FRANCE Law and Practice Contributed by: Antoine Mercier, Myriam Mejdoubi and Gabriel Dalarun, DLA Piper France LLP
If a permanent establishment is deemed to exist, current income is fully taxable in France at the rate of 25% (increased by additional contribu - tions) in 2024. Foreign owners are generally subject to French tax on rental income either under the individual income tax regime at a progressive rate ranging up to 45% (increased by additional contribu - tions), or under the corporate income tax regime at the standard rate of 25% (increased by addi - tional contributions). Deductions Several limitations on interest deductibility may apply, including a general limitation regarding the net financial charges, which may be deducted up to the higher of the following two amounts: • EUR3 million; or • 30% of the adjusted taxable income, before offsetting of tax losses; lower thresholds may apply when a company is thinly capitalised. No withholding tax on interest expenses applies in France except when these are paid in a non- co-operative state, in which case a 75% with - holding tax is triggered. Finally, the Finance Act for 2020 transposed into French law the provisions regarding hybrid mis - matches of Directive (EU) 2017/952 of 29 May 2017 (ATAD II). These provisions aim to neutralise the tax effects of hybrid mismatch arrangements which exploit differences in the tax treatment of an entity or instrument under the laws of two or more EU member states. Dividends Resident individuals A flat tax, or PFU (prélèvement forfaitaire unique), is set at 30% (12.8% of individual income tax
and 17.2% of social contributions) and applies to dividends distributed from 1 January 2018. Under certain conditions, individual taxpayers may still elect for dividends to be taxed at the progressive income tax rate if lower than the PFU. Non-resident individuals Withholding tax rates depend on the applicable tax treaties. The French standard withholding tax rate on dividend distributions to non-resident individuals is aligned with the PFU rate (12.8%). The withholding tax rate is 75% for dividends paid on a bank account located in a non-co- operative state within the meaning of the French tax code, or paid or accrued to persons estab - lished or domiciled in such a non-co-operative state. Resident companies Unless the participation exemption on dividends applies, dividends arising in France paid to cor - porate shareholders are included in taxable income for corporate income tax purposes. Under the French participation exemption regime, 95% (99% in certain circumstances) of Dividends arising in France distributed to non- resident shareholders are subject to a final with - holding tax at a rate of 25%, subject to the provi - sions of applicable tax treaties. Subject to certain conditions, the withhold - ing tax is reduced to nil for dividends paid by a French resident company to a qualifying EU parent company if the parent company holds at least a 10% shareholding in a French subsidiary for at least two years (or 5% when the EU par - the dividend is tax-exempt. Non-resident companies
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