As a reminder, for French tax residents, since January 1, 2013 capital income (dividends) and capital gains were compulsorily subject to the progressive personal income tax, as well as to social contributions at a rate of 15.5%.
Under the terms of the Law for Finance n ° 2017-1837 of December 30th, for the tax year 2018, as from the taxation of the revenues of 2018, all the capital income (dividends) and capital gains is subject to a single flat-rate levy (in French Prélèvement Forfaitaire Unique PFU) at a rate of 12.8%, plus social contributions (the rate of which was raised to 17.2% by the Law for Social Financing), which gives a global tax of 30%, called "flat tax".
French Taxpayers can, however, opt for taxation according to the progressive personal income tax, i.e. the previous income system, that is to say the regime applicable until 31/12/2017. This option is global and concerns all investment income and capital gains on shares and securities of the year. It is carried out in the annual declaration of income (for 2018 revenues, in 2019).
Dividends and fixed-income investment products continue to be subject, at the time of their payment, to a flat-rate tax, the rate of which is reduced to 12.8% (instead of 21% prior to 01/01/2018 as regards dividends and 24% for other investment products including interest on associates' current accounts). Under the PFU, this levy will be in practice discharging, while in case of option for imposition progressive scale, it will not be discharging.
It is clear that the new income tax with a rate of 12.8% is for the majority of taxpayers more favorable than the progressive tax rate, except for non-taxable taxpayers.
This tax therefore retains, in the case of an option for the progressive taxation of the income tax, its nature as an advance payment and would be imputable to the tax due the following year (a request for an exemption can always be formed under certain income conditions) and a contingent balance / credit should be determined based on the application of the progressive personal income tax scale.
The 40% allowance (only applicable to the personal income tax, not the social contributions) is still applicable, only in the case of the progressive scale rate option.
In case of option for progressive taxation, a fraction of the CSG will be deductible from the taxable income of the year of payment of the CSG, fraction whose rate was raised to 6.8% for capital income. .
The share of dividends exceeding 10% of the amount of the share capital and the partner current account, paid to self-employed persons working in the company, remains subject to the social contributions (applicable from 1 January 2013).
It is clear that the new income tax with a rate of 12.8% is for the majority of taxpayers more favorable than the progressive tax rate, except for non-taxable taxpayers.
In the case of dividends in particular, the option for the progressive scale may be attractive if the taxpayer falls within the 14% of income tax rate, given the 40% allowance.
The option to the progressive scale of the income tax is to be envisaged in particular in case of capital gains during the year, since it must be remembered that the option is global and relates to all the dividends and capital gains on shares and securities of the year.
Indeed, on the side, capital gains (the new tax system a is not recalled here), the flat tax would not be advantageous:
- for taxpayers benefiting from the 65% tax allownce (general tax system for shares held for at least 8 years / reinforced rebate for shares held between 4 and 8 years) or 85% (enhanced rebate for shares held for at least 8 years if certain conditions are met), regardless of their marginal tax rate;
- for taxpayers benefiting from the 50% allowance (general tax system for shares held between 4 years and 8 years / reinforced rebate for shares held between 1 year and 4 years), and which have a marginal rate of taxation less than or equal to 14%.
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