Jeune Entreprise Innovante

France gives startups tax breaks. And now plans to take them back.

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So, that whole fiasco this summer was pretty embarrassing for France. But hey, at least the local entrepreneurs got the last laugh. Still, I would’ve thought France would be a little more careful about puting its foot in its mouth, but maybe not. And this time there’s unfortunately nothing particularly funny about the situation.

Back in 2004, France introduced a special tax scheme, called the Jeune Entreprise Innovante (JEI), granting tax breaks for startups meeting a certain criteria (less than 8 years in age, 250 people maximum…) and investing no less than 15% of their turnover in R&D. In a country where it doesn’t exactly rain VC funding, this definitely had a very positive impact and kept companies hiring at home. Employers became responsible for only half of gross wages for employees involved in R&D, making engineers and whatnot all the more affordable. Plus, it wasn’t a BS VIP status either; a vast majority of startups have qualified and been able to benefit. In all honesty, I don’t think I know many French startups that haven’t taken advantage of the JEI.

But now, in order to save some 57 million euros annually, the French State is getting ready to take most of it back – starting in 2011. Which seems like a fantastic way to discourage innovation and economic development in a country that is currently being told it needs to work longer and harder. Sad, but true. But just to add fuel to the fire, the French government is also planning to allocate some 75 million euros over the next 3 years to help kids pay for legally downloaded music. It definitely sounds like the French State has got its priorities in order.

The so-called reform will introduce a €103,000 cap on tax breaks per company, limited only to social security contributions for salaries less than 4 times the minimum wage. I guess that means France doesn’t want to give French startups the hopes of hiring any ex-Googlers any time soon. Plus, with the new “reformed” system in place, there’ll be a progressive reduction of tax exemptions starting from the 4th year.

The topic officially opens for discussion at the French National Assembly tomorrow, but French entrepreneurs have already started speaking out against the absurd reform. France Biotech, an association of life sciences entrepreneurs has officially requested that the Parliament abandon the reforms – and even asked that it considers extending the JEI so that it would cover the first 12 years of a startup rather than the first 8. Wishful thinking?

Some 600+ French entrepreneurs have created a Facebook group dedicated to saving the JEI and are planning to take additional action for the cause. One of them, Gilles Babinet, a French serial entrepreneur from the age of 22 – most famous for Musiwave (which he sold to Microsoft in 2007 for $130 million) revealed that the JEI has enabled 2 of the startups he’s currently working (Eyeka and MXP4) with to afford engineers, patents, etc.

And Pierre Chappaz, the famous French face behind Kelkoo (bought by Yahoo for $670 million in 2004 – and later resold in 2008) and Wikio, published a terrific blog post in French titled “How is one supposed to build a successful startup in France if the fiscal laws change all the time?” …uh, no kidding.

But all of this is kind of paradoxical. I mean, it was only 3 years ago that France introduced a special tax break for individuals paying wealth tax if they made an investment in a startup. It may not be the most ideal way to turn your average Pierre into a business angel, but a number of companies have managed to benefit.

I’m not sure what exactly French startups did to deserve all this but all I’m going to say is that hopefully the JEI reform won’t go through. But if it does, Leetchi-founder Céline Lazorthes may be right when she says that French companies will turn to offshoring and setting-up elsewhere in the future. Which ironically brings us right back to why the JEI was introduced in the first place.

For anyone who’s interested, here’s the full text (in French) for the 2011 reforms to be put into place (article 78 concerns the JEI).

  • Steven O'Brien

    And back to the Valley they go.

    • Fabrice Le Parc

      You’ve summed it well :)
      interesting to see that the people who think we’re “whining” are NOT French entrepreneurs, who have had to deal with :
      – endless admin traps
      – tax authorities harassment before you even get started
      – vulture intermediaries that are less competent and more expensive than in the US
      – very few “VCs” that are less risk adverse than an old granny
      -paying double the net salaries of your employees to the State
      – endless regulations preventing said employees to work too much ;)

      Then wonder why the only thing the French are good at is building large infrastructures (trains, nuclear powerplants) or luxury goods (because they benefit of an image).
      Besides being taught by a whole leftist education system how risk is bad and how trade unions are the only good thing that happened to us.

      • OT

        This is rather interesting.

        Apart from the immediate logics that comes immediatly to mind (how does complaining about everything does not count as whining?), please note that I have been one and that I have chosen to dedicate the rest of my life to support the others (yeah, I’m one of the aforementioned vultures).

        (1) endless admin traps: depends whom you compare France to. Fair for the US, but frankly, we’re far behind some other countries. Heve you ever tried to run a company in the UK ?

        (2) tax authorities harassment before you even get started: first of all, the said authorities are alledgedly doing nothing more than thier job, can hardly count as ‘harassment’. Plus, if your project is really good, it easily gets funded (normally) and I am having hard time to see how initial taxes (therefore not linked to your benefit) are hard to deal with, in particular with so many opportunities to get exempted. Or I suggest you start seeking for tax exemption advice.

        (3) vulture intermediaries that are less competent and more expensive than in the US: yeah, that’s us. Or did you have a particular kind of intermediaries in mind? Not sure that we are that expensive, in particular when a large part of it is paid by money NOT coming from the company we support (sorry, I still like to think of us as ‘supportive’ rather than admitting we are actually sucking the companies’ blood and eating babies, but this is just for my mental health)

        (4) very few “VCs” that are less risk adverse than an old granny. Sure, but I have countless examples of VCs elsewhere in Europe and ALSO in the US that are publicly stating that they have decided to become more ‘focused’ (which is their lingo for ‘risk-adverse’). BAs and Super Angels are the way to go (but of course, please note that the average level of skills and competencies in the French entrepreneur is not exactly the same as in the Valley either).

        (5) paying double the net salaries of your employees to the State: that’s exactly what the JEI status (to get back to the roots of the discussion) was for. But, of course, this is also the consequence of the previous point. French entrepreneurs are generally REALLY reluctant to pay waht it takes to bring expertise in.

        (6) endless regulations preventing said employees to work too much ;): that is really a joke. WHen the project is good (as in ‘exciting’) and the management is good (rare), people will work endless hours. They will. I do.

        I’m not going to comment on the rest, because this is soooo typical of this blame culture (my company doesn’t work, that’s because the State is mean and my employees are mean and the customers are mean and… – add whoever is in your environment). Sorry for calling it ‘whining’.

      • Fabrice Le Parc

        Who said my company was not working? It’s actually doing great, I’m thrilled about it. It doesn’t prevent me from looking at going to a more favorable environment. Stangely enough all my fellow French entrepreneurs think alike.
        So you can disagree but stop making judgements without knowing who you’re talking about, plus who are you to assess that French entrepreneurs are of lesser quality!
        PS : I was in the UK when the bubble burst and just found another job. Who’s the whiner?

      • OT

        Oh, the ‘you’ was far more general than focusing on your company (which is actually apparently doing great). So again, no judgement call on you (I don’t know you indeed), but comment on a general situation. Exactly what you did.

        Can I just send back the question? Who are you to judge that French intermediaries are less competent than their US counterpart? And if your answer is ‘because I’ve worked with many’, mine is exactly the same.

        PS: England: I did, too. But, frankly, I have seen people realy getting desperate, having put all they had into it. And some struggled a little more than we did to find a job (and, surprisingly enough, most of the French ones got back to their mother country). Then again, the point was : when it comes to life out of entrepreneurship, maybe the system is not that bad :-)

      • OT

        (and whining because you have got some admin form to fill is not exactly the same as ‘whining’ because you get to sleep in your car in the Mancunian winter)

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  • bcurdy

    This is puzzling. And that’s why I admire a lot French entrepreneurs. As if starting companies just wasn’t difficult enough, French labor laws and fiscal laws work so hard against them. Yet they still manage to get ideas out… So kudos to those brave souls who dare being entrepreneurs under those conditions. I, for one, would never base my company there.

    • Fabrice Le Parc

      This is indeed such a scandal. Does our supposedly right wing government think that Entrepreneurs will be stupid enough to pay double the social charges to hire people than anywhere else? beyond fleeing the country and not creating value there, it’s the best way to kill job creation, and the little money they think they will save will be immidiately poured into more allocations for jobless people.
      THIS IS PURE NON-SENSE and I feel ashamed!

      • OT

        This, of course, from somebody who wasn’t living in England at the time of the Internet bubble and, therefore, who did not have to sleep in his car after having lost everything. As Maxamed put it earlier, I’m always amazed to see how people fail to consider that ‘there’s more to life (and government) than startups.’
        (oh, and if you absolutely need a target, consider the difference of scale between what jobless people compensation costs to society and indecently speculating banks saved by surreal state loans do)

  • Stephen McDonald

    two countries (France vs. Chile) clearly heading in the opposite directions when it comes to innovation. Amazing how the world is shifting and yet arrogance will lead to slow painful destruction.

    …oh the French always find drama and then have to be rescued

  • Wendell Dryden

    A little cheese with that whine?

    “it was only 3 years ago that France introduced a special tax break for individuals paying wealth tax if they made an investment in a startup.”

    I.e., it was just before the current economic downturn hit Europe. And ending a tax break (for people already wealthy enough to invest in start-ups) isn’t “taking it back’ – it’s ending a tax break.

