17 Dec Companies authorized to build up an “Equity Recovery Reserve
Many companies have seen their equity capital and solvency radically impacted by Covid-19 and its consequences.
In order to allow companies to regain financial health, the law of 19 November 2020 introduced the possibility for companies to create an Equity Recovery Reserve.
In this way, companies may be exempted from corporate income tax for the years 2021, 2022 and 2023 (fiscal years 2022, 2023 and 2024) up to a maximum amount equal to the amount of operating losses accrued in 2020, capped at 20 million euros.
A few eligibility requirements: among other things, as of 12 March 2020 onwards, the company pursuing this new opportunity must not have repurchased any of its own shares, allotted or distributed dividends or resorted to a reduction or distribution of shareholders’ equity. These conditions are quite logical since this new piece of legislation aims at strengthening companies’ equity capital by keeping profits in house rather than at exempting dividend distributions from getting taxed. Another condition is to maintain employment.
Companies should therefore be able to gradually restore their financial health by rebuilding their equity capital on a tax-exempt basis.
For more information on that subject, feel free to contact Didier CHAVAL esq. (email@example.com).
The Cairn Legal team.