Taxation of dividend distributions
Verified 15 May 2022 - Directorate for Legal and Administrative Information (Prime Minister)
Dividends are not regarded as remuneration, but as income from movable capital (shares and shares). They may be subject to social contributions when the share distributed to members exceeds 10% share capital, issue premiums and amounts paid into the current account of a member. Dividends give rise to the payment at source of social security contributions, such as interest on current and blocked accounts of shareholders.
There are two categories that are taxable: distributions and dividends that have been decided by the company and those that have not.
Dividends and distributions decided by the business
After paying business tax (IS), the company can allocate the remaining balance in 2 ways:
- Reserve this balance
- Distribute it to shareholders in the form of dividends
It is up to the annual ordinary general meeting (GA) of the shareholders to decide on the accounts for the preceding financial year and to decide on the allocation of the result.
If the AG decides to pay dividends to shareholders, it may do so in proportion to their shareholding or according to another distribution provided for in the articles of association.
What are distributions and dividends?
- distributions linked to a change in capital (resulting in a division between shareholders-redemption by a business of its own securities)
- and the liquidation bonus when dissolving a business
are also called distributions.
The distributions of "transparent" condominium real estate businesses do not constitute dividends even when they are subject to the SI. These sums, paid to shareholders, may come from:
- profit for the year: the distributable profit shall consist of the profit for the financial year less previous losses and sums to be held in reserve and, where appropriate, increased by the carry-over to the beneficiary,
- of distributions from reserves.
Which businesses are involved?
The businesses concerned are:
- Anonymous business (SA)
- Simplified share business (SAS)
- SARL: titleContent not having opted for income tax as a family LLC
- Business in a collective name (SNC) that has opted for SI
- single limited partnership business for distributions to limited partners
- civil business opting for SI
- Individual business assimilated EURL opting for IS
Distributions not decided by business
- Profits or income not set aside or incorporated in the capital
- Expenditure not incurred by the business in its own interest but in that of a director or partner. They must be classified as distributions on the occasion of a tax audit (extravagant expenses, disguised or hidden distributions, advances and loans to members)
The person liable for direct debits and deductions at source must make his declarations and payments by electronic means in EDI (electronic data interchange) or EFI (electronic forms interchange) mode:
He will then have to fill out the following form:
Dividend distributions are subject to a single lump sum levy (LUP). Shareholders (or members) may, however, opt for taxation at the progressive rate of income tax.
Flat tax or flat tax
Dividends paid to directors and members are subject to a single lump sum levy (LFA) of 30% composed of:
- 12.8% income tax,
- 17.20% in respect of social security contributions.
Part of the dividends received by managers who are part of the self-employed scheme is subject to compulsory personal contributions. It therefore escapes the social levy on income from assets or investment products, but is taken into account in the calculation of CSG and CRDS. It is then subject to a levy equal to 9.7% for his social security contributions.
The UTP is collected by the tax administration at the end of their tax return.
It is based on the gross amount of income, with no deduction for expenses and expenses. The abatement of 40% on dividends is not applicable.
On the tax return, the amount of the dividends must be indicated in box 2DC.
The deposit must appear in the box "Tax credit equal to the flat-rate non-discharge levy made in 2019" (2CK) and is set off against the tax due. The shareholder receiving the dividend is subject to a tax of 0.
- For a distribution of €1000 dividends: 1000*30% = €300. You pay €300 tax and social security contributions.
- For a distribution of €2,430 of dividends: 2430*30%=€729. You pay €729 tax and social security contributions.
For distributed income resulting from an adjustment of the debtor business' income, the gross amount on which the tax calculation is based is multiplied by 1.25.
Global option for progressive rate
Dividends are subject to income tax in the category of income from movable capital (RCM). They are added to the other income of his tax-paying household, and then the whole is subject to the graduated income tax scale.
These revenues must be shown in box 2DC and box 2OP must be checked in order for the tax to be paid at the progressive rate.
The net income to be reported shall be calculated as follows:
- Apply a discount of 40%on gross dividends (and other distributions)
- Deduct CSG from 6.8%
- Then subtract the expenses incurred for their acquisition and preservation (such as child care expenses).
The abatement of 40% shall be used only if the following 2 conditions are met:
- The dividends were decided at the General Meeting (GA)
- The distributing business shall be a business of France or a business having its registered office in the European Union or in a country which has concluded an agreement with France for the avoidance of double taxation.
dividends distributed through Sicav: titleContent, mutual funds and venture capital businesses shall not be eligible for this reduction.
By opting for progressive rate taxation, part of the CSG is deductible by indicating in box 2BH the amount of income already subject to social levies (boxes 2CG and 2BH).
For a distribution of €25,000 dividends:
1. The reduction of 40% : €25,000 -( 40% x €25,000)= €15,000
2. The CSG deduction shall be applied: €15,000 -( €25,000 x 6.8% ) = €13,300
3. The scale(s) corresponding to the remaining amount shall be applied: [€10,084 x0% ] + [(€13,300 - €10,084) x 11%] = €353.76
In total, for a distribution of €25,000, the tax payable is €353.76
4. In addition to this tax, social security contributions are: €25,000 x 17.20%= €4,300
In total, the sum to be paid is: €4,300 + €353.76 = €4659.76
Waiver of the standard levy
A natural person may be exempted from the payment on account of 12.8% if its tax income for year N-2 is less than:
- €50,000 for a single person,
- €75,000 for a couple subject to common taxation (married or former).
The exemption is not automatic and must be requested by the beneficiary, in the form of a statement on his honor, from the paying institution no later than 30 November the year preceding the year of payment.
Tax on businesses
For a company that is subject to income tax, taxation is carried out at the level of the partners. In other cases, dividends received by a company are subject to taxation under the business tax.
Exemption of dividends distributed to a parent business
The partner of a business paying dividends may benefit from an exemption from 95% of the amount of the dividends (after a share of 5%).
In order to benefit from this exemption, the member must hold at least 5% the capital of the business distributing the dividends. In addition, he must have held for 2 years the shares in the capital of this business.
Conditions are relaxed for the non-profit partner. It can be an association, a union, a foundation recognized as being of public benefit, a company foundation, an endowment fund or a congregation.
In this case, the exemption shall apply if he holds at least 2.5% capital and 5% the voting rights of the business distributing the dividends. He must have held the shares in the capital of that business for five years.
In order to benefit from this exemption, businesses must indicate: