1. From a personal tax point of view, dividends received were (and still are) subject to an abatement of 40%; so if you take €100,000 in dividends, only €60,000 is subject to personal income tax (at your normal marginal rate of tax). 2. The dividends as “unearned” income were subject to social tax at 15.5%, rather than the higher rate of social security contributions afflicted on “earned” income.
For years we all worked to maximise End-of-Year profit and after paying Corporation Tax we looked to maximise our dividend take in order to benefit from the above tax rules. It was one of the Golden Rules of “how to survive in business in France”.
And then along came Hollande.
Suddenly dividend taking was seen as a nefarious, capitalist tax dodge, something the super-rich did to indirectly deprive the State of much needed revenue. Pandering to the left-wing of the Socialist Party, Hollande decided in 2013 that a dividend from your own company was akin to salary, that is, it became a form of “earned” income, and thus from the spring of 2013 dividends were subject to the social contribution rate of a salary, so 48% – in other words, a staggering 32.5% hike over the previous regime. Ouch!
Indeed, we all squealed – and still are – with displeasure; small businesses now spend their time negotiating with the RSI (collectors of social security for the self-employed) on how to pay these extortionate new rates.
A Way Forward
For more than one shareholder, the SAS (Société par Actions Simplifieé) or if there is just one shareholder, SASU (Société par Actions Simplifiée Unipersonnelle).
Previously a SAS had been destined for complicated shareholdings of major corporations, multinationals and the like of the size of TOTAL or BNP, but since 2008 the rules governing the SAS have made it a suitable corporate structure for smaller entities, with numerous advantages over a SARL (or EURL). The most important being that the President of a SAS is considered to be an employee and as such pays social contributions on salary per se (ie 48%), but not on dividends (which just attract the 15.5% CSG/CRDS levy).
In addition, if the President of the SAS decides not to take any salary, there is no minimal social security contribution as there is with the Gérant of a SARL (or EURL).
Transforming a SARL (or EURL) into a SAS is not particularly complicated, but relatively expensive, as indeed is the general administration and running of it. Think twice before doing it, but if the saving is the magical 32.5% on the dividend drawing, it makes total sense. The SARL is dead, long live the SAS!
