Are you the head of a business and are you considering passing it on to your heirs? The Dutreil pact could be a very interesting tax arrangement for you. Created to encourage the transfer of family businesses, this mechanism allows you to benefit from attractive tax advantages, provided that certain criteria are met. But, is it really beneficial for you as an entrepreneur? We take stock.
What is the Dutreil pact?
The Dutreil pact is a tax system aimed at reducing inheritance or gift taxes when transferring a business. Concretely, the Dutreil pact allows you to benefit from a partial exemption of up to 75% of the value of the securities or the company. This exemption can considerably reduce the tax burden of the transfer, but it is subject to specific conditions.
Who is affected by the Dutreil pact?
The Dutreil pact is aimed at all business leaders, regardless of their family situation: whether they have children, minors or adults, or even if they do not have any. However, certain companies are excluded, notably family SCIs and holding companies, unless their activity is mainly commercial. This therefore means that if you are the head of a company or an individual enterprise having an industrial, commercial, artisanal, agricultural or liberal activity, you could benefit from this system.
How does the Dutreil pact apply?
The Dutreil pact applies to the transfer of a business following a death (succession) or a donation (or donation-sharing) made during the entrepreneur’s lifetime. For the transfer of a business to benefit from tax advantages, it must be carried out in full ownership or as part of a division of ownership. Please note: the Dutreil system does not apply in the context of a business sale.
What are the conditions to benefit from the Dutreil pact?
To benefit from the tax advantages of the Dutreil pact, certain conditions must be met:
First, the corporation or sole proprietorship must carry out a commercial, industrial, artisanal, agricultural or liberal activity. It should be remembered that family SCIs and holding companies are only eligible for the Dutreil pact if their activity is mainly commercial.
The second condition to be fulfilled is that of the commitment to retain the company’s securities. In other words, the entrepreneur must have held the securities of his company for at least two years (unless it is a company that he himself created or acquired free of charge). Then, he must conclude a collective commitment to retain the securities, for a minimum period of two years, with his associates. This commitment must relate to at least 17% of the financial rights and 34% of the voting rights of the company. But, there is also a condition imposed on the heir or the donee who must then undertake individually to keep the securities for at least four years from the end of the collective commitment. This point must be clearly stipulated in the deed of donation or inheritance.
Finally, one of the donees, heirs or partners must continue to operate the company by occupying a managerial position for at least three years after the transfer.
The last condition concerns the nature of transmission. The Dutreil pact only applies in the context of a total transfer of assets necessary for the operation of the company. But, it is possible to make a donation with reservation of usufruct, provided that the donor only retains a right to allocate the profits.
Without compliance with at least one of the aforementioned conditions, it is likely that you will lose the benefit of the tax advantages provided by the Dutreil pact. This would therefore require the heirs or donees to pay gift tax on the total value of the shares transferred.
How to implement the Dutreil pact?
The Dutreil pact is a very interesting device. To benefit from it as well as to implement it, it is necessary to meet certain conditions.
- the first is to sign a collective conservation commitment between the donor and his associates for a minimum period of 2 years;
- the second is to transmit the company’s titles by inheritance or donation;
- the third is to sign an individual commitment in which each heir or donee must individually undertake to keep the titles for at least 4 years;
- finally, the last condition is for one of the heirs or donees to occupy a managerial position within the company for at least three years.
In conclusion, if you are ready to respect the conditions and commitments linked to this pact, it can prove to be a very advantageous tax solution for transferring your business. Be careful, however, of a possible overhaul of the Dutreil pact in the finance bill for 2025. To be continued!
