Flat tax or PFU: how does it work? What advantages for the taxpayer?
The flat tax, or PFU Prélèvement Forfaitaire Unique, came into force on January 1, 2018. This is a single rate that applies to many financial investments, unless the taxpayer chooses otherwise.
How does it work and what are the benefits of PFU? We explain everything in this article!
Operation of the flat tax or PFU
Single rate of 30%
First of all, know that the flat tax is now 30%. Its rate has not changed since 2018. It includes:
- 17.2% for social contributions (CSG, CRDS, solidarity levy),
- 12.8% income tax (flat rate applicable to all).
The PFU does not give rise to tax deduction or allowance, it is a flat rate, to be paid on certain income
Financial products affected by the flat tax
The flat tax applies to income generated by taxable financial investments, but also to income from movable property. Here is the list of products to which the PFU is applicable:
- life insurance,
- The PEL Housing Savings Plan,
- The CEL Home Savings Account,
- Taxable savings books,
- term accounts,
- The dividends,
- Equity income,
- bond income,
- Capital gains from the sale of securities…
It is therefore movable investments that are affected by the flat tax, and not real estate investments.
When do you pay the flat tax?
The PFU applies to all gains made since January 1, 2018 relating to income from movable property. The tax system depends on the opening date of your investment and the category of products on which the flat tax is due.
For life insurance
The PFU applies to life insurance, only for interest from payments made since September 27, 2017.
The flat tax for income tax is:
- 12.8% for contracts less than 8 years old (and 17.2% social security contributions),
- 12.8% for contracts of more than 8 years (and 17.2% for social security contributions), but outstandings greater than 150,000 euros, all life insurance combined,
- 7.5% for contracts over 8 years (and 17.2% social security contributions), and outstanding amounts of less than 150,000 euros.
This lump sum is deducted directly by the insurer during a partial or total withdrawal. In addition, the allowances of 4,600 euros for a single person and 9,200 euros for a couple are retained.
The final tax is therefore made when you file your income tax the following year, and any excess paid is automatically returned to you.
For the ELP
PELs opened before January 1, 2018 are exempt from income tax (until the 12th anniversary of the contract). Only social security contributions of 17.2% are to be paid during the annual payment of interest.
On the other hand, for PELs opened after January 1, 2018, or those over 12 years old, the flat tax on interest amounts to 30% in total.
Unless an exemption is requested from the issuer of the dividends the year preceding their payment, this movable income is automatically subject to the flat tax and deducted directly by the issuer (a SARL or SAS for example).
Thus, the sum you receive in respect of dividends is net, income tax and social security contributions have already been charged.
For capital gains on securities
Any capital losses are of course deductible. But when you sell securities (stocks, bonds, trackers, etc.), the PFU is due during the annual taxation of your income.
It is therefore up to the taxpayer to declare his income and pay the related taxes the following year.
The advantages of the flat tax or PFU
The flat tax should not be seen as a constraint or bad news, but rather as a simplification of the payment of taxes, since the amount is fixed and does not depend on your income or the situation of your tax household.
In addition, it is always possible to opt for taxation at the progressive scale of income tax, if it proves to be more advantageous for you. And for that, it is imperative to know your MTR Marginal Tax Bracket.
Good for high earners
It is advantageous for high incomes, who saw their dividends double taxed, first with social security contributions, then with the progressive scale of income tax. Their taxes could therefore amount to up to 60.5% (45% TMI and 15.5% social security contributions at the time).
Today, this tax is limited to 30%, even if an exceptional contribution on high incomes limits it. But it is only due for a reference tax income of more than 250,000 euros and therefore concerns a minority of taxpayers.
Option for the progressive scale for lower incomes
Finally, if your TMI does not exceed 11%, i.e. if your income bracket for one person does not exceed 25,710 euros in 2021, it is in your best interest to opt for taxation at the progressive scale. . Indeed, you will no longer pay the flat tax but only the social security contributions of 17.2%.
When you file your tax return, your earnings will be taxed at the progressive scale, either 0% or 11% depending on the TMI in which you are, which is always lower than the flat rate of 12.8%.
Be careful though, we advise you to do a simulation each year on the tax site, if you are at the top of the TMI at 11%. Indeed, your winnings could make you switch to the upper TMI, i.e. 30%, in which case the flat tax would become more advantageous!