The French asset management market is one of the most sophisticated European markets in respect of fund formations and sources of fundraising. According to the 2023 Markets and Risk Outlook published by the Autorité des marches financiers (AMF), France is ranked as the fourth largest European market in terms of funds domiciled (around 12% of European assets under management), behind only:
A large range of both closed-ended and open-ended investment funds are offered in France, including undertakings for collective investments in transferable securities (UCITS) and alternative investment funds (AIFs). French law provides for various legal forms of AIF depending on the asset class that is targeted by the fund managers.
AIFs tend to be structured as closed-ended funds when they invest in private strategies while AIFs investing in listed assets and UCITS tend to be open-ended. It should, however, be noted that private funds tend to be structured as “evergreen/semi-liquid” investment vehicles to offer more frequent liquidity sources when they are distributed to retail investors.
Historically, the French asset management market can be broken down into:
However, there has been increasing demand for access to private strategies in recent years through the “retailisation” of private strategies. Retail investors and high net worth individuals are seeking more diversification and performance than through listed investments, while fund managers are seeking diversification of their historical investors base in order to carry out successful fundraising in new ways.
French law makes a distinction between two categories of AIF as defined under Directive 2011/61/EU (AIFMD), as amended by Directive 2019/1160/EU (CBDFD):
The AIFMD and the CBDFD have been implemented under French law in the French Monetary and Financial Code (FMFC). This distinction is specific to French law and does not result from the AIFMD.
The FMFC provides for an exhaustive list of French legal forms which qualify as AIFs. Such AIFs are called per se AIFs (FIA par nature) because they are regulated by a specific layer of rules in the FMFC.
Other AIFs are not specifically regulated under the FMFC, other than through the legal definition of AIF provided in the FMFC.
Regulations implementing the provisions of the FMFC are provided for under the general regulations issued by the AMF (the “AMF General Regulation”).
Per Se AIFs
The categories of per se AIFs are the following:
Each category of AIF has been “designed” to implement a particular alternative investment strategy (with specific investment ratios and eligible assets) and/or to be marketed to a specific category of eligible investors (professional or retail investors or employees).
Each per se AIF can be set up under the form of:
French per se AIFs can also be structured as umbrella funds. Each sub-fund is subject to the regulations applicable to the legal form chosen for the AIF (it is treated as a single separate AIF for that purpose).
The FMFC provides for several sub-categories of per se AIFs as follows:
Other AIFs
An Other AIF corresponds to an entity (irrespective of its legal form) that meets – in practice – the definition of an AIF under the AIFMD, and which therefore falls within the scope of this definition. Other AIFs were not regulated before the implementation of the AIFMD. Other AIFs cannot be structured as umbrella AIFs.
The setting up of this type of AIF is not defined from a regulatory perspective. There is no specific French authorisation or notification requirements vis-à-vis the AMF applicable to Other AIFs. However, they are subject to regulations applicable to any AIFs arising from the AIFMD, including in terms of marketing requirements.
Other AIFs must, in principle, be managed by portfolio management companies regulated by the AMF. They can, however, be managed by non-regulated managers if they are only subscribed to by professional investors. This includes both per se professional clients and opt-out professional clients treated as such upon request as defined in Annex II of Directive 2014/65/EU (MiFID). In addition, the amount of assets under management managed by the non-regulated fund manager must be below the AIFMD thresholds (ie, EUR500 million in assets and EUR100 million where the assets are leveraged).
When an Other AIF is managed by a non-regulated manager, it cannot be marketed throughout the European economic area (EEA) on a passport basis according to the AIFMD.
The ELTIF Label
Pursuant to Regulation (EU) 2015/760 (ELTIF) (as amended by Regulation (EU) 2023/606) (the “ELTIF Regulation”), French legislation allows certain French AIFs to be authorised by the AMF as ELTIFs according to the ELTIF Regulation since 2016. The most common legal forms used in practice are the FPS, SLP or OFS as these funds are relatively flexible in terms of investment restrictions (allowing such legal forms to accommodate the ELTIF Regulation’s own requirements) and they can already originate loans under French law.
Registration/Approval Requirements for Most AIFs
The creation of most French AIFs (ie, retail AIFs and certain AIFs reserved to professional investors) requires the AMF’s prior authorisation for launch and marketing. Modifications of such funds may be subject to either the AMF’s prior approval or its immediate notification, depending on classification provided by the AMF doctrine.
In terms of the AMF process, the application for French AIF approval will vary from one product to another (regulated by different AMF doctrines, a doctrine per group of legal AIF forms). Moreover, depending on whether the AIF manager (AIFM) is regulated by the AMF or not, a filing via the GECO database (and end of Q1 2024, the ROSA Extranet) or by email to a dedicated email address, will be necessary. Nevertheless, the process is more or less similar across different products, the main differences being the type of assets that will be eligible to said product and other product-specific requirements.
Key required documentation
For AIFs open to retail investors and certain AIFs reserved to professional investors (FPVG and OPPCI), an application form must be submitted to the AMF, including the following documents (and ancillary documents):
For certain AIFs open to retail investors (FCPR, FCPI, FIP) and reserved to professional investors (FPCI, SLP) the constitutive document is equivalent to the offering document/prospectus.
Process
When prior approval of the AMF is a requirement for the creation of an AIF, the regulatory approval process with the AMF is one month beginning from the acknowledgement of receipt from the AMF of a complete application. Such acknowledgement of receipt provides for the regulatory approval deadline.
The regulatory process with the AMF is free of charge. Nevertheless, in addition to the fees charged by the AMF to either French AIFMs or EEA AIFMs managing a French fund based on assets under management, a registration fee and an annual fixed fee per fund (and compartment if any) of EUR2,000 is due to the AMF.
Registration/Approval Requirements for AIFs Reserved for Professional Investors
Certain AIFs reserved to professional investors (such as the FPCI, the FPS (including the SLP) and the OFS – but with the exception of the FPVG and OPPCI), as well as Other AIFs, are not subject to the AMF’s prior authorisation.
AIFs reserved to professional investors are only subject to an AMF notification process while Other AIFs are not subject to any regulatory setting up formalities vis-à-vis the AMF (but are still subject to formalities before they can be marketed in France and in the EEA). Modifications made during the life of an AIF reserved to professional investors are not subject to AMF authorisation but are only notified ex post to the AMF.
Depending on whether the AIFM is regulated by the AMF or not, a filing via the GECO database (and end of Q1 2024, the ROSA Extranet) or by email to a dedicated email address, will be necessary. Nevertheless, the process is more or less similar between the products, the main differences being the type of assets that will be eligible to said product and other product-specific requirements.
Key required documentation
See above for key required documents applicable to AIFs reserved to professional investors which are subject to a mere AMF notification process.
With respect to per se AIFs reserved to professional investors, the offering document and the constitutive document are generally the same. This is the key document for these AIFs.
With respect to Other AIFs, there is generally an information note which is prepared in order to provide the investors with all information required under Article 23 of the AIFMD. Note that some choose to set up a shareholders’ agreement to cover this required information insofar as Other AIFs are often set up in the form of a French company.
Process
Although there is no approval process by the AMF, there is an ex post notification to the AMF one month after the setting up of the AIF. In practice, the notification process is generally made in two phases: (i) a first notification is made in order to obtain a marketing authorisation delivered by the AMF, and then (ii) a second notification is made in order to file the certificate of funds deposit issued by the depositary of the AIF when the minimum amount of required capital has been paid to the relevant AIF’s bank account.
The fees and costs are the same as those that apply to retail AIFs.
Liability is limited to the amount of commitment (for retail funds, the subscription commitments are generally fully paid upon the subscription). The losses that an investor will suffer will therefore be limited to the amount of its subscription.
AIFMs are subject to several disclosure and reporting requirements to the AMF and the investors as provided for in the AIFMD and applicable French laws and regulations. Those requirements aim at protecting investors before their investment in an AIF and on an ongoing basis for as long as they hold units or shares in the relevant AIF.
Disclosures/Reporting Requirements
Annual report
Pursuant to the AIFMD, an AIFM must publish an annual report per financial year for each EU AIF it manages and for each AIF it markets in the EEA within six months after the end of the financial year.
This annual report shall comprise the following:
Half-yearly report
An AIFM shall also publish a half-yearly report for each French AIF it manages within two months after the end of the first half of the year.
This half-yearly report shall include:
A document entitled “asset composition” shall be established by the AIFM at the day of the latest liquidation value of each half-year period, and statutory auditors shall verify the asset composition before publication of such document. This document must be sent to any shareholder or unitholder who requests it within eight weeks of the end of each half year.
Pre-contractual information
When an AIF is managed or marketed in the EEA, the AIFM must make certain pre-contractual information available to investors before they invest in the relevant AIF as well as any amendment thereto in accordance with French laws and regulations implementing Article 23 of the AIFMD. This information also includes sustainable finance pre-contractual information set out under Regulation (EU) 2019/2088 (SFDR).
Marketing materials of AIFs
In addition to the guidelines on marketing communications issued by the European Securities and Markets Authority (ESMA) (ESMA34-45-1244), the AMF has set its own set of rules in the AMF Position No 2011-24 on the content requirements of marketing materials. The AMF is entitled to review any marketing materials relating to an AIF marketed in France prior to their release to French investors.
Additional Disclosure Requirements
Additional disclosures requirements shall apply to French AIFMs. These include the following:
A French AIFM is also required for compliance purposes to make specific reports to the AMF on a quarterly basis of:
Please note that other disclosures and reporting requirements vis-à-vis the AMF shall apply to AIFMs in such capacity but they are not analysed in this document.
The type of investors investing in a particular AIF will depend on the investment strategy implemented by such AIF and the existence or not of a tax incentive attached to an investment in such AIF.
Historically:
The contractual form of the FCP (fonds commun de placement) and the SICAV (société d’investissement à capital variable) are the most common legal forms for retail funds. Nevertheless, SCPIs may be created with fixed capital.
No specific restrictions apply on subscriptions to French AIFs open to retail investors (including in regard to the minimum amount of subscription). As heavily regulated vehicles, UCITS or retails AIFs can be subscribed to by anyone (retail or professional clients) having the legal capacity and investing the minimum that is required in the fund documentation.
On the contrary, subscriptions to French AIFs reserved to professional investors are generally restricted to eligible/professional investors who qualify as:
In addition to the foregoing, subscriptions to FPCI, OFS and FPS (excluding the SLP) are also open to specific categories of investors such as:
Subscriptions to SLP are also open to the following persons: the manager (legal representative of the SLP which is in practice the AIFM), the AIFM, the general partner, executives and employees of the AIFM or individuals and legal entities acting on behalf of the AIFM.
The categories of eligible investors in AIFs reserved to professional investors are generally referred to as “Qualified Investors” or “Eligible Investors”.
When French AIFs reserved to professional investors are authorised as ELTIF, they can also be invested in by retail investors according to the ELTIF Regulation.
Furthermore, marketing of non-French AIFs in France can be made as follows:
The AIFMD was implemented under French law in the FMFC by ordinance No 2013-676 of 25 July 2013 and supplemented by the AMF General Regulation, the AMF doctrines issued in relation to these matters. It primarily regulates the AIFM as opposed to the AIFs directly.
All AIFs are indirectly subject to the common requirements set out in the AIFMD as implemented under French law in the FMFC and the AIFMD Level 2 Regulation (pre-marketing and marketing rules of AIFs, obligation to appoint a depositary, disclosures and reporting requirements, etc). The regulatory regime will also depend on whether AIFs are managed by an AIFM authorised pursuant to the AIFMD.
In addition to the common requirements, per seAIFs are subject to specific investment rules provided for in the FMFC and the AMF General Regulation, including:
A distinction can be made between (i) AIFs open to retail investors, which are generally subject to strict investment restrictions; and (ii) AIFs reserved to professional investors, which are less regulated. FPS (including SLP) and OFS are not subject to any legal ratios or constraints.
When French AIFs reserved to professional investors are authorised as ELTIF, they are subject to the restrictions set out in the ELTIF Regulation, in addition to the regulation of the French AIF that is used as conduit.
The depositary of a French AIF must either have its registered office in France or have a branch in France provided that its registered office is located in another EU member state.
The depositary is a regulated entity and must be chosen from a list of entities drawn up by the French Minister for the Economy.
The fund administration of French AIFs is generally handled by the AIFM but can also be delegated to third parties under the supervision of the AIFM. French law does not require that a specific licence be held in order to carry out such function on a delegated basis.
French AIFs may be managed by an AIFM based in a member state of the EEA according to the management passport set out in the AIFMD. To that end, such AIFM must provide a notification to its home supervisory authority which will transmit it to the AMF.
The portfolio management of French AIFs can be delegated according to the AIFMD Level 2 Regulation.
As implemented under French law, such delegate managers can be located in a member state of the EEA (other than France) or in a third country to the EEA subject to certain requirements as more fully described in the FMFC and in the AMF General Regulation.
AIFMs which intend to delegate to third parties the task of carrying out functions on their behalf must notify the supervisory authorities of their home member state before the delegation arrangements become effective.
As mentioned above in 2.1.2 Common Process for Setting Up Investment Funds, the regulatory approval process of AIFs open to retail investors and certain AIFs reserved to professional investors (FPVG and OPPCI) is one month.
Other AIFs reserved to professional investors are not subject to any AMF approval process (but subject to a regulatory notification process on an ex-post basis).
The CBDFD governing pre-marketing of AIFs managed by European AIFMs came into force in 2021 leading to a harmonised regulation of pre-marketing and of the content of marketing materials.
This new regime has been fully implemented into French law and has substantially modified the previous French (local) regime that existed before the harmonised framework came into force.
Pursuant to this new regime, an AIFM established in another member state which intends to carry out pre-marketing in France in respect of an AIF must notify the competent authority of its home member state no later than two weeks after the commencement of the pre-marketing activities. The AMF should be notified in turn by the competent authority of the AIFM’s home member state.
This notification should include inter alia:
The AMF has extended the European pre-marketing regime to non-EEA AIFMs and to UCITS. The start of pre-marketing activities of an AIF in France by a non-EEA AIFM needs therefore to be notified to the AMF directly.
For pre-marketing to be recognised as such (and allowed) under French law, it should:
During pre-marketing:
When an AIFM carries out pre-marketing activities in respect of an AIF, any subscription by professional investors within 18 months as from the start of pre-marketing activities shall be considered as the result of marketing and shall therefore be subject to the applicable AIFMD marketing passporting requirements. See 2.3.8 Marketing Authorisation/Notification Process for further details.
Rules that apply to firms marketing French or foreign AIFs in France are provided for in the FMFC, the AMF General Regulation and the doctrine published by the AMF (instructions, positions and recommendations).
The marketing of AIFs in France is subject to the regulatory framework as summarised below (although this is not an exhaustive list):
French and foreign AIFs can generally be marketed in France to the following categories of investors:
In any case, the firm marketing an AIF in France must first ensure that the investor is eligible to invest in such AIF.
An AIFM intending to market AIFs to professional investors in France must submit a notification to the competent authority of its home member state in respect of each EEA AIF that it intends to market.
The notification file must contain certain information, as follows:
The competent authority of the home member state of the AIFM shall transmit the complete notification file to the AMF in order to implement the AIFMD marketing passport. This transmission must be made no later than 20 business days after the date of receipt of the complete file. Marketing in France can begin as from the date of notification of such transmission to the AMF.
An AIFM intending to market French AIFs to retail investors in France must comply with specific conditions set out in the AMF General Regulation. This regime requires obtaining the prior authorisation of the AMF in respect of the relevant AIFs before marketing them to retail investors in France.
Among the conditions to be satisfied:
When units or shares of an AIF have been marketed in France, the AMF considers that these units or shares are deemed to have been marketed in France as long as investors to whom such units or shares have been marketed in France remain investors in the relevant AIF. It is therefore necessary to maintain the marketing authorisation or marketing notification as long as investors continue to hold units or shares in the relevant AIF.
An AIFM must notify any material change in the information contained in the initial marketing notification file to its home state competent authority by indicating the change concerned.
All material changes planned by the AIFM must be notified to the AMF at least one month before their implementation or immediately after an unplanned change has occurred.
As explained in 2.1.4 Disclosure Requirements, there are also annual and half-yearly reporting requirements for AIFMs vis-à-vis the investors and the AMF.
In order to cease marketing a passported AIF in France, notification to de-register the AIF should be made to the competent authority of the AIFM’s home state according to the procedure set forth in the CBDFD. From the date of de-notification, a 36-month “black-out” period is triggered during which any pre-marketing of the relevant AIF or in respect of similar investment strategies or ideas is prohibited.
Only Eligible Investors are allowed to subscribe to AIFs reserved to professional investors. The offering documents may provide further restrictions on the types of investors that an AIF reserved to professional investors may be marketed to (eg, reserve the subscription of shares or units of such AIF for professional investors only – if so, no PRIIPS KID must be prepared and provided to them).
As explained in 2.1.4 Disclosure Requirements, there are also annual and half-yearly reporting requirements for AIFMs vis-à-vis the investors.
Furthermore, the AIFMD provides additional investor protection rules that must be complied with by the AIFM, such as the following:
Finally, AIFMs shall provide the following in respect of retail investors:
The AMF has adopted a pragmatic approach and although the whole process is done online through a portal (or via regulator-to-regulator notification mechanism), the AMF is approachable and open to face-to-face meetings, especially for new market participants. The AMF personnel in charge of reviewing the filings can be contacted by email (contact details are provided when the filing is acknowledged as complete) or by phone.
French law provides for different types of AIFs, depending on the investment strategies envisaged and the type of assets targeted. With the exception of the SLP, which can be used to invest in any type of private strategy, each legal form of fund, depending on its specifics under French law, will be dedicated to specifically invest in listed securities, real estate, securitisation, private debt, private equity and/or infrastructure.
The legal documentation of each AIF must be drafted on the basis of a template provided by the AMF in its applicable doctrine depending on the legal form that has been chosen.
Details of the potential risks applicable to a specific AIF and its investment strategy are required to be disclosed in the legal constitutive documentation.
Protection of the Assets Held by the Fund
A French portfolio management company authorised pursuant to the AIFMD must comply with the applicable requirements set out in the AIFMD and the AIFMD Level 2 Regulation. Key requirements are that the AIFM must maintain sufficient human and financial resources (including a minimum amount of capital requirements). Other requirements applicable include internal policies.
Any entity acting as a depositary of an AIF is required to be authorised by the Autorité de Contrôle Prudentiel et de Résolution to provide such services and must be listed on a list of entities drawn up by the French Minister for the Economy.
Summary of Specific Requirements Imposed by French Regulations
Borrowing restrictions depend on the chosen legal form. A distinction should be made between
However, if the FPS (including the SLP) or the OFS are structured to originate loans or are approved as an ELTIF, the maximum leverage will be capped respectively to 30% of their net assets or according to the limitations set out in the ELTIF Regulation.
Details on how the AIF’s assets are valued and priced are required to be set out in the legal constitutive documentation and must be compliant with the AIFMD requirements (ie, fair value), and the valuation rules will depend on the nature of the underlying assets. Unless an external valuer is appointed, the AIFM will retain responsibility for valuing the AIF’s assets.
Rules relating to insider trading, market abuse and transparency are generally only applicable to AIFs which conduct an investment strategy in listed assets.
As French regulated vehicles, AIFs are subject to laws and regulations on anti-money laundering and counter terrorist financing.
The growth of fund finance in France is relatively recent, since a number of legislative changes led to the creation of the SLP in 2015 (which is not subject to any specific indebtedness limit) and the increase of the borrowing ceiling for an FPCI from 10% to 30% of its assets. Fund finance transactions have been developed for closed-ended AIFs.
To date, the market includes a range of French and European lenders from credit institutions to specialist debt asset managers who provide a financing toolkit to AIFMs in order to help them create value and improve fund performance.
The most common product is an equity bridge facility allowing the AIFMs to draw funds from a lender mainly in anticipation of making a capital call. However, alternative fund financing structures have been developed in recent years, such as net asset value financing secured on the underlying assets or unsecured preferred equity.
