French parent-subsidiary regime 2026: conditions, 5% add-back, 1.25% effective tax

The French parent-subsidiary régime (Articles 145 and 216 of the CGI) exempts from corporate income tax the dividends a parent company receives from a subsidiary held at 5% of the capital for two years. In return, a 5% add-back for overhead costs stays taxable, giving an effective rate of 1.25% of the gross dividend in 2026.

Updated March 2026 - The régime mère-fille (parent-subsidiary régime) is one of the most widely used tax mechanisms in the architecture of French corporate groups. It allows éligible companies, under strict conditions, to neutralise the economic double taxation of dividends flowing upward from a subsidiary to its parent company. In 2026, with the French corporate income tax (IS) rate stabilised at 25%, the stakes are significant: every euro of dividend taxed in cascade represents a direct loss for the group. Yet this régime is frequently cited in holding company projects without being genuinely understood.

See also French tax consolidation (integration fiscale), leveraged finance and Finance Act 2026.

The French parent-subsidiary régime in 2026, in 8 figures, before the article-by-article detail:

The régime mère-fille is grounded in Articles 145 and 216 of the French General Tax Code (Code General des Impôts : CGI). Its objective is straightforward: prevent the same profit from being taxed twice : first at the subsidiary level where it is generated, and then at the parent company level where it is received as a dividend.

Without this régime, a profit of €100,000 earned by a subsidiary would be taxed at the 25% IS rate, resulting in €25,000 in tax. The net dividend of €75,000 would then flow up to the parent company, which would need to include it in its own taxable income. The parent-subsidiary régime breaks this tax cascade by excluding received dividends from the parent's taxable income, in exchange for a limited add-back.

The mechanism relies on two complementary articles:

• Article 145 of the CGI defines the eligibility conditions for participation securities and the required holding threshold;
• Article 216 of the CGI establishes the exemption mechanism and sets the add-back for overhead costs (quote-part de frais et charges : QPFC) to be reintegrated.

The parent-subsidiary régime is not an automatic right. It requires the cumulative fulfilment of several conditions, any one of which : if overlooked : can trigger a tax reassessment.

The parent company must be subject to French IS#

Only companies subject to corporate income tax at the standard rate can benefit from the parent-subsidiary régime. Companies subject to income tax (IR) under a tax transparency arrangement are excluded. A holding company operating under a transparency régime cannot apply the parent-subsidiary régime until it becomes subject to IS.

The 5% holding threshold#

The parent company must hold at least 5% of the share capital of the distributing subsidiary. This threshold is assessed on a full ownership basis, combining bare ownership (nue-propriété) and usufruct (usufruit). It refers to 5% of the share capital, not 5% of voting rights. This distinction matters in structures where capital and voting rights are separated.

The two-year holding commitment#

The shares must be held for a minimum period of two years from the date of acquisition. This holding commitment is a substantive condition: if the shares are sold before the two-year period expires, the parent-subsidiary régime is withdrawn and the dividends received become taxable retroactively.

Éligible securities#

The régime applies to participation securities (titres de participation) within the accounting sense : that is, shares or equity interests held with a long-term strategic purpose within the group. Also éligible are shares in companies subject to IS or an equivalent tax in an EU Member State, or in a state that has concluded an administrative assistance convention with France aimed at combating tax fraud and evasion.

The option: a formality not to be overlooked#

The parent-subsidiary régime does not apply automatically. The parent company must exercise an option, evidenced on schedule 2058-A of the tax return (extra-accounting deduction of the dividends net of the add-back, and reinstatement of the add-back for overhead costs), together with the list of subsidiaries concerned. This option is annual and renewable: it is assessed participation by participation, not globally for all securities.

The parent-subsidiary régime (Article 145 of the CGI) makes the dividend exemption conditional on several cumulative requirements:

An alternative route (2.5% of the capital together with 5% of the voting rights, held for 5 years) is reserved for entities controlled by non-profit organisations.

