French Private Equity Funds: FCPR, FCPI and FIP Explained

What FCPR, FCPI and FIP Are

French private equity funds for individual investors — known collectively as fonds de capital-investissement — are alternative investment funds (FIA) governed by the AIFM Directive. They invest primarily in equity stakes in European unlisted SMEs, with the objective of realising capital gains on exit. Three categories are open to non-professional investors:

• FCPR (fonds commun de placement à risques) — the general category. An FCPR must invest at least 50% of its assets, directly or through a holding company or investment vehicle, in equity securities of unlisted French or foreign companies. Within that 50% quota, up to 20% of the fund's assets may consist of securities of listed companies in the EU, Iceland, Norway, or Liechtenstein provided their market capitalisation is below €150 million, and debt instruments issued by unlisted companies (C. mon. fin. Art. L 214-28).
• FCPI (fonds commun de placement dans l'innovation) — the innovation fund. An FCPI must invest at least 70% of its assets in equity capital instruments, SARL units, and current-account advances in European unlisted innovative SMEs, of which at least 40% must be in new subscriptions to capital or converted bonds in companies meeting the 70% eligibility criteria (C. mon. fin. Art. L 214-30).
• FIP (fonds d'investissement de proximité) — the regional fund. A FIP must invest at least 70% of its assets in unlisted SMEs operating principally in the geographic regions selected by the fund (C. mon. fin. Art. L 214-31).

FCPI and FIP are categories of FCPR: they follow all the same rules as FCPR except for the specific nature of their required investments. All three are co-ownership vehicles (fonds communs de placement) — they have no legal personality; investors are unit-holders, not shareholders. These vehicles are distinct from the fonds professionnels de capital-investissement (FPCI) and fonds professionnels spécialisés (FPS), which are reserved for professional investors or those whose initial subscription is at least €100,000.

How They Work: Subscriptions, Life, and Liquidity

Subscription periods and the investment window

Private equity funds typically operate with one or more fixed-duration subscription periods — unlike standard open-ended funds, which issue units on a continuous basis (C. mon. fin. Art. L 214-28). The subscription window varies from fund to fund and may be cut short if the fund reaches its maximum target size. Once the subscription period closes, the management company has a maximum of 30 months to deploy capital and reach its required investment quotas.

Fund life and mandatory liquidation

Private equity funds are constituted for a fixed duration — typically eight years, generally extendable by two one-year periods. At the end of its life, the fund must be liquidated: the management company sells the underlying holdings and distributes the proceeds, including any capital gains, to unit-holders. If the fund fails to liquidate within the prescribed period, the law gives unit-holders the right to demand redemption of their units after ten years.

Liquidity during the fund's life: the practical reality

Units are in principle freely transferable from the moment of subscription. In practice, however, secondary market liquidity is severely constrained. A buyer on the secondary market acquires no entitlement to the income tax reduction — that is reserved for original subscribers. Where the management company assists in finding a buyer, it typically charges a transfer fee of around 5% of the transaction price. Many fund regulations restrict or entirely prohibit early redemption directly by the fund, regardless of the reason.

The Income Tax Exemption: Conditions and Scope

An FCPR whose portfolio composition meets both the 50% investment quota and the additional conditions of CGI Art. 163 quinquies B, II is called a FCPR fiscal. The main additional condition is that the securities counted towards the 50% quota must be issued by companies with their registered office in the EU, Norway, Iceland, or Liechtenstein. When these conditions are met, individual unit-holders resident in France benefit from an exemption from income tax on all fund income and capital gains — provided three further conditions are satisfied by the investor personally:

• The investor must commit to holding their units for at least five years from subscription
• Any distributions made during that five-year period must be immediately reinvested in the fund and remain locked up alongside the original investment
• The investor — personally, or together with their spouse or civil partner, their ascendants, and their descendants — must not hold directly or indirectly more than 25% of the profit rights in any single company whose securities are in the fund's portfolio, and must not have held that proportion at any point during the five years preceding their subscription

FCPI units that meet their investment quotas benefit from the same exemption regime as a FCPR fiscal. FIP units also benefit from this regime when the FIP simultaneously qualifies as a FCPR fiscal.

What the exemption covers

When the conditions are met, the exemption covers all income to which the units give entitlement — not only distributions made during the five-year conservation period but also any distributions made after that period expires. The exemption is therefore permanent once the five-year condition has been met, not merely deferred.