In the French market, an equity bridge facility is generally structured as a committed term loan (which can be replenished as each loan is repaid), but the facility often also includes an uncommitted line, which reduces the costs of the loan to the fund in terms of commitment fees.
In order to avoid the AIFM being considered to be using leverage for the purposes of the AIFMD Level 2 Regulation, loans should be temporary in nature (in practice less than 364 days maturity) and be fully covered by capital commitments from investors while revolving credit facilities cannot be considered temporary in nature.
In practice fund financing can only be structured for AIFs reserved to professional investors, in particular FPCI, FPS (including SLP) and OFS. The legal constitutive documentation of the AIFs generally provides indebtedness restrictions that may be incurred by the AIF on a short-term basis. See 2.4 Operational Requirements on cash borrowing restrictions.
With respect to the security package, the lenders under the facility agreement will usually benefit from:
French Tax Regime for French AIFs
The tax regime applicable to French AIFs depends on the legal form under which they have been established and on their respective regulatory status.
AIFs set up as contractual funds (FCP) and French limited partnerships (SLP)
As co-ownerships of assets, contractual funds (eg, FCPRs, FCPIs, FIPs, FPCIs, and FPSs, OFSs and OPCIs set up as FCPs) are outside the scope of French corporate income tax (CIT). In addition, French tax law has extended the tax regime applicable to FPCIs to SLPs, and therefore, although a SLP has a legal personality distinct from the one of its investors, it is treated as a contractual fund from a French tax perspective.
Any profits and gains realised by contractual funds and SLPs are hence not taxable at their own level, but are taxed at the level of their respective investors upon redistribution (see below).
AIFs set up as corporations
AIFs established under a corporate form are generally within the scope of CIT, and may either be (i) liable thereto, or (ii) exempted therefrom, depending on their regulatory status. Indeed, certain AIFs are effectively liable for CIT in France under standard conditions (eg, Other AIFs and OFS set up as corporations). However, most generally benefit from an exemption of CIT on gains and profits realised in accordance with their regulatory status and corporate purposes (eg, SICAVs, SPPICAVs, etc). This CIT exemption may eventually be conditional upon an obligation to distribute all (eg, for SICAFs) or part (eg, for SPPICAVs) of the AIFs’ profits and gains to the investors.
AIFs set up as partnerships
Certain real estate AIFs set up as partnerships (sociétés civiles) are subject to the French “Article 8” tax regime (eg, SCPI and forest savings companies which do not elect for CIT), according to which profits and gains realised by the AIFs are (i) determined, assessed and computed at the level of the AIFs, depending on the activity carried out by the AIFs, and/or the tax status of their investors; and (ii) taxed each year in the hands of the investors, whether such profits and gains are distributed or not.
French Tax Regime for Investors in French Alternative Investment Funds
Tax regime for French tax resident individual investors
Ordinary tax treatment
Irrespective of whether they invest in AIFs formed as contractual funds or corporations, French tax resident individual investors are generally taxed upon (i) gains derived from a disposal or redemption of units or shares issued by the AIFs in which they invest, and (ii) distributions of profits and gains made by these AIFs (investors holding more than 10% of a contractual fund are, however, taxed on any gains and profits realised by such funds, whether distributed or not).
Capital gains realised upon the disposal or redemption of units or shares in FCPs and SICAVs are taxable at the 30% flat tax rate (12.8% of personal income tax plus 17.2% of social security contributions), unless an election to be taxed at the progressive income tax rates is filed by the relevant taxpayer. However, units held in an OPCI set up as an FCP (FPI) are taxed as real estate gains, at the flat tax rate of 36.2% (19% of personal income tax plus 17.2% of social security contributions).
When distributed, profits and gains realised by contractual or corporate funds and SLPs most often keep their underlying source and nature (eg, dividends, interests, rents or capital gains). The tax regime applicable to such distributions will be based on that nature.
However, profits and gains distributed by Other AIFs set up under a corporate form, and by OFSs, OPCIs and OPPCIs set up as corporations (ie, SFSs, SPPICAVs and SPPPICAVs) cannot be ventilated according to their nature and source, and therefore qualify tax-wise as dividend distributions, subject to the 30% flat tax mentioned above (unless an election to be taxed at the progressive income tax rate is filed by the relevant taxpayer).
Tax exemption regimes
French tax resident individuals investing in FCPRs, FCPIs, FIPs, FPCIs, SLPs, and venture capital companies (SCR) may benefit from a personal income tax exemption (but not from an exemption from social security contributions) on sums and values derived from their investments in such funds and companies, provided that the following conditions are met:
In addition to the exemption regime mentioned above, individual investors may also benefit from tax exemptions and incentive regimes described in more details under 3.6 Tax Regime.
Tax regime for French tax resident corporate investors
Ordinary tax treatment
French corporate investors that are subject to CIT in France are in principle taxable at the standard CIT rate of 25% on the annual mark-to-market spread of net asset value of shares or units held in the following AIFs: FIVGs, FCPRs, FCPIs, FIPs, FFAs, FPVGs, FPCIs, FPSs, and SLPs. This spread is assessed by reference to the net asset value of those shares or units on the opening and closing dates of each fiscal year.
