The creation of the flat tax was at the heart of the major tax reforms undertaken at the start of Emmanuel Macron's five-year term. It stemmed from the government's desire to clarify, simplify and lighten the tax landscape for French taxpayers.
Easier to understand and calculate, the flat tax replaces the old tax mechanisms deemed too cumbersome and difficult to understand. It has lightened the tax burden for many taxpayers, and made existing tax rules easier to understand, encouraging investment in equities and bonds.
Let's discover our 2021 Complete Guide together!
The flat tax is now an unavoidable tax for a large proportion of French taxpayers.
Its operation is simple: it consists of a levy at the overall rate of 30%, made up of 12.8% income tax and 17.2% social security contributions.
Previously, income from securities was taxed according to your marginal income tax bracket, i.e. between 0% and 45%. Taxpayers were also required to pay social security contributions of 15.5%.
The flat tax replaces the old tax system in several cases:
- Dividend payments
- Receipt of interest from bonds
- Receipt of interest paid by your bank on savings products, with the exception of regulated savings such as Livret A passbook accounts.
The flat tax consists of a global tax deduction of around 30% on all dividends received, regardless of the level of your other income.
In the past, anyone receiving dividends was taxed according to their marginal income tax bracket. They were also subject to 15.5% social security contributions.
The arrival of the flat tax means tax relief for all those whose previous overall tax rate was over 30% (in other words, the sum of the income tax rate and social security contributions paid).
If this is not the case, the introduction of the flat tax will lead to an increase in taxation. In this case, it is possible to continue to benefit from the old tax regime if it is more advantageous, by simply making a request to the tax authorities.
The introduction of the flat tax has simplified the rules for taxing capital gains on the sale of shares. sale of shares. All capital gains are now subject to an overall tax rate of 30%, with no allowance.
In the past, they were taxed according to your marginal income tax bracket. You also had to pay an additional 15.5% in social security contributions. Each taxpayer could benefit from an allowance of 50% if they had held the shares for more than 2 years and less than 8 years, and 65% if they had held them for more than 8 years.
Once again, it is possible to continue to benefit from the old tax system if it is more advantageous.
However, it is important to note that all shares acquired since 1er January 2018 will no longer be eligible for the deduction for length of ownership.
The Flat Tax is therefore a measure designed to encourage investment in movable capital, to encourage the French to invest in the real economy rather than in real estate income.
It can result in lower or higher taxes, depending on the status of each taxpayer, so it's important to carry out a simulation to find out the most advantageous taxation method for your personal situation.
Written by our expert Paul LASBARRERES-CANDAU
April 23, 2021
