Photo : D.R.
Tax advantages for investing in the DOM-TOMs (French overseas departments and territories) are not entirely new. Already, the French finance law of 31 December 1951 foresaw several measures: reductions in income tax and tax on companies in Guadeloupe, French Guyana, Martinique and Reunion.
These measures were extended to the whole of the French overseas departments in 1975, before being made to conform with the 1980 finance law. The first important turning point arose with the Pons law of 11 July 1986, which established the possibility for French mainlanders to impute the sum of their overseas investments to their global revenue.
The Paul law of 1 January 2001 evolved the Pons law by transforming the tax advantage of imputation to global revenue into a tax cut. This reform was crucial, for it democratised the measure: whilst the Pons law only benefited those in the higher tax brackets, the Paul law broadened the measure to the reach of medium and low brackets.
Number one on the market
Finally, the Girardin law of 21 July 2003 introduced a certain legitimacy with the notion of retrocession in fine, endowing those investing in the DOM-TOMs with a 50 to 60% tax credit. “The Girardin law is the base of our main activity, and Inter Invest is number one in the plein droit (or ‘by right’, editorial note) niche,” states Daniel Petit, 64 years old, President of Inter Invest, a company belonging to the Inter Action group with activities in management consultancy (France and United States) and real estate. Inter Invest’s first overseas investment operations included financing for the first Air Austral Boeing on the Paris–Saint-Denis (Réunion Island) flight route. Since 1991, Inter Invest has developed its expertise in plein droit dossiers (namely dossiers that do not necessitate the approval of the Ministry of Economy) to finance artisans and develop the economy of the French overseas territory. “The problematic is the following: currently, the GDP per inhabitant in the DOM-TOMs comes to an average of 14,000 euros, namely half of that in mainland France. So the financial needs in these regions are very high,” says Daniel Petit.
In concrete terms, aid towards the development of the DOM-TOMs comes in two forms: public spending (13.4 billion euros) and tax expenditure (3.3 billion). Within the latter, tax aid from overseas territory investments under the Girardin law represents only 1.7 billion euros, in other words 10 % of the total sum of public spending and tax expenditure together. Public spending is primarily (over 80%) swallowed up by civil servant salaries.
A market with an estimated value of 600 million euros
Inter Invest has gone from risky large investments to the financing of small industries, artisans, farmers… which hold the advantage of being far easier to find. This transition has been overseen via the setting up of a locally based Inter Invest office in the DOM-TOMs, with over 35 employees on the spot – which is rarely the case for players on the market. Furthermore, top management visits each agency at least once per quarter. And the strategy is paying off: Inter Invest takes out the number one spot on the “by right” market, with 20% of the market share, in other words 120 million euros of investment financed out of an estimated market of 600 million euros. These investments mainly serve to finance materials for public works constructions (30%), utilitarian vehicles (30%), trucks and buses (30%), as well as agricultural equipment (10%).
True, the market was restricted in 2009 with the economic crisis, and its vocation is not specifically to grow. All the same, two extra niches are allowing Inter Invest to
increase its activity: small-scale equipment for the photovoltaic industry, and social housing since the LODEOM law of 27 May 2009 on economic development in the French overseas departments and territories allows tax credits of 50% on the total invested in social housing. The anticipated development is considerable, as an average of 2,000 new socially funded residences are to be created per year and per overseas department in order to meet needs. The Code Général des Impôts regulates all social housing investment operations for SEMs (mixed economy companies) and HLM (rent-controlled housing) corporations.
Keeping risk under control
“Our rank as ‘by right’ market leaders is due first and foremost to our policy on securing our investments, all the more necessary as tax exemption laws have received bad press from abuses in the past,” recalls Jérôme Devaud, 34 years old, Manager for Commercial Relationships at Inter Invest since 2006. Investment security at Inter Invest comes in various forms. Firstly, the company sets up its programmes itself and has locally based agencies. Secondly, Inter Invest was the first company to hold professional personal liability insurance (valued at 10 million euros). And thirdly, it is backed by a team dedicated to computer security for all types of operations – setting up financing applications that respect legal restrictions; financial assessments for over 2,000 sociétés en nom collectif (SNCs, in French law, these are corporate bodies with a commercial status), tax declarations for over 4,600 clients, the follow up of 10,000 renters, management of over 15,000 authorities for general assemblies… Partners of Inter Invest naturally have online access to their investments, allowing them absolute transparency. “What is important is to keep risk under control,” specifies Daniel Petit. “In 2009, 40% of our takings came from a new product, laun-ched in 2008, the G3F – a product covering risk on all levels and guaranteeing the investor a tax cut.” In other words, Inter Invest applies a deduction on contributions made by investors to feed the G3F guarantee fund, which explains a slight difference in profitability compared with the classic mutualised product.
A complex legislative framework
For the classic mutualised product, risk is under control and diluted, for each SNC
finances several dossiers. Investors also have the option of investing several SNCs. As for the future, Inter Invest is very likely to be called to the rescue in an attempt to clarify legislation that evolves unendingly. Just take the finance law of 27 December 2008, which sets limitations on tax niches – a masterpiece of complexity. The limitations set concern all tax advantages and is doubled by a specific ceiling for investments in the Girardin Industriel category.
In 2010, the global ceiling for tax credits has been set at 20,000 euros plus 8% of net taxable income, as opposed to 25,000 euros plus 10% of net taxable income the year before. Meanwhile, tax reductions acquired via investments made under the Girardin Industriel programme (with a ceiling of 80,000 euros or 15% of net taxable income) apply to only 50% of their sum. So much to say that with legislative measures this complex, the software tool available on the Inter Invest web site, allowing tax savings to be simulated, should meet with increasing success in the coming years…
More information on www.inter-invest.fr
Key figures
Established in 1991
50 employees
4,700 investors
2,000 sociétés en nom collectif under management
14,000 dossiers underway
2009 turnover of the Inter Action group: 23 million euros
Source: Inter Invest – December 2009
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