Vive la France

France has been ranked as the most attractive country in Europe for private equity and venture capital development, according to a recent study of the continent’s tax and legal environment by the European Private Equity and Venture Capital Association (EVCA).
The study, undertaken in collaboration with KPMG, is intended to help highlight the best strategies for attracting financing in the European market.
Although France was ranked much lower in the same study in 2003 and 2004, it has taken steps in the last four years to distance itself from the rest of Europe, including other top-five finishers Ireland, Belgium, UK and Greece. Much of its recent improvement has been credited to initiatives supporting emerging firms and small- to medium-sized businesses, including reduced tax rates of 15 percent on the first €39,000 of profits.
“Mainly it’s remarkable the progress they have made in putting forward measures to support their young, innovative companies,” said Emma Tau, public affairs manager for the EVCA. “This is one of the main areas where most of the European countries are lagging behind.”
The Czech Republic came in last of the 27 European countries surveyed, with a majority of the lowest-ranked countries – Romania, Slovenia and Slovakia – coming from Central and Eastern Europe.
However many of these countries could see improvement as their private equity and venture capital markets are less mature than in the rest of Europe, while Poland and Hungary are already working to reform their markets.
While the UK was ranked at the top in the first two surveys, it fell to third in 2006 and fourth in the most recent results. However, while it was penalised for taxing capital gains above the European average, Tau says the UK’s drop is more due to the fact that countries like Belgium are being more proactive in attracting businesses and private equity investment.
Countries that have lost ground include Austria and Italy, which have fallen behind the European average, and Germany which ended up being ranked 22nd. “Those countries slipping down the rankings should take this as a wake-up call that their long-term economic health is in jeopardy,” ECVA secretary general Javier Echarri said in a statement. “Amid the current financial turmoil, the need for a strong private equity and venture capital market is more crucial than ever.”
For Europe as a whole the study found that the tax and regulatory environment has slightly worsened since 2006, especially regarding fund structuring and the ability to retain talent. Improvements have been seen in the ability of pension and insurance companies to invest in funds and the growth of R&D incentives.
Tau said the next report will come out two years from now in order to give policymakers time to evaluate the EVCA’s recommendations and possibly implement legislation. She added that one measure in particular that many of the lower-ranked countries should consider in order to move up is to reduce restrictions that keep pension funds from investing in private equity and venture capital.