Capital Gains on French Securities: PFU, Abatements & Loss Rules

Who Is Taxable and on What

The French capital gains regime for securities applies to natural persons acting in their private wealth management capacity who realise gains on the disposal of securities and company interests, whether directly or through an intermediary person or fiducie (CGI Art. 150-0 A). All disposals by all members of the tax household are aggregated. Gains realised through civil companies and partnerships subject to the partnership tax regime (CGI Art. 8) whose assets consist principally of securities are treated as realised by the individual partners.

Territorial scope

French tax residents are taxable in France on all their securities disposals worldwide, including shares in foreign companies and shares held in accounts with foreign financial institutions — subject to any contrary provision in applicable bilateral tax treaties.

Non-residents are, as a general rule, exempt from French tax on capital gains on securities realised in France (CGI Art. 244 bis C). The main exception applies where a non-resident disposes of a participation in a French IS-subject company in which the seller, together with their spouse, ascendants, and descendants, held more than 25% of the profits at any point during the five years preceding the sale. In that case, a withholding at 12.8% applies to the gain, which is liberatory of income tax but does not attract social charges (CGI Art. 244 bis B). Treaty provisions may reduce or eliminate this tax.

Taxable events

The regime applies to gains from all disposals for consideration of listed and unlisted securities, investment fund units, and analogous instruments (CGI Art. 150-0 A). Taxable events include: stock exchange transactions; private off-market sales; company buy-backs of own shares; partition of jointly-held securities; securities lending where title is transferred; contributions to companies; and share exchanges. The taxable event occurs at the transfer of title — for listed securities, this is when the shares are credited to the buyer's account.

Disposals entirely exempt from the regime include gains within a PEA; gains from employee savings plans held in a PEE; gains realised in the management of FCP units; gains from venture capital company shares under certain conditions; gains realised by non-residents on participations not exceeding 25%; and soultes received in certain partitions.

Computing the Gain: Disposal Price and Acquisition Price

Disposal price

For listed securities, the disposal price is the actual transaction price. For unlisted securities, it is the contractually agreed price. The disposal price includes all consideration and benefits stipulated in favour of the seller. Selling costs and taxes borne by the seller — brokerage commissions, deferred settlement service fees, intermediary commissions, and experts' valuation fees — are deducted from the disposal price.

Acquisition price

Where securities were acquired for value, the acquisition price is the purchase price including all associated costs: brokerage commissions, deferred settlement service charges, registration duties, notarial fees, and expert valuation costs. For securities acquired before 1 January 1987, acquisition costs may be assessed on a flat 2% of the purchase price.

Where securities were acquired free of charge — by inheritance or donation — the acquisition price is the value used for the purposes of inheritance or gift tax. Acquisition costs are added to this base. Gift duty paid by the donor is only added to the donee's acquisition price if the donor and donee belong to the same tax household. Where securities were received as a result of a free share attribution (actions gratuites), the acquisition price is treated as nil.

The weighted average acquisition price

Where the seller holds shares of the same type acquired at different prices, the acquisition price is the weighted average acquisition price (PAMP) across all shares of that type held at the date of sale (CGI Art. 150-0 D, 3). The PAMP is mandatory — the seller cannot choose to identify specific lots.

Special acquisition price rules

Several categories of securities have specific acquisition price rules. Options and warrants: shares acquired by exercising a market option use the market price at exercise as the acquisition price (not the exercise price). Subscription and attribution rights detached by the holder: the disposal price is wholly taxable gain (acquisition price treated as nil); when the underlying shares are later sold, the original full acquisition price is used without reduction. Share buy-backs by the company: the gain is disposal proceeds minus the original acquisition price or subscription value (CGI Art. 150-0 D, 8 ter). Earn-out clauses: see the section on price variation clauses below.

Tax-Deferred Exchanges and Contributions

Automatic deferral (sursis d'imposition) — CGI Art. 150-0 B

A gain or loss arising from certain share exchange transactions is automatically deferred — neither recognised nor taxed in the year of the exchange. It is only brought into account on the subsequent disposal of the shares received in exchange. The acquisition price for the new shares is the original acquisition price of the shares surrendered in the exchange. Duration abatements may apply at the point of final disposal.

The automatic deferral applies to exchanges arising from: contributions to IS-subject companies (unless the contributor controls the receiving company — in which case the report regime applies); public exchange offers, mergers, demergers, and FCP-into-Sicav absorptions; conversions, divisions, and groupings of shares. For exchanges involving a cash element (soulte), the deferral is conditional on the cash not exceeding 10% of the nominal value of the shares received. Any gain attributable to the cash is taxed immediately.

