The holding company: what it is really for, and what it costs

A holding company is simply a company whose purpose is to hold shares in other companies. It is not a legal form: it is a role. It most often takes the form of a SAS or a SARL (French company forms), and it is subject to corporation tax (IS, impôt sur les sociétés).

There are two families, and the distinction is not theoretical — it governs access to several favourable regimes:

• The passive holding company, known as patrimoniale: it holds and collects, without intervening in the management of what it holds.
• The holding animatrice: on top of holding, it animatesits group — it takes an active part in setting the group's policy and in controlling its operating subsidiaries, and often provides them with services (management, accounting, IT).

Finally, a holding company is not a tax wrapper. A PEA (plan d'épargne en actions, a French equity savings plan) or an assurance-vie (French life-insurance savings contract) are containers whose taxation is set by law. A holding company is a separate legal person, with its own accounts, its own filing obligations, its statutory auditor where applicable — and its recurring costs.

Corporation tax (impôt sur les sociétés)

The holding company is taxed in its own right, at 15% up to €42,500 of profit, then 25% above that. The reduced rate requires turnover of no more than €10 million and capital held at least 75% by individuals.

The régime mère-fille (parent-subsidiary regime)

Without it, the same profit would be taxed at every level. Dividends a company receives from a subsidiary subject to corporation tax are exempt, apart from a 5% share of costs and expenses that remains taxable. Conditions: hold at least 5% of the capital and keep the shares for two years. Within a tax-consolidated group, that share falls to 1%.

Selling a subsidiary

This is the most powerful mechanism, and the least well known. When the holding company sells titres de participation (qualifying participating interests) held for at least two years, the gain falls under the long-term regime: it is taxed at 0%, provided that a 12% share of costs and expenses, calculated on the gross amount of the gain, is added back to taxable profit.

Compare that with a direct sale by an individual, where the gain bears the PFU flat tax of 31.4%: the gap is considerable. But it only materialises if the sale proceeds stay inside the holding company to be reinvested.

This is the most frequent use case among owners who sell. The principle: contribute the shares of your company to a holding company you control, before selling them. The gain recognised on the contribution is then placed under a deferred tax charge(report d'imposition, article 150-0 B ter of the French tax code). The sale price arrives in the holding company without having been cut down by personal tax, and can be reinvested in full.

The deferral is not unconditional. If the holding company sells the contributed shares within three years, it is only maintained on condition that at least 60% is reinvested out of the sale proceeds, within two years, in a qualifying economic activity.

The word that matters is economic. Acquiring SCPI units, a securities portfolio or investment property is wealth management: as a general rule, it is not a qualifying reinvestment. The exact perimeter is technical and audited: it is confirmed with a tax lawyer, text in hand, before the transaction.

The pacte Dutreil allows shares to be passed on — by gift or by inheritance — with 75% of their value exempt for the purposes of transfer duties. On a substantial business estate, it is the scheme that changes the bill the most.

It rests on retention undertakings: a collective undertaking signed before the transfer, then an individual undertaking of four yearsgiven by each beneficiary, together with a requirement to hold a management position. The durations and the cases where they are relaxed are set out in the tax authority's published guidance: this scheme is put together with a notaire, not alone.

The dividing line is here. The scheme targets companies carrying on an industrial, commercial, craft, agricultural or professional activity. A holding company qualifies when it is animatrice— taking an active part in setting the group's policy and in controlling the operating subsidiaries. A purely passive holding company has no right to it. The animatrice character must be real and demonstrable, not declared in the articles of association: it is a frequent source of litigation.

• Recurring costs. Accounting, filing of accounts, annual general meeting, incorporation fees, and where applicable a statutory auditor. We do not publish an “average” figure — fees vary far too much — but these are annual costs, not a one-off expense: they have to be covered by a real profit.
• Substance. A holding company with no resources, no activity and no decisions of its own is fragile when the tax authority looks at it. The animatrice character, in particular, has to be proved by facts — invoiced service agreements, board minutes, staff.
• Abuse of law. A structure whose purpose is exclusively — or mainly — tax-driven can be set aside. The economic project must exist independently of the tax saving.
• Idle cash. A holding company stuffed with cash that is never reinvested loses most of its point: it ties up capital that you can only take out by paying the PFU, while producing nothing in the meantime.
• Irreversibility. Unwinding a holding company is expensive and triggers tax charges. It is a long-term decision: you make it once, properly.