    The French gov’t is saying, you must resume paying your taxes now. C’est la vie.

  • Nielsenaa

    Yup, french entrepreneurs are so lucky right now .. not

    It makes me wanna puke again and again over this unbelievable uturn.

    What the f* is going on in these enarque’s minds?
    Is there really a grand conspiration or what ??
    like i French yougnster do not deserve any incentive , help, what ever you’ll call it .. at all ??


    Well , i might consider moving my ass back up north in my birth country : Denmark, which by the way is actually one of France’s model for a new society to come .. well this also will never happen as it is not enough to apply a method, you got to have the mindset that goes with it .. and that, the French gvt do not have .. at all !

    (they have lies, and a wip)

  • Maxamed

    There’s more to life (and government) than startups. I think these negative about cultural/ political business mentality is one of singular storytelling.

  • Jérémie Clos

    Once more I’m embarrassed by my own government. Well at least I’m used to it now.

  • Joey
    Please Roxanne, give your good advices to your country first.

    Seriously, it’s not a perfect idea to help any startup even with some conditions like spending money in R&D and all. Companies have to be profitable. We are in a big crisis and some “normal” small companies are suffering, in France we have a plan to help ALL the companies in trouble. Not just the startups and that seems much more logical.

    And please, don’t quote Pierre Chapaz. This guy is complaining because the whole french plan costs only €57M and stoping it would put… his company into a difficult situation ?
    Come on, Kelkoo has been sold for more than $600M. I’m a french citizen and i don’t want to pay for the rich Mr Chappaz to develop his shitty website.
    I’m paying my taxes and i’m glad to do so if they help to develop my country (and others, hopefully) and help people that really need some help.
    This is not the case of Mr Chappaz and Wikio. I don’t care about his will to hire people at a cheap price to be more profitable.
    BTW, maybe being more profitable requires good and new ideas. I mean, better than building another Digg-like.

    • Nielsenaa

      I beg your pardon Joey, but which “plan” to help “all” companies do you have in France ?

      it looks more like your gov is so much hanging to their seats in order to keep it in 2012 that the slightiest demagogic operation like this one to save 55 small millions is good enough to save some appearance to a narrow minded public like you (prefering giving away 75m of your tax money to their industrial entertainment friends ..)

      I’ll read further into your post when you’ll have given us all an (even short) example of what grand solution for all companies is your gov working on … oh yes , i see ! :) adding so retirement years to the sheeple

  • OT

    Really strange indeed. The starting argument is correct, the JEI status was really a strongly supportive instrument.

    And then it turns all into this ideological nonsense. I’m always amazed by the Leetchi argument (aka the Ryanair argument), i.e. the offshore threat. Meaning, if gov does not provide enough support, we are going to settle in a better startup environment. Hold on. We are talking precisely about the kind of environment exactly non based on gov. support. In other words, could you guys survive more than a year outside a strongly paternalizing (and not too demanding) system? Have you got what it takes (whining, not!) to survive in, say, the Valley? And I won’t even mention false assertions, like the very very limited effects on startup funding from the tax exemption you mention afterwards.
    Eventually, stop complaining. You shouldn’t so desperatly need accompanying measures to support your business growth.

  • Nielsenaa

    OT, i hear no whining here , but a crystal clear question :

    how are companies supposed to thrive, or even plan something, when the gov changes the rules on each power passation, erhh .. i mean election ? or even on each new ministry shuffling ?

    And do you know how difficult it is already to earn somethin in this goddam country ?

    im ok for no gov help, but then quit the tax robbery, AND the ever growing new taxes adding up (well here its just back to old taxes, lol, i agree ^^)

    • OT

      Well, I happen to live and work in that goddam’ country. So, yes, maybe I have a pretty good idea. And the idea is: what makes it difficult in the said country (note that I never said it was ideal, faaaaaaar from it) is not public support (lack of, constant change of, whatever) but the weakness of the financial ecosystem (risk-adverse banks plus spectacular absence of BA and VCs).

      And, to get back to the starting argument, the public support mechanisms described here are compensated for by a myriad of similar instruments anyway.

      As for the tax robbery argument (probably my all-time favourite), it just deserves a little more attention than repeating carelessly Fox News (despising) or French gvtal TV (clearly whining) about the French idiosyncrasy. Ok, we’re definitely not the US, but then again, nobody is. But I can give you ten European countries with higher level of taxes. The UK to name one (where I have also happened to work).

      I guess it all comes down to what Joey previously said: your first concern should never be ‘how much money will I get -for nothing?’, but, instead, how am I going to make that profitable?

      • Nielsenaa

        Hi OT, points taken, and i fully agree with your points, especialy about the weakness of the financial ecosystem.

