FRANCE Law and Practice Contributed by: Anthony Roustan and Cédric Dubucq, Bruzzo Dubucq
butions at the same rate as residents; however, for people who are affiliated with an EU social security system, the social contribution in France is reduced to 7.5%.
local file, and country-by-country report for qualifying groups. CFC rules tax French parent companies on the income of foreign subsidiaries located in jurisdictions where the effective tax rate is below 60% of the French rate, in line with the EU Anti-Tax Avoidance Directive. 3.3 Passive Income Dividends Dividends are taxed at 12.8% of income tax, unless the taxpayer elects to have them taxed under the income tax bracket (from 0 to 45%). In that case, the tax base of the dividend is reduced by 40%. Dividends are subject to social security contribution at the rate of 18.6%. Withholding tax is 12.8% for non-resident individuals (no social security contributions) and 25% for non- resident companies. Withholding tax can be elimi - nated under the EU Parent-Subsidiary Directive if the beneficiary is an EU company holding at least 5% of the share capital. Double tax treaties can also reduce the domestic with - holding tax rate. Interest Interest is exempt from withholding tax in France, unless it is paid to a non-cooperative country, in which case the withholding tax rate is 75%. Royalties Some royalties are subject to withholding at the cor - porate income tax rate under domestic law. This is eliminated between associated EU companies under the Interest and Royalties Directive, and can be reduced or eliminated by double tax treaties. 3.4 Capital Gains Capital Gains of Individuals Capital gains on shares and crypto-assets Capital gains on securities, shares and crypto-assets are subject to a flat tax of 12.8%. Taxpayers may elect to have the capital gain taxed at the standard income tax bracket; in that case, they can benefit from a deduction of up to 85% depend -
3.2 Business Profits Corporate Tax Rates
Corporate income tax applies at a standard rate of 25%, with a reduced 15% rate on the first EUR42,500 for qualifying SMEs. Under the territorial principle, only profits from French operations or French permanent establishments are subject to corporate income tax. Dividend Exemption Dividends derived from a subsidiary are exempt for 95% of their amount, provided that the parent com - pany owns at least 5% of the share capital for a period of two years. The exemption is increased to 99% in Capital gains on the sale of shares in a subsidiary are exempt for 88% of their amount, provided that the parent company owns at least 5% of the share capital for a period of two years. If the company owns less than 5%, it can demonstrate that the participation is useful for its business and thus claim the participa - tion exemption. The remaining 12% of the capital gain is taxed at the standard corporate income tax rate (25%), leading to an effective tax rate of 3%. Tax Losses tax-consolidated groups. Participation Exemption Tax losses can be carried forward without limitation in time. France applies a limitation of the use of carried- forward losses. If the taxable profit of the year exceed EUR1 million, only 50% of the profit exceeding EUR1 million per year is offsetable by the carried-forward tax losses. Tax losses can be carried back on the previous tax year to obtain a reimbursement of corporate income tax paid on the previous tax year if the next year is a loss. Transfer Pricing and Controlled Foreign Company (CFC) Rules Transfer pricing rules require arm’s length pricing and extensive documentation, including a master file,
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