Taxation of Dividends Received by Shareholders

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Verified on February 17, 2025 – Directorate for Legal and Administrative Information (Prime Minister)

Dividends received by shareholders are subject to income tax (IR) or corporate tax (IS), depending on the tax regime of the shareholder. The rules differ based on whether the shareholder is an individual or a corporate entity. Additionally, the tax regime of the company distributing the dividends also plays a role. Dividends may be taxed either solely at the shareholder level or both at the company level and at the shareholder level.

What Are Dividends?

When a company subject to corporate tax (IS) generates profits, shareholders may decide, through a general meeting, to distribute a portion of these profits. These distributed profits are known as dividends.

In companies subject to income tax (IR), there are no dividends in the strict sense. This is because the company’s profits are not taxed at the company level but at the shareholder level, according to the shares they hold. The profits are included in the taxable income of the shareholder, meaning there is no separate dividend distribution.

How Are Dividends Taxed?

The taxation of dividends depends on the tax regime of the distributing company:

  • Income Tax (IR) Company: The company’s profits are taxed at the shareholder level. Each shareholder is taxed on the portion of profits corresponding to their shareholding. Dividends are included in the taxable profit.
  • Corporate Tax (IS) Company: Dividends are first taxed at the company level under corporate tax, and then taxed again at the shareholder level, based on their shareholding.

Companies Subject to Income Tax (IR)

When the company is subject to IR, its profits are taxed at the shareholder level. The dividends are included in the portion of profits corresponding to the number of shares held by the shareholder.

The taxation depends on the type of activity the company carries out:

  • Commercial or Craft Activity: Profits are taxed under industrial and commercial profits (BIC).
  • Professional Activity: Profits are taxed under non-commercial profits (BNC).

Companies Subject to Corporate Tax (IS)

  1. At the Company Level:
    The company’s profits (including dividends) are subject to corporate tax (IS), whether or not they are distributed. They are not deductible from the company’s profits.

The following corporate tax rates apply:

  • For companies with a turnover under €10 million and 75% of the capital held by individuals, a 15% tax rate applies on profits up to €42,500. Above that threshold, the rate increases to 25%.
  • For other companies, the corporate tax rate is 25%.
  1. At the Shareholder Level:
    Dividends are subject to income tax (IR) at the shareholder level.

Initially, a flat-rate withholding tax of 12.8% is applied to the gross dividend amount. This is withheld by the institution distributing the dividends to the shareholder.

This withholding tax is an advance payment on income tax, and the actual taxation occurs when the shareholder files their annual income tax return for the year in which the dividends were paid.

Shareholders can request an exemption from the withholding tax if they meet specific income conditions:

  • If single: Their fiscal reference income from two years prior to the dividend payment was below €50,000.
  • If married or PACSed: The fiscal reference income was below €75,000.

The request for exemption must be made by November 30 of the year before the dividend payment, and the shareholder must provide a sworn declaration confirming they meet the income conditions.

Taxation Options for Shareholders

Shareholders have two options for taxation of dividends:

  1. Flat-rate withholding tax (PFU): The PFU is 30%, which consists of 12.8% for income tax and 17.2% for social charges.
  2. Progressive income tax scale (IR): The shareholder may opt to be taxed according to the progressive tax scale instead of the flat-rate withholding tax.

How to Declare Dividends?

Shareholders receiving dividends must declare the amounts they received in their annual income tax return for the year in which the dividends were paid. The declaration method varies depending on the tax regime of the distributing company.