#Director Salary vs Dividends in France

Your situation and your risks

You run a company subject to corporate income tax and must choose between remuneration and dividends. Remuneration is an expense of the company and bears social security contributions. A dividend is a distribution of profit, taxed in your hands as investment income (revenus de capitaux mobiliers). The right balance depends on your social security status, the form of the company and your cash needs.

The first risk is tax-related. The tax authorities may refuse to allow the deduction of remuneration that has no genuine consideration or is excessive in relation to the service provided. The second relates to your social security status. Depending on the form of the company and how its share capital is held, you fall under the scheme for employees or for self-employed workers. This status changes the cost of, and the social protection attached to, each amount paid. For a broader wealth planning approach, see our page on tax planning for company directors.

The legal framework for director pay in France

Remuneration is deductible only if it corresponds to work actually performed. It must not be excessive in relation to the importance of the service provided (Article 39, 1-1° of the French Tax Code (CGI) (in French)). The rule also covers benefits in kind, allowances and expense reimbursements. The text sets no numerical threshold: the assessment is made case by case.

The remuneration decision must come from the competent body. In a société anonyme (SA, public limited company), the board of directors determines the remuneration of its chairman (Article L. 225-47 of the French Commercial Code (Code de commerce) (in French)). In an SAS (simplified joint-stock company), the articles of association set the conditions under which the company is managed (Article L. 227-5 of the Commercial Code (in French)). It is therefore up to the articles to specify who sets the president’s remuneration.

• Presidents and executives of an SAS fall under the general social security scheme for employees (Article L. 311-3, 23° of the French Social Security Code (Code de la sécurité sociale) (in French)).
• The same applies to the chairman of the board of directors, the chief executive officer and the deputy chief executive officers of an SA (12° of the same article).
• Managers (gérants) of an SARL (private limited company) fall under it only if together they do not hold more than half of the share capital (11° of the same article). Shares held by the spouse, the PACS partner and unemancipated minor children are taken into account.
• Self-employed directors of a company subject to corporate income tax also pay contributions on part of their dividends. This is the portion exceeding 10% of the share capital, including share premiums and shareholder current accounts (Article L. 136-3 of the Social Security Code (in French), to which Article L. 131-6 (in French) refers).

For income tax purposes, dividends are subject to a flat rate of 12.8% (Article 200 A of the Tax Code (in French)). If an express, global election is made, they are included in total net income and taxed under the progressive income tax scale. In that case, eligible dividends benefit from a 40% allowance (Article 158, 3-2° of the Tax Code (in French)).

On payment, a 12.8% withholding is made as an advance payment of tax (Article 117 quater of the Tax Code (in French)). You may ask to be exempted, subject to a reference taxable income condition for the year before last. The threshold is €50,000 for a single, divorced or widowed person, and €75,000 for couples taxed jointly.

How we assist you

• Analyse your social security status in light of the form of the company and how its share capital is held.
• Compare several remuneration and distribution scenarios, together with your chartered accountant.
• Check that the remuneration decision is valid: competent body, minutes, consistency with the articles of association.
• Document the consideration for your remuneration: duties performed, responsibilities, time devoted.
• Assist you if the tax authorities challenge your remuneration or during a URSSAF audit.
• Review the balance every year in light of the finance acts and social security financing acts.

What is at stake for you

There is no single answer to the choice between salary and dividends. It depends on the company’s profit, your marginal tax rate and the social protection you want. Remuneration that is properly decided and documented stands up better to an audit. Conversely, a poorly anticipated split of the share capital may change your social security scheme. For an introduction, read our article salary or dividends: how to choose (in French).

Every situation is different: we model the scenarios with you before any decision. We assist you over time, without promising any specific level of savings.

Every situation is different: the information on this page is general and does not replace legal advice tailored to your case. The firm makes no promise of outcome; it commits to the means it deploys.