All you need to know about PEA PME
What is a PEA PME?
The PEA PME is the small and medium-sized enterprise equivalent of the classic PEA. It is a tax envelope that makes it possible to build a portfolio composed of shares of small and medium-sized European companies (according to the criteria set by law) and to benefit from tax exemption on gains made under certain conditions.
Is it possible to combine PEA and PEA PME?
In principle, it is impossible to have several PEAs per taxpayer. However, PEA PME being considered as another type of PEA, it is possible to combine these two tax envelopes (provided that you are of legal age and resident for tax purposes in France).
However, it will be necessary to respect the PEA PME ceiling of 225,000 euros (new ceiling introduced by the PACTE law) and the conventional PEA ceiling of 150,000 euros. Between them, the total amount of payments must not exceed 225,000 euros. In other words, if you already have a PEA on which you paid 150,000 euros, you can still make 75,000 euros in payments to your SME PEA.
Discover our PEA guide: What is a PEA or action savings plan?
What are the titles eligible for the PEA PME?
As with the PEA, not all financial assets are eligible for the PEA PME.
To be admitted to a PEA PME, the titles must come from a European company meeting the following criteria:
- an unlisted company with less than 5,000 employees and whose turnover is less than 1.5 billion euros or whose balance sheet total does not exceed 2 billion euros;
- a listed company meeting the “small cap” criteria, i.e. a market capitalization of less than 1 billion euros whose capital is not more than 25% owned by a legal person (a company).
However, it is possible to invest indirectly through an investment fund provided that it is composed of at least 75% of shares eligible for the PEA PME. We will come back to it...
The taxation applicable to PEA PME, a questionable advantage for shares of unlisted companies
The tax regime applicable to PEA PME is the same as that of a banking PEA:
- In the event of withdrawal before 5 years, investment products and capital gains are taxable at the common law rate, i.e. at the flat tax (30%) or in marginal tax brackets. Note that even partial withdrawal before the 5th year leads to the closure of the PEA PME.
- In case of withdrawal after 5 years, investment products and capital gains are in principle exempt from income tax (except for the part of the investment products greater than 10% of the amount invested for unlisted securities). However, social security contributions of 17.2% remain due.
Income tax and capital gains on shares housed in a PEA PME is due when a total or partial withdrawal is made. Thus, contrary to popular belief, you can make arbitrations within a PEA PME without making the tax payable (as long as you do not make a withdrawal).
The exception of income from unlisted securities
The major problem with the PEA PME tax regime is the exemption cap of 10% of the amount of investments for income generated by shares of unlisted companies (Article 157 5° bis of the GCI). These products are understood primarily as securities that are not admitted to a regulated market. For example, this could be:
- Shares (SAS, SA...).
- Certificates.
- Shares (SARL) or equivalent.
Revenues are understood as dividends paid and liquidation bonuses (income from movable capital), realized capital gains are excluded from the cap. In other words, if the accumulated dividends exceed 10% of the amount invested, the higher portion does not benefit from income tax exemption. This portion of the tax will have to be paid under common law conditions (flat tax or TMI).
Is it possible to invest via a PEA PME without being an informed investor?
In view of these tax considerations and the complexity of eligible titles, the PEA PME is not as popular as the traditional PEA.
Indeed, the titles admitted within it are relatively limited and involve a real attraction for the French and European entrepreneurial fabric.
Investing in unlisted securities of small businesses in your own name is not as easy as buying listed fund units (UCITS) or ETFs eligible for PEA.
ETF and PEA read our article: ETF PEA Guide: Our selection of the best
It will be necessary to take an interest in the activity of each company, to analyze its economic viability and its growth potential, but also to take into account the risks arising from this type of investment.
However, you can choose intermediate solutions in order to benefit from the advantages of PEA PME (and maximize the ceiling) without having the skills to analyze the viability of these types of investments.
Investing in active management funds eligible for PEA PME
If you are not an expert in private equity, you can nevertheless fill your PEA PME with FCPR (mutual risk investment funds), FCPI (mutual fund for investment in innovation) or any other active management fund eligible for a PEA PME. These funds will assume the selection of companies on your behalf and assume the management of the portfolio composed mainly of start-ups, SMEs and European ETIs depending on the specialization.
As with managed management, you delegate this complex investment stage to specialists in the sector.
Inevitably, because of the work done, these funds will charge you relatively significant fees.
For example, you could invest in various funds dedicated to PEA PME:
- Entrepreneurs chess board (2.7% management fee + 8% entry fee)
- BNP Paribas Shares PME Classique (management fees of 2.1% + 2% of entry fees)
There are also so-called 0% funds that exclusively charge management fees varying between 2% and 3% such as:
- Lazard Investment PEA-PME R
- AXA World Funds — Framlington Europe
- Union PME-ETI Actions C
- Sextant PME A
- Oddo BHF Active Small Cap CR-EUR
- Erasmus Small Cap Euro R
- Ostrum Shares Euro Micro Caps R
Note: These fees are invoiced directly by the funds in question and are added to the PEA PME management fees.
Investing in ETFs eligible for PEA PME
If you want to limit your costs, you could opt for ETF (trackers) compatible with PEA PME. Unlike actively managed funds, ETFs simply replicate the value of a basket of assets without making trade-offs.
Management fees are therefore drastically reduced without increasing your risk taking or reducing your profitability (provided you opt for a sufficiently diversified ETF).
However, to date, due to the low interest of individuals in PEA PME, there is only one eligible ETF (to our knowledge): the Lyxor ETF PEAPME (PEAP).
Côté Synthetic ETF, making it possible to replicate the performance of indices not eligible for the PEA, we did not identify any eligible for the PEA PME.
PEA PME most frequently asked questions:
How to open a PEA PME? To open a PEA PME, you can contact a bank or an insurance company (for a PEA PME insurance). You will have to meet several conditions:
• Be a natural and adult person
• Have your fiscal residence in France
• Do not have another PEA PME
What is the ceiling of the PEA PME? The total amount paid into a PEA PME cannot exceed 225,000 euros. However, it will be necessary to take into account the existence of a classic PEA with a ceiling of 150,000 euros. If PEA and PEA PME are combined, the total amount of payments on these two envelopes cannot exceed 225,000 euros.
