funds differs from the American model, requiring careful structuring to optimize outcomes for both searchers and investors. Unlike the US where equity can be granted with favorable tax treatment, French law generally requires that shares be purchased rather than gifted, creating initial capital requirements for searchers. However, several mechanisms help align incentives. The use of actions gratuites (free shares) or BSPCE (bons de souscription de parts de créateur d'entreprise - founder warrants) can provide preferential treatment, though these instruments have specific eligibility criteria and vesting requirements. Searchers often structure their equity acquisition through a combination of personal investment and advantageous terms negotiated with investors, such as deferred payment arrangements or loans from the holding company that are forgiven upon achieving performance targets. For investors, capital gains taxation depends on holding periods and investor classification. Individuals holding shares for more than two years benefit from the PEA (Plan d'Épargne en Actions) regime if structured properly, with tax rates significantly lower than standard income taxation. The flat tax (prélèvement forfaitaire unique or PFU) of 30% applies to capital gains and dividends for most investors, though some may opt for the progressive income tax scale if more favorable. Corporate investors face different treatment under the participation exemption regime, which can provide substantial tax efficiency on exits. The holding company structure (newco) created for the acquisition is typically a Société par Actions Simplifiée (SAS), offering flexibility in governance and capital structure while maintaining limited liability. This vehicle must navigate French corporate tax at 25% (or lower rates for small companies meeting specific criteria). Interest on acquisition debt is generally tax-deductible, improving after-tax cash flows, though thin capitalization rules limit excessive leverage. Salary paid to the searcher during both search and operational phases is subject to standard income tax and social charges (approximately 45-60% total for higher earners), making equity-based compensation particularly attractive. Wealth tax (IFI - Impôt sur la Fortune Immobilière) considerations arise for high-net-worth investors, though active business holdings may qualify for exemptions under the professional asset regime (biens professionnels). Transaction structuring requires attention to registration duties (droits d'enregistrement), which vary depending on whether the acquisition is structured as a share purchase or asset purchase. Share purchases generally incur lower duties. French search funds benefit from working with specialized tax advisors and avocats who understand both the French regulatory environment and the search fund model's unique characteristics to structure transactions optimally.