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Treatment of Dividends


Grecian
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Having read a previous thread regarding the treatment of dividends by the French authorities, LesLauriers directed me to the boursorama.com website, which states the policy for the treatment of dividends.

Obviously the site is in French, but now having revisited the original thread, and running the advice through an online French/English translator. By my interpretation, dividends are entitled to a 40% deduction, before submitting the figures on your tax return. Also it mentions an allowance of 1525 euros (sorry can't find the euro sign on my keyboard!), and 3050 euros for a married couple. Is this correct?

Does it mean as a couple, if your dividend income is less than 3050 euros then the dividends are tax free?

Is there any deduction regarding our old friend, social charges, on dividend income?

Also does this refer to dividends received from corporate bond funds held within an ISA?

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I don't know about social security charges, but so far as income tax is concerned I think it is even better than that.  Assuming that we're talking about an ordinary dividend paid by an EU company, my reading of the rules is this:

The amount you have to report is the gross amount, i.e. you must add back the tax credit (11% in the UK - this is shown on the tax form #2047).  This is then subject to the two reductions (abattements) that you mentioned: (1) 40% of the gross amount, and (2) a fixed amount of up to €1,525 or €3,050, as you said. 

According to my arithmetic, for a married couple, this means that dividend income up to €4,579 is reduced to zero:

     Tax credit = 11% of 4,579 = €504

     Income to be reported = 4,579 + 504 = €5,083

     40% reduction = €2,033

     Fixed reduction = €3,050

     Taxable income = €0

But it gets better: in the final step of the tax calculation the tax credit (€504 in my example) is deducted from the tax you owe.

It seems too good to be true, but I think it is true.  I received a dividend last year (for the first time!) and I have run it through the government tax simulator to check that my understanding is correct, and it seems to be so.  I suppose the logic is that you are receiving relief for the tax presumably paid by the company on the profits from which it paid the dividend.

Can anyone confirm that this is the way it works?  (I haven't yet tested it by filing my tax return.)

One small point: on the tax declaration you do not deduct the abattements - this is done by the tax office.

Sorry, but I don't know if there are special rules for funds held in an ISA.

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I'm just bringing this to the top of the pile; as the person who filled in our déclarations des revenus for us last year - our first year - put our [UK] dividends in the B column - dividends non éligibles à l'abattement de 40% - and just applied the appropriate rate for the UK ie 11%.

I love the thought that we are due a greater reduction but somehow cannot believe that we will be that fortunate.

Sue

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Spg: I'm pretty sure that a UK dividend, unless there's something peculiar about it, is eligible for the 40% deduction, as well as the fixed reduction mentioned by Grecian (up to €1,525, or €3,050 for a couple).

Firstly: form 2047, which is solely for the purpose of declaring income received outside France, contains a section Revenus des valeurs mobilières étrangères with a sub-section 'A' for dividendes éligibles à l'abattement de 40%.  So it's clear that at least some foreign dividends are treated this way.

Secondly: no. 6 on page 4 of the explanatory notes to form 2047 says

that the 40% reduction applies to dividends from countries which are members of the EU or

which have a tax treaty with France - obviously the UK falls into both

categories.

The additional fixed reduction doesn't seem to be mentioned in the notes, but there are other sources for it and, as I said, I have verified that the official simulator brings it into the calculation.  So I fully expect to pay no tax on my modest dividend, and to get the tax credit as well.

Maybe there is a Father Christmas.

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[quote user="allanb"]Spg: I'm pretty sure that a UK dividend, unless there's something peculiar about it, is eligible for the 40% deduction, as well as the fixed reduction mentioned by Grecian (up to €1,525, or €3,050 for a couple).

Maybe there is a Father Christmas. [/quote]

It would be lovely but .. I am going to do a little more research before I actually complete our tax return;

Sue

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I've sent in my return (on line) but I've also written a letter to the tax office, telling them how I reported the dividend and asking for confirmation.  I think that should keep me out of jail if I'm wrong, since an on-line return can be corrected if necessary.

I'll post the result, in case anyone's interested.

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I've had a reply from the tax office (by phone, unfortunately, so I can't quote it verbatim, but it was clear enough).

The way I reported the dividend is correct, except for where I reported the tax credit.  The gross amount (after adding back the tax credit) goes in box DC; the credit goes in box TA.  (I had put it tentatively in box AB because there is no box TA on form 2042.  However, box TA does appear on form 2042-C, and that's the right place for it.)

If you're filing on paper, I suppose you have to ask for 2042-C.  If you're filing on line, you start by default with the simple 2042 but you can bring up 2042-C by putting a tick in the box beside the message in section 8:

Si vous avez d'autres imputations, cochez la case ci-contre.

The on-line simulation confirms my understanding of the two deductions (the 40%,  and the fixed amount depending on marital status) so that, in my case, the amount taxed is zero.

Unfortunately I can't confirm the treatment of the tax credit because the simulation program doesn't have a place for it.  But what the heck - report it.  If it reduces your tax (as I think it will) it's a bonus.

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Good news indeed allanb. Thanks for the trouble of trying to sort out my query, and in the meantime bagging yourself a tax free dividend!

Still need to know if dividends from corporate bond funds are classed in the same way, but one bit at a time I suppose.

Coming over to France on Thursday to have another look around, so will try and find out if any ex-brits I meet, have come across this when filling out their tax return.

 

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[quote user="allanb"]I've had a reply from the tax office (by phone, unfortunately, so I can't quote it verbatim, but it was clear enough).

The way I reported the dividend is correct, except for where I reported the tax credit. 

 
Unfortunately I can't confirm the treatment of the tax credit because the simulation program doesn't have a place for it.  But what the heck - report it.  If it reduces your tax (as I think it will) it's a bonus. [/quote]

Congratulations on such a successful conclusion Allan; I apologise unreservedly if I sounded so very doubtful, but it does seem a tad incredible at first hearing. I, too, shall give it a whirl ... when I manage to get my head around declaring online!

Sue [:)]

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Sue: no need to apologize.  I said in an earlier post that it sounds too good to be true, and that's exactly when it's wise to have doubts.

To be honest, I would still be happier if somebody could confirm it.  But having told the tax office what I was doing, at least I feel protected against any accusation of fiddling my return.

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[quote user="allanb"]
To be honest, I would still be happier if somebody could confirm it.   [/quote]

Perhaps this will help ...

here

in the bit just before and just under the slightly misleading heading of Double Taxation

I only came across this this afternoon, so it was news to me too.

Sue

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Thanks for the link.  It is slightly disturbing since it mentions only the 40% reduction and not the abattement forfaitaire of up to €3,050.  However, when it comes to explaining French tax rules, I have more confidence in the French government than I have in Blevins Franks.

I hope you won't lose any sleep over it.

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[quote user="allanb"]
I hope you won't lose any sleep over it.
[/quote]

I shall sleep better when I have completed our tax returns for this year. But, thanks to you, I am now hopeful we shall pay less tax than we would have done before your post.

Sue [:)]

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[quote user="David"]What happens if you do not have any share dividend, and leave all the boxes blank - do you still get the tax dividend automatically?[/quote]Sorry, but I don't understand the question.  Are you talking about an ordinary dividend paid on shares? What is the "tax dividend"?

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I am sorry, I am not financially fluent and I used the wrong term.  Instead of "tax dividend" I should have said "tax credit", and instead of "share dividend" I should have just said "dividend".

After reading allanb's comments -

"But it gets better: in the final step of the tax calculation the tax credit (€504 in my example) is deducted from the tax you owe.  It seems too good to be true, but I think it is true",

and "So I fully expect to pay no tax on my modest dividend, and to get the tax credit as well.  Maybe there is a Father Christmas",

and "Unfortunately I can't confirm the treatment of the tax credit because the simulation program doesn't have a place for it.  But what the heck - report it.  If it reduces your tax (as I think it will) it's a bonus".

In my simple mind I thought that this meant that those who have a small dividend not only do not pay tax on that dividend, but they also get a tax credit for the unused amount of tax free dividend which is then used to reduce the total tax bill.

Projecting this onto my tax return where I have no dividend income to report, I wondered if I would receive a tax credit for the tax free dividends that I do not have and do not claim, and whether this tax credit would reduce my tax bill.  I hope I have made myself clear this time, Is it clear?

In other words does this tax credit apply only to those with dividends, which seems unlikely, or does it apply to all?

If it only applies to those with dividends, perhaps I should buy a small amount of shares in order to arrive at a small dividend, and thus receive a tax credit for the balance in order to reduce my total tax bill.

If this tax credit applies to all, then does one have to claim it, or is it applied automatically?

Hope this is not being too stupid.

David

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No, unfortunately, the tax credit (if there is one) is "attached" to the dividend, and the smaller the dividend, the smaller the tax credit.

What I think we have established is that if you receive a dividend which entitles you to a tax credit, you may pay little or no tax on the dividend (because of the deductions) but still get the benefit of the tax credit.

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[quote user="Mackyfrance"]We have our own company in the UK from which we receive dividends. Does this mean that in addition to paying corporation tax in the UK we also have to pay tax on it in France if the amount is above the 3050 euros threshold?[/quote]

This is really several questions in one.  It could be a lot more complicated than the simple case of a French tax resident receiving a UK dividend.

You are talking about your personal taxation (which may be affected by your resident status) and also the taxation of a UK corporation (which may be affected by the tax residence of the corporation, which in turn may be affected by where it is managed and where it does business...)

There are certainly some knowledgeable people on the forum, but I suspect you may need specialist advice on this one. 

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  • 11 months later...

I have dragged this thread up again, as it is now tax season, 12 months on from the original thread.

Is anybody any the wiser if UK based investment trust and unit trust dividends qualify for the 40% deduction, and then eligible for the 3050 euros overall allowance, before any income tax is paid on the dividends. Having reread this thread, people were not too sure at the time of submitting their tax returns last year, so I am wondering if anybody now has definitive answers to the original questions.

As always thanks in advance for any information supplied.

 

 

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Hi Grecian

Dividends from a British source paid to French residents are taxable in France.  However, when they have already been taxed at source in the UK, there will be a tax credit to the French resident under the French tax system.

Taxable in France so subject to the same tax system. 

There are no cotisations on dividends.  However, you do pay:

- un prélèvement social de 2 %,
- la contribution additionnelle au prélèvement social de 0,3 %,
- CSG (8,2 %) and CRDS (0,5 %).

As of 1 jan 2008, these are deducted at source.

Dividends are subject to income tax after:

- abattement of 40 % applied to an unlimited amount of money,
- then the abattement forfaitaire of 3 050 euros for a married or PACSd couple, or 1 525 euros for a single person.

The shareholder also benefits from a tax credit of 115 euros for a single person and 230 euros for a married couple.

Hurray!  Some good news for a change!

Lisa

 

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  • 2 weeks later...

Just to say thanks for the info Lisa, we have been over in France sorting out our future, so apologies for not responding sooner.

As you say good news for a change. It also points to the fact that dividends are treated very favourably in France, tax wise, we may have to move some more cash over into bonds.

 

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I don't know if you are aware but with Credit Agricole you have the possibility of keeping your money in sterling and getting sterling rates of interest on it.

Might be interesting.

Lisa

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