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Taxation of Interest and Dividend Income in France
Tuesday 08 April 2014
In recent years the taxation of interest and dividend income in France has been subject to substantial change, so what is the current tax regime that is in place?
Since 1st January 2013, interest and dividend income received by those resident in France is taxed through the system of income tax, and not via a fixed rate withholding tax as was previously the case.
Accordingly, you will pay tax on this income on the basis of your marginal rate of income tax.
In addition, social charges ( pr lèvements sociaux ) of 15.5% are payable. The CSG element of the social charges is deductible against income tax at the rate of 5.1%.
Both foreign and French sourced income from interest and dividends are taxed in this way.
Payment on Account
In order to avoid a lag effect in the collection of revenue, interest and dividends continues to be taxed on a provisional basis at source.
This tax collected at source is variously called ‘acompte d’impôt sur le revenu pr lev à la source’ or ‘pr lèvement forfaitaire’ .
The rate of this taxation at source is:
- 24% for interest income plus 15.5% social charges = 39.5%
- 21% for dividend income plus 15.5% social charges = 36.5%
These taxes are applied on the gross income, without deduction for charges or any dividend abatement.
For foreign sourced interest and dividends it is paid after deduction of any withholding tax payable in the country of origin, and the tax credit that applies by any double taxation treaty with that country. A difficult calculation to make without professional advice!
Final determination of the actual amount payable is assessed as part of your tax return in the following year. Thus, the tax payable in 2014 will be set against the income tax payable in 2015, for income earned in 2014.
Liability to income tax on shares is determined after taking into account both gains and losses, and arriving at a net figure, with the possibility of carry over relief.
In addition, for income tax there is an abatement of 40% before income tax is charged, which is applied following submission of your tax return. This abatement does not apply to social charges.
Where the taxation at source is greater than your marginal rate of taxation you will be given a refund (tax credit) equivalent to the overpaid tax.
On application to your French bank you can obtain waiver of this with-holding tax, although not the social charges.
The income threshold to obtain waiver differs as between interest and dividends.
You can obtain a waiver provided your net income ( revenu fiscal de r f rence ) in the last but one year proceeding the year of taxation (2012 for 2014) if:
- On interest earned, if your income was lower than 25,000 for a single person, 50,000 for a couple.
- On dividends, if your income was lower than 50,000 for a single person, 75,000 for a couple.
Where your income is below these thresholds, and the interest or dividends income is being earned from outside of France, there is an automatic dispensation from the need to make application to your bank to obtain waiver of this requirement.
Where you are not able to benefit from the dispensation arrangements, you are obliged to pay the with-holding tax (whether French or foreign sourced interest or dividends) within 15 days of the following month when the income was paid to you.
In relation to French sourced income the bank or financial institution are themselves responsible for handing over the withholding tax and social charges to the French tax authority.
For foreign sourced income, you are personally responsible for the payment of the withholding tax, although within the EEA it is possible to instruct your bank to make the deduction and payment on your behalf.
In theory, the same 15 day rule for declaration and payment applies, as set out in guidance issued by the tax authoritiy – ‘La d claration, obligatoirement accompagn e du paiement des sommes dues au titre du pr lèvement forfaitaire et des pr lèvements sociaux, doit être d pos e dans les quinze premiers jours du mois suivant celui au cours duquel les revenus distribu s sont perçus par le contribuable.’
In practice, you might be best advised to discuss the issue with your accountant and/or your local tax office, as most tax offices are likely to accept that taxation of foreign earned income from interest and dividends is declared on an annual basis, and tax paid once a year.
Robert Kent of Kentingtons tax advisors, based in France, comments: “The 15 day rule allows the French to demonstrate that the attractive withholding tax rates on foreign assets is ‘possible’, whilst making it unattractive to try, as fulfilling the information supply within the allotted time is absurdly difficult.
The use of non-compliant savings structure is not at all worthwhile and we would strongly suggest that people don’t come to France with such foreign structures in tow.
This is why we will only recommend investment companies that have fiscal representation and can calculate and apply tax / social charges at tax at source rates directly, so our clients don’t have to worry about such things. “
There are penalties in place for late payment, so it is no idle matter to ensure you are complying with the relevant procedures.
In relation to earned interest the calculation of the sum owed is gross, without any deduction for charges.
For dividends, the final liability to taxation arises after deduction of a 40% abatement, although this abatement does not apply to the social charges. The personal allowance of 1,525 ( 3,050 for a couple) that also previously existed has been abolished.
Sale of Shares
The capital gain on the sale of shares is also now taxed as part of the income tax system, with some relief granted for the number of years the shares have been held.
Relief will be granted at the rate of:
- 50% for shares held between 2 years and less than 8 years;
- 65% if held at least 8 years.
Once again, there is no relief against the social charges.
There are particular, more generous arrangements for the sale of shares by company owners, for the disposal of shares within a family, employee share schemes, and for those who buy and sell shares as a professional activity.
To all of these changes must also be added the important increases in social security contributions for business owners in France who use dividends as a method of remuneration.
These dividends may now be subject to social security contributions at the rate of around 45%. Previously they were only subject to the social charges.
The contributions are levied on the gross dividend, before the normal 40% abatement.
This full panoply of social security contributions will apply where the majority shareholder receives dividends exceeding 10% of the share capital of the company.
Dividend payments below 10% and to minority shareholders continue to be subject to 15.5% social charges.