Investment Funds 2026 Comparisons

France is one of Europe’s largest and most developed investment funds markets, with a strong presence in both retail and alternative investment funds (AIFs).

Governed by the French regulator the Autorité des marchés financiers (AMF), the market benefits from stringent regulations aligned with EU Directives, such as UCITS (the Undertakings for the Collective Investment in Transferable Securities Directive) and the AIFMD (the Alternative Investment Fund Managers Directive).

The market is dominated by institutional fund managers and global asset management firms, supported by a robust network of banks and independent advisers.

Retail funds include equity, fixed income and balanced funds, while AIFs cover hedge funds, private equity, real estate and infrastructure funds.

Despite global economic uncertainties, the French funds market has remained active, driven by the growing demand for sustainable and ESG-aligned investment products.

For retail funds, there is a continued interest in UCITS-compliant funds, with inflows supported by household savings and tax-advantaged structures such as life insurance (assurance vie).

AIFs have seen increased activity in private equity and real estate, benefiting from France’s attractiveness as a hub for innovation and green investments. In addition, French asset managers are increasingly turning to ELTIF structures as a means to broaden access to private equity investments for retail investors. At the same time, they are showing growing interest in evergreen fund formats, despite the inherently illiquid nature of private equity assets, as these structures are seen as a way to diversify funding sources, address fundraising challenges among institutional investors and partially mitigate liquidity constraints affecting fund assets.

In fact, according to France Invest (the major French professional association promoting the private equity industry), 2024 confirmed the resilience of the French private equity market in a context of persistent macroeconomic uncertainty. Following the exceptional levels reached in previous years, the market entered a phase of normalisation, characterised by sustained investment activity, increased selectivity from investors and a renewed focus on value creation and operational performance. While exit conditions gradually improved over the year, they remained constrained, leading market participants to adopt a cautious and disciplined approach. The trends observed in 2024 continued into the first half of 2025, with a stable but more measured pace of activity, reflecting both the continued attractiveness of the French market and a wait-and-see attitude in an environment still marked by economic and geopolitical uncertainties (see France Invest & Grant Thornton, Activité du capital-investissement français au 1er semestre 2025).

Operational requirements of French AIFs, including the requirement for a custodian, are described in 2.1.1 Fund Structures, 2.3.1 Regulatory Regime and 2.3.2 Requirements for Non-Local Service Providers. Borrowing restrictions are described in 2.5 Fund Finance.

Details on how an AIF’s assets are valued must be described in the AIF’s legal documentation. Valuation rules depend on the nature of the underlying assets. International standards such as the IPEV valuation guidelines are commonly used in French private equity finds. The fund manager retains responsibility for valuing the AIF’s assets.

AIFs investing in listed assets must comply with rules governing insider trading, market abuse and short-selling.

Lastly, French fund managers are required to perform know-your-client/anti-money laundering checks.

Other AIFs are not subject to any borrowing restrictions.

Per se AIFs could be subject to borrowing restrictions depending on their legal form. For example, FCPR and FPCI cannot incur direct cash borrowing in excess of 30% of their net assets, whereas such cash borrowing is not restricted for FPS, SLP and OFS (unless these vehicles are structured to originate loans, in which case their maximum leverage is capped at 30% of their net assets; however, this cap may no longer be relevant once the AIFMD II amendments are implemented in French law).

In general, borrowing restrictions (if any) are dealt with contractually among fund managers and AIF investors. The various borrowing schemes and structuring depend on whether the AIF is to be considered a leveraged fund or an unleveraged fund. For leveraged funds, borrowing is incurred at the level of special purpose vehicles (SPVs) controlled by the AIF, and lenders are granted pledges and securities on the assets of such SPVs and/or on the interests held by the AIF in such SPVs. Leveraged funds are often used in real estate transactions.

For unleveraged funds, borrowings are often used to bridge capital calls. Cash is borrowed by the AIF from a lender, mainly in anticipation of a capital call. This type of borrowing takes the form of a revolving credit facility to be reimbursed within a maximum period of 364 days through capital calls made by the AIF’s investors. Lenders are generally granted pledges on the AIF’s bank account and investors’ undrawn commitments.

Other alternative fund financing structures have been developed in recent years, such as NAV financing secured with the AIF’s underlying assets or the issuance of unsecured preferred equity. Entering into such type of financing requires amendments to the AIF’s legal documentation in order to waive any indebtedness (if feasible for AIFs that are not subject to a legal indebtedness restriction). For AIFs that are dedicated to retail investors, such amendments require the prior approval of the AMF, which could prove difficult to obtain for such type of borrowing scheme.

