Carried interest: applicable tax regime in France in 2026

Carried interest is the deferred remuneration paid to investment fund managers (private equity, venture capital, infrastructure) based on fund performance. Its French tax regime is one of the most technical in the CGI — and one of the most closely scrutinised by the tax authority.

What is carried interest?

In practice, fund managers invest a symbolic fraction of their own funds in the investment vehicle (the "co-investment") and receive in return a share of the fund's profits disproportionate to their capital contribution — generally 20% of profits after repayment of capital to investors and achievement of a hurdle rate (minimum return guaranteed to LPs).

The central tax question is whether this gain constitutes salary (taxed under the progressive scale, up to 45%) or a capital gain (taxed at the flat tax rate, 31.4%).

The specific tax regime: article 163 quinquies C bis of the CGI

The Finance Act 2009 introduced a derogatory tax regime codified in articles 80 quindecies, 150-0 A II 8° and 163 quinquies C II 1° of the CGI (for FCPRs/FPCIs and similar vehicles). Under strict conditions, carried interest distributions are taxed as capital gains on securities rather than as salary.

Conditions to benefit from the capital gains regime

For carried interest to escape reclassification as salary, several cumulative conditions must be met:

1. Nature of the vehicle
The fund must be an FCPR, FPCI, SCR, or a foreign equivalent vehicle subject to similar regulation (Luxembourg SCSp, Cayman LP, Delaware LP depending on the case).

2. Effective co-investment
Carried interest units must represent a minimum percentage of total fund subscriptions — a statutory threshold (CGI art. 150-0 A II 8°, Decree 2020-588):
- 1% for the fraction of subscriptions ≤ €1 billion
- 0.5% for the fraction > €1 billion
- Derogatory rate 0.25% for funds investing primarily in SMEs/innovative companies

⚠️ Critical point: funds established outside the EU/EEA (including Switzerland and the Channel Islands) are excluded from the favourable regime (BOI-RPPM-PVBMI-60 §50). Distributions from such funds are automatically taxed as employment income.

3. Reinvestment of interim distributions
Distributions received before the fund is wound up must, in certain cases, be reinvested to maintain the capital nature of the carry.

4. Absence of direct salary-based link to performance
The structure must be sufficiently autonomous that the carry is not assimilated to a disguised performance bonus.

The risk of reclassification

The tax authority and the Conseil d'État have developed demanding case law on the reclassification of carry as salary or investment income. The criteria examined include:

• The reality of the economic risk taken by the holder (possible loss of the co-investment)
• The independence of the carry structure from the employer
• Compliance with the hurdle rate and clawback clause
• The nature of rights attached to carry units (economic rights vs voting rights)

In the event of reclassification, taxation as salary entails social security contributions + progressive scale — a combined tax and social charge that can exceed 60% of the gross gain.

Carried interest and international structures

Many French funds use Luxembourg or Anglo-Saxon carry structures. The applicable tax treaty (Franco-Luxembourg, Franco-UK, etc.) then determines the country of taxation of distributions.

France has strengthened its anti-avoidance rules for arrangements using foreign vehicles with no real economic substance in their country of domiciliation.

Filing

Carried interest taxed as capital gains is declared on form 2042-C (box 3VG). If the fund is domiciled abroad, filing also requires form 2047 and potentially form 3916 (declaration of foreign accounts) if the units are held through a foreign account.

Capital gains or salary: the qualification changes everything, and so does the filing

Depending on the regime applicable to your carried interest, the forms and tax treatment are radically different. A qualification error can cost far more than a consultation — and foreign funds add yet another layer of filing complexity.

Fidencia.tax helps you identify the applicable treatment for your distribution and complete the correct forms for your actual situation — without risking a qualification error.

Qualify and declare your carried interest — fidencia.tax

This article is provided for informational and educational purposes only. It does not constitute tax, legal, or financial advice. The rules presented are general in nature and may not apply to your personal situation. Consult a qualified professional (chartered accountant, tax lawyer, wealth management adviser) for any tax decision. Fidencia.tax is a filing assistance tool and does not replace professional advice.

Legal references: CGI articles 80 quindecies, 150-0 A II 8°, 163 quinquies C II 1°; Decree 2020-588; 2026 DGFiP Income Tax Guide (box 3VG, 30% employee contribution, p. 113).