Elective deferral on contributions to controlled companies (report d'imposition) — CGI Art. 150-0 B ter

Where an individual contributes securities to an IS-subject company that they control, the gain is not deferred automatically under the sursis regime but is instead subject to a mandatory elective deferral. The gain is calculated and declared in the year of the contribution but its taxation is deferred until one of three triggering events occurs:

• The shares received by the contributor in exchange for the contribution are sold, redeemed, repaid, or cancelled
• The shares contributed to the receiving company are sold by the receiving company within three years of the contribution — unless the receiving company commits to reinvesting at least 60% of the sale proceeds in economic activities within two years of the sale
• The contributor transfers their fiscal domicile outside France

An individual controls a company for this purpose if they hold, directly, indirectly, or through their family group (spouse/PACS partner, ascendants, descendants, and siblings), a majority of voting rights or profit rights. The gain is taxed at the rate that would have applied in the year of the contribution. Duration abatements apply if the contributed shares were acquired before 1 January 2018 and the progressive scale election was exercised. The deferred gain must be reported annually on the income tax return.

The contribution-and-sale structure has historically been subject to abuse-of-law challenges. Under the sursis regime, the Conseil d'État has held that an apport-cession can constitute abusive tax planning where the sole purpose was to give the contributor effective access to the sale proceeds through the interposed company, without genuine economic reinvestment (CE 27-7-2012 n° 327295).

The PME innovation account (Compte PME Innovation)

The PME innovation account (CPI) is a special vehicle for serial entrepreneurs that allows capital gains to be deferred indefinitely while proceeds are reinvested in young SMEs. On disposal, the proceeds are credited to a cash account and must be reinvested within 24 months in the capital of qualifying IS-subject SMEs or qualifying private equity funds. Social charges apply annually on capital gains within the account. Income tax is deferred until actual withdrawal of cash or securities.

Loss Offset Rules

Losses realised in a given year are set off exclusively against gains of the same nature in that year (CGI Art. 150-0 D, 11). No offset against general income is available. Where losses exceed gains in a year, the net annual loss is carried forward and may be set off against gains of the same nature in each of the ten following years. Carried-forward losses must be applied in the order in which they arose — the oldest first — and must be applied whenever there is a positive balance in the year; the taxpayer cannot choose to defer their imputation. After losses are applied, any remaining net gain may be reduced by the duration abatements described below.

Gains and losses of "the same nature" encompass all gains and losses on securities falling under CGI Art. 150-0 A, including BSPCE gains, gains on free shares (actions gratuites) and stock option shares when taxed in the securities gains category, and gains from financial derivatives traded on occasion. They do not include gains on real estate, real estate company shares, or gold and precious metals.

Losses from cancelled securities

Where securities are cancelled in a judicial insolvency procedure (judicial reorganisation, judicial liquidation, or a statutory capital reduction to zero to absorb losses), the resulting loss is deductible against gains of the same nature in the year of cancellation and the ten following years (CGI Art. 150-0 D, 12 and 13). Three cumulative conditions apply: the securities must be formally cancelled; the cancellation must occur within a judicial insolvency procedure or a statutory mandatory capital reduction; and the holder must not have been convicted in respect of their management of the company. The loss is capped at the acquisition price of the cancelled securities, reduced by any capital repayments received.

Duration Abatements

Duration abatements only apply to gains on securities acquired or subscribed before 1 January 2018 and only when the taxpayer exercises the global election for the progressive income tax scale (CGI Art. 150-0 D, 1, 1 ter, and 1 quater). They do not reduce the social charges base. They are applied to the net gain remaining after loss offsets.

Standard proportional abatement

For gains on shares, OPC units (subject to a 75% equity investment quota condition), and other qualifying securities acquired before 1 January 2018, the standard abatement is 50% for shares held at least 2 years and less than 8 years; and 65% for shares held at least 8 years. OPC units qualify only if the relevant fund has held at least 75% of its assets in equities on a continuous basis since the end of its first financial year. The 75% quota does not apply to FCPR, FCPI, FIP, and private equity fund units, or to carried interest distributions.

Enhanced abatement for early-stage SMEs

Where the shares were both acquired before 1 January 2018 and subscribed in a company that met all of the following conditions at the date of subscription, the enhanced abatement applies:

• The company is a European PME (fewer than 250 employees; annual turnover ≤ €50m or balance sheet total ≤ €43m)
• Created less than 10 years before subscription (not formed by concentration, restructuring, extension, or takeover of pre-existing activities)
• Grants subscribers only the rights arising from their shareholder status — no capital guarantee, no preferential return
• Subject to corporate income tax or equivalent; registered office within the EEA
• Exercises a commercial, industrial, artisanal, liberal, or agricultural activity (portfolio management companies excluded)

These conditions must be met continuously from the company's creation to the date of disposal. The enhanced abatement rates are: 50% for shares held at least 1 year and less than 4 years; 65% for shares held at least 4 years and less than 8 years; 85% for shares held at least 8 years.

