Dividends from French Companies – Brexit effect

The EU Parent Subsidiary Directive will cease to apply from Brexit Day – but UK – France Double Tax Treaty will continue to apply.

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Law is a complex subject and the above is a basic outline only and is intended only as a general guide.

UK company receives dividend

France imposes a withholding tax at 30% on dividends paid to non-resident companies. Currently, pre-Brexit this is disapplied and UK companies receive dividends without any French tax deducted i.e. there is no 30% French withholding tax. This is because the UK is part of the EU and there is an EU Directive (EU Parent Subsidiary Directive) which provides that dividends are paid gross to EU resident companies. This will change following Brexit because the EU Directive will no longer apply to payments to the UK.

This is a potential problem for UK companies, which in practice pay no UK tax on dividend income, so the withholding tax is a real cost.

There is however still the UK France Double Tax Treaty which will continue to apply. Article 11(1)(c) of the treaty says that if the UK parent company pays UK corporation tax and holds at least 10% of the French company the French withholding tax is reduced to zero.

If the UK company owns less than 10% of the French company the French withholding tax cannot exceed 15% (Article 11(1)(b)).
UK individual receives dividend

For UK individuals who own shares in a French company the withholding tax is currently 12.8% and this will not change after Brexit. The Double Tax Treaty does not apply as the rate is already below 15%.

Planning

It may be worth considering the following:

  • If the French company has the cash pay a dividend prior to Brexit date.
  • If shareholding is less than 10% increase it now
  • Consider moving the ownership of the French Company to another EU country such as Luxembourg.

October 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser