The 2018 French Finance Act significantly modified the rules on taxation of capital income (capital gains, dividends) received by individuals by introducing a single flat-rate tax (Prélèvement forfaitaire unique – PFU). The PFU is applied automatically and consists in an income tax levy at the flat rate of 12.8% in addition to social contributions of 17.2%, which results in an overall tax rate of 30%. However, taxpayers can also opt for their capital income to be taxed at the progressive income tax rate. This option affects all dividends and capital gains eligible for the year. Should the capital income fall under the same regime (i.e. PFU), taxation modalities may nevertheless differ depending on the nature of the income (dividends or capital gains on the sale of shares).
Taxation rules on dividends (except for share savings plan, Plan d’épargne en actions – PEA)
Dividends received as of January 1, 2018 are subject to the PFU at a rate of 12.8% to which social contributions of 17.2% must be added. This tax is calculated on the gross amount of income received, before any deduction. Taxation occurs in two steps:
Income tax on dividends
When the dividend is paid, it is subject to an automatic flat-non-discharging levy (Prélèvement forfaitaire non-libératoire – PFNL) at a rate of 12.8%, aligned to the single flat-rate levy (instead of 21% under the provisions of the previous regime). Taxpayers whose reference taxable income in the penultimate year is lower than €50,000 (single, divorced or widowed) or €75,000 (taxpayers subject to common taxation) may request an exemption from this levy (see below).
The year following the payment year, the amount of dividends paid has to be reported by taxpayers on their tax return and is subject to individual income tax (Impôt sur le revenu des personnes physiques – IRPP):
- Either at the flat rate of 12.8% according to the automatic taxation system. In such case, the deduction of 40% of the gross annual dividend is not applicable;
- Either, should the taxpayers opt for it in their tax return, at the progressive rate of the IRPP. In such case, the dividends received benefit from an uncapped annual deduction of 40% of the gross annual dividend, provided that this dividend is paid by a French company, by a foreign company having its head-quarter in European Union or by a company that is domiciled in a state that concluded an agreement which France containing an administrative assistance clause to fight fraud or tax evasion. Companies paying the dividends are requested to be eligible to corporate tax (French companies) or an equivalent tax (foreign companies).
In both cases, the PFNL that is withheld at the time the dividend is paid as an advance payment is imputed on the income tax due. Any excess is returned.
Exemption from advance withholding on dividends to be received in 2021
Taxpayers whose reference taxable income in the penultimate year is lower than €50,000 (single, divorced or widowed) or €75,000 (taxpayers subject to common taxation) may request an exemption from this levy.
They will have to send a request to their financial intermediary no later than November 30, 2020 to benefit from the exemption in 2021.
- Fully registered shareholders: please check on the Planetshares website for the exemption form put at your disposal by BNP Paribas Securities Services. Download it here (in French)
Social contributions on dividends
Social contributions of 17.2% (Contribution sociale généralisée – CSG, Contribution à la réduction de la dette sociale – CRDS, social levy, etc.) applicable to dividends when the dividend is paid as part of the PFU are computed on the gross amount of income received, before any deduction. Under the provisions of the PFU regime, the CSG is not deductible from the total taxable income. However, should taxpayers opt for the progressive tax-rate taxation, the CSG would be deductible up to 6.8% of the total taxable income in the year of its payment.
Taxation rules on capital gains derived from the disposal of shares (except for PEA)
Automatic taxation system
In principle, capital gains from the disposal of securities and rights occurred as of January 1, 2018 are subject to the PFU at a rate of 12.8%, on top of which 17.2% of social contributions must be added.
The PFU is computed based on the amount of capital gains remaining after deduction of capital losses and certain specific allowances (e.g. fixed allowance for executives retiring). However, for securities acquired prior to January 1, 2018, the proportional deductions linked to the holding period of the securities are not applicable.
Progressive income tax rate
Alternatively, the taxpayer may opt for the taxation of his capital income based on the progressive IRPP rate, in which case this option applies broadly to all capital income for the year. This option has to be declared in the annual income tax return and is irrevocable.
Capital gains and other gains are then taxed based on their net amount. Taxation at the progressive tax rate allows the application of the deduction linked to the holding period of the securities for securities acquired before January 1, 2018. For the record, capital gains from the disposal of shares are reduced depending on the duration of the holding period:
- 50% of the amount of the net gains for a share holding period from 2 to 8 years; and
- 65% for a share holding period of 8 years or more.
The holding period is computed from the date of acquisition or subscription of the shares and ends on the date the ownership is transferred. However, capital gains on the disposal of securities acquired or subscribed before January 1, 2018 are excluded from the scope of the deductions.
The rules on capital losses are identical to those previously mentioned within the PFU regime analysis.
