9. Taxation of Business Profits in France

1. Main Options
2. Micro-Entreprise
3. Regime Réel
4. Company Tax
5. Dividends

9.5. Taxation of Dividends

Those who run their business through a company structure, paying company taxation, may also opt to pay some or all or their own remuneration in dividends.

A single rate ‘flat tax’ dividends applies, called the Prélèvement Forfaitaire Unique – PFU.

Imposition of the tax is a uniform and fixed rate of 30%, whatever the level of your income. So, unlike income tax, it is not progressive.

The tax is actually made made up of two components:

• Income tax at the rate of 12.8%
• Social charges at the rate of 17.2%

The tax ends the previous income tax abatement of 40% on dividend income and the partial (6.8%) deductibility against income tax of the social charges CSG that applied before 2018.

Nonetheless, It remains possible to opt out of the flat tax and to be taxed using income tax scale rates on global income. In such circumstances, the 40% allowance applies. The social charges remain payable, but are partially deductible against income tax.

However, where the dividends exceed 10% of the share capital of the company, self-employed social security contributions are payable on the dividend payments, as presently occurs.

In other words, if the capital of the company amounts to €10,000, then social security contributions of around 40% will apply on any dividends paid out in excess of €1,000. The part up to 10% will be subject to the 30% flat tax. All social security contributions paid by the company are tax deductible. Correspondingly, the amount of the social security charges borne by the company, which constitutes a benefit, is subject to income tax in the name of the director.

In November 2023 a court ruled on a dentist who used a holding company structure to pay dividends in excess of 10% of capital, which you can read about at Dividends - Revenue or Capital Income?

The 10% rule applies in relation to the standard 'SARL' company structures; there are also other company structures such as' SAS' and 'SASU' where dividends are not subject to social security contributions, and where the flat tax will apply. However, these structures are not always appropriate to new business owners and they have other potential disadvantages.

Using dividends as a method of remuneration does offer the choice of being taxed using the PFU or the being taxed on the income tax scale and it does have the effect of increasing the profit result of the busieness. If social security contributions are also paid as a salaried employee, it is also possible to not pay additional contributions through the business.

However, the level of taxation may be higher than the tax paid through standard business taxation and dividends are not a deductible expense from the business. The level of pension contributions may also be lower, or non-existent.

Special provision remains up to 2022 for retiring owners of a company who are granted relief of €500,000 on the sale of their shares, subject to conditions.

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