France adopted the OECD Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) and entered into force as of 1 January 2019.
The MLI purpose is to enable jurisdictions to modify their bilateral tax treaties to implement measures aiming to update international rules and lessen the opportunity for tax avoidance.
France opted for the Principal Purposes Test (PPT) clause included in article 7 (1) rather than a Limitation on Benefits (LoB) provision.
This PPT may lead to deny treaty benefits to an item of income or capital where, taking into consideration the facts and circumstances of the case, it is reasonable to conclude that the principal purpose of the transaction or arrangement is to obtain treaty benefits.
Payments to resident corporations and individuals are not subject to WHT.
Payments to non-resident corporations and individuals are subject to WHT, as shown below. When relevant, the rates of dividend WHT mentioned below might be subject to additional requirements with respect to the application of the MLI (i.e. the rates and notes do not include the amending position set out by the MLI application).
In a decision given on 9 November 2015, the French Administrative Supreme Court ruled that a person who is exempt from tax in a contracting state by reason of one’s status or activity cannot be considered liable to taxation and, consequently, is not a resident of the contracting state under the DTT if the treaty defines a ‘resident’ as a person who is liable to tax in a contracting state.
|Dividend WHT (%)|
|Column 1||Column 2||Column 3||Column 4|
|Country of residence||Individuals and non-parent companies||Parent companies||Shareholding required to be a parent|
|Australia||15||0/5 (2)||10 (36)|
|Bolivia||15||15 (3, 35)||25 (3)|
|Bulgaria||15||0/5 (1, 35)||10/15|
|Central African Republic||12.8/26.5||26.5||-|
|Congo, Republic of||20||15||10|
|Cyprus||15||0/10 (1, 35)||10|
|Czech Republic||10||0 (1)||10/25|
|Hungary||15||0/5 (1, 35)||10/25|
|India||15 (3)||15 (3)||-|
|Ireland, Republic of||15||0/10 (1)||10/50|
|Jamaica||15||10 (35)||10 (36)|
|Kazakhstan||15 (3)||5 (3)||10|
|Korea, Republic of||15||10||10|
|Luxembourg||15||0 (1)||10/5 (6)|
|New Caledonia||15||5 (35)||-|
|Philippines||15||10 (35)||10 (36)|
|Poland||15||0/5 (1, 35)||10|
|St. Pierre & Miquelon||15||5 (35)||-|
|Sweden||15||0/15 (1, 35)||10|
|Trinidad and Tobago||15||10 (35)||10|
|United Arab Emirates||0||0||-|
|Vietnam||15||5 (3, 35)||10|
|Column 1||Column 5||Column 6||Column 7|
|Country of residence||For instruments other than borrowings||Automatically levied on after-tax profits of PEs|
|Non-treaty (13, 14, 15)||0 (16)||26.5||26.5|
|Bulgaria||0||0/5 (38)||0/5 (22)|
|Burkina Faso||0||0||26.5 (17)|
|Cameroon||0||0/15 (19, 40)||15|
|Central African Republic||0||0||26.5 (17)|
|Congo, Republic of||0||15||15|
|Cyprus||0||0/5 (21, 38)||0/10 (22)|
|Czech Republic||0||0/5/10 (23, 34, 38)||0 (22)|
|Estonia||0||0/5/10 (34, 38)||0 (22)|
|Greece||0||0/5 (38)||0/26.5 (22)|
|Ireland, Republic of||0||0||0/26.5 (22)|
|Italy||0||0/5 (23, 38)||0 (22)|
|Ivory Coast||0||0/10 (24, 40)||0|
|Korea, Republic of||0||10||5|
|Latvia||0||0/5/10 (34, 38)||0 (22)|
|Lithuania||0||0/5/10 (34, 38)||0 (22)|
|Luxembourg||0||0/5 (38)||0 (22)|
|Malta||0||0/10 (23, 38)||0/10 (22)|
|Morocco||0||0/5/10 (40, 42)||0|
|New Caledonia||0||0/10 (23)||10|
|Poland||0||0/10 (23, 38)||0/26.5 (22)|
|Polynesia, French||0||26.5||26.5 (17)|
|Portugal||0||0/5 (38)||0/15 (22)|
|Romania||0||0/10 (38)||0/10 (22)|
|St. Pierre & Miquelon||0||0/10 (23)||10|
|Senegal||0||0/15 (23, 40)||0|
|Slovakia||0||0/5 (23, 38)||0/10 (22)|
|Spain||0||0/5 (29, 38)||0 (22)|
|Sri Lanka||0||0/10 (30)||26.5|
|Sweden||0||0||0 (22, 23)|
|Thailand||0||0/5/15 (33, 46)||26.5|
|Trinidad and Tobago||0||0/10 (19)||10|
|Tunisia||0||0/5/15/20 (32, 40)||26.5 (17)|
|United Arab Emirates||0||0||0|
Explanation of columns
Column 2: Individuals and companies not qualifying as parents are subject to the WHT rates for dividends as indicated in this column.
Columns 3 and 4: Column 3 indicates the WHT rate for dividends paid to a foreign ‘parent’ company. To be considered as a parent company, the foreign company must hold a specified percentage of the French company’s share capital or voting rights. These minimum percentages range from 0% to 80%, as indicated in Column 4, and certain other conditions must be met (see each treaty). If no percentage is indicated, either no minimum shareholding is required or the tax treaty does not reduce the WHT rate of 26.5%.
No WHT is levied on dividends paid by a French company to an EU parent or to a parent company of Iceland, Liechtenstein, or Norway that is subject to CIT, provided all the following conditions are met:
- The parent company has held a minimum percentage of the share capital of the distributing company, directly and continuously, for at least two years. As of 1 January 2009, the participation required is 10%.
- The parent company is the beneficial owner of the dividends.
- The parent company has its place of effective management in an EU state and is not deemed to be domiciled outside the European Union under an applicable tax treaty.
- The parent company is one of the legal forms enumerated by the relevant Directive.
- The parent company is subject to CIT in the member state where it has its effective seat of management.
- The dividend distribution does not fall under the anti-abuse provisions.
Column 5: The tax mechanism has been changed so as to exempt the interest from WHT in France except where the interest is paid to an entity established in a non-cooperative state or territory (WHT at a rate of 75% applicable). The payer can, however, be exempt if one proves that the main purpose and effect of such a payment is not to take advantage of locating the income in such a jurisdiction.
These provisions apply to income paid as of 1 March 2010. A special provision applies to loans entered into outside of France by French companies and some investments funds prior to this date. Interest paid on these loans and on related loans after 1 March 2010 will continue to be exempt.
Column 6: There is no requirement to withhold income tax on royalties paid to EU companies if all the following conditions are met:
- The taxpayer is a French-resident company or a French PE of a company resident in another EU member state.
- The beneficial owner of the income is an EU-resident company.
- The beneficial owner must have its place of effective management in a EU member state.
- The beneficial owner is one of the legal forms enumerated by the EU Directive.
- The beneficial owner is subject to CIT in the member state where it has its effective place of management without being exempted from it.
- The taxpayer and the recipient are at least 25% associates, which means that either one directly holds 25% or more of the share capital or voting rights in the other, or a third party directly holds 25% or more of the capital or voting rights in both of them. In any case, the 25% shares must be held for an uninterrupted period of at least 2 years (or a commitment to respect such requirement might be undertaken by the beneficial owner).
Column 7: WHT is automatically imposed on after-tax profits of a PE unless certain conditions are met. The rate is 25% or the reduced tax treaty rate.
- See explanation of Columns 3 and 4.
- The nil rate of WHT is subject to the payment of dividend issued from profits taxed at the standard rate of CIT.
- The double tax treaty (DTT) dividend clause shall be modified with respect to the most favored nation clause.
- The exemtion of WHT applies if the beneficial owner of the dividend is a company that holds, directly of indirectly, at least 50% of the share capital of the distributing company and has invested at least EUR 3 million (or equivalent amount in Georgian currency) in the share capital of the latter at the date of effective payment of the dividend; the 5% WHT rate applies if the beneficial owner of the dividend is a company that holds, directly or indirectly, at least 10% of the share capital of the distributing company and has invested more than than EUR 100,000 (or equivalent amount in Georgian currency). The WHT rate is 10% in the other cases.
- A rate of 15% is applicable for dividend distributed by certain companies.
- A new DTT has entered into force as of August 19, 2019 between France and Luxembourg. The nil rate of WHT provided by the DTT is subject to the direct ownership of 5% of the share capital of the paying company over a minimum shareholding period of 365 days.
- The WHT exemption applies unless dividends are paid to a Mexican company whose share capital is held for more than 50%, directly or indirectly, by one or more third country residents.
- The 5% rate applies f the Japanese company has held, at least, 10% of the share capital of the French company over the period of 6 months ending on the date on which entitlement to the dividend is determined. No WHT applies if the Japanese company has held, at least, 15% over the same period.
- No WHT applies if dividends are taxable in Morocco.
- The 5% rate applies to dividends when three conditions are fulfilled, as follows: the beneficial owner of the dividends (1) must have invested at least EUR 76,224.51 in the company that pays these dividends; (2) must be a company liable for CIT; and (3) must be exempt from CIT. The rate is 10% when only condition (1) or both conditions (2) and (3) are fulfilled. In all other cases, the rate is 15%.
- The exemption of WHT shall not apply where dividends distributed benefit a body corporate controlled directly or indirectly by persons who are not residents of one of the Contracting States, except if such body corporate proves that the principal objective of the participation is not to benefit from the nil WHT rate. Where the exemption from withholding at source is requested on the basis of Article 15, paragraph 1, of the Agreement of October 26, 2004 between the Swiss Confederation and the European Community providing measures equivalent to those provided in Council Directive 2003/48/EC on the taxation of income from savings in the form of interest payments, the nil WHT shall apply if the body corporate is controlled, directly or indirectly, by one or more residents of States which are members of the European Community.
- The 5% rate applies to gross dividends if the beneficial owner is a Ukrainian company that holds, directly or indirectly, at least 10% of the French company’s share capital. The rate is 0% if the shareholding is at least 50% and EUR 762,245 or if the shareholding is guaranteed by the Ukrainian State, its central bank or any other person acting on its behalf. It is 15% in all other cases.
- Non-treaty recipients of royalties and management fees are subject to a 5% WHT rate. Where a treaty exists, management fees are exempt from WHT unless they are included in the definition of royalties subject to WHT.
- In France, the WHT is levied on a provisional basis at 5% of the net profit. This amount is reduced to the extent it exceeds the dividends effectively paid by the company during the previous 12 months, and the amount of dividends paid to residents of France. Consequently, if the foreign head office undertakes not to distribute dividends in a given year, the after-tax profits of its French branch are not subject to WHT, even when they are transferred abroad.
- WHT on interest on loans with a contract is 0%, while withholding on other interest is in a range from 15% to 75%. For treaty rates, consult the individual entry in the table.
- The WHT rate can be 60% for certain securities if the investor’s identity is not disclosed.
- The WHT is levied on the following amount: French net profit divided by the total foreign company net profit, multiplied by the amount of the distribution.
- The rate of 10% is applicable on royalties for the use of literary, artistic, or scientific works, including films; 25% on royalties for the use of trademarks; and 15% otherwise.
- No WHT is applicable on a royalty arising from the use of or the right to use literary, artistic, or scientific works (excluding film) (Trinidad and Tobago: scientific works are excluded from the scope of the WHT exemption).
- WHT is reduced to 6% for royalties paid for the use of or the right to use industrial, commercial or scientific equipment.
- A rate of 5% is applicable on royalties paid for the use or the right to use of films.
- Profits realised in France by foreign corporations whose head offices are located in a European country are not subject to WHT if certain conditions concerning the foreign corporation are met (head office in a European country; foreign corporation subject to corporate taxation).
- No WHT is applicable on a royalty arising from the use or the right to use literary, artistic, or scientific works.
- No WHT is levied on certain royalties paid in the field of audio-visual techniques.
- The rate of 10% is applicable on royalties paid for the use of literary, artistic or scientific works, including films. The rate of 15% is applicable on royalties paid for industrial property or for information concerning industrial, commercial or scientific experience.
- A rate of 5% is applicable on royalties paid for the use or the right to use films.
- The rate of 5% is applicable on royalties paid for the use of or the right to use literary, artistic, or scientific works (Azerbaijan: the scientific works are excluded from the scope of the reduced rate), including films.
- The rate of 5% is applicable on royalties paid for the use of literary and artistic works, including films, and for information concerning commercial experience.
- No WHT is levied on royalties paid for the use of or the right to use literary or artistic works, excluding films and recordings.
- No WHT is levied on royalties paid for the use of or the right to use copyrights or cinematographic films.
- No WHT is levied on royalties paid for the use of or the right to use industrial, commercial, or scientific equipment.
- The rate of 20% is applicable on royalties paid for the use of trademarks, films (0% if paid to a Tunisian public body) 15% for the use of industrial property, and 5% for the use of literary, artistic, or scientific works (excluding films).
- The rate of 5% is applicable on royalties for the use of literary, artistic, or scientific works, not including films.
- The rate of 5% is applicable on royalties for the use or the right to use industrial, commercial, or scientific equipment.
- The reduced rate is applicable if the beneficial owner is a company (other than a partnership).
- Voting shares solely.
- The rate of 10% is applicable on royalties for the use of literary, artistic, or scientific works, including films.
- See explanation of Column 6.
- No WHT is applicable : on a royalty arising from the use of or the right to use literary, artistic, or scientific works (excluding film) / royalties for the use of, or the right to use, computer software / royalties for the use of, or the right to use, any patent or for information concerning industrial, commercial or scientific equipment.
- No WHT is applicable on royalties paid for the use of immovable property or for the working of mines, quarries or other natural resources (they shall be taxable only in the State in which such resources are situated).
- No WHT is applicable on royalties paid for the use or the right to use any copyright of literary, artistic or scientific work or the use or the right to use television films or radio program where the recipient is a service or public body.
- The rate of 5% is applicable on royalties paid for the use of or the right to use copyright of literary, artistic or scientific works (excluding films) and the rate of 10% is applicable on royalties paid for the grant of licenses for use of patents, designs, models, plans, secret formulas and processes from sources.
- The rate of 25% is applicable to royalties derived from the use or the right to use a trademark, the rate of 5% is applicable to royalties derived from the use or the right to use any copyright of literary, artistic or scientific work, including cinematographic films, 15% otherwise.
- No WHT is applicable on royalties paid for the use of any software, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.
- No WHT is applicable on royalties paid for the use of the right to use any copyright or similar right.
- No WHT is applicable on royalties and similar payments paid to Thailand or a Thai state enterprise with respect to films or works registered on magnetic tapes.
- No WHT applies on copyright royalties with respect to the production or reproduction of literary, dramatic, musical or artistic work (excluding royalties with respect of motion picture films and films or videotapes for use in connection with television and tapes for use in connection with radio).
WHT on French-source dividends
The EU WHT exemption extends to dividends paid by foreign companies whose effective place of management is in an EEA member state that has concluded an administrative assistance agreement with France (including Iceland, Liechtenstein, and Norway).
Shares held in bare ownership are taken into account for the computation of the 10% percentage in the distributing entity’s capital in order to benefit from the WHT exemption. The ownership percentage required to benefit from the WHT exemption may be reduced from 10% to 5% if the beneficial owner of the dividends (EU or EEA) cannot offset the French domestic WHT in its home country.
The WHT exemption also applies if dividends are paid to a parent company based in the European Union or in a third country that has concluded an administrative assistance agreement with France that is in a tax loss position and is declared bankrupt or is in a similar situation.
Dividends received by a French parent from qualifying holdings
Shares held in bare ownership are taken into account for the computation of the 5% percentage in the subsidiary’s capital in order to benefit from the participation-exemption regime.
Participation exemption is available for distributions received from entities established in NCSTs, provided the parent company demonstrates that these operations are not designed for, or do not result in, locating profits in such NCST for tax fraud purposes.
There is an exclusion of certain dividend distributions (e.g. distributions made by société d’investissement immobilière côtée [SIIC], société immobilière pour le commerce et l’industrie [SICOMI], société de placement à prépondérance immobilière à capital variable [SPPICAV], etc.) from the participation-exemption regime.
Anti-avoidance rules applicable to Non-Cooperative States or Territories (NCSTs)
The French parent-subsidiary regime is not applicable to dividends paid from entities located in an NCST unless the entity can demonstrate that its activities are real and it does not seek to locate profits in the NCST.
WHT on passive income is 75% for transactions with an NCST person or entity.
Payments (e.g. interests, royalties, payments for services) made to an NCST person or entity are, as a general rule, not tax deductible. In addition, it is not possible to offset WHT in France with any foreign WHT borne by the entity located in an NCST.
Moreover, concerning shareholders (individuals and companies) located in an NCST, a tax amounting to 75% is levied on capital gains derived from the disposal of shares in French companies, whatever the level of shareholding unless the entity can demonstrate that its activities are real and it does not seek to locate profits in the NCST.
In 2021, the list of NCSTs includes Anguilla, Dominica, Fidji, Guam, US Virgin Islands, Palaos, Panama, American Samoa, Samoa, Seychelles, Trinity and Tobago, Vanuatu.
Specific Anti-Abuse Rule (SAAR)
A SAAR provides that the French WHT exemption does not apply to an arrangement or series of arrangements when the following two conditions are met:
- The arrangement or the series of arrangements were put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the Directive;
- The arrangement or the series of arrangements are not considered as genuine, which means that it does not rely on an economic rationale.