Income excluded from the régime#

Even where the holding conditions are met, paragraph 6 of Article 145 of the CGI excludes certain income:

• income from shares in investment companies (a);
• income from shares in a company, to the extent that the distributed profits are deductible from that company's taxable result (b);
• income from shares in a company established in a non-cooperative state or territory (d);
• income falling under specific sector régimes (e to j): shares in property companies recorded as inventory, venture capital companies, listed real estate investment companies and open-ended property investment companies, among others.

One point deserves to be flagged, because many online sources still miss it: letter c of paragraph 6, which excluded income from shares carrying no voting rights, has been repealed. That exclusion no longer applies (see the case law section below).

The exemption granted under the parent-subsidiary régime is not total. In exchange, the parent company must reintegrate into its taxable income an add-back for overhead costs equal to 5% of the gross amount of dividends received.

This add-back is a flat-rate mechanism: it is deemed to cover all the costs and expenses that the parent company incurs in managing its participation (head office costs, professional fees, legal structure costs, etc.). No additional deduction is allowed for these expenses, even if the actual costs exceed 5%.

Concrete calculation example#

A holding company holds 100% of a subsidiary that distributes €200,000 in dividends in 2026.

• Dividends received: €200,000
• Add-back for overhead costs (5%): €10,000
• Exempt amount: €190,000
• Corporate income tax on the add-back (25%): €2,500

The effective tax rate is therefore 1.25% of the gross dividend (5% × 25%), which remains far below the standard 25% rate.

This is one of the most common errors. The parent-subsidiary régime and tax consolidation (integration fiscale) are two distinct mechanisms with différent logics:

• the parent-subsidiary régime (Articles 145 and 216 of the CGI) deals solely with the taxation of dividends: it exempts dividends received by the parent company, subject to a 5% add-back;
• tax consolidation (Articles 223 A et seq. of the CGI) allows the results of all companies within a group to be consolidated: losses of one company are offset against the profits of another, and intra-group dividends bear a reduced add-back for overhead costs of 1% (not 5%), since the 2019 Finance Act abolished their full neutralisation.

The two régimes can coexist. Within a tax-consolidated group, dividends circulating between group companies and eligible for the parent-subsidiary régime bear the reduced 1% add-back. The parent-subsidiary régime remains fully relevant, however, for dividends received from subsidiaries not included in the consolidation perimeter, for example foreign subsidiaries or subsidiaries held at less than 95%.

The add-back for overhead costs is not identical in the two régimes. Since the 2019 Finance Act, intra-group dividends are no longer neutralised to 0%: they bear a reduced add-back of 1% (instead of 5% under the standard parent-subsidiary régime). For €100,000 of dividends distributed, at the 25% IS rate:

Tax consolidation requires holding at least 95% of the subsidiaries' capital. Below that threshold, only the parent-subsidiary régime (5% threshold) is available. The choice between the two régimes is part of a broader reflection on the taxation of holding companies and the group's architecture.

The 1% add-back does not always require tax consolidation#

This is the point most often missed, including in structures already in place. The second sub-paragraph of Article 216, I of the CGI reserves the reduced 1% add-back for two situations, and the second requires no tax-consolidated group at all:

• income received by a company that is a member of a tax group (Articles 223 A or 223 A bis of the CGI) in respect of a shareholding in another company of that group, held for more than one financial year;
• income received in respect of a shareholding in a company subject to a tax equivalent to French corporate income tax in a Member State of the European Union, or in another state party to the European Economic Area agreement bound to France by an administrative assistance treaty, provided the conditions for forming a tax group would be met if that company were established in France.

In other words, a French parent company holding at least 95% of a European subsidiary may apply the 1% add-back to its dividends even though no tax consolidation is possible with it, the other consolidation conditions being otherwise met. The tax authorities confirm this in their published doctrine (BOI-IS-BASE-10-10-20, § 160 onwards), including for a company that belongs to no group.

The stake is not theoretical: applying 5% by default to eligible European dividends costs EUR 1 of tax for every EUR 100 moved up (1.25% instead of 0.25%).

