The status Jeune Entreprise Innovante (JEI)

Objectives of the tax incentive in France for the status of jeune entreprise innovante (JEI)

The jeune entreprise innovante (JEI) status allows companies created less than eight years ago and which incur research and development (R&D) expenses to benefit from a reduction in their tax burden and social security contributions relating to highly qualified jobs such as engineers and researchers.

Everything you need to know about the eligibility criteria and the conditions of application.

The Finance Act 2017 has been passed and, at the same time, the extension of the jeune entreprise innovante (JEI) status until 31/12/2019 has been confirmed.

What is the JEI status (jeune entreprise innovante)

Intended for SMEs incurring research and development (R&D) expenses, the jeune entreprise innovante (JEI) status makes it possible to obtain tax exemptions as well as exemptions from employer social security contributions.

Created by the Finance Act 2004, the tax status Jeune Entreprise Innovante (JEI) allows young French SMEs to obtain full or partial exemption from certain social and tax charges to help them finance their Research and Development (R&D) activities.

In 2013, 3,100 companies benefited from the jeune entreprise innovante (JEI) status for a total amount of social exemptions of 109 million euros [1]. Their R&D expenses amounted to 700 million euros and were mainly concentrated in service sectors. The JEI scheme benefited 3,500 companies in 2015, mainly in the digital and scientific sectors. It is still underused today.

JEI status: which companies are eligible?

Any legal entity subject to Corporate Income Tax (Impôt sur les sociétés, IS) can obtain JEI status, whatever its legal form.

To do so, it must meet 4 conditions:

• Have research expenses by incurring R&D expenses at least equal to 15 percent of total expenses per fiscal year,
• Be independent within the meaning of article 44 sexies of the Code général des impôts. It must therefore be more than 50 percent owned by natural persons.
• Be an SME within the meaning of the European definition, that is to say fewer than 250 employees and annual turnover less than or equal to 50 million euros.
• Be a genuinely new company. Your company must not have been created as part of a merger, restructuring, extension of a pre-existing activity or takeover of such an activity (no partial transfer of assets, no transfer of staff or business assets…).

If any of the first three criteria changes before the 8th year, the company will lose its Jeune Entreprise Innovante (JEI) status.

JEI status: what are the advantages?

JEI status gives access to two types of advantages:

1 – Tax relief, including an exemption from Impôt sur les sociétés (IS, Corporate Income Tax).

La loi de finances rectificative pour 2011 a instauré une baisse des exonérations d’IS qui passent à 100 % la première année, puis 50 % la seconde qui a ensuite été supprimé lors de la loi de finances 2014. Mais la réforme de 2014 a étendu le dispositif à certaines dépenses d’innovation.

The company also benefits from a full exemption from the Imposition Forfaitaire Annuelle (IFA) for the entire period during which it retains JEI status.

In addition, there is the possibility of benefiting from decisions of local authorities. As such, a company qualifying as a jeune entreprise innovante (J.E.I) may benefit from an exemption from the cotisation économique territoriale and from property tax on built properties for 7 years.

It should be noted that the tax aid granted to companies under the J.E.I. regime cannot exceed the “de minimis” aid ceiling set by the European Commission, that is an amount of 200,000 euros over three rolling fiscal years for each company.

Capital gains from the sale of shares or units in J.E.I. companies are taxed according to the progressive Impôt sur le Revenu (IR, Income Tax) scale after application of a deduction depending on the holding period of the shares or units:

• 50 percent if 1 year < holding period < 4 years
• 65 percent if 4 years < holding period < 8 years
• 85 percent if 8 years < holding period < 10 years

2 – Social security exemptions
A company benefiting from J.E.I status is exempt from employer social security contributions for all employees assigned to research or innovation activities.

The following are taken into account:

• Researchers,
• Technicians,
• Project managers,
• Legal specialists responsible for industrial protection and technology agreements linked to the project,
• Staff in charge of pre competitive testing.

This exemption is also open to company officers falling under the general social security scheme. This concerns:

• Minority managers of sociétés à responsabilité limitée (SARL) and sociétés d’exercice libéral à responsabilité limitée (SELARL),
• Chairmen and CEOs and managing directors of sociétés anonymes (SA),
• Presidents and directors of sociétés par actions simplifiées (SAS).

It should be noted that this social benefit is subject to a double cap:

• Per employee: remuneration ceiling set at 4.5 times the minimum wage (SMIC)
• Per establishment: 5 times the annual Social Security ceiling.

Beyond these amounts, exemptions are no longer applicable.

Until 31 December 2013, the JEI exemption was applicable at full rate for three years. At the end of this period, the exemption applied, at decreasing rates, for four more years.

From 1 January 2014, the decreasing mechanism of the JEI exemption was abolished. It therefore applies at full rate until the last day of the seventh year following that of the creation of the establishment. This provision applies to contributions due on remuneration paid from 1 January 2014.

