The French PFU Flat Tax: How 30% Actually Breaks Down

Note for non-French residents: This article covers the PFU, France's default tax regime for investment income outside protected wrappers. If you live in France or hold investments there, this is directly applicable. If you live elsewhere, the underlying structure — flat tax + social contribution layer + opt-in progressive alternative — is a useful reference point for understanding how tiered investment taxation works in continental Europe.

Most investments held outside a tax wrapper in France default to a single regime: 30 %. Not 30 % of your overall income — 30 % specifically of your investment gains, dividends, and taxable interest, applied flat regardless of your income tax bracket. That's the PFU, the Prélèvement Forfaitaire Unique, introduced in 2018 and quickly nicknamed the "flat tax."

It sounds simple: one rate, one calculation, no surprises. And mostly it is. But "30 %" hides two distinct layers that don't behave the same way — and one of them survives even when you escape the other through a wrapper. This article walks through what the PFU actually is, when it applies, when the alternative option is worth considering, and what to do with the knowledge.

This article is informational and educational. Patrice is a wealth-tracking and decision-support tool, not a conseiller en gestion de patrimoine (CGP) or investment advisor. The French tax rules described reflect law as of June 2026 and may change with each finance act (loi de finances). For decisions specific to your situation, consult a licensed CGP or a chartered accountant (expert-comptable).

The PFU in 90 seconds

The PFU is the default regime for revenus du capital — income from invested money — for French tax residents. Since 2018, it replaces a tangle of older rules that varied by income type, holding period, and household situation. One default rate, one annual decision, one common framework.

What it covers

The PFU applies to:

Interest earned on taxable savings accounts (most bank accounts, term deposits)
Dividends from stocks held outside tax wrappers
Capital gains when you sell stocks, bonds, ETFs, or other listed assets outside tax wrappers
Most crypto gains when realized in fiat
The gains portion of life insurance contracts under 8 years old (with some nuance)

In short: if you hold investments in a regular brokerage account (compte-titres ordinaire, or CTO) and you sell something at a gain or receive a dividend, you face the PFU by default.

What it doesn't cover

A few major exceptions, most of them the famous enveloppes fiscales (tax wrappers):

PEA after 5 years: only the 17.2 % social contributions apply, no income tax (see PEA Tax After 5 Years)
Assurance-vie after 8 years: a separate, more favorable regime on the gains portion (see Assurance Vie in France)
Regulated savings accounts (Livret A, LDDS, LEP): fully exempt — no income tax, no social contributions
Salary, business income, real estate rental income: governed by entirely different rules (progressive income tax with bracket structure)

The PFU is for investment income earned outside protected wrappers. Everything else has its own rules.

Anatomy of the 30 %

The 30 % is two distinct numbers stacked together. Knowing which is which matters when you compare investments or plan a withdrawal.

12.8 % income tax

The "tax" portion of the PFU is 12.8 % of your gain — a flat rate, not a marginal rate. This is the part that the PFU actually simplified. Before 2018, your investment income was added to your regular salary and taxed at your marginal bracket — which could reach 41 % or 45 % for high earners. Punishing, and a disincentive to invest at all.

The 12.8 % was set as a flat compromise: low enough to encourage investment, high enough to keep collecting revenue. Roughly equivalent in spirit to the European "withholding tax" model.

The other piece — the 17.2 % social contributions — is structurally different. It's not income tax. It's the stack of social levies (CSG, CRDS, prélèvement de solidarité) that applies to almost every form of capital income for French residents, including inside the PEA after 5 years (see PEA Tax After 5 Years for the full breakdown of those three).

This portion doesn't change with the PFU. It existed before, it exists now, and it would still apply if you chose the alternative progressive option. The 17.2 % is the social tax that follows your money almost wherever it goes.

Why two layers stacked

The structure isn't arbitrary. Income tax funds the general budget; social contributions fund social security and related programs. Different legal bases, different administrative pipelines, different political constraints. Income tax is much easier to lower politically than social contributions — cutting health funding doesn't poll well.

When you see 30 % on your tax statement, you're seeing 12.8 + 17.2 — the same gain hit by two different administrative regimes. The math is simple; the architecture isn't.

The progressive tax option (option globale au barème)

The PFU is the default, but it's not the only choice. Every year at tax filing, you can elect the option globale au barème — taxing your investment income at your regular income tax bracket instead of the flat 12.8 %.

How the opt-in works

When you file your taxes (typically April-May for the previous year), there's a checkbox: "I opt for the progressive tax scale on all my capital income." Check it, and your dividends, gains, and interest are added to your salary and taxed at your taux marginal d'imposition (TMI — your marginal income tax rate). The 17.2 % social contributions still apply separately on top.

It's a single decision per year, applied to all your investment income for that year — every dividend, every gain, every interest payment. You can't pick and choose individual lines.