Social charges: not exempted

Whatever the income tax position, fund income distributions always bear social charges at 17.2% (CSG, CRDS, and solidarity levy), collected directly by the fund at the time of distribution. These social charges are not deductible for income tax purposes.

Cancellation of the exemption

If any of the three conditions ceases to be met, the exemption is cancelled. Previously exempt distributions are added back into taxable income for the year in which the condition was broken, and taxed under the ordinary investment income rules. There is one important exception: if the investor holds the 25% threshold condition but breaks the five-year retention commitment, only the distributions made from the year in which the 25% condition was breached onwards lose the exemption. Prior-year exemptions already obtained are preserved. The exemption is also maintained if the investor or their civil partner is forced to exit by one of four life events: death, second- or third-category disability under social security law, retirement, or redundancy.

Capital Gains on Exit

Capital gains realised by individual investors on the sale or redemption of their fund units after the five-year conservation period are exempt from income tax, provided the fund still meets its portfolio composition obligations at the time of exit (or is in a normal liquidation phase at the end of its term). Social charges at 17.2% apply in all cases, collected directly by the fund and paid directly to the tax authority.

If units are sold during the five-year conservation period — outside the four life event exceptions — capital gains are taxable under the ordinary securities capital gains regime (PFU 30% or progressive scale on election). Social charges at 17.2% apply regardless.

The Income Tax Reduction for FCPI and FIP Subscriptions

In addition to the income tax exemption available on fund returns, subscriptions to FCPI and FIP units open a separate and distinct fiscal benefit: a reduction in income tax (réduction d'impôt) applied to the subscription amount itself (CGI Art. 199 terdecies-0 A, VI and VI ter). This is not available for plain FCPR subscriptions — only for FCPI and FIP.

Conditions for the tax reduction

To benefit, the investor must commit to holding their units until at least 31 December of the fifth year following the year of subscription. The investor — personally, together with their civil partner or spouse, their ascendants, and their descendants — must not hold or have held, at any time in the five years preceding subscription, more than 10% of the fund's units, or more than 25% of the profit rights in any company whose securities are in the fund's portfolio. Units qualifying for the tax reduction cannot be held within a PEA.

Rate and ceiling

The standard rate is 18% of the net subscription amount (after entry fees). Elevated rates apply in specific windows: 25% was available for subscriptions made between 18 March and 31 December 2022, and for subscriptions made between 12 March and 31 December 2023. For FIP Corse — a FIP whose portfolio is composed of at least 70% of securities of companies operating exclusively in Corsica — the rate is 30%. Subscription amounts are capped annually per fund category at €12,000 for single, divorced, or widowed taxpayers and €24,000 for married or civil-partnered couples filing jointly. The tax reduction counts within the global cap on fiscal advantages (plafonnement global des avantages fiscaux).

Cumulation rules

The tax reduction for FCPI subscriptions and the tax reduction for FIP subscriptions (including FIP Corse and FIP outre-mer) cannot be combined for subscriptions in the same fund. Each type of fund carries its own ceiling — FCPI and FIP reductions are calculated separately and each applies its own €12,000/€24,000 annual ceiling. An investor can therefore subscribe to both FCPI and FIP in the same year and claim each reduction up to its own cap.

Cancellation of the tax reduction

The reduction is clawed back if the investor fails to hold their units until 31 December of the fifth year following subscription, or if any of the holding conditions is not continuously maintained throughout that period. The same four life events that preserve the income tax exemption (death, disability, retirement, redundancy) also protect against clawback of the subscription tax reduction.

Carried Interest: Excluded from the Tax Reduction

Units of FCPI or FIP that are attributed as carried interest — meaning units allocated on the basis of the holder's personal quality (typically as a fund manager or management company employee) and conferring different rights to net assets or fund income compared to ordinary units — do not qualify for the subscription income tax reduction. The exclusion applies regardless of what the units are called or how the carried interest arrangement is structured.

This article is provided for general information and educational purposes only. It does not constitute tax or investment advice. The fiscal regimes described apply to natural persons domiciled in France. The income tax reduction rates for FCPI and FIP subscriptions have been subject to periodic changes. Whether a specific fund qualifies as an FCPR fiscal, FCPI, or FIP depends on the fund's actual portfolio composition and AMF approval — investors should verify qualification with the fund's documentation before relying on fiscal benefits.