In most cases, French AIFs are not subject to taxation in France as they either benefit from a French corporate income tax (CIT) exemption or are not subject to CIT, depending on their legal and regulatory status. There are, however, a few exceptions.

Taxation (if any) generally occurs at the investors’ level on income received from the AIFs (ordinary income and/or gain derived from investments) based on their own tax regime.

French AIFs Exempt From CIT (“French Exempt AIFs”)

Scope of CIT exemption

These French Exempt AIFs are set up as corporate entities and are, in principle, liable to CIT but benefit from an exemption because of their regulatory status or their corporate purpose (notably FPS set up as SICAV and OPCI/OPPCI incorporated as SPPICAV).

The CIT exemption regime may be subject to conditions: in particular, SPPICAVs must comply with annual dividend distribution requirements.

As this category of French AIFs is considered opaque for tax purposes, the investors will be deemed to receive French-source dividends. CIT-exempt AIFs set up as SICAV do, however, have the possibility to “ventilate” (so-called couponnage) their profits and gain so that they keep their underlying nature (real dividends, interest, capital gains) and their source (French or foreign source) when distributed to investors.

Individual investors resident in France

Fund investors are taxed on proceeds generated by the French Exempt AIF on the date of their effective redistribution, not on the date the income is received by the French Exempt AIF. 

Dividends distributed by the French Exempt AIF are subject to a 12.8% French flat income tax (prélèvement forfaitaire unique – PFU) and to social security contributions at the current overall rate of 17.2%, resulting in a total taxation of 30%. Investors with a significant annual taxable income may also be subject to an exceptional contribution on high income of 3% or 4%, as well as to the differential on high income, which aims to ensure a minimum taxation of 20% on the investors’ total income. The latter contribution has applied since 1 January 2025.

A French Exempt AIF that ventilates its income can also distribute interest/capital gains to its investors. The taxation rate is the same, however.

If more favourable, investors may elect to tax their investment income (dividends, interest, capital gains) according to the progressive scale of individual income tax. This election is global and annual.

Foreign-source income distributed to investors (in situations where a SICAV is ventilating its income) may also be subject to tax in France. The investor should, however, be able to deduct all or part of the tax credits attached to the income/gains redistributed by the fund.

Capital gains resulting from the sale of redemption of the French Exempt AIFs’ shares are also subject to the PFU, unless the investor has elected to apply the progressive scale of individual income tax.

Legal entities’ investors resident in France

French companies’ investors subject to CIT are required to retain a “mark to market” approach for shares held in French Exempt AIFs (the “Mark-to-Market Rule”). As a consequence, unrealised gains or losses must be taken into account on a fiscal year basis for CIT computation purposes. CIT applies at a 25% rate (increased to 25.825% when the social contribution of 3.3% applies).

The Mark-to-Market Rule does not apply to:

• French companies whose main activity is life insurance or capitalisation insurance, and to non-profit organisations; and
• stakes held in French Exempt AIFs investing more than 90% of their commitments in companies located in the EU and subject to CIT.

Note: a specific exemption exists for certain tax-transparent funds meeting specific investment criteria. Please see French AIFs Outside the Scope of CIT (“French Transparent AIFs”) below.

Dividends distributed to investors are subject to CIT under standard conditions in respect of the fiscal year in which such income is distributed. The French parent-subsidiary regime is not applicable to these distributions.

Corporate investors should be able to deduct tax credits attached to non-French source income generated by the French AIF (only if this AIF is entitled to ventilate its income).

Capital gain realised upon the sale of a French AIF’s shares is also subject to CIT at the standard rate. Corporate investors cannot benefit from a favourable tax regime (such as the long-term capital gain regime implemented in France). 

Non-resident investors

In principle, dividends distributed by French AIFs are subject in France to a withholding tax of 25%, upon their distribution to investors. Different applicable rates may, however, apply:

• 12.8% when the beneficiary is a non-resident individual;
• 15% when the beneficiary is a non-profit organisation (subject to certain conditions);
• 75% if the dividends are paid in a non-cooperative state or territory (the French tax authorities have published a list of these states/territories, which is updated from time to time); and
• 0% when the beneficiary is a foreign investment fund deemed to be “comparable” to a French fund, by having similar regulatory and legal characteristics.

When a fund is ventilating its distributions (SICAV), the applicable tax regime will depend on the nature and source of the underlying income, as follows.

Non-French-source income should not be subject to any taxation in France, as such income is not considered as having its source in France.

French-source dividends (dividends deriving from French subsidiaries of the fund) follow the same tax regime as the one explained above for dividends.                                                                                               

French-source interest should not be subject to any withholding tax in France unless such interest is wired in a bank account located in a non-cooperative state or territory.

French-source capital gains are, in principle, exempt from French taxation unless the investor holds, directly or indirectly, an equity stake exceeding 25% over the five-year period preceding the disposal of the French company by the French Exempt AIF. Otherwise, a taxation would apply (12.8% for a foreign individual, 25% for a foreign corporate investor). Specific rules may apply when the investor is a foreign investment fund (with exemptions under certain conditions) or when the capital gain derives from the sale of a French real estate rich company.

Note: tax treaties entered into between France and the investor’s state of residence are unlikely to reduce the amount of withholding tax levied in France, as the French tax authorities generally take the view that tax treaties do not apply to French tax-exempt entities unless they are expressly referred to in the treaty provisions. This position must nevertheless be assessed on a case-by-case basis, depending on the investor’s state of residence.

Capital gain deriving from the sale of the French AIF’s shares

In principle, capital gains are exempt. As an exception, any investor holding more than 25% of the French AIF’s shares might be subject to taxation in France under the same rules as those explained above for French-source capital gains distributed by the fund. 

French AIFs Outside the Scope of CIT (“French Transparent AIFs”)

Scope of tax transparency

These AIFs are not subject to CIT (and are therefore considered “tax-transparent”):

• because of their legal status – most of these funds have no legal personality (FPS set up as FCP, FPCI, SLPS, etc); or
• because of a specific tax provision – SLP have a legal personality (contrary to SLPS), but French tax rules provide that their tax regime is identical to the one applicable to FPCI (which are tax-transparent funds).

French Tax Regime Applicable to Investors of French Transparent AIFs

Preliminary comments

Because of their tax transparency, income distributed by French Transparent AIFs keep their nature (dividends, interest, capital gain) and their source (French/non-French).

French tax residents of certain French Transparent AIFs (FCPR, FCPI, FIP, FPCI, SLP, SLPS) can benefit from a tax-favourable regime provided that these funds comply with a tax investment quota (the “Tax Quota”), when at least 50% of their assets correspond to shares issued by companies that:

• are located in the EU or the European Economic Area (EEA);
• carry out a commercial/industrial activity; and
• are liable for CIT in their country of establishment.

Individual investors resident in France

When the French Transparent AIF does not meet the Tax Quota criteria, the following applies.

For distribution of dividends, interest and capital gains, French individual investors are subject to a 30% overall taxation (unless they elect to apply the progressive scale of individual income tax – high income investors may also be subject to the exceptional contribution on high income and the differential contribution on high income). Investors should benefit from any tax credits attached to non-French-source income.

By way of exception, capital gains are taxable upon their realisation by the fund (even if they are not distributed to individual investors) if at least one individual investor owns at least 10% of the fund’s securities.

Asset allocations (repartition d’actifs) to French individual investors are non-taxable up to the amount of the investors’ contributions into the fund. The portion exceeding the contribution made by the investor to the fund (or the acquisition price of its shares) is treated as capital gain subject to the same tax regime as the one mentioned above for distribution of capital gains by the fund.

Note: asset allocations are a type of distribution permitted for some French Transparent AIFs (eg, SLP, SLPS, FPCI, FCPR) which allow them to distribute a portion of their assets in cash (they correspond to the sale price of the shares held in the French Transparent AIF) or in securities.

Capital gain generated upon the sale/redemption of the French Transparent AIF’s securities follows the same tax regime as the one applicable to distribution of capital gains.

When the French Transparent AIF meets the Tax Quota criteria, the following applies.

French individual investors can benefit from a favourable tax regime if they comply with these conditions:

• subscribing the fund’s shares (and not acquiring existing shares) and undertaking to hold such shares for at least five years from the subscription date;
• the amounts allocated by the fund to an individual investor during this five-year period must be immediately reinvested by this investor in the fund; and
• investors must not hold, directly or indirectly, alone or with their spouse, ascendents and descendants, an equity stake of more than 25% in companies invested by the fund (and at any time in the five years preceding the subscription date).

