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For a country to be an attractive location in
which to set up a holding company four criteria
must be satisfied:
- Incoming
Dividends: Incoming dividends remitted
by the subsidiary to the holding company must
either be exempted from or subject to low withholding
tax rates in the subsidiary's jurisdiction.
- Dividend
Income Received: Dividend income received
by the holding company from the subsidiary must
either be exempted from or subject to low corporate
income tax rates in the holding company's jurisdiction.
- Capital
Gains Tax on Sale of Shares:
Profits realized by the holding company on the
sale of shares in the subsidiary must either
be exempt from or subject to a low rate of capital
gains tax in the holding company's jurisdiction.
By
these criteria France is not a particularly attractive
jurisdiction in which to locate a holding company:
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Withholding Taxes on Incoming Dividends
As
a member of the EU France is governed by the provisions
of the EU's Parent-Subsidiary directive, whose
effect is that where a French holding company
controls at least 10% (reduced from 15% on January
1, 2009) of the shares of an EU subsidiary for
a minimum period of 12 months any dividends remitted
by the EU subsidiary to the French holding company
are free of withholding taxes.
Where
the provisions of this directive do not apply
(or where anti-avoidance provisions are in place)
French holding companies can rely on an extensive
network of double taxation treaties the effect
of which is to obtain a reduction in withholding
tax rates on dividends remitted to France from
the subsidiary jurisdiction.
France
has over 110 double taxation treaties in place.
The greater a country's network of double taxation
treaties the greater its leverage to reduce withholding
taxes on incoming dividends. An elaborate network
of double taxation treaties is thus a key factor
in the ability of a territory to develop as an
attractive holding company jurisdiction.
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Corporate
Income Tax on Dividend Income Received
Since
the 'precompte' system was abolished in 2005,
dividends received by a French corporation from
a foreign subsidiary are taxable as income.
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Capital Gains Tax on the Sale of Shares
In
France capital gains made by a French holding
company on the profitable sale of its shares in
a foreign subsidiary are subject to a reduced
capital gains tax rate. In 2006, gains on the
sale of shares in subsidiaries held for at least
two years were taxed at a reduced rate of 8%.
From January 1, 2007, 95% of these capital gains
are excluded from corporate income tax, the remaining
5% portion being taxed at the standard 33.33%
rate. Capital gains realized by non-resident investors
on the sale of shares in French companies that
are subject to corporate income tax are taxed
(from 2006) at the rate of 16%, provided the non-resident
investor has held at least 25% of the share capital
of the French company at any time over the past
five years.
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Withholding
Taxes on Outgoing Dividends
Dividends
paid by French holding companies are subject to
a standard rate of 25% withholding tax unless:
- The
parent corporation is resident in the EU and
has held 10% of the shares (15% prior to 2009)
in the French holding company for at least 12
months in which case no withholding taxes are
levied.
- The
parent corporation is not an EU entity but the
rate is reduced by the provisions of a double
taxation treaty usually to 0-15% with lower
rates often granted if the foreign parent corporation
has a higher shareholding. France has over 100
double taxation treaties in place.
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