Financing

Reform of the JEI status in the 2024 Finance Act: what remains of the Midy report?

16.1.2024
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Romain Escriva
Business Intelligence Analyst

As part of the 2024 Finance Law enacted on December 30, 2023, and following the Midy report (named after the Paris-Saclay MP who submitted a report on public investment in innovative SMEs), a reform of the status of young innovative company has been in force since January 1ᵉʳ, 2024. Here's how it works.

Contents

I. What is the Midy Report?

  • A report to counter the slowdown in investment in innovative companies
  • Support for innovative SMEs and start-ups to meet targets

II. What's new in JEI status?

  • Who is eligible for JEI status?
  • What does the reform of the JEI status entail?
  • What are these growth capacity criteria?

III. Dynergie's strategy regarding JEI status

I. What is the Midy Report?

A report to counter the slowdown in investment in innovative companies

The Midy report, submitted to the French President by MP Paul Midy at the Vivatech trade show on June 16, 2023, aimed to gain a better understanding of the slowdown in the growth of innovative SMEs and start-ups, and to identify some avenues for improvement. 

Indeed, the ecosystem of innovative companies in France has seen spectacular growth since 2017: 

  • The number of unicorns developed has increased 10-fold in 5 years;
  • The number of businesses created has jumped by 26% in 6 years;
  • the number of jobs created has increased 5-fold in 5 years;
  • The number of funds raised has increased more than 5-fold in 5 years.

However, the end of 2022 and the beginning of 2023 showed signs of a serious slowdown1. The alarm bells ringing at the end of last year were recently confirmed: in 2023, European start-ups raised €45 billion, compared with €82 billion in 2022, a staggering drop of over 45%2. The penalty is the same at national level: French start-ups will have raised 38% less than in 20223

And even if the end of the post-Covid magic money heralded a significant drop (-18% between 2021 and 2022), and the irrational parenthesis of the post-Covid era needs to be put into perspective, support for innovative companies remains a necessity if they are to develop in the best possible way.

Support for innovative SMEs and start-ups to meet targets

This focus on SMEs and start-ups is not insignificant. According to the figures provided by the Midy report and the INSEE assessment of the scheme in 20214, they hire more, create more indirect jobs, and above all, these jobs cover the full range of needs on the job market (unskilled, low-skilled and skilled jobs) offering above-average pay. 

Preserving, consolidating and stimulating the growth of these innovative companies is therefore essential to achieving the goals of full employment and ecological transition today, as well as positioning France as a European leader in the challenges of tomorrow. 

This is the thrust of the Midy report: support for the growth of all companies capable of innovation and growth, and strong support for companies driving disruptive innovation, capable of radically transforming the way we live.

II) What's new in JEI status?

Who is eligible for JEI status?

The Young Innovative Company (JEI) status is defined byarticle 44 sexies 0-A of the French General Tax Code.

According to the latter, a JEI is : 

  • An SME with fewer than 250 employees and sales of less than €50 million or total assets of less than €43 million;
  • Less than 8 years for companies created after January 1, 2023, 11 years for companies created before January 1, 2023;
  • Independent ;
  • Genuinely new (i.e. not the result of a restructuring, merger, expansion or takeover);
  • Spending on research representing at least 15% of the company's expenses OR managed or at least 10% owned by students or holders of a master's or doctorate degree for less than 5 years OR spending on research representing between 5 and 15% of the company's expenses and meeting economic performance criteria.

The JEI scheme enables a company to benefit, until the end of its seventh fiscal year, from exemptions from property taxes and contributions, and above all from exemptions from employer contributions on remuneration paid to employees and corporate officers.

What does the reform of the JEI status entail?

From a consultation lasting over 6 months and 400 people interviewed, numerous recommendations emerged, some of which were taken up by the 2024 Finance Act. Among those adopted was the extension of the JEI scheme to a larger number of companies capable of growth, so that they can benefit from exemption from charges. The stated aim of this extension is to double the number of companies benefiting from the advantages of JEI status. 

This reform opens the doors of the scheme to young innovation and growth companies (JEIC) with R&D expenditure representing between 5% and 15% of total expenses, and demonstrating a strong capacity for growth (see table below).

⚠️ On the other hand, the PLF 2024 plans to abolish the income tax exemption for new JEI created from January 1, 2024, whereas the scheme was initially scheduled to run until 2026, considering this benefit to be of little relevance. 

In addition to this measure, the Finance Act 2024 incorporates other changes recommended by the report, which targets 4 areas of aid and incentives for innovative SMEs and start-ups: 

  1. Help to hire: scheme extended to make more companies eligible for exemption from social security contributions
  2. Helping to raise funds: tax incentives for individuals to invest in start-ups. 30% tax reduction for investment in JEI/JEICs, 50% tax reduction for JEIs with over 30% research expenditure
  3. Cash-flow assistance: eligibility for accelerated CIR (enables CIR to be collected in 1 year instead of 3)
  4. Help with access to public procurement: eligibility for a simplified procedure enabling public purchasers (State, local authorities, hospitals, etc.) to order up to €100,000 from a JEI without competitive bidding and with a simplified procedure.

"We must continue to ensure that many more start-ups are created - and funded - every year. That's why we're going to work in two directions. On the one hand, encouraging the financing of innovative companies in their early stages by making our tax system more attractive, drawing inspiration from schemes that have proved successful among our neighbors such as the UK's EIS/SEIS." Emmanuel Macron, April 21, 2022

What are the criteria for growth capacity?

Previously reserved for companies with R&D expenditure equal to at least 15% of total company costs, the scheme has now been opened up to support more companies and stimulate their growth in the early stages of their development. 

The extension of the JEI scheme to young growth companies (JEC, or JEIC depending on the name) appears in the law to be conditional "on economic performance indicators defined according to procedures to be specified by decree". According to MP Paul Midy, this decree should be issued in the first quarter of 2024 to clarify the indicators used. 

However, the report produced by the latter allows us to anticipate the content of these indicators. Based on the definitions of start-ups and innovative SMEs used by INSEE, Bpifrance and the OECD, two criteria appear to be common:

  • Hypergrowth;
  • Increasing headcount.

While each organization has its own definition of a start-up and an innovative SME, these two criteria are common to all definitions. With regard to hypergrowth capacity, INSEE defines a threshold of 20% annual sales growth over three years. As for the ability to grow its workforce, the OECD considers an SME to be "growing" when it achieves a 20% annual increase in its workforce over three consecutive years.

These two criteria are therefore the most likely to be retained in the decree that will set the growth indicators for JEC status.

❇️ These measures should make it possible to raise over 600 million euros in capital by 2024, and create 30,000 to 50,000 jobs over 5 years.

Dynergie's strategy regarding JEI status

Young Innovative Company status is a declarative status, meaning that it is not necessary to justify ex-ante that the company meets the criteria of the scheme in order to benefit from it. However, the tax authorities carry out detailed checks on companies claiming JEI status.

Dynergie therefore recommends securing eligibility for JEI status with the authorities by means of a rescrit, enabling you to receive the authorities' opinion on whether you meet the scheme's criteria before filing your tax return. Our experts are at your disposal to help you secure these tax advantages and stimulate your company's growth! 

Sources: 

1 Paul Midy, Supporting investment in start-ups, innovative SMEs and growth SMEsMission auprès du Gouvernement, June 2023.

2 Charlie Perreau, Start-ups: record decline in amounts raised in Europe in 2023, Les Echos, published November 28, 2023. https://www.lesechos.fr/start-up/ecosysteme/start-up-baisse-record-des-montants-leves-en-europe-en-2023-2037528

3 Charlie Perreau, Fundraising in French Tech: after two years of euphoria, the correction of 2023Les Echos, published January 11, 2024. https://www.lesechos.fr/start-up/ecosysteme/levees-de-fonds-dans-la-french-tech-apres-deux-annees-deuphorie-la-correction-de-2023-2045573

4 Simon BUNEL, Clémence LENOIR and Simon QUANTIN, Evaluation of the Jeune entreprise innovante (JEI) scheme - An example of application of the Rosenbaum sensitivity analysis modelWorking Papers N° 2021-001 - October 2021, INSEE https://www.bnsp.insee.fr/ark:/12148/bc6p076xd6m/f1.pdf

Romain Escriva

Business Intelligence Analyst

Foresight and Business Intelligence Analyst at Dynergie

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JEI : what do these 3 letters mean ?

A JEI is a Young Innovative Company. This is a device that allows, under certain conditions, a reduction in charges for an innovative company.

What does it mean to file a Rescript?

This is a request made to the administration to ask for an opinion on the eligibility of a project for the CIR, CII or JEI status.