Dividend Tax to Lower Budget Deficit in France

June 20, 2012 Taxation in France

Dividend tax to be announced by François HollandePARIS – In an effort to boost tax revenues and reign in the budget deficit to an acceptable level, the French government could soon introduce a new tax on dividend payments.

According to new information released by the French media on June 18th, the national government is planning to implement several tax changes to encourage companies to reinvest earnings into development projects and new commercial endeavors instead of making distributions to shareholders.

In July the President of France François Hollande will call a special session of parliament in July to officially reveal the new government budget plan, and announce several tax changes, including the introduction of a tax on dividend payments.

The new tax will be levied at 3 percent, and will be applied to all distributions of dividends made by companies in France. It is expected that the tax will increase national tax revenues by approximately EUR 300 million in the first year.

The only exemption to the tax will be dividends paid by subsidiaries to parent companies which have holdings in excess of 5 percent.

The tax is expected to have a significant effect on the country’s largest publicly listed companies, with the 40 largest firms in the country currently paying out in excess of EUR 45 billion per year in dividends and share buybacks.

The new tax comes as part of the government’s attempt to find nearly EUR 10 billion in extra tax revenues and spending cuts by the end of 2012.

Photo by jmayrault