What are the accounting and tax implications of my investment?

For Individuals

How are royalties taxed for French tax residents?

Any individual subject to income tax (IRPP) will be subject to the Single Flat-Rate Withholding Tax (flat tax) of 31.4% on the capital gain realized on their investment (comprising 12.8% in flat-rate withholding tax and 18.6% in social security contributions and levies).

Thus, the investor is taxed only when the cumulative royalties received exceed the initial investment amount.
More information is available on the website of the Directorate General of Public Finances.

For French tax residents, withholdings are applied directly by WE DO GOOD, a French paying agent, which remits the relevant amounts to the tax authorities.

The taxable amount automatically appears on your tax return (Form 2561) in box 2TT (2020 version).

How Are Royalties Taxed for Non-French Tax Residents?

If your tax residence is not in France, you are taxed in your country of residence, according to the tax rules for income from financial investments and any tax treaties with France.

WE DO GOOD will not withhold any tax at source and will only provide you with all the relevant information.

Request for Exemption (for French Tax Residents)

Before any withholding tax is applied, you may submit a request for exemption to us so that you may be taxed according to the income tax schedule based on your tax rate, provided that the taxable income of your tax household is less than:

• €25,000 (for single, divorced, or widowed taxpayers);

• €50,000 (for taxpayers filing a joint tax return).

This exemption applies only to the flat-rate withholding tax (12.8%) and is available only to investors who are tax residents of France.

To do so, go to the “My Documents” tab in your personal account and click the “Submit my annual exemption request” button.

An example (for French tax residents)

If you initially invested €1,000 and, after 5 years, received €2,000 in gross cumulative royalties: after deducting income tax, you are left with €1,700 in net royalties. You made a profit of €700.

If the amount of your capital gain does not appear automatically on your tax return, you must report it in the following section:

Section 2: Income from Securities and Movable Capital

Box 2EE: Other income subject to a withholding tax or final withholding

For legal entities

How is the investment in royalties accounted for?

As soon as your organization makes the investment, it must recognize a receivable on the balance sheet.

How are royalties taxed and accounted for?

As long as the subscription amount has not been repaid, you are not taxed; this is treated as a repayment of a receivable. However, if the probability of the project failing increases during the period the advance is available, you may establish a provision for loss.

Once the subscription amount has been repaid, corporate income tax rules require that taxable income be recognized in the income statement.

What are the required accounting documents?

• Investment: revenue assignment agreement, sent by email and also available for download in your account under your organization’s investments

• Royalties received: annual royalty statement (available at the beginning of the year in your personal account)

Here is an article detailing the accounting entries.

Feel free to download the accountant’s kit to share with your accounting firm.

For all investors

What happens if a company fails to meet its legal obligations to pay royalties?

In this case, WE DO GOOD engages a collection agency to resolve the situation.