Taxation of shares in France

The attention of shareholders is drawn to the fact that this presentation is a summary of the currently applicable tax system. It is given as general information and is not intended to constitute a complete analysis of all the tax consequences that could apply to a shareholder; it is therefore recommended that shareholders consult their usual tax advisor in order to study their specific situation.

The following provisions present the main tax consequences applicable to individual or legal entities that hold securities in their private assets and do not carry out stock market operations on a regular basis.

“Taxation of shares in France” means “Individual shareholders who are tax residents in France”.

Dividends

Aside from a share-savings plan, shareholders have a choice between two dividend tax systems:

• The general regime consisting of the application of the progressive income tax scale in the category of revenue from movable assets,
• The Optional withholding tax at source (PFL) regime at a rate of 21%.

The general regime

This general system applies unless the flat-rate withholding tax option is chosen.

In accordance with the provisions in article 158 sections 3-2 to 5 of the French tax code (Code Général des Impôts), the dividends benefit, firstly, from an annual uncapped allowance of 40% on the total distributed income (hereinafter referred to as “the 40% Reduction”), and secondly, from a fixed annual allowance, applicable after the 40% reduction. The allowance is €3,050 for couples who are married or in a civil partnership (or PACS in France) paying joint tax, and €1,525 for single taxpayers, widows, divorcees or those married and taxed separately (“Fixed Annual Allowance”).

However, in respect of income earned in 2010, the taxpayer will no longer benefit from the 50% tax credit on dividends received (limited to €115 for a single person, widower, widow, divorced or separately taxed married person, and limited to €230 for a married couple or civil solidarity pact partners who are taxed jointly).

The tax credit is allowed against the income tax due for the year in which dividends are received. If the amount exceeds the tax due, the excess is refunded subject to being at least equal to €8.

In addition, the gross amount of dividends received (before applying any rebates), is subject to the five social security contributions due in respect of unearned income, the total standing at 13.5%:

• CSG social security tax at a rate of 8.2%, of which 5.8% is deductible from the overall taxable income for the year of its payment;
• CRDS social security debt contribution at a rate of 0.5 %;
• the social levy of 3.4% plus the additional contribution at a rate of 0.3% and the 1.1% contribution to finance the earned income supplement or RSA (Revenue de Solidarité Active).

Optional flat-rate withholding tax system or PFL (Prélèvement Forfaitaire Libératoire)

If this option is exercised, at the latest, on cashing in the dividends, shareholders can opt for the flat-rate withholding tax (PFL) and be subject to withholding tax at a rate of 21% on the gross amount of dividends received on or after 1 October 2011 (19% until 30 Septcember 2011).

In addition, dividends subject to the flat-rate withholding tax (PFL) are subject to the five social security contributions, amounting to 13.5% for income received on or after 1 October 2011 (the CSG is therefore not deductible from taxable income).

This means that the overall tax rate if the option to the flat-rate withholding tax is exercised stands at 34.5% of the gross amount of dividends.

Please note!

• the PFL option is exclusive of the benefit of the deductions and tax credits provided should the general regime be applied;
• a shareholder who opts for one year for the PFL regime, even to collect dividends only once, is in principle no longer eligible for any of the dividends to any of the allowances provided for in the general regime.

Capital gains (capital gains realised on or after 1 January 2011)

From 1 January 2011, capital gains on asset disposals are liable for income tax as well as for social welfare contributions regardless of the value of the disposals made by the taxpayer during the year (thus removing the minimum threshold for income tax and well as social security contributions).

This means that from the first euro of proceeds from an asset disposal, all capital gains will be taxed at the standard tax rate of 34.5% (ie, income tax up from 19% to 21% plus social security contributions).

Capital losses on disposal

Capital losses on assets disposals realized since 1 January 2002 can be deducted from similar capital gains realized in the year of disposal or within 10 years after disposal.
This possibility is now available from the first euro of disposal for capital losses realized in or after 2011.  

Special regime for Sharesave plans (PEA)

The shares in the Company are assets eligible for the PEA. When part of a PEA (share savings plan), the tax benefits are acquired from year 5 (for a normal plan duration of 8 years). The ceiling for payments to the PEA is €132,000 (€264,000 for a couple).

Under certain conditions, the Sharesave Plan entitles the holder:

• during the Sharesave Plan, to a tax exemption on income and social security contributions at the rate of net proceeds (dividends) and net capital gains resulting from investments made as part of the Sharesave plan, notably on the condition that these proceeds and capital gains are maintained in the Sharesave plan; 
• when closing the Sharesave plan (if this occurs more than five years after the start date of the plan) or when there is a partial withdrawal (if it occurs more than eight years after the start date of the plan), to a tax exemption on the income at the rate of the net gain made since the start of the plan. The net gain remains subject to social security contributions (13.5% on or after 1 October 2011 – and 12.3% from 1 January to 30 September 2011 – it being stated, however, that the effective rate of these contributions varies according to the date on which the gain was acquired or realised).

⁽¹⁾ A withdrawal or partial redemption after 8 years does not end the plan, but prohibits any new payments into it.
⁽²⁾ i.e. € 25,830 for income tax in 2010 (this threshold is assessed taking into account the disposals made outside the PEA and its net asset value).

Capital losses realised on shares held in the context of a PEA are taxable, in principle, only on capital gains realised in the same context. However, in the event of an early closure of the PEA before expiry of the fifth year, (or under certain conditions in the case of closure of the PEA after the fifth year), capital losses realised may be allocated to gains of the same kind realised outside the plan (in an ordinary account) for the year of closure or the next ten years.

Please note!

• Dividends received as part of a PEA qualify for the tax credit of 50% provided for in section 200 f of the General Tax Code. This tax credit is not paid into the plan, but is due under the same conditions as the tax credit attached to dividends received outside a PEA;
• Company shares allocated in exchange for share allotment rights can only be invested as part of a Sharesave plan on the condition that the allotment rights in question are part of the said plan, (i.e. on the condition that the shares in the SUEZ ENVIRONNEMENT COMPANY from which the rights have been detached are part of the PEA and/or that the rights acquired after the Contribution-Distribution operation have been financed by deduction from the cash account of the plan.

French solidarity tax on wealth

Company shares held by individual entities as part of their private assets will be included in their wealth taxable, where applicable, included in calculating the French solidarity tax on wealth (ISF).

Taxpayers can opt to declare the value as the last trading price on 30 December 2011 (€8.901) or the average of the last 30 days’ trading prices in the calendar year (€xx.xx).

Wealth transfer

Gifts and bequests of shares are governed by French law. A parent, grandparent or great-grandparent can gift up to €151,950 in any 6-year period tax-free to a child, €30,390 to a grandchild and €5,065 to a great-grandchild.

Consequences of Contribution-Distribution operations

Pursuant to article 115-2 of the French tax code, the free allocation by SUEZ of Company shares (or, where applicable, of allotment rights to fractional Company shares) to its individual or legal entity shareholders, is not considered to be a distribution of income from movable assets.

The profit from these preferential provisions is not subject to any condition for individual shareholders residing in France. As a reminder, the cost basis of Company shares (or allotment rights to fractional Company shares) received as part of the Contribution-Distribution operation is equal to zero.