IPO: the understated tax attractiveness of Euronext Growth (Alternext)
To raise capital on French financial markets, growth companies have the choice mainly between three options: Euronext, Euronext Growth (formerly Alternext) and Euronext Access (formerly known as the open market).
In this context, Euronext Growth has an advantage that is not well known, but which is far from being anecdotal: private individuals investing in SMEs listed on Euronext Growth can enjoy income tax breaks.
SME taxation: boost the attractiveness of shares for investors, thanks to a 25% tax break
Under certain conditions, subscribing to the capital increase of an SME give investors a tax reduction of up to 25% of the amount invested (up to a maximum investment of €50,000 or €100,000 for a couple), which can significantly boost the profitability of an investment.
The key importance of the market choice since 2016
Since 2016, people investing in a listed company can only enjoy these tax reductions if such company is listed on “a multilateral trading system where the majority of instruments admitted to trading is issued by small- and medium-sized companies”.
Euronext Growth, only eligible possibility
In other words, only those companies listed on Euronext Growth (formerly Alternext) provide the possibility of tax réductions to investors.
Companies listed on Euronext Access or Euronext, even if they are supported by Enternext cannot be eligible to these tax breaks.
Commitments to be subscribed to from the prospectus stage
For companies listed on Euronext Growth, giving investors the possibility of enjoying an income tax reduction must be effected as early on as the IPO, since the company must then commit in its prospectus to respecting the conditions of this mechanism.
The tax incentive is likely not the only criteria for choosing the trading media for an IPO, but the fact that Euronext Growth enables investors to enjoy a significant tax break must not be overlooked!
N.B. Up until 31 December 2017, a wealth tax break for investments in SME capital was also applicable. This mechanism was removed when the French wealth tax (ISF) was replaced by a wealth tax on real estate (IFI). When removing the French wealth tax, the national legislator temporarily increased the tax break from 18 to 25%, pending approval from the European Union, for all payments made up until 31 December 2018.