        But i’d like to know if you work there or if you ever tried to setup your own company in France ; (im am and i did and still do)

        Im talking about tax robbery on companies; A simple example , if you try to setup a limited company, you’ll be taxed even if you don’t make a cent, and that starting from the first day ;

        the gov is like milking every cow’s baby while its still trying to stand up and walk

        Yes there are many european countries (like denmark .. and i happen to be danish too) with high taxes but you get something for it at least; Its not used to finance a dying system, and it doesnt try to suffocate each every new company attempt at birth .. Its really sad

        Its the French lack of futur vision .. its still thinks its old assets (food, clothing, wine and tourism) are the only one meriting help or tax relief or incentive

        Anyway, its works as usual .. French is last in the line for changes, then when everyone gets further .. France rushes and simply tries to copy and paste its friends .. a bit like China, but with no mind on its own

      • Nielsenaa

        Rahh .. thinking over it, the only thing that refrains me from getting out is … love :) my wife is French .. but mind you .. herself is fed up with the French gov mindset and its high hypocrisy .. little Nicolas has sold his mind to conglomerates and easy deals

        Oh yes, and i am for a retirement at at least 65-67 .. but in return, give people and companies a break with those badly reinvested taxes!!

      • OT

        Sorry, I miss that one.

        So to answer your question, I did, got bored, sold, decided to work for organisations supporting start ups. And yes, in France. Not only, but currently.

        As for the tax robbery, as stated previously, frankly, the initial taxes are se low that if the project is good, this should not be a problem (and there are ways to regain it anyway or get exempted).

      • OT

        Oh, and I definitely agree on that.

        ‘Its the French lack of futur vision .. its still thinks its old assets (food, clothing, wine and tourism) are the only one meriting help or tax relief or incentive’

        You missed the main point (and have a look at the spending review carried out in the UK. This is even more spectacular. Look at who’s getting spared) : among the old assets, the banking system is the main fund sucking. Fucking vampires, really.

        Except, of course, that it is not necessarily France. It’s their President and his clients.

  • François-Xavier

    sorry we can’t respond to this article, as all France is on strike today… and again for a long time.
    Message from a french entrepreneur (Angry Mode)

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  • donfelipe

    I know many countries are undergoing a cash crunch, but R&D is crucial for the growth of the economy. I hope the French government comes to its senses.

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  • alain75007

    Well, I’m CEO of a young french startup. Someone can tell where is the best place near France where I can relocated my company? Thanks for responses.

    • laddoo

      Move to slovenia. really. the market is wide open.

      • alain75007

        French Market is open too, it’s not a reason to move. Here are some : favorable environment for startup (my case), financial incitatives, lot of good innovatives Software Ingineers and Graphists).

  • laddoo

    I never drove a french car, or used french software, or used any french imported stuff, or worked with anyone french, or heard of any innovative website from france. All I know is that paris is very expensive, that french people take lot less average showers than rest of the world, that french cheese and wine costs a bomb, and that french restaurants are very expensive and in nicer parts of town. I live in new york.

    I wonder what the big deal is about france and its non innovation? There are 90% countries in the world where its the same.

    • alain75007

      What a troll :)! I can’t resist.

      Do you live in ou under New York?

      • laddoo

        whats troll about it btw? I told u as i perceive france, and my interaction with it. And new york was told to illustrate the melting pot stuff and all.
        My point is that france is not known for doing anything innovative or being very smart, whats the big deal if the govt or whoever there makes stupid decisions. 90% countries are like this.

      • alain75007

        Are you a one of the > 1% of American who do something innovative? Do you thing you are a very smart person yourself? Indeed? For my self, I prefer to know how the world is vast, than how small is your imagination.

        I’m not sure you represent the newyorkers we like, the open, imaginative, friendly, charming, active new yorkers.

      • laddoo

        I you one of those hipsters who drink soy latte and think eveything is right with the world. Are you seriously saying that france deserves to be perceived as an innovative place in the IT and consumer web place?
        The article is about how french govt cancelling this tax break for 57 million euros, and giving 75 million euros for downloading legal music. All agree this is a WTF move, as if they smoking something there which we cant have.
        But I added that so what, its not like a IT heavyweight country is doing this.
        I am sorry I am not the newyorker you wanted, but I am also a straight talker american you believes in calling a spade a spade.
        Come on – a Govt who is going to spend 75 mil euros to download legal music, do you really think they are not on drugs?

  • alain75007

    Thank you for your last post folkl. Here we are! In the real subject of this article, and I 100% agree with your opinion!

  • milanoman

    BTW all,

    if you need to pick on some place which is even at sea than france when it comes to this topic, look no further than good ol’ italia.

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