Dividends from foreign subsidiaries#

The parent-subsidiary régime applies to dividends from subsidiaries established in an EU Member State, provided that the distributing company is subject to a tax equivalent to French IS and that the tax treaty between the two states includes an administrative assistance clause. For subsidiaries located outside the EU, eligibility is much more restrictive and must be verified on a case-by-case basis.

The anti-abuse clause#

The French tax authorities have an anti-abuse clause allowing them to deny the benefit of the parent-subsidiary régime where the structure was put in place for an essentially tax-driven purpose, without genuine economic substance. This clause, derived from the EU Parent-Subsidiary Directive (Directive 2011/96/EU), targets in particular shell structures without real activity.

Breach of the holding commitment#

If the parent company sells the shares before the two-year period expires, the parent-subsidiary régime is withdrawn. Dividends received during the holding period become taxable, with applicable penalties and late-payment interest. This situation arises frequently during poorly anticipated group restructuring operations.

The accounting classification of shares#

The shares must be classified as participation securities (titres de participation) in the parent company's accounts. An erroneous classification as trading securities or fixed-asset securities may be sufficient for the tax authorities to challenge the application of the parent-subsidiary régime during a tax audit.

Hayot Expertise advice: the real risk is not simply failing to apply the régime. It is building a holding structure without verifying upfront that the dividend remittance chain, the accounting classification of shares and the tax documentation will function correctly on the day the first dividend is distributed. A structuring error discovered only later creates retroactive tax exposure that is difficult and costly to correct.

The régime is not judged on its principle, but on what it actually leaves available inside the holding company.

1. Moving cash from a subsidiary up to the holding company#

An operating SAS distributes EUR 150,000 to its holding company, which has held 100% of the capital for more than two years. Under the parent-subsidiary régime, the add-back for overhead costs is EUR 7,500 and the tax due by the holding company EUR 1,875: the holding company keeps EUR 148,125. Without the régime, the same EUR 150,000 would bear EUR 37,500 of corporate income tax, EUR 35,625 more.

2. Funding an acquisition with the target's dividends#

A holding company repays a EUR 400,000 acquisition loan over five years, that is EUR 80,000 of principal a year, funded by the target's dividends. To free up EUR 80,000 net of tax, the target must distribute roughly EUR 81,013: the 5% add-back leaves only EUR 1,013 of tax. It is this near-zero cost of moving cash upward that makes a leveraged deal financeable; taxation at 25% would make it impracticable.

3. A European subsidiary held at more than 95%#

A French holding company holds 96% of a German subsidiary subject to German corporate income tax. French tax consolidation is closed to it, but the reduced 1% add-back applies where the conditions for forming a group would be met if that subsidiary were established in France. On EUR 200,000 of dividends, the tax comes to EUR 500, against EUR 2,500 had the 5% add-back been applied by default.

These three cases are costed illustrations, not real files. The exact figures depend on the ownership chain, the acquisition date of the shares and the scope of the group: our holding company taxation service in Paris sets out how these trade-offs are checked before the distribution, not after.

Constitutional case law removed one of the régime's historic exclusions, and that is the point with the greatest practical effect today. Paragraph 6 of Article 145 of the CGI used to exclude income from shares carrying no voting rights. The French Conseil constitutionnel struck that exclusion down as unconstitutional twice: decision no. 2015-520 QPC of 3 February 2016 (Société Metro Holding France SA), then decision no. 2016-553 QPC of 8 July 2016 (Société Natixis). The ground is the same in both cases: an unjustified difference in treatment between dividends in comparable situations, depending on the origin of the shares.

The tax authorities drew the consequences in their published doctrine: the exclusion from the parent-subsidiary régime of shares carrying no voting rights no longer applies (BOFiP, update ACTU-2016-00209). Letter c of paragraph 6 of Article 145 is now repealed.

The practical consequence for a company owner: preference shares stripped of voting rights can qualify for the parent-subsidiary régime, provided the 5% capital threshold and the two-year holding commitment are met. That point is worth checking before any issue of preference shares within a group, not after the first distribution.