ZOOM ON... The Overseas Investment Tax Credit for companies

In order to encourage investment and productivity in the French Overseas Departments and Territories, the French government has put in place advantageous tax measures.

Taxpayers who make investments in the overseas departments, Saint-Martin, Saint-Pierre-et-Miquelon, New Caledonia, French Polynesia, the Wallis and Futuna Islands, the French Southern and Antarctic Lands (TAAF) and Saint-Barthélemy, within the framework of a company, are entitled to a tax credit under Articles 244 quater (X and Z) of the French General Tax Code.

Who are the beneficiaries?

L'article 244 quater W provides for operators carrying out an agricultural, industrial, commercial or craft activity in an overseas department (Guadeloupe, French Guiana, Martinique, Mayotte and Réunion) and subject to corporate income tax, to benefit from the tax credit. Housing organizations also benefit from this tax credit for the acquisition of buildings to be constructed or for the construction of new rental housing.

L'Article 244 quater X concerns the same beneficiaries but for social housing construction projects.

What are the eligible sectors?

Eligible investments concern :

• The open and intermediate housing sector
• The social housing sector
• The rent-to-own sector
• Renovation and rehabilitation work on hotels, tourist residences and classified villages when such work constitutes a fixed asset. Rehabilitation work includes, in particular, bringing the property up to living standards

The building object of the investment must constitute a fixed asset for the company, i.e.: be depreciable, the rents constitute receipts, the various associated expenses are deductible expenses for the company.

What are the financing conditions?

To be eligible for the tax credit, a few conditions must be met:

1. Commitment to complete foundations within two years;
2. To rent the building bare, within 12 months of its completion or its acquisition (if later), for a period of at least 5 years and to a person who makes it his principal residence;
3. The rent and the resources of the tenant do not exceed the ceilings fixed by decree.

An approval issued by the departmental director or the regional director of public finance of the department in which the program is carried out is mandatory when the total cost of the program is more than 1 million euros.

How is the aid calculated?

The basis of calculation is the cost price of the investments excluding taxes and certain expenses.

The amount of the tax credit depends on the rate below, applied to the calculation base:

• 35% in Guadeloupe, Martinique and Reunion
• 45.9% in Guyana and Mayotte

The tax credit is paid to the beneficiary according to the following schedule at the time of the closing of the fiscal year and the payment of the corporate income tax for the fiscal year in which the following event occurs:

• 70% upon completion of the foundation
• 20% at the waterproofing
• 10% on delivery.

It is applied to the balance of the corporate income tax. If the tax credit is greater than the corporate tax payable for the year, the excess is refunded.

The ceiling of the reduction is 2 727€ HT/m² for Reunion Island (revalued every January^1st and varying according to the overseas department).

The application for the tax credit is made at the time of filing the company's tax returns, accompanied by the appropriate forms.

The reimbursement of the surplus takes place at the time of the balance of the corporation tax, which depends on the closing date of the accounting period. It takes place on the 15th of the^4th month following the closing date and for a fiscal year closed on 31/12/N-1 it will take place on 15/05/N.

Case study

Financing of a building intended to be kept for intermediate rental. The building under construction is located in Saint-Denis de la Réunion.

• Company carrying the housing: SCI ELFE 17 (headquartered in Saint-Paul de la Réunion) held by various companies subject to corporate tax in Réunion

• Date building permit obtained: 05/07/2018 then transferred to SCI and purged on 07/10/2019
• Acquisition date : 16/09/2019
• Approval date: 26/10/2020
• Date of opening of the building site: 20/05/2021- Act carried out after the agreement

The tax credit is calculated as follows:

Elements	Amount before tax
Cost of the operation	3 298 820
Grant	201 009
Eligible basis	3 097 811
Eligible area	1 142
Girardin* ceiling	2 615
Capped eligible base	2 986 853
Tax credit rate	35%
Tax credit	1 045 399

*Ceiling valid for 2021, as a reminder it is 2 727€/m² in 2022

**Effective rate for Reunion

Refund schedule :

• July 2022: Completion of foundations
• December 2022 : Out of water, out of air
• July 2023: filing of the company's 2022 accounts + sending of forms
• August 2023: payment of the 70% +20% of the tax claims
• September 2023: Delivery of the operation
• July 2024: Filing of 2023 accounts + sending of forms
• August 2024: Repayment of the remaining 10%.

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