Flat-rate tax or progressive scale: How to choose?


Investment income, i.e. essentially dividends and interest, as well as capital gains realised on the sale of transferable securities on or after 1 January 2018 are, by default, subject to income tax at a flat rate of 12.8%, plus social security contributions at 17.2%, i.e. a total rate of 30%, also referred to as the flat-rate tax (PFU – prélèvement forfaitaire unique). 

However, it is possible to opt to be taxed at the progressive income tax scale, by making an express and irrevocable option in relation to all investment income and capital gains on the disposal of transferable securities.

This comprehensive option is made on the tax return filed by the tax household.

The IR scale will apply instead of the fixed rate of 12.8%.   

This option is annual and renewable each year. Social security contributions are still payable at the rate of 17.2%.   

Taxation at the flat-rate tax does not entitle the taxpayer to the proportional allowance based on their holding period applicable to capital gains on the disposal of securities acquired before 1 January 2018 or the 40% allowance on dividends, where applicable.   

However, these allowances are available where the taxpayer opts for the progressive income tax scale, where applicable.