Legal framework revised for professional participation companies

A new legal framework for financial participation companies in liberal professions was established by decree No. 2023-77 on February 8, 2023. The changes will take effect on September 1, 2024, and are designed to regulate how these companies can hold shares in other firms practicing the same profession, or in equivalent foreign entities.

Core purpose and restrictions

The primary purpose of these companies is to hold shares in liberal practice companies, which are businesses where the main activity is the exercise of a regulated profession. Ancillary activities are allowed, but only if they are directly related to this purpose and benefit only the companies whose shares are held.

Capital ownership and professional control

Capital ownership is strictly regulated, with more than half of the capital and voting rights required to be held by professionals practicing within the companies involved. Exceptions exist for certain professions, and there are obligations to declare or register with the relevant professional order and to ensure the independence of the professionals involved.

Tax advantages of the structure

The tax efficiency of this model depends on several mechanisms. Dividends from practice companies can be exempt from tax under the parent-subsidiary regime, provided certain conditions are met, such as holding at least 5% of the capital for two years. This exemption can reduce the effective tax rate to around 1.25%.

Court decision challenges tax strategy

A key turning point came in October 2023, when the Court of Cassation ruled that dividends paid by a practice company to a holding company could be reintegrated into the personal contributions of the professional. This decision, based on the Social Security Code, could significantly increase the social contributions owed by professionals involved in such structures.

Government response and uncertainty

The government expressed concern over the implications of this ruling, noting that it applied to a specific case and should not be generalized. However, the lack of a binding legal precedent leaves practitioners in a state of uncertainty about how future contributions might be assessed.

Practical risks and exposure

Professionals involved in these structures may face exposure to social contributions based on the portion of dividends that exceed a 10% threshold. In many cases, this threshold is very low, meaning most distributions are subject to reintegration. This can lead to significant liability, especially if the structure has been in place for several years.

Strategic adjustments and considerations

To mitigate these risks, professionals may consider increasing the capital of their practice company or incorporating reserves. However, such actions can also reduce the base for future distributions. Prioritizing remuneration over dividends may be more advantageous in some cases, as it is deductible and generates rights, unlike reintegrated dividends.

Reduced corporate tax rate and conditions

A reduced corporate tax rate of 15% is available under certain conditions, including a turnover below 10 million euros and a fully paid-up capital. The rate applies only if the company is owned by individuals or by a company that is itself 75% owned by individuals. Structures organized in groups must ensure they meet these conditions to qualify for the benefit.