The €500,000 Fixed Abatement for Retiring SME Directors

A flat €500,000 abatement applies to gains realised by the directors of qualifying SMEs who sell their shares on the occasion of their retirement (CGI Art. 150-0 D ter). Unlike the proportional abatements, the fixed abatement applies regardless of whether the PFU or the progressive scale has been elected. It applies to disposals made between 1 January 2018 and 31 December 2024.

Conditions relating to the shares sold

The shares must have been held for at least one year. The sale must relate to all of the seller's shares in the company, or — where the seller holds more than 50% of the voting rights — to more than 50% of the voting rights. Multiple simultaneous sales to different buyers count toward the threshold. The €500,000 abatement applies once across all sales relating to the same target company.

Conditions relating to the seller

During the five consecutive years preceding the sale, the seller must have: (a) exercised a qualifying management function in the company (gérant of an SARL, SCA, or partnership; associé en nom; president, CEO, deputy CEO, supervisory board president, or directoire member in an SA or SAS); and (b) held, directly or indirectly or through their family group, at least 25% of the voting rights or profit rights in the company. After the sale, the seller must cease all management and employment functions in the company and take retirement — in principle within two years before or after the sale.

Conditions relating to the company

The company must meet the European SME definition throughout the two financial years preceding the sale (fewer than 250 employees; annual turnover ≤ €50m or balance sheet total ≤ €43m). It must have continuously exercised a qualifying commercial, industrial, artisanal, liberal, agricultural, or financial activity for at least five years before the sale. It must have its effective management headquarters in an EEA state and be subject to French IS under ordinary rules.

Price Variation Clauses and Guarantees

Earn-out clauses

Where the sale contract provides for a price supplement payable to the seller, exclusively determined by reference to the results or performance of the company whose shares were sold, that supplement is taxed in the year of receipt as a capital gain on securities — regardless of the time elapsed since the sale (CGI Art. 150-0 A, I-2). Duration abatements may apply to the supplement, at the rate applicable to the shares at the date of the original sale. The €500,000 fixed abatement applies to any unused portion from the original sale. Where the earn-out right is itself sold or contributed, the resulting gain is taxed in the year of that transaction.

Asset and liability guarantees (garanties de passif)

Where the seller is required under a contractual guarantee to repay part of the sale price because undisclosed liabilities or overvalued assets are revealed in the target company's accounts after the sale, the seller may request a reassessment of their original capital gain. The repayment must be effective and definitive. The revised gain is calculated by deducting the amount repaid from the original sale price. The request takes the form of a contested claim filed by 31 December of the second year following the repayment.

PFU vs Progressive Scale: The Core Choice

Gains on securities are taxed by default at the PFU rate of 12.8% income tax plus 17.2% social charges — a combined rate of 30%. The taxpayer may elect, in their annual income tax return, to subject all PFU-eligible investment income to the progressive income tax scale instead. This election is annual, global, express, and irrevocable for the year in which it is made.

Under the progressive scale, gains benefit from the proportional duration abatements (for pre-2018 acquisitions), and 6.8% of the CSG paid on the gains is deductible from taxable income in the following year. Under the PFU, no deduction is available. The fixed €500,000 abatement applies under both options. The progressive scale election may be more favourable where the taxpayer's marginal rate is lower than 12.8%, where substantial duration abatements are available, or where significant losses can be offset before the abatement is applied.

Declaration Obligations

A single special return (Form 2074) must be filed for all securities disposals by all members of the tax household, at the same time as the annual income tax return (Form 2042). The return discloses the gain or loss, the elements necessary for its computation, any soultes received in deferred exchanges, and duration abatements. Taxpayers who receive a custodian's annual statement setting out the same information are exempt from filing Form 2074, except where the enhanced PME abatement or the retiring-director fixed abatement applies, or where a subscription tax reduction was claimed in respect of the shares subsequently sold. Deferred gains in a report d'imposition must be tracked annually on a supplementary follow-up statement filed in each year in which the deferral status changes.

This article covers the general capital gains regime for securities and company interests under CGI Art. 150-0 A to 150-0 D ter, as applicable to French tax-resident individuals acting in their private capacity. Real estate capital gains, gains on precious metals and objects of art, and gains on financial instruments traded in a professional capacity follow different rules. The €500,000 fixed abatement under CGI Art. 150-0 D ter applies to disposals from 1 January 2018 to 31 December 2024 — readers should verify whether this window has been extended beyond its current end date.