France's 30% Flat Tax Explained: What Every Investor Needs to Know About the PFU and Potential Changes
Confused about France's Single Flat-Rate Tax? Discover how this 30% tax on capital income works, who it affects, and why potential increases matter for your investments in today's uncertain economic climate.
Understanding France's Flat Tax Increase: Key Economic Stakes
The term "flat tax" frequently appears in French public debates, often causing confusion. While some associate it with a major, generalized tax reform, it actually refers to a specific mechanism: the Single Flat-Rate Tax (Prélèvement Forfaitaire Unique or PFU). Implemented in 2018, this mechanism is currently at the center of discussions, particularly in France's tense budgetary and political context. Let's examine what this tax entails and why it matters for investors.
What Is the Single Flat-Rate Tax (PFU)?
Unlike income tax, which uses a progressive scale (the higher the income, the higher the tax rate), the PFU applies a single rate of 30% on capital income. It aims to simplify taxation and encourage French citizens to invest their savings.
This 30% rate combines:
- 12.8% for income tax
- 17.2% for social contributions (CSG, CRDS, etc.)
The PFU automatically applies to most financial income, such as:
- Stock dividends
- Interest from taxable savings accounts
- Capital gains from the sale of financial securities (including cryptocurrencies)
- Gains from life insurance contracts (under certain conditions)
An option remains available: taxpayers can choose the progressive scale of income tax if this solution is more advantageous for them. This is often the case for lower incomes.
Why Is the Government Considering an Increase?
In recent months, the PFU has been a central topic in parliamentary debates, particularly in the context of the Finance Bill for 2025 and now for 2026. The issue is twofold:
- Reducing the public deficit: Facing a larger-than-expected deficit, the government is looking for solutions to increase its revenues without adding to the tax burden of modest households. The PFU, which concerns capital, is seen by some as a potential source of new revenue.
- Tax equity: Some voices are rising to denounce what they consider an inequality. They believe that the single 30% tax rate is particularly advantageous for higher incomes, which thus escape the progressivity of income tax.
Prime Minister Sébastien Lecornu finds himself caught in endless political negotiations to avoid censure. He needs the support (and votes) from part of the left to remain in power. More specifically, he must be able to count on the non-censure of Olivier Faure's Socialist Party, which demands a strong signal in return for its base.
Currently, rumors are circulating, with a "least worst" scenario at 33% and another at 36%.
Arguments For and Against the Flat Tax Increase
Increasing this Single Flat-Rate Tax is seen by some as a simple and obvious solution to fill the country's budget deficit, without questioning the reduction of expenses. It's also an argument for fiscal justice, as it would make capital income contribute more, when it's often perceived as being taxed less than labor income.
On the contrary, opposing this increase would be a way to defend France's competitiveness, which is already severely challenged in many ways. Opponents fear that increasing taxation on capital would discourage investment and encourage capital to move towards European countries with more advantageous tax systems. It's worth noting that at 30%, the French flat tax is already positioned at the higher end of the range of flat rates applied by major EU economies.
What's at Stake for Investors?
For investors, particularly cryptocurrency holders, an increase in the flat tax would directly impact the profitability of their investments. The current political impasse creates uncertainty in the market, as investors cannot accurately predict their future tax obligations.
The ball is now in Prime Minister Sébastien Lecornu's court, who has not yet formed a government. Politically blocked on his left by the essential Socialist vote to remain in Matignon, and on his right by current members of the resigning government, his mission is almost impossible. Meanwhile, the rest of Europe continues to move forward in developing competitive investment frameworks.