If so, French individual investors are exempt from French individual income tax on:

• income/capital gains distributed by the French Transparent AIF; and
• capital gains deriving from the sale/redemption of the AIF’s securities.

However, 17.2% security contributions remain due.

Legal entities’ investors resident in France

When the French Transparent AIF does not meet the Tax Quota criteria, the following applies.

French corporate investors must apply the Mark-to-Market Rule unless one of the exemptions applies.

CIT is applicable at standard rates to all distributions of the fund (dividends, interest, capital gains, allocations of assets; note that tax credit attached to these distributions can be deducted) and to capital gains generated upon the sale/redemption of the French Transparent AIF’s securities.

When the French Transparent AIF meets the Tax Quota criteria, the following applies, and French corporate investors may benefit from a tax-favourable regime.

An exemption from the Mark-to-Market Rule is available, provided that investors undertake to keep the French Transparent AIF’s securities for at least five years from the subscription/acquisition date.

Asset allocations are deemed to be in priority and a non-taxable repayment of capital contributions. The amount exceeding such repayment is treated as long-term capital gain for tax purposes when the French Transparent AIF’s securities held by the investor were issued by the fund for more than two years on the date of the distribution.

If so, the capital gain may benefit from a full CIT exemption when the asset allocation derives from the sale of companies in which the fund held at least 5% of the share capital for at least two years. However, this exemption is not applicable in certain cases (notably when the fund sold real estate-rich companies); instead, a 15% reduced rate may apply.

The capital gain generated upon the sale/redemption of the fund’s securities can benefit from the long-term capital gain regime when the investor holds these securities for at least five years. If so, the capital gain is:

• exempt from CIT in proportion to the fund assets corresponding to securities of companies in which the fund has held at least 5% of the capital for at least two years; and
• subject to a 15% CIT for the remaining amount.

Note: dividends and interest distributed by the fund still remain subject to CIT at the investors’ level.

Non-resident investors

Their tax regime is similar to the one applicable to non-resident investors of French Exempt AIFs that ventilate their income.

Regarding French-source income distributed by the funds, it is worth mentioning that tax treaties concluded between France and the investor’s state of residence would likely limit the amount of withholding tax applied in France, since the investor is deemed to have directly received the income.

Carried interest regime applicable for French resident managers of a French Transparent AIF

French resident managers holding carried interest units in certain French tax-transparent AIFs (and, subject to specific conditions, in foreign funds) are subject to an overall 30% taxation (increased, where applicable, by the exceptional contribution on high income and the differential contribution on high income), provided that all statutory conditions are met. If any of these conditions is not satisfied, distributions derived from carried interest units will be treated as employment income and subject to:

• French personal income tax at progressive rates (up to 45%);
• a 30% lump-sum employee social security contribution (which discharges, in principle, all employer and employee social security contributions normally due on salary income); and
• the exceptional contribution on high income (up to 4%).

French AIFs Subject to CIT

Other French AIFs can be set up as French companies subject to CIT under standard rules (notably, a French société par actions simplifiée – SAS). These funds are therefore subject to tax at a 25% standard rate (increasing to 25.83% if the additional CIT contribution applies).

Investors of French Other AIFs set up as companies subject to CIT are taxable when the Other AIF distributes dividends. Please refer to the above discussion of French Exempt AIFs, which are subject to certain differences – in particular, as follows.

• French corporate investors can benefit from the parent-subsidiary regime, provided that they hold at least 5% of the French Other AIF’s shares for two years. Dividends are therefore exempt from CIT at their level, apart from a lump sum equal to 5% of the dividends.
• Foreign corporate investors may rely on the provision of the EU Parent-Subsidiary Directive to obtain a full withholding tax exemption.

French OFS set up as corporate entities are also subject to CIT. However, special adjustment rules apply for the computation of their taxable income.

Other AIFs Dedicated to Real Estate Investment

A few AIFs can be set up as partnerships (sociétés de personnes), such as real estate investment companies (SCPI or Other FIAs set up as SCI). SCPI and SCI are pass-through entities not subject to CIT per se. The taxable income is computed at their level but automatically taxed in the hands of their investors (even if the income is not effectively distributed) based on the rules applicable to real estate income. Accordingly, the following applies.

French individual investors are generally subject to the progressive scale of income tax (increased for high-income investors by the exceptional contribution on high income and the differential contribution on high income). Social security contributions are also applicable at a 17.2% rate.

