Dividends are an increasingly common source of income for both directors and shareholders. How are they taxed? Here are some answers.

What is a dividend?

A dividend is a company's profit that can be distributed to shareholders. It is the amount available after payment of everything, including corporation tax. The amount distributed per share held is determined by a decision of the General Meeting of shareholders.

It is therefore classified as income from transferable securities, like all income from financial investments.

What tax treatment applies?

By default, this income is taxed at the PFU (Prélèvement Forfaitaire Unique) rate of 12.8% for income tax and 17.2% for social security contributions. By express and irrevocable option, the taxpayer may, each year, opt for taxation at the progressive income tax rate for all income and gains from movable property mentioned in the first paragraph of 1 of article 200 A of the CGI.

In addition, dividends received by self-employed workers are automatically included in the basis of assessment for social security contributions if they exceed 10% of the total amount comprising :

• Share capital,
• Share premiums,
• sums paid into current accounts owned outright or in usufruct by the persons concerned (including those held by spouses, civil partnership partners and their unemancipated minor children).

Which tax option should I choose?

Dividends are now widely used to adjust and optimise the remuneration of company directors. As a result, the tax choice has become a major issue. While opting for the PFU seems to be the right solution when the household's marginal tax bracket is 30%, in reality this is not always the case.

In fact, when combined with an overall wealth strategy that has an impact on the household's net taxable income, it may be appropriate to opt for taxation on the progressive income tax scale. To find out more, it is essential to seek the advice of a specialist. The Wealth A7 team can advise you - contact us!

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