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1. What is income from movable capital and what are the different types?
What is the taxation of income from movable capital?
Movable capital income (RCM) is income generated by a financial investment, such as shares, bonds, structured products, savings accounts, etc... as defined by the General Tax Code, articles 108 to 117. This income is referred to as “movable” because it is associated with a financial asset that can be bought and sold relatively easily, as opposed to real estate capital income that comes from renting or selling real estate.
Income from movable capital can take various forms:
• Dividends are amounts paid by a company to its shareholders, representing a portion of its profits.
• Interests are amounts paid in exchange for a loan, such as interest received on a savings account or bonds.
• Investment products With fixed incomes are types of financial investments that offer a predictable and steady return to the investor. The amount of this return is determined in advance, often based on a fixed interest rate or a specific benchmark. Common examples of fixed income investment products include corporate or government bonds, certificates of deposit, and fixed income mutual funds.
• Variable income investment products are types of financial investments that do not guarantee a pre-determined return and may vary depending on the performance of the market or the underlying asset. They may offer higher returns, but they are also riskier and their returns may be uncertain. Common examples of variable income investment products include stocks, growth-oriented mutual funds, and derivatives such as options and futures.
• Capital gains are gains made on the sale of a financial asset, such as a stock or bond, that has increased in value since it was purchased.
It is important to note that income from movable capital may be subject to specific taxation, which may vary depending on the type of income, the fiscal situation of the investor and the tax regulations in force in the country where the income is received. It is therefore essential to fully understand the tax rules applicable to income from movable capital to avoid reporting errors and tax penalties.
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2. What is the taxation of income from movable capital?
In France, the taxation of income from movable capital depends on the type of income concerned.
Here is an overview of applicable taxation:
• Dividends : dividends received by an individual are subject to a single flat rate levy (PFU) of 30%, also called flat tax. This levy is composed of an income tax of 12.8% and social security contributions of 17.2%.
• Interests : Interest received on investments such as savings accounts, bank books or bonds are also subject to the 30% PFU.
• Fixed income investment products : some products such as bonds or capitalization contracts and equity savings plans (PEA) are subject to the 30% PFU.
• Variable income investment products are subject to specific taxation in France. Capital gains realized on the sale of shares are taxed at a rate of 30%, unless the shares have been held for more than 2 years. In this case, capital gains are taxed at a rate of 19% (+17.2% social security contributions). It is also possible to benefit from an allowance for a holding period in the event of the sale of shares. This reduction is 50% for a detention of between 2 and 8 years and 65% for a detention of more than 8 years. With regard to dividends received on shares, they are subject to the PFU of 30%, unless the taxpayer opts for the progressive income tax schedule, in which case the dividends are integrated with other income and taxed according to the progressive income tax schedule.
• Capital gains from the sale of securities : the capital gains realized during the sale of securities (shares, bonds, shares in Sicav or FCP) are subject to the PFU of 30% with exceptions for securities held for more than 2 years.
It is important to note that certain situations may give rise to specific tax regimes, in particular in the case of holding shares in a PEA or an ordinary securities account. It is therefore recommended that you contact the tax services or a wealth management advisor to find out exactly what your tax situation is.
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3. Exempt income from movable capital
In France, certain types of income from movable capital are exempt from income tax and social security contributions, in particular:
- Regulated savings accounts such as the Livret A, the LDDS (Livret de Dépargne Durable et Solidaire), the LEP (Livret d'Epargne Popolaire), the LEE (the Livret d'Epargne Entreprise), the LEE (the Livret d'Epargne Entreprise);
- Interest and capital gains realized on life insurance contracts, under certain conditions;
- Dividends received by companies subject to corporate tax, up to a limit of 10% of the amount of shares held, as well as dividends received by eligible European SMEs, under certain conditions;
- The interests of participatory loans granted to businesses;
- Interest and capital gains earned on stock savings plans (PEAs) and popular retirement savings plans (PERP) under certain conditions.
It is important to note that each type of income from movable capital that is exempt from income tax and social security contributions is subject to specific conditions and ceilings.
For example: In the context of life insurance contracts, the interest earned by the funds in euros is subject to income tax and social security contributions at the time of withdrawal. However, the insured person can benefit from an annual allowance of €4,600 for a single person and €9,200 for a couple subject to joint taxation. Beyond these amounts, interest is taxed on the progressive income tax scale, unless the contract was opened before September 27, 2017 and the interest does not exceed €150,000 for a single person or €300,000 for a couple.
Exemptions for certain types of income from movable capital in France are put in place in order to encourage savings and investment, and also to promote certain sectors of the economy.
For example, the interest exemption of regulated savings accounts such as Livret A and LDDS aims to encourage savers to invest their money in these savings products, which are considered to be financial accessibility tools for all.
The exemption of interest and capital gains realized on life insurance contracts is intended to encourage French people to save for their retirement or for their future projects, while benefiting from an advantageous fiscal framework.
Finally, the exemption from dividends received by eligible European SMEs is intended to encourage investment in these companies and to support economic activity in the European Union.
To conclude, income from movable capital must be taken into account in the annual tax return, which is fast approaching. For a good declaration of this taxation, it should be remembered that the paying institution must issue a form 2777 within 15 days of the payment of the RCMs (internal link to article 2777).
In addition, each beneficiary must receive a Single Tax Form (IFU) (internal link to the IFU article) from the financial institution, in order to be able to report the amounts received on its own annual tax return. It is therefore essential to take these elements into account carefully to avoid any error or omission in the tax declaration and thus avoid any tax penalty.