However, this mark-to-market rule does not apply to:
In addition, subject to the exception mentioned below, corporate investors are also taxable at the standard CIT rate of 25% on any distribution received from these AIFs (such distribution correlatively reducing the net asset value of units or shares issued by these AIFs), irrespective of the underlying nature and source of profits and gains being distributed.
Tax exemption regime for investments in private equity and venture capital funds and companies
Corporate investors in FPCRs, FCPIs, FIPs, FPCIs, SLPs and SCRs that satisfy the Tax Quota mentioned above benefit from a favourable tax regime on distributions received from these funds and companies, allowing, inter alia, (i) the tax-free repayment of their contributed capital, and (ii) a full CIT exemption on distributions of capital gains made by the funds upon the disposal of shares or units held for more than two years in portfolio companies in which these funds have held at least 5% of the share capital for at least two years.
Tax regime for foreign investors
Tax regime under domestic law
Foreign investors in French AIFs are only taxable in France on sums and values distributed to them, and, as the case may be, on gains derived from the disposal or redemption of units or shares held in certain AIFs (eg, OPCIs and OPPCIs in which they hold more than 10% of the units or shares).
To the extent profits and gains realised by contractual funds, SLPs and corporate funds that ventilate their profits and gains do keep their underlying nature and source, the French tax regime applicable to these distributions will depend on the underlying income and gains which is distributed. Therefore:
On the other hand, dividend distributions made by corporate funds that do not ventilate their distributions according to the source and nature of their profits and gains (eg, Other AIFs, SFSs, SPPICAVs and SPPPICAVs) are subject to the French withholding tax at the rate of 12.8% (for foreign individual investors), 15% (for dividends distributed by SPPICAVs and SPPPICAVS to certain foreign AIFs which are comparable to French AIFs), 25% (for other investors) or 75% (if paid in a non-cooperative state or territory). As the case may be, and subject to a case-by-case analysis, certain dividend distributions may eventually benefit from an exemption from withholding tax.
Distributions of real estate income and capital gains made by FPIs to foreign investors are also taxable in France.
Tax regime under double tax treaties
Although most French AIFs are not considered to be tax residents for the purpose of tax treaties entered into by France, the French tax authorities tolerate that foreign investors may seek the benefit of the relevant double tax treaty entered into between France and the jurisdiction of the investor, in order to reduce or eliminate the above-mentioned withholding taxes and levies.
There are two main categories of retail fund structures in France: UCITS and some French AIFs that are open to retail investors (but not only to retail investors).
UCITS
UCITS are highly regulated, with strict investment and liquidity restrictions and must be open-ended. They are managed by an approved UCITS management company, which can be either approved by the AMF or by another regulator within the EEA thanks to the UCITS management passport.
UCITS can be “passported” into any EEA country via a regulator-to-regulator process and once passported, the UCITS can normally be sold to any investor in the host country. Investors will subscribe for shares or units of French UCITS, depending on whether, respectively, the legal structure is an investment company with variable capital (SICAV) or a fonds commun de placement (FCP).
The harmonisation of UCITS under European law is maximised (ie, all UCITS must comply with the same minimum set of rules), and there are investment restrictions to be taken into consideration such as leverage restrictions (up to 10% of their net assets for short-term liquidity purposes) and the 5/10/40 rule (limit of 5% in any one issuer, which may be extended to 10% provided the aggregate of those issuers in which you hold more than 5% does not represent more than 40% of the net assets of the fund).
French AIFs Open to Retail Investors
France has been a very active (domestic) market for retail funds, funds that would either be eligible to French unit-linked life insurance contracts or subscribed to directly, with a tax incentive often attached. They all share a prior approval process and strict monitoring by the AMF.
The categories of French AIFs open to retail investors are listed in 2.1.1 Fund Structures.
Investors will subscribe for shares or units of the French retails AIFs, depending on whether the legal structure is an investment company with variable capital (SICAV) or a fonds commun de placement (FCP). As AIFs, and provided that they are managed by full scope AIFMs, such retail funds can be passported in the EEA thanks to the AIFMD passport, but only to professional clients.
Registration/Approval Requirements
As a principle, the creation and marketing of retail funds in France require the prior approval of the AMF (save to the case of ELTIFs, which are subject to a different regulation, at EU level and benefit from a specific AIFMD marketing passport for marketing to retail investors). For the purpose of this section and as an EU wide label, ELTIFs will not be analysed in detail.
See 2.1.2 Common Process for Setting Up Investment Funds for further details on the AMF process.
An application form must be submitted to the AMF including at least the following documents (as well with some ancillary documents and the AMF may always request further information or document):
Key required documentation and process
See 2.1.2 Common Process for Setting Up Investment Funds for a discussion of the key required documentation and the costs involved.
As from the acknowledgement of receipt from the AMF of a complete application, the process takes one month (23 business days). The aforementioned acknowledgement of receipt provides for the regulatory approval deadline.
Please refer to 2.1.3 Limited Liability.
