Flat Tax (PFU – Prélèvement Forfaitaire Unique)

The Flat Tax (Prélèvement Forfaitaire Unique or PFU) is the French fixed-rate tax of 30% on capital income — comprising 12.8% income tax and 17.2% social contributions — applicable to dividends, interest, capital gains on securities disposal, and other financial income for individuals. Introduced in January 2018, it replaced a complex system of optional progressive rate taxation, simplifying the tax treatment of investment income for individuals and business owners. Taxpayers may still opt for the progressive income tax scale where more favourable, an option assessed year by year across all financial income. For business owners, the PFU is a key parameter when arbitrating between salary and dividends, and when planning the taxation of a future sale of securities. Certain gains remain subject to specific regimes, such as qualifying share sales with retirement relief.

For business owners selling their company, the 30% PFU rate applies to the capital gain (selling price minus acquisition cost). This is typically the relevant rate for shareholders who acquired their shares after 2018. Shareholders who held shares before 2018 may opt for the progressive rate with time-based allowances (abattements pour durée de détention): a 50% reduction after two years of holding and 65% after eight years, applying to shares held before 2018. The choice between the PFU and the progressive regime must be made globally for all capital income in the year.

In the Franco-Swiss context, the PFU applies to French-source income and capital gains for French-resident taxpayers. Swiss residents are subject to Swiss income tax on their capital gains (which for Swiss individuals are generally exempt from income tax — capital gains on movable assets are not taxed in Switzerland for non-self-employed investors) and to withholding tax on Swiss dividends (35%, reclaimable under the Franco-Swiss treaty). The 30% French PFU is one of the key drivers of cross-border structuring decisions for Franco-Swiss entrepreneurs.

At Hectelion, we integrate PFU and Franco-Swiss tax implications into our valuation and structuring mandates to optimize after-tax outcomes for shareholders.