The rates of withholding tax on dividends and interest have increased with effect from 1 January 2012.
Interest and dividends are, as a matter of principle, subject to the standard income tax regime. They are declared and subject to tax at progressive rates (up to 41% for the highest bracket) in the year following their payment. Financial income may, upon election, be subject to a withholding tax when such regime proves more favorable for the taxpayer.
Starting in 2012, the withholding tax has been increased from 19% to 21% for dividends and 24% for interest income. With social contributions of 13.5% the cumulative withholding tax on financial income will therefore total 34.5% for dividends and 37.5% for interest income. For most taxpayers, the election for withholding tax treatment on financial income loses most of its appeal. In practice, it might be worth investigating if any previous elections for the application of the withholding tax still apply and if appropriate, revoking the option and becoming subject to the standard tax regime.
The domestic withholding tax on dividend payments to non-French tax resident beneficiaries has also increased. The standard withholding tax is increased to 30% (from 25%). The reduced withholding tax applicable to dividend payments to individuals residing in the EU, Iceland, Norway and Liechtenstein increased to 21% (from 19% previously). The withholding tax rate on dividend payments to beneficiaries in non-cooperative countries is increased by 5% from 50% to 55%.
The domestic withholding tax applies only in the absence of a relevant double tax treaty.
Third Amending Finances for 2011 (loi de finances rectificative pour 2011)
For further information or to discuss any of the issues raised, please contact Pascal Ngatsing on +33 (0)1 43 59 43 12.