UCITS
In addition to keeping the primary offering documents (being typically the prospectus) and the KID up to date and compliant with UCITS regulations as implemented in France and AMF Instruction No 2011-19, UCITS are required to publish an annual audited report for each financial year and an unaudited biannual report. The annual report must be published within four months of the year end, the biannual report within two months of the period end, and both must be sent to the AMF.
French AIFs Open to Retail Investors
Please refer to 2.1.4 Disclosure Requirements.
In practice, the vast majority (if not almost all) of the investors in French retail funds are French investors, except for UCITS which can be marketed easily within the EEA. The French retail funds market for retail AIFs is typically, as of today (this may change with ELTIF 2.0), a domestic market. Distribution of French retail funds is often made via French unit-linked life insurance contracts or French personal equity saving plans (plan d’épargne en actions – PEA) for the UCITS, while French retails AIFs are often subscribed to directly by the end-investor, especially those funds with a tax incentive attached.
The contractual form of the FCP and the SICAV are the most common legal forms for retail fund. Nevertheless, SCPIs may be created with fixed capital.
There are no specific restrictions. As heavily regulated vehicles, UCITS or retail AIFs can be subscribed to by anyone (retail or professional clients) having the legal capacity and investing the minimum that is required in the fund documentation.
UCITS
UCITS may only invest in “eligible assets” which broadly include transferable securities, money market instruments, other UCITS (or UCITS-equivalent funds) and deposits. The following restrictions shall be complied with:
AIFs Open to Retail Investors
Each type of AIF open to retail investors is subject to its own set of rules, given that these products have been created for specific purposes. For example, while the FIVG will have investment restrictions similar to the UCITS; the OPCI or the SCPI will be limited to real estate investments, including liquid assets or shares of real estate companies. FCPR will need to comply with a legal quota of private assets, although the FCPI must ensure, in addition to such legal quota, that the companies comply with certain size and innovation characteristics requirements.
To be exhaustive, a case-by-case detailed analysis of investment restrictions in such AIF open to retail investors would be necessary, given that, except for borrowings and leverage restrictions which are quite similar, each vehicle can be dramatically different from the next.
UCITS or French AIFs may be managed respectively by a French or EEA UCITS management company or by a French or EEA AIFM according to the management passport set out in respectively the UCITS directive and the AIFMD.
The depositary of a French UCITS or AIF must either have its registered office in France or have a branch in France provided that its registered office is located in another member state of the EEA.
The depositary is a regulated entity and must be chosen from a list of entities drawn up by the French Minister for the Economy.
The fund administration of French UCITS or AIFs is generally handled by, respectively, the UCITS management company or the AIFM but can also be delegated to third parties under the supervision of the UCITS management company or the AIFM. French law does not require any specific licence to be held to carry out such function on a delegated basis.
French UCITS and French AIFs may be managed by, respectively, a UCITS management company or an AIFM based in a member state of the EEA according to the management passports set out respectively in the UCITS directive or in the AIFMD. To that end, such UCITS management company or AIFM must provide a notification to its home supervisory authority which will transmit it to the AMF.
The portfolio management of French UCITS and AIFs can be delegated to delegate managers according to the regime set forth under, respectively, the UCITS regulation and the AIFMD Level 2 Regulation.
As implemented under French law, such delegate managers can be located in a member state of the EEA (other than France) or in a third country to the EEA subject to certain requirements as more fully described in the FMFC and in the AMF General Regulation.
UCITS management companies and AIFMs which intend to delegate to third parties the task of carrying out functions on their behalf must notify the supervisory authorities of their home member state before the delegation arrangements become effective.
Please refer to 2.1.2 Common Process for Setting Up Investment Funds.
This is not applicable in France as pre-marketing of UCITS or AIFs to retail investors is not allowed.
UCITS
French UCITS must receive an authorisation issued by the AMF prior to marketing their units or shares in France. Notification of this authorisation therefore constitutes authorisation of marketing in France. UCITS incorporated under foreign law must be the subject, prior to marketing their units or shares in France, of a notification of the AMF by the competent authority of the home EU member state of the UCITS.
AIFs Open to Retail Investors
French AIFs open to retail investors must receive an authorisation issued by the AMF prior to marketing their units or shares in France. Notification of this authorisation therefore constitutes authorisation of marketing in France.
With respect to the marketing of foreign AIFs to French retail clients, there is no marketing passport available. Therefore, prior authorisation by the AMF shall be sought and, in practice, it is a very lengthy and complicated process.
UCITS and AIFs can be marketed to professional (as defined under MiFID) or non-professional investors. Specific attention shall be drawn to the fact that distributors of the funds shall ensure that such investment corresponds to the profile of the investor, following a suitability test.
An AIFM intending to market AIFs to retail investors in France must comply with NPPR (if available) which generally requires the prior authorisation of the competent authority of its host member state where it is envisaged that the AIF will be marketed. No passporting regime is available for AIFs for marketing purposes to retail investors.
For UCITS, the passport authorisation process is a regulator-to-regulator process.
Please refer to 3.1.2 Common Process for Setting Up Investment Funds and 3.3.6 Rules Concerning Marketing of Retail Funds for further details.
UCITS & AIFs Open to Retail Investors
Please refer to 2.3.9 Post-marketing Ongoing Requirements.
