All you need to know about Jeunes Entreprises Innovantes (JEI)

Few companies have the capital to conduct research and development (R&D) activities. Many innovative projects remain at the idea stage, not seeing the light of day due to a lack of resources.

To remedy this, the French government introduced a variety of schemes to incentivize innovation and boost the national economy’s competitiveness. One of the most interesting schemes is the Young Innovative Company status (jeunes entreprises innovantes or JEI).

What does this status give businesses? What are the eligibility criteria to benefit from it? And what are the social security and corporate tax exemptions for a JEI?

Let's take a closer look in this article.

The JEI status was established in law in 2004. It gives small and medium-sized companies (SMEs) that have been established for 8 years or less some fiscal advantages.

The Young Innovative Company status allows you to benefit from a variety of tax exemptions. But to be eligible, your business must meet all the criteria listed below:

• Be recognized as a small or medium-sized enterprise (SME).
• Be established for less than 8 years (after the eighth year you’ll no longer be eligible for JEI status).
• Employ fewer than 250 people in the fiscal year during which the status is applied for.
• Be an independent company, with at least 50% of the shares (i.e. the majority of the equity) held by individuals.
• Was created from scratch with the aim of innovating and starting a new venture, not to continue an existing business or to reorient it.
• Has spent at least 15% of total costs on research and development activities, which will be deducted from the company's taxes thanks to its JEI status.

If your company is eligible, your R&D work must also meet requirements based on the following activities:

• Developing new designs and information.
• Putting the data collected to practical use.
• Researching and analyzing the properties of a material and its structures.
• Developing potential solutions based on the results of the research and analysis of properties.
• Developing and designing innovative products, processes, and services.

You’ll need to confirm that your company has passed the 15% spending threshold for R&D activities. You can take into account any expenses incurred within the context of the research project, such as employee costs (for example, any expenses for researchers and technicians - those who are driving the research project forward). The eligible expenses include salaries, bonuses, and employer contributions.

In addition, any expenses incurred for intellectual property and the filing of patents or plant breeder's rights (certificats d'obtention végétale) are eligible for JEI status. Also eligible are any expenses incurred during research assigned to private individuals, approved by the Ministry of Research (le ministère de la recherche), and during the production or acquisition of goods - moveable or fixed, and solely intended for use as part of the research work.

It’s important to note that subsidiaries of a company or group, based in France or abroad, are also eligible for JEI status. If a subsidiary is independent of its parent company and carries out a genuine new activity, it can become a JEI.

There is a variation of the JEI status - Young University Company (Jeune Entreprise Universitaire or JEU). This status is similar, but the eligibility criteria are slightly different. To be a JEU, the company must also:

• Have a shareholder, holding at least 10% of the shares, that is either a student (with a master's degree or a doctorate dating back 5 years) or a professor-researcher.
• Have an agreement with a higher education institution.

To enable new and innovative companies to finance their R&D projects, their tax burden is fully or partially reduced. This means that they are entitled to tax exemptions (particularly on income tax) and social security contributions.

Young Innovative Companies are exempt from:

• Income tax or corporate tax for a 24-month period (total exemption at the beginning of the fiscal year and partial exemption during the following year).
• Local business tax (contribution économique territoriale or CET) for 7 years.
• Property tax (taxe foncière sur les propriétés bâties or TFPB) for 7 years.
• Capital gains tax from the sale of company shares.

However, these exemptions are not unlimited. The funding aid for Young Innovative Companies has a limit of €200,000 that cannot be exceeded in terms of deductible expenses. This is known as the "de minimis" threshold.

Companies with JEI status can also combine the income tax exemption with the Research Tax Credit (Crédit d'Impôt Recherche or CIR), as these have the same eligibility criteria regarding research work and expenses.

The JEI status grants your company exemptions from various employers’ social contributions (charges sociales patronales), namely those related to social security and family allowances. In short, this status exempts employers from charges related to salaries and allowances for workers who are 100% involved in the research project, such as:

• Researchers, engineers, technicians, lawyers, and research project managers.
• Corporate officers, such as the managers of a Limited Liability Company (Société À Responsabilité limitée or SARL).
• Chairmen or directors of a Public Limited Company (Société Anonyme or SA) or a Simplified Joint Stock Company (Société par actions simplifiées or SAS).

You can benefit from this exemption for 7 years after the creation of your company. Note that there are two types of limits:

• The monthly remuneration of each employee is limited to 4.5 times the French monthly minimum wage (salaire minimum de croissance or SMIC). The SMIC is €1,709 gross in 2023.
• Remuneration per establishment is limited to 5 times the annual social security threshold. The annual threshold in 2023 is fixed at €43,992.

If the JEI exceeds this annual threshold, the exemption is revoked for the current year (and the following year if the threshold is still exceeded). Therefore, if a Young Innovative Company does not meet the required criteria, it’s no longer entitled to the benefits of the JEI status.

Note that the exemption does not apply to:

• Employee social security contributions.
• Contributions for accidents at work and occupational diseases.
• Employer and employee contributions for unemployment insurance.
• General social contributions (la contribution sociale généralisée or CSG) and contributions for the reimbursement of social debt (la contribution au remboursement de la dette sociale or CRDS).
• National housing aid fund (les contributions au fonds national d'aide au logement, or FNAL).
• Transport tax (le versement versement mobilité or VM).
• Social solidarity contributions (la contribution de solidarité pour l'autonomie, or CSA).

These social security exemptions cannot be combined with any other exemption measures.

As a start-up or new company, you can self-declare as a JEI if you meet the necessary conditions. However, to be sure that you are eligible for the JEI status, it's recommended that you ask the tax authorities for guidance via a tax ruling (le rescrit fiscal). This tax ruling must be filed with the Tax Services Department (Direction des services fiscaux) along with a sworn statement.

You'll be informed of your eligibility for these tax benefits, via a notice from the authorities, within 3 months of submitting your request. It’s important that you repeat this request every fiscal year to ensure that your company's R&D projects and expenses still meet the required criteria.