Taxation of dividend distributions

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 (AGOA) of the members 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?

Like dividends, they are also called distributions:

• 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

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:

• Public limited company (SA)
• Simplified share business (SAS)
• SARL: titleContent not having opted for income tax as a family LLC
• General partnership (SNC) that has opted for SI
• Limited partnership 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)

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 advance payment must appear in the box "Tax credit equal to the flat-rate non-discharge levy made" (2CK) and is set off against the tax due. The shareholder receiving the dividend is subject to a tax of 0.

Examples:

• 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.

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).

Example

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: [ €11,295 x 0% ] + [(€13,300 - €11,295) x 11%] = €220.55

In total, for a distribution of €25,000, the tax payable is €220.55

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 + €220.55 = €4520.55

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 (IS).

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:

• the net amount of dividends on the tax book table 2058-A (box II deduction-line XA)
• the amount of the quota of 5% on Table 2058-A of the tax book (box II deduction-box 2A)