The prélèvement libératoire (flat-rate withholding tax) is a tax option allowing certain income to be taxed at a flat rate. This mechanism is part of the tax regimes and declarations available in France. To optimize your tax situation, you need to understand exactly what income is concerned. This type of taxation has a number of important specificities that can influence your overall tax burden.

What is the withholding tax?

Until 2018, the prélèvement libératoire (flat-rate withholding tax) was a flat-rate tax system applied to certain types of capital income. In contrast to the progressive marginal tax rate, this system applied a fixed rate as soon as the income was received, varying from 15% to 24% depending on the financial products. Since January 1, 2018, this mechanism has been replaced by the Prélèvement Forfaitaire Unique (PFU), also known as “flat tax”, which takes up the fundamental principles of the prélèvement libératoire while unifying the rates at 12.8% tax plus 17.2% social security levies, i.e. an overall rate of 30%.

This mechanism is distinguished by its administrative simplicity and tax predictability. With the current PFU, the financial institution deducts the tax directly at source, although you must now declare this income in your annual tax return, unlike the former prélèvement libératoire, which was totally at arm’s length. The rate applied remains the same, whatever your marginal tax bracket. A major difference with the old system: the PFU gives you the option of opting for taxation on the progressive scale if this is more advantageous for your personal tax situation.

The deduction is made automatically by the institution paying the income at the time of payment. Social security contributions of 17.2% are systematically added to the flat-rate tax of 12.8%. You need to assess whether you should retain the PFU or opt for the progressive scale, depending on your overall situation and your marginal tax rate.

The different types of income concerned

Several categories of income are eligible for the withholding tax. Tax legislation strictly regulates the income eligible for this system. You need to identify the precise nature of your income to determine its eligibility.

Income from transferable securities

Income from transferable securities has undergone a major change in its tax regime. Since January 1, 2018, the majority of this income has been subject to the single flat-rate withholding tax (PFU) of 30%, also known as the “flat tax”, rather than the traditional withholding tax at source. This reform has profoundly altered the taxation of interest and dividends.

Interest on savings accounts, bonds and savings bonds is now subject to the PFU, with the possibility of opting for the progressive income tax scale. Dividends on shares are subject to the same tax regime: 30% PFU or option for the progressive scale. The 40% allowance on dividends no longer applies automatically, but only if you opt for taxation on the progressive scale.

A few residual cases of traditional withholding tax remain. Plans d’épargne logement (PEL) opened before March 1, 2011 and held for at least 12 years still benefit from this system. Life insurance products for non-French tax residents may also be subject to withholding tax under international tax treaties. Life insurance surrenders made after eight years of ownership benefit from an annual allowance (€4,600 for a single person, €9,200 for a couple) before application of the withholding tax, whether PFU or prélèvement libératoire, depending on your residency status.

Fixed-income investment products

Treasury bills and government bonds are investments eligible for the flat-rate withholding tax. These government-issued debt securities generate interest that can be taxed under this flat-rate system. Interest on term accounts and home savings plans also fall into this category. The rate of withholding tax applicable depends on the duration of the investment and the date of subscription, creating a tax differentiation according to the age of your investment.

Certificates of deposit and savings bonds issued by banks are also covered by this scheme. These financial instruments offer a fixed, pre-determined remuneration, the taxation of which can be optimized by opting for the prélèvement libératoire (withholding tax). You need to check the specific conditions for each financial product, in particular the amount thresholds and minimum holding periods. Regulations change regularly, so you need to keep a constant eye on tax issues to adapt your investment strategy to the latest provisions.

Specific property income

In exceptional cases, certain types of property income may be subject to withholding tax. Non-professional furnished rentals sometimes benefit from this system. You must comply with certain income thresholds and operating conditions. However, the majority of income from property remains subject to the progressive income tax scale.

Applicable rates and calculation methods

Since 2018, the prélèvement forfaitaire unique (PFU – single flat-rate withholding tax) has replaced the former prélèvement libératoire system for the majority of capital income. The PFU rate is 12.8% for income tax, to which 17.2% social security levies are systematically added. You therefore bear a total tax burden of 30% on your income from transferable securities. This single rate applies to interest, dividends and capital gains, considerably simplifying your tax calculation.

The old prélèvement libératoire, which existed before the 2018 reform, applied different rates depending on the nature of the income. Interest on bank passbooks was taxed at 15%, while other financial products were subject to rates of 18% or 24%. These historic rates no longer apply today, except in a few specific residual situations. Calculation was based on the gross amount of income received, with no possibility of deduction or allowance.

Some products retain specific rates that are exceptions to the standard PFU. For life insurance, redemptions made after eight years of ownership benefit from a reduced rate of 7.5% on gains from payments of less than €150,000, then 12.8% above this threshold. PEL home savings plans opened between 2011 and 2018 are taxed at 12.8% after twelve years. No deduction applies before the PFU levy, which is an undeniable administrative advantage.

The flat-rate withholding tax (prélèvement forfaitaire non libératoire ) can be used as a payment on account in certain situations, in particular before the application of the definitive PFU. You need to distinguish between these two mechanisms to understand your tax situation. The paying institution calculates and remits the tax directly to the tax authorities, whether under the PFU or the former prélèvement libératoire.

Advantages and disadvantages of withholding tax

The main advantage is administrative simplicity. You don’t include this income in your annual tax return, reducing the risk of error. The tax burden is immediately known and predictable. This visibility facilitates cash management and financial planning.

The major disadvantage is for taxpayers with low incomes. If your marginal tax rate remains below the withholding tax rate, you pay too much tax. Non-taxable or low-taxed taxpayers suffer a tax penalty. You need to compare your marginal rate with the flat rate to assess whether this option is right for you.

The rigidity of the system is also a disadvantage. You cannot deduct expenses or benefit from specifictax allowances. A tax optimization consultant can help you determine the most advantageous system. This comparative analysis should be an integral part of any tax avoidance strategy.

Reporting obligations and procedures

The option to pay withholding tax is generally taken when you open an account or make an investment. You must expressly indicate your choice to the financial institution. This option may be revocable or irrevocable, depending on the products concerned. The various tax returns do not mention this income when the levy is definitive.

The paying institution assumes responsibility for deduction and remittance to the tax authorities. These compulsory deductions include both flat-rate tax and social security contributions. You will receive proof of the deduction. This document must be kept as proof of tax payment. Withholding deadlines generally coincide with income payment dates.

Certain situations require additional declarations. Extraordinary income or changes in family circumstances can alter your tax strategy. You should inform your financial institution of any significant changes. You are responsible for coordinating the various paying institutions.

Optimize your tax situation with withholding tax

Tax optimization is based on a quantified comparison between the flat-rate withholding tax (PFU) and the progressive tax scale. You need to analyze your marginal tax rate, the amount of your financial income, the presence of other sources of income and your family situation. This comparative analysis determines the most advantageous tax regime for your wealth situation.

The PFU amounts to 30% (12.8% tax + 17.2% social security contributions), while the progressive scale applies your TMI to capital income after a 40% allowance on dividends and partial deductibility of CSG (6.8%). In concrete terms, for €10,000 in dividends, the PFU generates €3,000 in total taxation. With the progressive scale, a taxpayer with an 11% tax rate will pay around €1,380 (after allowance and deductible CSG), while a taxpayer with a 45% tax rate will pay around €3,950.

The threshold for benefiting from the PFU is generally around a TMI of 30%. More precisely, taking into account the CSG deductible on the progressive tax scale and the 40% allowance on dividends, the break-even point is between 25% and 28% TMI. Highly-taxed taxpayers (TMI of 30%, 41% or 45%) therefore benefit from the PFU, while low-taxed taxpayers (TMI of 0% or 11%) benefit from the progressive scale.

Let’s take the example of a couple with 2 tax shares and €60,000 in taxable income, receiving €15,000 in annual dividends. With the PFU, taxation amounts to €4,500. With the progressive tax scale (TMI at 11%), after a 40% allowance,capital gains tax represents around €2,070, a saving of €2,430. The same couple with taxable income of €100,000 (TMI at 30%) would pay around €4,680 on the progressive scale, making the PFU slightly more advantageous.

By diversifying your investments, you can optimize your overall tax burden. You can combine income subject to the PFU with other tax regimes as part of a carefully thought-out wealth management strategy. The timing of life insurance surrenders is a major optimization lever: give preference to surrenders after 8 years to benefit from the annual allowance of €4,600 (€9,200 for a couple). Spread your investments between different products (PEA, life insurance, securities account) to maximize the tax advantages specific to each envelope.

Legislative changes regularly modify the parameters of the withholding tax and the PFU. Every year, you need to reassess the appropriateness of opting for the progressive tax scale, which you exercise when filing yourincome tax return. Changes in your personal or professional situation (marriage, birth, changes in income) also justify a review of your strategy. Corporate taxation can also influence your investment and remuneration choices, particularly for managers who choose between dividends and salaries.

The prélèvement libératoire (withholding tax) and the PFU (withholding tax on earned income) are tax tools that make sense in certain asset configurations. You need to carry out precise simulations before opting for one of these systems. Consulting a tax law professional guarantees optimization in line with current regulations and tailored to your specific situation.

Prélèvement libératoire vs PFU: what’s the difference?

The French tax landscape has undergone a major transformation with the introduction of the Prélèvement Forfaitaire Unique (PFU), also known as the “Flat Tax”, as part of the 2018 Finance Act. This reform has fundamentally altered the classic prélèvement libératoire regime that previously prevailed.

The fundamental distinction lies in the overall approach: whereas the old prélèvement libératoire offered variable rates depending on the nature of the income, the PFU now imposes a single rate of 30%, broken down as follows:

• 12.8% for income tax purposes
• 17.2% social security contributions

The PFU has largely replaced the traditional prélèvement libératoire (withholding tax) for the majority of income from transferable securities (dividends, interest, capital gains). Unlike the old system, the PFU applies by default, but the taxpayer retains the option of opting for taxation at the progressive scale when filing his or her annual tax return, an option that must be global for all the income concerned.

Another major difference is that income subject to the PFU must be declared, even if the tax is deducted at source by the financial institution. This requirement contrasts with the classic prélèvement libératoire (withholding tax) which, as its name suggests, definitively freed the taxpayer from any further action.

It is important to note that the true prélèvement libératoire still applies in a few residual cases:
– Interest on Plans d’Epargne Logement (PEL) opened before 2018
– Life insurance products for non-tax residents
– Certain foreign-source income covered by special treaty provisions

The coexistence of these two regimes requires special attention when managing your financial assets and filing your tax returns.

Practical examples of comparative calculations

To better understand the advantages of choosing between the single-rate withholding tax (prélèvement forfaitaire unique – PFU) and the progressive scale, let’s look at a few concrete situations:

Important: The choice between the PFU and the progressive scale must take into account all income from transferable securities received during the tax year. The option for the progressive scale is global and applies automatically to all the income concerned – it is not possible to select the tax system product by product.

This comparative analysis reveals that the break-even point is generally around an income tax rate of 30%. Below this level, the progressive scale is more advantageous; above this level, the PFU offers substantial savings. Consult a tax expert to determine the best strategy for your personal situation.