The SME retirement capital gain exemption (Article 150-0 D ter of the French General Tax Code) allows business managers who sell their company on retirement to benefit from an enhanced time-based allowance of 500,000% (effectively a fixed €500,000 exemption from the taxable base) in addition to the standard allowance, subject to specific conditions. This exemption is available to managers who have held their stake for at least one year, exercised a management function continuously for five years, and sell within two years of ceasing their management function and retiring.

Additional conditions include: the company must be an SME within the meaning of EU law (fewer than 250 employees, turnover below €50 million or balance sheet below €43 million), continuously subject to IS for the five years preceding the sale, and the seller must have held at least 25% of voting rights or financial rights at some point during the five years preceding the sale. The exemption applies only to the individual, not to a holding company selling the shares.

In practical terms, the retirement exemption can substantially reduce the tax on a business sale: for a seller with a €3 million gain, the €500,000 fixed exemption (plus the 85% enhanced allowance on the remainder for shares held more than eight years acquired before 2018) can bring the effective tax to a very low level. For post-2018 shares, only the €500,000 exemption applies against the 30% PFU, making the pre-2018 combination significantly more valuable.

At Hectelion, we advise owners approaching retirement on the optimal timing and structure of their sale to maximize the retirement exemption in our M&A advisory and structuring mandates.