Withholding tax: dividends, interest, royalties
French withholding tax on outbound flows: domestic rate, treaty reduction, European exemptions and the refund procedure.
Contents
The situation
A French company pays its foreign shareholder and discovers, at the moment of payment, that it must withhold. Or the reverse: it paid without withholding, and the tax audit now claims the tax from the company, which is the party liable.
On the recipient’s side, tax withheld at the domestic rate where the treaty provided for a reduced rate is rarely recovered. A refund procedure exists, it has a time limit, and it is almost never used.
What the rules say
| Flow | Default treatment | What can reduce it |
|---|---|---|
| Dividends | French withholding tax | reduced treaty rate, or exemption under the European parent-subsidiary regime, subject to holding and duration conditions |
| Interest | its own regime, often without withholding | treaties, and exclusions aimed at non-cooperative States |
| Royalties | French withholding tax | reduced treaty rate, or exemption between associated European companies |
Two conditions govern everything else: the beneficial owner must be the person named, and residence must be evidenced by a certificate from the other State. Structures inserting a conduit entity with no substance are precisely what anti-abuse clauses target.
What the firm does with those rules
Before a payment, the work is to check eligibility for the reduced rate or the exemption, to obtain the forms and the certificate of residence before the due date, and to document the substance of the recipient where a holding company is involved.
Afterwards, it is to claim the refund of excess withholding within the time limit, or to defend the paying company where the authorities claim tax that was not withheld, an argument that turns on the nature of the payment and the status of the recipient.
Frequently asked questions
Who pays the withholding tax?
It is deducted from the recipient’s income, but the paying company is liable for it towards the tax authorities. A failure to withhold is therefore claimed from the company.
How do you obtain the treaty rate?
By providing, before payment, the prescribed form and a certificate of residence from the other State. Otherwise the domestic rate applies and a refund must be claimed.
Is a Luxembourg holding company enough to avoid withholding?
Not in itself. European regimes and treaties require a beneficial owner with real substance.
How long do you have to reclaim tax withheld in error?
Within the time limits set by the tax procedure code, running from the payment. After that, the tax is definitively acquired by the Treasury.
This article sets out a general framework and is no substitute for a review of your file: every situation has its own dates, figures and documents.