Marketing authorisation or marketing notification shall be maintained as long as French shareholders or unitholders continue to hold units or shares in the relevant UCITS or retail AIF. Therefore, until this time, a payment of an ongoing fee to the AMF (in 2023, EUR2,000 per fund or sub-fund and per year) until the marketing of the fund is closed is required.
Depending on the changes to the UCITS or the retail AIFs, the AMF must be either immediately notified or give its prior approval.
At the latest one month after the end of every quarter, French AIFMs with respect to French UCITS or French retails AIFS, or EEA AIFMs managing a French UCITS via the UCITS management passport, must send the AMF the form on compensation paid out for any non-compliance with investment restrictions, via the ROSA Extranet.
Please also refer to 3.1.4 Disclosure Requirements for ongoing reporting requirements.
In order to cease marketing a passported UCITS in France, notification to de-register the UCITS should be made to the competent authority of the UCITS manager’s home state according to the procedure set out in the CBDFD as implemented under French law. From the date of de-notification, a 36-month “black-out” period is triggered during which any pre-marketing of the relevant AIF or in respect of similar investment strategies or ideas is prohibited.
As heavily regulated vehicles, UCITS or retails AIFs can be subscribed to by anyone (retail or professional clients) having the legal capacity and investing the minimum that is required in the fund documentation.
Please also refer to 3.1.4 Disclosure Requirements for ongoing reporting requirements and to 2.3.10 Investor Protection Rules.
See 2.3.11 Approach of the Regulator.
Please refer to 3.1.4 Disclosure Requirements, 3.3.1 Regulatory Regime and 2.4 Operational Requirements (Protection of the Assets Held by the Fund – generally applicable to French UCITS management companies).
UCITS may only borrow up to 10% of their net assets for short-term liquidity purposes. With respect to French retails AIFs, the cash borrowing limit is generally limited to 10–15% of the fund’s assets (and up to 40% of the value of real estate assets for OPCI).
As explained in 2.4 Operational Requirements, a depositary is a requirement for UCITS and AIFs (whether such AIFs are open to retail investors or reserved to professional investors).
As French regulated vehicles, French UCITS or French retails AIFs are subject to laws and regulations on anti-money laundering and counter terrorist financing.
UCITS may only borrow up to 10% of their net assets for short-term liquidity purposes.
With respect to French retails AIFs, the cash borrowing limit is generally limited to 10–15% of the fund’s assets (and up to 40% of the value of real estate assets for OPCI) and is generally guaranteed by a pledge over the fund’s assets (subject to limitations provided under French law as well as leverage limits at the level of the AIFM).
French Tax Regime for French AIFs
The tax regime applicable to French AIFs does not depend on the category of investors (eg, professionals or retail investors). Please refer to 2.6 Tax Regime.
French Tax Regime for Investors in French AIFs
The tax regime applicable to investors in French AIFs does not depend on the category of investors (eg, professionals or retail investors). Please refer to 2.6 Tax Regime.
However, French tax resident retail investors may benefit from certain tax incentives for investing in retail funds. Hence, in addition to the tax exemption mentioned under 2.6 Tax Regime for sums and values derived from private equity and venture capital funds and companies which satisfy the Tax Quota, units and shares issued by certain UCITS and AIFs may also be subscribed to or acquired via French personal equity savings plans (eg, PEA) or French unit-linked life insurance contracts, in which case (i) gains made upon the disposal or redemption of these shares or units, and (ii) distributions made by these UCITS and AIFs within the framework of these plans or contracts are neither taxable nor subject to social security contributions as long as these sums and values remain invested therein. However, the withdrawal of any sum or amount from these plans or contracts may eventually be chargeable to tax and/or social security contributions at the level of the investor.
Subject to certain conditions, the subscription of units in certain private equity and venture capital funds (FIPs and FCPIs) may also give rise to a tax credit for the investors, in an amount equal to 18%, 25% or 30% of the amount subscribed to (within the annual limit of EUR12,000 or EUR24,000 depending on whether the investor is single or married/subject to joint taxation). The applicable tax credit rate depends on the date on which the subscription takes place, and on the investment strategy pursued by the fund. However, this tax credit regime does not apply to investors that invested in eligible FIPs and FCPIs via French personal equity savings plans or French unit-linked insurance life contracts.
French lawmakers constantly implement EU Directives and modernise and adapt applicable French law in order to comply with European legislation, including in respect of the recent entry into force of the ELTIF Regulation (ELTIF 2.0) on 10 January 2024.
Recent amendments to the FMFC and the French Insurance Code have been made through the adoption of French law No 2023-973 of 23 October 2023 on green industry. Further amendments to the implementing regulations of the FMFC and the French Insurance Code are currently being considered in order to modernise the legal forms of AIFs reserved to professional investors and make their structuring more flexible when they are authorised as an ELTIF or structured as unit-linked products for distribution to retail investors through French unit-linked life insurance contracts or the French personal equity savings plan (PEA).
Other European initiatives (such as AIFMD II and developments on sustainable finance (CS3D, SFDR, and Taxonomy)) will have an impact on the French legal and regulatory aspects applicable to AIFMs and AIFs in the next coming years.