9. Taxation of Business Profits in France

1. 9.1. Main Options
   9.2. Micro-Entreprise
   9.3. Regime Réel
   9.4. Company Tax
   9.5. Dividends

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9.5. Taxation of Dividends in France

A separate tax regime applies in relation to the taxation of dividends paid out by a limited company (although see the separate rules below that apply to the professions libérales).

A general allowance of 40% is available on all dividends, irrespective of amount, and there is also personal tax credit of €115 and a personal allowance of €1525. These allowances are doubled for a married couple (or those in a French civil partnership) in a business.

You will be liable for income tax on any dividends you receive but, at the bottom to middle ranges, the levels of income tax in France are not ungenerous.

The only social security contributions payable on the dividends are those of the social charges CSG/CRDS, at the rate of 12.1%, of which 5.8% is deductible against income tax.

Let us take a example.

Assuming you and your wife run a small company. At the end of the tax year, you decide to pay yourselves €10,000 each (€20,000) by way of dividends.

You will receive a 40% rebate on this sum before becoming liable to income tax. So gross taxable sum would be €12000.

You are then entitled to a joint allowance of €3050 against this sum, leaving €8950 as the taxable sum.

You would then be taxed on this figure, and the rate of taxation would depend on the total of your revenues, including salary. If you are able to pay yourself a low salary, then the level of income tax will be negligible. After calculation of the tax payable, you would be entitled to a joint tax credit of €230.

As we stated above, you would also pay the social charges (CSG/CRDS) on the gross dividend of €20,000.

The use of dividends in partial remuneration is one way of increasing your net income.

However, social security contributions on a salary are high, so with the help of your accountant you will need to determine the most suitable balance between salary and dividends (and, for that matter, other benefits such as company car).

You will also need to consider how important is providing for your retirement, for the lower your rate of pension contributions, the lower your French state pension.

Professions Libérales

A tougher regime of taxation applies if you are in one of the professions libérales and you operate your business through a company (Société d’Exercice Libéral - SEL).

With effect from January 2009 you will be liable for self-employed social security contributions on dividend payments where they exceed (broadly speaking) 10% of the capital of the company.

In other words, if the capital of the company amounts to €10,000, then social security contributions at the normal rate will apply on any dividends paid out in excess of €1000.

This is a new change since January 2009, and in due course, we shall be publishing new information on the detailed regulations as to the means of determining the relevant capital and income to take into account for calculating liability to social security contributions.

The rule has been introduced as the use of dividend payments as a method of reducing social security contributions is common amongst many of those in the (often high earning) professions libérales. It may well later become a more general rule, applicable to all limited companies, as was initially proposed in the draft legislation.

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