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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
 A shareholder who is also an executive manager of the company can choose, under certain limits, to receive income through salaries and/or dividends (Restrictions apply).
Salaries, net of social taxes withheld by the employer, are taxable at the progressive income tax rate after deduction of professional expenses (Standard rebate of 10% or, upon option, deduction of actual expenses).
60% of the dividends received are taxable at the progressive income tax rate after a yearly flat deduction. Dividends also benefit from a tax credit. Social contributions apply (CSG, CRDS and Social surcharge) on 100% of the dividends received. To know more about this subject check Social taxes).
Since January 1st, 2008, it is possible to make an election for a final 18% flat taxation of dividends received, plus applicable social contributions (CSG, CRDS and Social surcharge - See Social taxes). The final 18% flat taxation and the applicable social contributions apply on 100% of the dividends received (No 40% deduction). It is therefore necessary to carefully evaluate the best option before making a decision. A shareholder who is also an executive manager of the company can choose, under certain limits, to receive income through salaries and/or dividends (Restrictions apply).
In order to fine the best mix of salaries and dividends, it is necessary to compare the net dividend received by the shareholder after social taxes and income taxes vs. the net amount received by the employee net of social contributions and income tax. Comparison should take into account not only the actual amount of cash received but also the deferred benefits provided by the social contributions (Healthcare, Pensions and if applicable unemployment).
Tax deduction of the salary of the spouse
For fiscal years starting on January 1stt, 2005 or later, the salary of the spouse of the business owner is fully tax deductible when the company is member of a registered management association. If not member, the salary is tax deductible up to a maximum of 13 800 euros.
LBO – Sale of shares of the employing entity
Case law authorizes French tax authorities to tax as regular income, and not as capital gain subject to the reduced flat rate of 16%, capital gains made by managers on the sale of the shares of their employing entity. This recharacterization is possible when French revenue can establish that the capital gain at stake rewards the individual activity of the manager when this activity goes beyond what is required by his position. It is advisable to anticipate this potential exposure, especially in case of LBO, when a significant part of the remuneration of the managers is directly linked to the increase of the value of the share acquired, or which may be acquired, by the managers.
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