How to avoid the French flat tax (PFU) in 2026: legal strategies

Quick answer. The French Single Flat Tax of 30% (12.8% income tax + 17.2% social levies) provided for in Article 200 A of the General Tax Code (CGI) is not mandatory. Five legal levers reduce or neutralise it: the option for the progressive income tax scale with the 40% dividend allowance, the PEA (Stock Savings Plan, full income tax exemption after 5 years), life insurance (annual allowance of EUR 4,600 / EUR 9,200 after 8 years), the PER (retirement savings plan, deductible up to EUR 88,911 in 2026 for self-employed taxpayers) and the contribution-disposal mechanism to a holding company (Article 150-0 B ter). The 2026 Finance Act tightened the last regime: for disposals taking place on or after 21 February 2026, mandatory reinvestment increases from 60% to 70% of the sale price, and the deadline moves from 2 to 3 years.

Since 2018, the Single Flat Tax (Prélèvement Forfaitaire Unique, PFU) has applied to most capital income in France: dividends, taxable bond and savings account interest, capital gains on securities, crypto-asset gains, and certain life insurance surrenders. The 30% headline rate breaks down into 12.8% income tax (Article 200 A of the CGI) and 17.2% social levies (CSG 9.2%, CRDS 0.5%, solidarity levy 7.5%).

For very high earners, the exceptional contribution on high incomes (CEHR) adds 3% or 4% beyond EUR 250,000 (single) or EUR 500,000 (couple) of reference taxable income, pushing the marginal effective rate to 34% or even 37%. The 2026 Finance Act also reinstated a differential contribution on high incomes (CDHR) ensuring a minimum effective average rate of 20% for households above these thresholds. For an executive distributing EUR 200,000 of dividends, the flat tax represents a direct levy of EUR 60,000. This opportunity cost justifies investment in tax engineering.

At Hayot Expertise, we have advised Paris-area executives on the salary-dividend-disposal arbitrage for more than five years. Our observation is consistent: out of 100 executives reviewed, nearly 70% pay a flat tax that could have been reduced by 20% to 100% through structuring anticipated a few months in advance. This article gathers the five legal levers to know before any significant distribution or disposal.

Application of the PFU is not mandatory. On the annual income tax return, the taxpayer can tick box 2OP of form no. 2042 to elect taxation of all capital income under the progressive income tax scale. This option offers three decisive advantages for certain profiles.

Advantage 1 — 40% allowance on eligible dividends#

The 40% allowance provided for in Article 158 of the CGI applies only under the progressive scale option. For EUR 100 of gross dividends from a French SAS, only EUR 60 enter the taxable base. At a 30% marginal income tax band, effective income tax falls to 18% versus 12.8% under the PFU — the option pays off only at a marginal band of 11% or below.

Advantage 2 — Deduction of 6.8% CSG#

Under the progressive scale, the deductible CSG fraction (6.8%) is credited against the following year's total income. Under the PFU, it remains non-deductible. For a household at the 41% marginal band, this deduction represents an additional income tax saving of 2.8% of gross.

Advantage 3 — Offsetting expenses and losses#

The option allows certain expenses (custody fees) and capital losses to be offset, something the PFU does not allow.

2026 progressive income tax scale (per quotient share)#

Important: the option is global and irrevocable for the year. You cannot choose the progressive scale for your dividends and the PFU for your capital gains. The simulation must therefore include all capital income for the year.

Hayot Expertise tip. Before ticking box 2OP, run two simulations: one under the PFU, one under the progressive scale on all your cumulative capital income. The empirical rule: the option only wins if your marginal tax band is at 0% or 11%, and if you receive mostly dividends eligible for the 40% allowance.

The PEA is the most powerful tax wrapper under French law for European company shares. After 5 years of holding, capital gains and dividends generated within the plan are fully exempt from income tax (only the 17.2% social levies remain due on exit).

2026 ceilings#

Holding the shares of one's own company in the PEA#

An under-used strategy by founders is to register the shares of their SAS or SARL in their PEA at incorporation. Three cumulative conditions must be met (Article L221-31 of the Monetary and Financial Code):

1. Eligible company: a company subject to French corporate tax in the EU or EEA (Norway, Iceland, Liechtenstein), with a commercial, industrial, craft, professional or agricultural activity.
2. Family threshold of 25%: the holder, their spouse or PACS partner, and their ascendants and descendants must not hold, directly or indirectly, more than 25% of the rights to profits in the company, nor have crossed this threshold in the 5 years prior to registration.
3. Effective registration: the shares must be entered on the PEA securities account, and the contribution ceiling must be respected.

For a founder holding 100% of their SAS, the PEA is therefore not accessible — unless they dilute below 25%, for example by bringing in investors or co-founders. The strategy becomes relevant for active minority executives (between 5% and 24% of capital), in particular in multi-founder structures or after a fundraising round.

Economic impact after 5 years#

For a security acquired at EUR 50,000 (initial contribution) and resold at EUR 250,000 after 7 years inside the PEA: the EUR 200,000 capital gain is exempt from income tax (EUR 25,600 saved), and only the EUR 34,400 social levy remains. Without a PEA, the flat tax would have taken EUR 60,000.

Life insurance remains the favourite wrapper of French savers (over EUR 1,900 billion of outstanding assets at the end of 2025 according to France Assureurs). Its taxation eases progressively with the age of the contract, and becomes particularly attractive after 8 years.

2026 taxation of life insurance surrenders (contracts post-27/09/2017)#

Optimisation: withdrawing EUR 9,200 of gains per year free of income tax#

For a married or PACS couple, the annual EUR 9,200 allowance on interest means that a significant portion of surrenders can be fully exempt from income tax, year after year. Only the 17.2% social levies remain due. Across several contracts and several years, this mechanism finances retirement without exposure to the PFU.

Full exemption cases (Article 125-0 A of the CGI)#

Surrenders are fully exempt from income tax in case of dismissal, early retirement, category 2 or 3 invalidity or judicial liquidation of the taxpayer or spouse, provided the surrender takes place before the end of the year following the triggering event.

The Retirement Savings Plan (PER) does not directly neutralise the PFU, but it reduces the base of the progressive scale and can therefore make the progressive scale option a winning play.

2026 deduction ceilings#

For a self-employed worker (TNS), the 2026 ceiling is computed on the basis of a PASS (annual Social Security ceiling) of EUR 48,060:

• 10% of taxable profit (capped at 8 PASS, i.e. EUR 384,480)
• + 15% of the profit fraction between 1 and 8 PASS

The maximum ceiling reaches EUR 88,911 of deduction for a self-employed worker, and EUR 37,094 for an employee (including assimilated-salaried executives). Unused ceilings are carried forward for 5 years since 1 January 2026 (versus 3 years previously), allowing exceptional operations to be smoothed.

Use case: cushioning an exceptional dividend distribution#

A SAS executive distributing EUR 150,000 of dividends can, in the same year, contribute EUR 50,000 to a PER. Under the progressive scale option, these EUR 50,000 are deducted from total income and lower the average marginal band. The operation is particularly effective for an executive at the 41% or 45% marginal band who plans to retire at a 11% or 30% band.

Hayot Expertise tip. The PER is only worthwhile if you expect to be at a lower marginal band at retirement. For an executive at a 30% band today and a 30% band at retirement, the saving is zero or even negative (exit taxation may exceed entry savings depending on capital versus annuity outflow). Always simulate before arbitraging.

This is the most powerful lever for SME disposals or significant stake sales. The mechanism transforms a 30% taxable capital gain into a tax deferral that can become permanent if the holding reinvests the proceeds in an economic activity.

Mechanism in 4 steps#

1. Set up the holding (SAS or SARL controlled by the executive), typically 12 to 24 months before the planned disposal.
2. Contribute the shares of the operating company to the holding: the contribution gain is computed but placed in tax deferral (Article 150-0 B ter of the CGI). No immediate taxation.
3. Sale of the shares by the holding to the final acquirer. The holding's capital gain on sale is generally zero or very low (the shares were just inscribed at their market value).
4. Mandatory reinvestment of the proceeds in eligible economic assets, if the sale takes place within 3 years of the contribution.

2026 Finance Act update#

For disposals taking place on or after 21 February 2026, the reinvestment regime is tightened by the 2026 Finance Act:

If these conditions are not met, the deferral lapses and the initial capital gain becomes immediately taxable at the PFU, plus late-payment interest. Tax audits on this regime have hardened since 2022, with heightened scrutiny on the economic nature of reinvestments (purely financial placements are not eligible).

Eligible reinvestment assets#

• Subscription to the capital of operating companies (excluding pure asset management or unfurnished real estate).
• Financing permanent operating means allocated to a commercial, industrial, craft, professional, agricultural or financial activity.
• Subscription to eligible private equity funds (FCPR, FPCI, SLP) subject to quota and holding-period conditions.

To dig deeper, read our full dossier on the contribution of shares to a patrimonial holding and our analysis of holding and executive tax optimisation.

Micro-entrepreneur and flat tax#

The micro-entrepreneur is not subject to the flat tax on operating profits (taxed on turnover under the progressive scale after a flat-rate allowance) but becomes subject if they receive dividends from another company in which they hold shares, or if they realise capital gains on securities. The arbitrage on the progressive scale option remains relevant given the often low marginal band.

Regulated profession in SELARL or SELAS#

Partners practising in a SELARL or SELAS are subject both to the flat tax on dividends and to social contributions on the share of dividends exceeding 10% of share capital + share premiums + current accounts. The dividends versus salary arbitrage for executives must integrate this specificity.

SCI subject to corporate tax#

Distributions from an SCI (French real estate company) electing corporate tax are dividends in tax terms, subject to the 30% PFU. The 40% allowance under the progressive scale applies. Disposal of the shares is conversely a securities capital gain subject to the PFU without allowance (the holding-period allowance for property does not apply).

Crypto-assets#

Capital gains on crypto-assets held by individuals have been subject to the 30% PFU since 2019 (Article 150 VH bis of the CGI). The option for the progressive scale has been open since 2023 but rarely wins. No allowance applies.

• Ticking box 2OP by default without simulation: the most frequent error. The option is global and irreversible for the year, and should be based on a numerical simulation including all capital income.
• Confusing PFU and final taxation: the PFU is final on the 12.8% income tax portion, but the 17.2% social levies remain due in all cases.
• Forgetting the CEHR above EUR 250,000 of taxable reference income: the marginal effective rate can reach 34% or even 37% for very high earners.
• Underestimating the instability of the contribution-disposal deferral: exiting the deferral (disposal without reinvestment, or failure to meet the deadline) triggers immediate taxation of the initial gain at the PFU. The 2026 Finance Act tightened the conditions (70% instead of 60%, 3 years instead of 2).
• Holding non-eligible securities in a PEA: non-European companies, predominantly real estate companies, or shares where the holder exceeds 25% with their family group. The penalty is closure of the plan with retroactive taxation.
• Overloading a life insurance contract beyond EUR 150,000 of premiums: the favourable 7.5% taxation after 8 years only applies to gains on premiums paid below this global ceiling across all contracts. Above, the rate rises to 12.8%.

Recently, an executive of a Paris-area industrial SME asked us to structure the disposal of his company valued at EUR 3.8m. A direct sale would have generated EUR 1,140,000 of flat tax (30%). By structuring the operation in two stages — prior contribution of the shares to a patrimonial holding created 14 months before the disposal, then sale of the shares by the holding — the EUR 3.8m capital gain was placed in tax deferral. The holding reinvested EUR 2.7m in the acquisition of a complementary SME in its sector, comfortably exceeding the 60% threshold then in force. The immediate tax saving amounted to approximately EUR 1.1m, with the unreinvested balance taxed at the standard PFU.

This type of setup does not improvise. It requires minimum anticipation of 12 to 24 months before the disposal (to avoid the risk of abuse-of-law claims based on the artificial nature of the operation), careful legal drafting of the contribution agreement (by a tax lawyer), an auditor for contributions for the companies concerned, and a credible and documented reinvestment project. The new 70% / 3-year reinvestment requirement introduced by the 2026 Finance Act reinforces the obligation to build a structured investment thesis upfront — the holding can no longer be a mere parking vehicle.

The second reflex is the diversification of wrappers. An executive who progressively allows themselves to extract dividends over 10 years can combine PEA (for minority holdings), multi-contract life insurance (to smooth allowances), and PER (to cushion exceptional distributions). This multi-pocket strategy is often more efficient than an all-holding approach.

Hayot Expertise tip. Before any major distribution or significant disposal, commission a patrimonial tax audit combining 5-year flat tax / progressive scale simulation, real estate wealth tax (IFI) projection, and holding structuring scenarios. The cost of such a diagnosis is incommensurate with the tax savings it secures. For Paris-area executives, our Paris 8e accounting expertise team delivers this integrated support, alongside a network of partner tax lawyers.