JEI: which R&D activities are concerned

The company must ensure that it meets the criteria for R&D operations defined by the Ministère de l’Enseignement Supérieur et de la Recherche (MESR) in order to be eligible for JEI (jeune entreprise innovante) status.

OECD countries share a common definition of research and development set out in the Frascati Manual and its update, the Oslo Manual.

France has used these as a reference both for the jeune entreprise innovante (JEI) status, the Crédit d’Impôt Innovation (CII) and the Crédit d’Impôt Recherche (CIR).

In France, to be eligible for JEI status, R&D work carried out must meet the criteria defined by the applicable tax regulations (CGI, Annex III, art. 49 septies F). The work must relate to one of the following activities:

• Basic research consists of experimental or theoretical work undertaken primarily with a view to acquiring new knowledge on the underlying foundations of observable phenomena and facts, without any particular application or use in view. This is typically the case for academic research laboratories.
• Applied research also consists of original work undertaken to acquire new knowledge. However, it is mainly directed towards a specific practical aim or objective. This is typically the case for companies.
• Experimental development consists of systematic work based on existing knowledge gained from research and/or practical experience, with a view to launching the manufacture of new materials, products or devices, establishing new processes, systems and services or significantly improving those already in existence. To better distinguish the boundary between innovation and experimental development, please refer to the file: Crédit d’Impôt Recherche (CIR) and Crédit d’Impôt Innovation (CII): what is the difference?

Eligible work must therefore be distinct from what already exists, resolve technical uncertainties and have a novel character. To justify your R&D work, we recommend structuring an academic state of the art.

JEI or Jeune Entreprise Innovante status: which expenses are taken into account

Which research and development expenses are taken into account under the JEI (jeune entreprise innovante) status in order to reach the famous “15 percent” threshold of total expenses?

The main eligible expenses for reaching the minimum threshold of 15 percent R&D expenses are similar to those of the Crédit d’Impôt Recherche (CIR), namely:

1 – Personnel expenses:

These are taken into account when researchers and research technicians participate directly, in whole or in part, in R&D projects. The following items are included: salaries, benefits in kind, bonuses and mandatory employer contributions (social security, unemployment insurance, supplementary pension funds).

2 – Depreciation of equipment allocated to R&D activities:

These relate to movable and immovable assets, created or acquired new and directly allocated to research work, including the production of prototypes or pilot research installations.

3 – Intellectual property expenses, filing and maintenance of patents and plant variety rights (Certificats d’Obtention Végétale, COV):

Fees paid to advisory service providers, translation costs, fees collected by the INPI (Institut National de la Propriété Industrielle), maintenance fees, expenses incurred in infringement actions and insurance costs may be eligible under JEI status.

4 – Subcontracting expenses :

Research work entrusted to a provider (public research body or private body approved by the minister in charge of research) may be eligible under JEI status.

Note: tax instruction 4 A-3-11 of 16 September 2011 clarified that:

Personnel expenses are taken into account at their actual amount, and the doubling of personnel expenses for young PhDs provided for in article 244 quater B does not apply to JEI status. Furthermore, this tax instruction also specifies that subcontracting expenses entrusted to the following bodies are not taken into account at twice their amount, but at their actual amount:

• Public bodies,
• Higher education institutions awarding a degree conferring a master’s level,
• Approved scientific cooperation foundations,
• Public institutions for scientific cooperation,
• Foundations recognised as being of public utility in the research sector and approved in accordance with d bis of II of article 244 quater B of the CGI,
• Associations governed by the law of 1 July 1901 on associations, whose founder and member is one of the bodies referred to in points 1° or 2° of d of II of article 244 quater B of the CGI,
• or companies whose share capital or voting rights are more than 50 percent held by one of these same bodies.

5 – Technology watch expenses:

Standardization expenses (salaries and social security contributions of employees, in proportion to the time spent in official standardization meetings, and other expenses incurred for these same operations) may be taken into account at their actual amount.

How to apply for JEI status?

The company that believes it is eligible for the jeune entreprise innovante (JEI) status has the right to directly claim its exemptions, with no prior procedure required. However, filing a prior tax ruling request (rescrit fiscal) can secure the application.

The company must submit a file by registered mail with acknowledgement of receipt to the Direction des services fiscaux it falls under.

If the tax administration does not reply within 3 months following the sending of the company’s file, its opinion is deemed favourable. Eligibility for the JEI regime cannot then be challenged for the fiscal years mentioned in the rescrit request. As your company’s situation may change, you can renew this request to make sure that your company still meets the eligibility criteria (see the 4 conditions to be met).

Nevertheless, JEI (jeune entreprise innovante) status is a declarative measure. A company wishing to benefit from it may choose to ask its chartered accountant to directly claim the exemptions.

Jeune entreprise innovante (JEI) file

To receive your jeune entreprise innovante (JEI) file template in Word format, please provide us with your contact details.

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[1] source ACOSS 2014/DGE

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