Whether the tax payer opts for the automatic taxation system or the progressive income tax rate, capital losses incurred during the year are charged against taxable gains of the same nature for the same year, before proportional deductions linked to the holding period of the securities (for securities acquired before January 1, 2018). In the event of a positive balance, the remaining capital gains are reduced, if applicable, by the losses incurred in previous years, up to and including the tenth prior year, and then by the deductions linked to the holding period of the securities. In the event of a negative balance, the excess of capital losses is applicable to the capital gains for the ten following years.
Social contributions on capital gains derived from the disposal of shares
The 17.2% social contributions (CSG, CRDS, social levy, etc.) applicable to capital gains are computed based on the net amount of capital gains. Under the provisions of the PFU regime, the CSG is not deductible from the total taxable income. However, should taxpayers opt for the progressive tax-rate taxation, the CSG would be deductible up to 6.8% of the total taxable income in the year of its payment.
Taxation rules for PEA shares
Only individuals with their tax domicile in France can open a PEA with certain organizations (credit institutions, insurance companies, Banque de France, etc.). The PEA is considered to be more advantageous for tax purposes than the securities account because it makes it possible to invest in securities issued in particular by companies subject to corporation tax or an equivalent tax while benefiting from a tax exemption on dividends and capital gains provided no withdrawal is made for five years. In return for this exemption, it is not possible to set off the capital losses incurred within the framework of the PEA against capital gains realized outside the PEA. Payments into the PEA have been capped since January 1, 2014 at €150,000 and each taxpayer (or spouse or civil partner) can hold a PEA.
Any withdrawal or redemption from the capitalization contract before five years (before the expiration of the fifth year of operation of the plan) results in the closure of the PEA and the taxation of the gain made since the opening of the PEA. Whatever the nature of this gain with regard to income tax, the holder of a PEA bears social security contributions at the overall rate of 17.2%, with some exceptions.
The finance law for 2019 submits, as of January 1, 2019, early withdrawals and redemptions on a PEA to the PFU except for a global option for the progressive scale. Before January 1, 2019, these gains were subject to specific taxation at the rate of 22.5% in the event of withdrawal or redemption before the expiration of the second year and of 19% in the event of withdrawal or redemption between two and five years.
|Withdrawal||Tax rate on dividends
and capital gains 2018
|Tax rate on dividends
and capital gains 2019
|Before 2 years||22.5%||12.8%||15.5% or 17.2%*|
|Between 2 and 5 years||19%||12.8%|
|After 5 years||Total exemption||Exemption|
*Only part of the income earned or accrued since the entry into force of each contribution is subject to it. Thus, only the part of the income acquired or recorded since February 1, 1996 is submitted to the CRDS, since January 1, 1997 to the CSG, since January 1, 1998 to the social levy, since July 1, 2004 to the additional levy contribution, since January 1, 2013 to the solidarity levy (and from January 1, 2009 to December 31, 2012 for the former additional contribution "RSA", to the social levy). The same rule also applies to changes in the rate of contributions.
The rules regarding the CSG rate were modified and give rise to the application of different rates depending on the date the revenues are received and the date the PEA was opened.
The 15.5% “historic rate” applies to (i) revenues from a PEA that has been opened for 5 years or more on January 1, 2018 for the portion of revenues received prior to January 1, 2018 and (ii) revenues from a PEA that has been opened for less than 5 years on January 1, 2018 for the portion of revenues received throughout the 5 years following the opening of the PEA.
The 17.2% new rate applies to (i) revenues from a PEA that has been opened for 5 years or more on January 1, 2018 for the portion of revenues received after January 1, 2018, (ii) revenues from a PEA that has been opened for less than 5 years on January 1, 2018 for the portion of revenues received after the 5th year following the opening of the PEA and (iii) revenues from a PEA opened after January 1, 2018.
Pursuant to the law on the growth and transformation of businesses (PACTE) of May 22, 2019, the rules governing the PEA have been relaxed. Following the reform, the saver can make - under certain conditions - a partial withdrawal or redemption before the end of the 5th year of operation, without causing the closure of it or the blocking of new payments. Before the PACTE law, the withdrawal or partial redemption within a period of between 5 and 8 years after the opening of the plan led to the closing of the latter, while a similar operation after a period of 8 years did not give not take place at the close of the latter but prevented the realization of new payments.
French Real Estate Wealth Tax (Impôt de Solidarité sur la Fortune – ISF)
As of January 1, 2018, the Real Estate Wealth Tax (Impôt sur la fortune immobilière – IFI) replaces the ISF. Listed securities are not included in the basis for computation of the IFI.
You may find more information from page 159 of the Annual Report on Form 20-F: