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1 - Taxation of French government securities traded in the cash market
2 - Income tax agreements and treaties between France and foreign countries

1 - Taxation of French government securities traded in the cash market

- French residents • Bonds (OATs and Emprunts d’État) Individuals liable to income tax, interest and redemption premiums (exempt from withholding tax) may opt for either:

-    a flat-rate withholding tax of 32.5%¹  (including a 13.5% social security contribution, consisting of 8.2% from CSG tax, 0.5% from CRDS tax and 3.4% social security tax, with additional contributions of 0.3% and 1.1%);
-    or progressive income tax, incremented by 13.5% social security contributions.

Interest and redemption premiums paid after 1 March 2010 in a non-cooperative state or territory by debtors established or domiciled in France are subjected to a mandatory 50% withholding tax (paragraph III of Article 125a of the General Tax Code).

Redemption premiums attached to bonds issued before 1 January 1992, or stripped before 1 June 1991, are exempt from income tax if the amount of the premium does not exceed 5% of the face value of the security.

Capital gains on the transfer of securities are taxed at the rate of 32.5% (including 13.5% social security contributions) regardless of the amount of the transfers of securities and corporate entitlements of the transferor's tax household. Losses may be charged only to gains realized during the same year or the next ten years.

Non-profit organizations: income from Emprunts d’État bonds issued before 1 January 1987 is exempt from tax. For bonds issued after that date, the rate of taxation is 10%. Capital gains on the sale of securities are not liable to tax.

Corporations liable to corporate income tax, interest, redemption premiums and capital gains on sales of securities are taxed at the standard corporate income tax rate (33.33%) incremented by a social contribution of 3.3% on income. Interest paid on OATs is taxed on the basis of accrued interest. However, for securities with redemption premiums, this premium and the interest paid each year are taxed after every annual payout when the average price of such securities on issue is less than 90% of their redemption value and the premium exceeds 10% of the purchase price.

• Inflation-indexed OATs (OATi)

The tax applied to OATi is very close to that of other fixed or floating-rate OATs.

Retail investors are entitled to opt for payment of a final and definitive withholding tax. Only interest actually received during the year is taxed. Capital gains are taxed when the security is sold or on maturity, when the security is redeemed with the inflation-adjustment premium.

Taxes paid by institutional investors are governed by Article 238 septies E-II-3 of the General Tax Code, which concerns securities with uncertain redemption premium.

- As with retail investors, tax is due on interest received. In contrast with private investors, the redemption premium due to indexation of the principal may be taxed partly before maturity, even though this premium is only collected on disposal or redemption on maturity.

- The redemption premium is factored into pre-tax income on a yield-to-maturity basis, spread according to the terms of Article 238.II.3 in section E of the General Tax Code (2nd, 3rd, 4th and 5th paragraphs) when its estimated value (based on the monthly government securities rate - TME - at the purchase date) exceeds purchase value by 10% and when the issue price is less than 90% of the estimated redemption value. In practice, this criterion is easy to meet for inflation-indexed bonds when subscribed on or shortly after issue.

- Every year, only a fraction of the inflation-adjustment premium is taxed. This fraction is calculated in such a way as to amortize the residual taxation of the premium (taxable premium less taxes paid in earlier years) over the residual life of the security.

• BTANs and BTFs Individuals liable to income tax, interest and redemption premiums (exempt from withholding tax) may opt for either:

- a flat-rate withholding tax of 32.5% (including a 13.5% social security contribution, consisting of 8.2% from CSG tax, 0.5% from CRDS tax and 3.4% social security tax, with additional contributions of 0.3% and 1.1%);

- or progressive income tax, incremented by 13.5% social security contributions.

Non-profit organizations: income is taxed at 10%, while capital gains are exempt from tax.

Corporations liable for corporate income tax, interest, redemption premiums and capital gains on disposals of securities are included in the company’s profits and taxed at the standard corporate income tax rate (33.33%) incremented by a social contribution of 3.3% on income (2). Interest paid on OATs is taxed on the basis of accrued interest. However, for securities with redemption premiums, this premium and the interest paid each year are taxed after every annual payout when the average price of such securities on issue is less than 90% of their redemption value and the premium exceeds 10% of the purchase price.

Non-residents

Interest on Emprunts d’État, OATs, BTANs and BTFs is exempt from the one-off flat-rate withholding tax providing they are not paid in a non-cooperative state or territory, regardless of the recipient's place of residence.

2 - Income tax agreements and treaties between France and foreign countries

Income tax agreements and treaties between France and foreign countries (in French)









¹  Rate applicable, as of 1 October 2011, to income onthose investments listed in paragraph I of Article L. 136-7 of the SocialSecurity Code (CSS), following a 1.2 point increase in the social security taxstipulated in Article L. 245-16 of the same code, as given in Article 10 of thesecond Supplementary Budget Act for 2011 (no. 2011-1117 of 19 September 2011)