French corporate investors are subject to CIT under standard conditions.

Foreign investors should also be subject to tax in France on real estate income deriving from real estate assets located in France (based on the same rules applicable to French investors, depending on whether they are individual or corporate investors), subject to the provisions of applicable double tax treaties.

A French real estate fund can be set up as a fonds commun de placement immobilier – FPI. FPI are outside the scope of CIT, provided that they comply with mandatory income distributions. Investors are taxable on the date of their effective redistribution based on the rules applicable to real estate income (which are described above).

See 2.4 Operational Requirements.

See 2.5 Fund Finance.

There are no differences between the tax treatment of retail investors and professional investors. When investing in French Exempt AIFs and French Transparent AIFs (notably those that can comply with the Tax Quota), retail investors are subject to the same tax regime as the one explained for professional investors in 2.6 Tax Regime.

However, the following tax incentives may be especially relevant for French individual retail investors:

• securities of certain retail funds may be invested through a personal equity savings plan (plan d’épargne en actions) or a life insurance contract – the income received through these schemes can benefit from a favourable tax regime, under certain conditions; and
• the subscription to securities of certain retail funds (notably FIP and FCPI) may, under certain conditions, grant individual investors an income tax reduction.

2025 saw a number of improvements in the French and EU asset management industry, with the aim of:

• strengthening the consolidation of the Capital Markets Union sought by EU member states; and
• improving the attractiveness and competitiveness of the European private equity industry.

The following is a brief overview of some of the main developments, by topic.

Directive (EU) 2024/927 of the EU Parliament and of the Council amending Directives 2011/61/EU and 2009/65/EC (AIFMD II) – Lending Activities

AIFMD II introduces a harmonised EU framework governing loan origination by AIFs, whether directly or through intermediary entities. Fund managers must implement detailed lending, credit-risk and governance policies, reviewed annually. AIFs are subject to concentration limits (20% per borrower in specific cases) and a mandatory 5% risk retention when loans are transferred. The Directive also bans “originate-to-distribute” strategies and restricts lending to individuals and/or entities affiliated with fund managers. This harmonised regime enhances transparency, market discipline and investor protection across the EU.

AIFMD II – Liquidity Management Tools

Under AIFMD II, fund managers of open-ended AIFs must implement a harmonised set of liquidity management tools available across the EU. At least two tools must be selected from a defined list. Managers must formalise activation/deactivation policies and notify the competent authority. The objective is to better handle liquidity stress, avoid negative spillovers and ensure fair treatment of investors. This harmonisation also promotes more consistent supervisory practices throughout the EU.

New French Regime Allowing FPS to Issue Debt Securities

Decree No 2025-948 introduces a major development in the French alternative funds regime by creating a clear legal basis for FPS to issue debt securities. The reform inserts a new Article D.214-202-2 into the French Monetary and Financial Code, specifying that an FPS (and by extension an SLP or an SLPs) may issue bonds, negotiable debt instruments, and debt instruments governed by foreign law.

This expressly authorises FPS to act as debt issuers.

Legal Watch - Decision of the AMF Enforcement Committee in the “Eternam” Case

In a decision dated 9 September 2025 (SAN-2025-08), the AMF Enforcement Committee (the “Committee”) imposed a financial penalty on the asset management company Eternam for breaches of its professional obligations, in particular in connection with two real estate investment structures presented as club deals. The Committee confirmed that these vehicles had to be reclassified as “Other AIFs”, as they met the criteria of collective investment schemes:

• absence of any industrial or commercial purpose;
• pooling of capital raised from several investors for the purpose of investing in real estate with a view to generating a collective return; and
• lack of discretionary collective control by investors over day-to-day management.

The existence of limited approval rights or individual prerogatives granted to certain investors was not considered sufficient to exclude the AIF qualification.

In addition to this reclassification, the Committee identified shortcomings in investor disclosure regarding fees and retrocessions, deficiencies in the management of conflicts of interest, weaknesses in the valuation of real estate assets, and significant failures in the anti-money laundering and counter-terrorist financing framework, both on the investor side and in relation to the underlying assets. These breaches, assessed under the French Monetary and Financial Code and AMF regulations, led to the imposition of a EUR400,000 fine and the publication of the decision. This case highlights the AMF’s strict approach to the legal qualification of investment vehicles and underscores the need for a comprehensive compliance framework covering structuring, marketing and internal control arrangements.