France’s and Hong Kong’s tax regimes differ greatly relative to company dividends. We illuminate the considerations for resident and non-resident beneficial shareholders, individuals and corporates.
In Part 1 of this series, we looked at the similarities between the legal frameworks governing the distribution of dividends by companies in France and Hong Kong. In this article, we’ll focus on how dividend distribution differs most between the two jurisdictions – and that is, in the area of taxation. To make it easier to see at a glance how the tax regimes differ, we present the relevant scenarios in tabular form.
To avoid getting lost in the details of the different types of commercial companies that can be formed in France, for the purpose of this article, we’ll use the example of a form of private company limited by shares, called a société par actions simplifiée (SAS), which is subject to French corporate tax (impôt sur les sociétés, or IS). In Hong Kong, which has only one form of legal entity for companies, we’ll use the example of a private company limited by shares. In addition, let’s assume that the financial year end for both companies is 31 December and the articles of association do not contain derogatory provisions.
Taxation of resident beneficial shareholders
France
Dividends received by individuals regarded as tax residents of France are subject to a flat tax (prélèvement forfaitaire unique, or PFU) at a rate of 30%, broken down as follows:
- » 12.8% of individual income tax (impôt sur le revenu, or IR);
- However, if the latter tax regime is more favourable to them, shareholders may opt for taxation at the progressive income tax rate in order to benefit from a 40% allowance on dividends.
- and 17.2% of social contributions.
Tax is deducted by the company directly from the gross amount of the dividends.
Hong Kong
In Hong Kong, dividends are not taxed.
Table 1: Taxation of dividend beneficiaries which are tax residents of the same country as the distributing company
| Individual shareholder | Corporate shareholder | ||
| Companies that distribute dividends | Companies in France | Taxation under PFU:
IR at 12.8% or on the progressive scale of the IR (40% tax allowance) |
Standard rate of corporate tax
or application of parent/subsidiary[1] regime and taxation of dividends at 5% |
| Companies in Hong Kong | No taxation | No taxation |
Taxation of non-resident beneficial shareholders
Withholding tax rates under French law
Dividends from French sources paid to non-resident individual shareholders are subject to final withholding tax at a rate of 12.8%, while those distributed to non-resident corporate shareholders are subject to a final withholding tax rate of 26.5%.[2] However, these withholding tax rates may be reduced by the application of an international tax agreement between France and the beneficiary’s country of tax residence.
The international tax agreement between France and Hong Kong
According to the Comprehensive Double Taxation Agreement signed between France and Hong Kong on 21 October 2010,[3] dividends are taxable in the country of the beneficiary’s tax residency, meaning:
- An individual shareholder who is a French tax resident and receives dividends from a Hong Kong company will have to include them in his/her French income tax return and pay taxes in France.
- A corporate shareholder which is a French tax resident and receives dividends from its Hong Kong subsidiary may be eligible for the parent/subsidiary regime (if the holding conditions are met), and will therefore pay tax on 5% of the dividends paid.
In addition, the Agreement provides that dividends may be subject to withholding tax at a rate not exceeding 10% of the gross amount.[4] In practice, and subject to an application made to the collection office for non-residents (or Recette des Non-Résidents), in accordance with the conditions provided for by law, dividends remitted from France to shareholders in Hong Kong are subject to a withholding tax of 10%.
Table 2: Taxation of dividend beneficiaries which are non-tax residents of the country of the distributing company
| Individual shareholders | Corporate shareholders | ||
| Companies that distribute dividends | Companies in France | 10% withholding tax | 10% withholding tax |
| Companies in Hong Kong | Taxation under PFU:
IR at 12.8% |
Standard rate of corporate tax
or application of parent/subsidiary regime and taxation of dividends at 5% |
How to benefit from the international tax agreement between France and Hong Kong
The Comprehensive Double Taxation Agreement’s reduced rates can be obtained via two methods:
- A simplified procedure, which allows application of the reduced rates from the date of payment of the dividend.
- The beneficiary shareholder must send to the bank managing the securities, before the dividend payment date, an original certificate of tax residence (i.e., Cerfa Form 5000: Certificate of Residence*), duly completed and signed by him/her, and approved by the tax authorities of his/her country of tax residence. The shareholder will have to renew the Certificate of Residence each year.
- The normal procedure (or refund procedure), allowing recovery of the withholding tax deducted in excess of the reduced conventional rate, corresponding to 2.8%.
- The shareholder must submit to the managing institution the original documentation (Cerfa Form 5000 and its annex, 5001*), duly completed and signed by him/her, and stamped by the tax authorities of his/her country of tax residence.
*For Hong Kong tax residents receiving dividends from French companies, it is necessary to obtain a certificate of tax residence from the local authorities. Therefore, a certificate of tax residence obtained from the Inland Revenue Department must be attached to the aforementioned Cerfa Forms. Information on how to obtain the certificate of residence can be found here.
We hope you’ve enjoyed this series comparing the distribution and taxation of company dividends in France and Hong Kong.
[1] The corporate beneficiary must hold at least 5% of the share capital of the company that distribute dividends.
[2] French Finance Law for 2020 (no. 2019–1479) provided for a decrease of the withholding tax rate from 28% to 26.5%, applicable to dividends distributed as from 1 January 2021, and to 25% for dividends distributed as from 1 January 2022.
[3] Agreement Between the Hong Kong Special Administrative Region (HKSAR) and France for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion (Comprehensive Double Taxation Agreement).
[4] Article 10 of the Comprehensive Double Taxation Agreement.
The law in this respect is complex. The information provided in this article does not, and is not intended to, constitute legal advice and should not be relied upon as such.
For professional legal advice, please do not hesitate to contact us.
