In France’s recently approved 2024 budget, which was passed by the French government without the need for a vote, there are plans to establish a fresh tax relief system for angel investors in technology startups. In many respects, France is drawing inspiration from the British technology ecosystem for this reform.
For angel investors in the United Kingdom, the acronyms SEIS and EIS, representing Seed Enterprise Investment Scheme and Enterprise Investment Scheme, are likely already familiar. These two tax relief programs have been encouraging angel investments in small, privately-owned firms, typically tech startups, since 1994.
In the UK, when you invest in an early-stage startup, your investment qualifies for a 50% reduction in your income tax, with an annual investment cap of £200,000. You may be wondering what constitutes an early-stage startup. The criteria can change periodically, but at present, an SEIS-eligible business is a British company that is under three years old, employs fewer than 25 people, and has gross assets totaling less than £350,000.
“I’ve benefited from SEIS both as a founder and an investor. SEIS funding de-risks angel investing and enables startups to close funding rounds much more quickly,” stated Emmanuel Nataf, the co-founder and CEO of Reedsy. “The fact that any taxpayer, not just the wealthiest, can benefit from these tax incentives makes it a true catalyst for the UK’s tech ecosystem.”
Regarding the Enterprise Investment Scheme, as the name implies, more firms are eligible. However, individual investors receive only a 30% tax reduction on their income tax in this case. EIS-eligible firms are less than seven years old, employ fewer than 250 people, and maintain gross assets below £15 million.
Interestingly, deep tech companies have a bit more flexibility, as they remain eligible even if they’ve been around for up to ten years. Individuals can invest as much as £1 million per year to avail of the tax credit (or £2 million for deep tech investments).
And the results have been impressive. In 2021, according to a report from Paul Midy, a member of the National Assembly from Emmanuel Macron’s party who has been working on this issue, a total of £175 million and £1.6 billion were invested in private companies via SEIS and EIS, respectively (equivalent to $213 million and $1.95 billion at today’s exchange rates).
“Angel investors who take advantage of these schemes also provide significant support to founders, which can be harder to obtain from institutional funds,” added Nataf.
Adopting the SEIS and EIS Schemes Now that you understand how these schemes work, France is essentially replicating them with a distinct set of criteria. Beginning in 2024, individuals who invest in companies labeled as JEI (jeunes entreprises innovantes) will receive a 30% reduction in income tax.
Starting in 2025, two new categories, JEIC and JEIR, will be introduced – ‘C’ for growth and ‘R’ for disruption. While these acronyms may sound technical, the key takeaway is that investors in deep tech startups will enjoy a 50% tax reduction for investments of up to €100,000 per year. Investors in other startups will receive a 30% tax reduction for investments up to €150,000 per year.
“This scheme for so-called ‘young companies’ is designed to assist thousands of innovative startups in hiring, raising capital, improving cash flow, and gaining access to public contracts,” stated Paul Midy in a video on X (formerly Twitter). “It should result in an additional half a billion euros in annual fundraising for our startups, particularly at the early stage.”
It will take some time for the French tech ecosystem to fully experience the effects of this regulatory change. Nevertheless, it is a welcomed development, as France, like many tech ecosystems worldwide, is facing a slowdown in traditional venture capital investments.
