How does the flat tax (PFU) work on dividends and capital gains in France?

France's Prélèvement Forfaitaire Unique (PFU), commonly called the flat tax, applies a single 30% rate to most investment income: dividends, interest, and capital gains on the sale of financial assets. The 30% breaks down as 12.8% income tax and 17.2% social charges (CSG/CRDS).

The PFU applies automatically unless you opt out. If your marginal income tax rate is lower than 12.8%, you can choose instead to have investment income taxed under the progressive barème like ordinary income. This election (option pour le barème) is made on your annual tax return and applies to all investment income for that year.

For dividends, a 40% abatement is available if you opt for the barème, reducing the taxable amount before applying your marginal rate. This abatement is not available under the PFU. For many investors with modest other income, the barème option can result in a lower overall tax bill.

Capital gains on financial assets (actions, obligations, fonds) are reportable on your tax return (Formulaire 2074). Losses can be carried forward for ten years to offset future gains.