Re: Treatment of Dividends

French Finance

Treatment of Dividends

Grecian 12/05/2007, 12:03

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?

Re: Treatment of Dividends

allanb 12/05/2007, 13:21
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.

Re: Treatment of Dividends

spg 12/05/2007, 20:03

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

Computing - it's another world

Re: Treatment of Dividends

allanb 13/05/2007, 6:51
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.

Re: Treatment of Dividends

spg 13/05/2007, 18:09

allanb wrote:
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.

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

Sue

Computing - it's another world

Re: Treatment of Dividends

allanb 14/05/2007, 8:15
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.

Re: Treatment of Dividends

chessfou 15/05/2007, 6:28

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

Yes, please.

Re: Treatment of Dividends

allanb 15/05/2007, 13:20
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.

Re: Treatment of Dividends

Grecian 15/05/2007, 19:34

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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