Temporary modifications to Article 790 A bis of the CGI (General Tax Code) regarding donations of money

donations of money

In exceptional times, exceptional measures are required!

As it stands, Article 790 bis of the General Tax Code currently provides that: Donations of sums of money that are made in a direct line over 3 generations (children, grandchildren, and great-grandchildren) are exempt from transfer tax for transfers of up to 30,000 euros, provided that this money is invested:

  • In the capital of a European SME,
  • In the acquisition of movable or immovable property earmarked for the operation of a sole proprietorship (e.g. an EIRL [Limited Liability Sole Proprietorship]), in which the person who receives the sum of money carries out his/her main professional activity, and who will continue to operate this company for a period of 5 years from the transfer of the sums. In addition, the company must have a commercial, industrial, artisanal, agricultural or professional activity.

This scheme is only admissible once for the donee who receives the money from the donor.

This measure, which allows the transfer of assets to be optimised, also has a significant economic impact by encouraging investment in SMEs.

In view of the exceptional period due to COVID-19, the government has decided to grant an exceptional measure.

Consequently, Article 19 of the 3rd amending finance law for 2020, Law No 2020-935, dated 30 July 2020, decided to increase the exempt amount from 30,000 euros to 100,000 euros.

This measure is temporary, and will be granted until 30 June 2021.

Article 19 of the aforementioned amending finance law sets out many points. In addition to the fact that the amount exempt from transfer tax has been increased, the terms and conditions for investing in the capital of a small business have been changed; henceforth, it will be necessary that the business carries out its activity for at least 5 years and has not yet distributed any profits, that the latter has not yet distributed any profits, and that it is not the result of a merger.

The donee must invest in the initial capital of a small business following receipt of the sum (which must be used within 3 months of the transfer), as indicated below. This may therefore be a company created, or through a capital increase. He/she must exercise his/her professional activity for a period of at least 3 years following the subscription, or exercise a management function during the same period in the company in which he/she has subscribed to the capital.

Article 19 of this law also provides that this donation of 100,000 euros may be used in another scenario: if these funds are used to carry out renovation work and for expenditure in the dwelling which the beneficiary of the funds owns, and which corresponds to his/her main residence, provided that such expenditure is eligible for the energy transition allowance.

Another admissible case is if the beneficiary of the funds use the funds received to build his/her main residence.

Within the context of the discussion on the finance law for 2021, the members of parliament recently decided to strengthen this temporary measure, increasing the exempt amount by 100,000 euros, raising it to 200,000 euros.

On 7 October 2020, The National Assembly members therefore put forward Amendment No I-954 in order to increase the exempt amount from 100,000 to 200,000 euros.

Although the exemption of 30,000 euros granted with regard to Article 790 Aa of the CGI concerned SMEs, the modification made by Article 19 of the third amending finance law only concerns small businesses. The National Assembly members also wanted (as appearing in the proposed amendment) this exemption to be extended to medium-sized enterprises (i.e. SMEs), as well as to small businesses.

In the end, however, the amendment proposed by the National Assembly members to grant a double allowance of 100,000 euros (i.e. 200,000 euros) was refused by the government during the second reading of the finance law for 2021. Only the allowance of 100,000 euros for a determined period therefore remains in force.


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