The Dutreil Pact to Reduce Inheritance and Gift Taxes

The Dutreil Pact, established in 2003 by Minister Renaud Dutreil, remains a popular solution today for small and medium-sized businesses and mid-sized companies looking to facilitate family business succession through significant tax benefits. 

Provided for under Article 787 B of the General Tax Code, this provision allows for a significant reduction in inheritance and gift taxes, while ensuring the long-term viability of family businesses.
 

What tax benefits does the Dutreil Pact offer?
The main benefit of the Dutreil Pact is a 75% partial exemption from the taxes due upon the inheritance or gift of a company’s securities. Without this provision, gifts or inheritances are taxed according to the progressive tax scale for transfers of property without consideration (DMTG). For example, when assets are transferred from parents to children, the top tax bracket can reach 45% for values exceeding 1,805,677 euros. Thanks to the Dutreil Pact, only 25% of the transferred value remains subject to taxation, thereby avoiding the highest tax rates.
 

In addition, a gift made before the age of 70 may qualify for an additional 50% reduction, which can be combined with the personal exemption of 100,000 euros per parent and per child, renewable every 15 years.
 

What are the requirements?
Several requirements must be met in order to qualify for the Dutreil Pact:
• Operational activities only: The company in question must engage in industrial, commercial, craft, agricultural, or professional activities. Civil activities such as real estate or financial management are not eligible, unless they constitute a minor portion of an eligible primary activity.
 

• Commitment to Hold Securities: Two types of commitments are required:
- A collective commitment of at least two years, signed by the heirs or donees, covering a minimum percentage of the equity (10% of financial rights and 20% of voting rights for publicly traded companies; 17% of financial rights and 34% of voting rights for privately held companies).
- An additional four-year individual holding commitment made by each beneficiary following the expiration of the initial collective commitment.
 

• Company Management: One of the beneficiaries or signatories of the agreement must hold a management position within the company for the entire duration of the individual commitment.
 

Broad and flexible application
The Dutreil Pact does not impose any strict territorial requirements: the company may be located outside France, or even outside the European Union or the European Economic Area, provided that it is subject to taxation in France.
 

With approximately 3,000 new agreements entered into each year—primarily through donations made by entrepreneurs during their lifetimes—the Dutreil Agreement remains an essential framework for optimizing the transfer of family businesses, thereby ensuring their continuity and long-term growth.