Published on: October 18, 2024 | By: @rprasanth_kumar
The French National Assembly’s Finance Committee recently approved a proposal to raise the flat tax rate on capital gains from 2025. This measure came as a compromise after calls from some left-wing members to abolish the flat tax entirely, arguing that it primarily benefits the wealthy.
Background of Flat Tax in France
- The flat tax “prélèvement forfaitaire unique (PFU)” was introduced in 2018 under President Emmanuel Macron to simplify capital income taxation at 30%.
- It is a single rate tax that applies to income, such as interest, dividends and capital gains on financial investments.
- The 30% was a combination of 12.8% income tax + 17.2% social contributions.
- Critics, especially on the left, argued it disproportionately benefited the wealthy.
Proposed Increase in 2025
- The committee agreed to increase the income tax portion of the flat tax from 12.8% to 15.8%.
- So, 15.8% income tax + 17.2% social contributions, raises the total tax rate to 33%.
- This is expected to generate an additional €800 million in revenue each year.
Possible 35% Flat Tax for “Super Dividends”
Higher Tax for Large Companies
- In some cases, the flat tax could increase to 35%. A temporary 5-point increase was approved for companies that distribute dividends or buy back shares exceeding 20% of the average from 2017-2021.
- This higher rate would only apply in 2025.
Ongoing Discussions
- The proposal is not final yet, as it will undergo further debate in the National Assembly, where lawmakers may introduce stricter measures to generate more revenue.
- This is part of ongoing discussions about tax policy, with some members of the Assembly aiming to reform or raise taxes on capital income to address inequality.
