How does the Girardin tax-reduction scheme work in the French overseas territories?

The principle: a one-shot tax advantage, with funds at a total loss

The Girardin tax-reduction scheme brings together tax reductions intended to channel taxpayers' savings toward the economic development and social housing of the overseas territories. Unlike a classic rental investment, the so-called industrial Girardin does not make you the owner of a property in the end: you contribute funds to an operation, and your remuneration takes exclusively the form of a tax reduction greater than your contribution.

The advantage is said to be one-shot: the reduction is applied a single time, for the year in which the investment is made. The gain corresponds to the difference between the reduction obtained and the sums paid. It is never guaranteed, because it depends on compliance with strict conditions for several years after subscription.

The industrial Girardin (Article 199 undecies B of the CGI)

The reduction benefits taxpayers who finance, generally through a holding company (société de portage), new productive equipment (machinery, machines, utility vehicles, equipment) leased for at least five years to an overseas operating business. Some sectors of activity are excluded by law, and a majority share of the tax advantage must be passed back to the operator in the form of a rent reduction or a lower transfer price.

Above certain investment thresholds, the operation must obtain prior approval from the tax authorities. The reduction rates, approval thresholds and pass-back rates are regularly modified by the budget acts: check the parameters in force for the year of your subscription (Article 199 undecies B of the CGI in its version in force and the BOFiP, BOI-BIC-RICI-20-10).

The social-housing Girardin (Article 199 undecies C of the CGI)

This branch finances the construction or acquisition of new housing leased to a social-housing organization, which sublets it to modest-income households under rent and resource caps, then buys it back at the end of a minimum rental period. The logic remains that of the one-shot: a tax reduction in the year of the investment, without any lasting acquisition of wealth for the subscriber.

The scope of this scheme has been deeply narrowed: in the overseas departments and regions, the financing of social housing now goes mainly through a tax credit granted directly to the organizations (Article 244 quater X of the CGI), the individuals' tax reduction remaining mostly applicable in the overseas collectivities and in New Caledonia. The exact perimeter (territories, deadlines, approvals) changes with the successive budget acts: subscribe only after checking that the proposed operation does fall within the scope of the text in force.

Application, carry-forward and capping of the reduction

The reduction is applied against the income tax due for the year the investment is made. If it exceeds the tax due, the excess is in principle carried forward to the following years, within the limits set by the applicable text.

The Girardin scheme is subject to the overall cap on tax loopholes, with a higher cap for the overseas territories (Article 200-0 A of the CGI) and specific calculation rules: the portion of the advantage passed back to the operator is only partially retained in the cap calculation. These caps and percentages change: have an up-to-date simulation drawn up, based on your actual tax due, before subscribing.

The real risks of a Girardin investment

The stated tax return must never make you forget that the Girardin scheme is a risky investment, whose advantage remains conditional throughout the commitment period.

• Claw-back of the tax advantage: if the asset is not operated for the minimum period (failure of the operator, cessation of activity, non-compliance with conditions), the tax authorities can claw back the reduction, sometimes several years after subscription.
• Loss of the contribution: the funds are paid at a total loss; if the operation fails, you can lose both the contribution and the tax advantage.
• Extended liability: some arrangements use general partnerships (sociétés en nom collectif), whose partners are indefinitely and jointly liable for the company's debts (Article L. 221-1 of the French Commercial Code). The legal structure of the holding arrangement must be examined closely.
• Fraud by the arranger: past cases have involved nonexistent or overvalued equipment; the reduction is then clawed back from the investor, who must seek recourse against the arranger.
• Tax reclassification in the event of non-compliance with the conditions of approval, pass-back or location of the investment.

How to secure a Girardin operation

A few simple checks eliminate most fragile arrangements.

• Check that the intermediary is registered on the register provided for in Article 242 septies of the CGI and that it complies with the corresponding code of conduct.
• Prefer operations that have received prior tax approval where thresholds require or allow it: the authorities will then have examined the arrangement in advance.
• Require diversification (several operators, several pieces of equipment) and written guarantees: the arranger's civil liability insurance, so-called tax and financial good-completion guarantees, reading their exclusions carefully.
• Size the contribution to your actual tax due and to the year's cap on tax loopholes.
• Have the documentation reviewed by an advisor independent of the seller: a tax lawyer, a chartered accountant or a notary.