When it's worth considering

The math works in your favor when your marginal income tax rate is below 12.8 %. In practice, that means:

You're in the 0 % bracket (very low income — students, certain retirees, sabbatical years)
You're in the 11 % bracket with significant dividend income (because of the 40 % dividend allowance, available only under the progressive option — see the tips below)

For anyone in the 30 % bracket or above, the PFU's 12.8 % is the better deal almost mechanically. Don't opt for the progressive scale by default — it's a feature for specific situations, not a general optimization.

All-or-nothing nature

The decision is annual and total. You can't apply the PFU to some income and the progressive rate to other income in the same year. Run the math for the full year before checking the box.

The 17.2 % social contributions apply either way. The progressive option only affects the income tax portion (12.8 % → your TMI).

A worked example — CTO vs PEA over 25 years

To anchor the numbers, here's the same comparison from Article 1, this time told from the PFU side.

You invest €300/month for 25 years. Average gross return: 7 %/year. After 25 years, your final balance is roughly €240,000, of which €150,000 is gains (cumulative contributions: €90,000).

In a compte-titres ordinaire (CTO): Each year you rebalance and trigger some realized gains. Over 25 years, those rebalances eventually run through the full €150,000 in gains, each taxed at 30 % PFU.

Cumulative tax: roughly €45,000.

In a PEA, withdrawn after 25 years: The wrapper defers tax until withdrawal. You sell at year 25 for €240,000. Tax on the €150,000 gain: 17.2 % social contributions only — no income tax.

Tax: €25,800.

The PFU "cost": The €19,200 difference is the price of using a regular brokerage account instead of the PEA wrapper. It's not a penalty — it's the cost of flexibility (the CTO accepts more asset types, more geographies, more strategies than the PEA's European-equity-only constraint). But it's a real cost worth knowing.

Illustrative example only. Returns vary, tax rules can change, individual situations differ.

Practical tips

The habits that save more than the rate alone.

Track your gains by category

Investment income has sub-types: dividends, interest, capital gains. Some are taxed differently, some allow allowances under the progressive option, some have their own special regimes (employer stock, certain bonds). If you hold a serious CTO with multiple asset types, knowing what generated each gain matters at tax filing time.

Carry losses forward — the 10-year rule

When you sell at a loss in a CTO, that loss can offset gains — in the same year, and for the next 10 years. This is one of the most underused mechanisms in French personal finance. If 2026 was a bad year and you realized losses, those losses can shelter gains all the way to 2036.

The mechanism requires declaring the losses on your tax return the year they occur — even if you have no gains to offset that year. Filing the loss is what reserves your right to use it later.

Time withdrawals around your bracket

Years of low income (sabbatical, early retirement transition, parental leave, between-jobs) can be the right moment to opt for the progressive scale and harvest some gains at a lower effective rate. The PFU is the default for a reason, but the option exists for exactly these moments.

Remember the 17.2 % when computing real yield

A stock paying a 4 % dividend yields 4 % gross. Net of PFU, it's 2.8 % (4 % × 70 %). Net of inflation, depending on the year, it can be near zero or even negative. Reasonable yield comparisons start net, not gross — both across asset types and across countries.

The 40 % dividend allowance

If you opt for the progressive tax option, dividends benefit from a 40 % allowance: only 60 % of the dividend amount counts as taxable income. This was preserved precisely because dividends are paid out of already-taxed corporate profits, and double-taxing them entirely felt unfair. It's only available under the progressive option, not the PFU. For retirees with significant dividend portfolios and modest other income, this can flip the math toward the progressive scale.

PFU in your wealth picture

The PFU is the regime that quietly applies to anything held outside a wrapper — your CTO, your dividends, your bond income, your crypto. Knowing your PFU exposure helps you decide whether to move assets into a wrapper, whether to harvest losses, or whether the cost of CTO flexibility is justified by what you're actually doing in it.

For the contrast — how the PEA escapes the income tax half of the PFU after 5 years — see PEA Tax After 5 Years. For the broader map of how every asset type is taxed in France, see Taxing Wealth in France. For the other major wrapper, see Assurance Vie in France. And to keep all of this tracked in one place, a consolidated wealth view is the difference between guessing your effective tax exposure and knowing it.

Common questions

Is the PFU mandatory? No — it's the default. You can opt for the progressive income tax bracket each year at filing time. The opt-in applies to all your investment income for that year, not selectively.

Does the PFU apply to crypto? Yes. Realized crypto gains (when you sell back to fiat) face the 30 % PFU. The 17.2 % social contributions are baked in. Crypto-to-crypto trades are not currently a taxable event in France, but selling to euros — or buying real-world goods — triggers the tax.

Can I switch between PFU and progressive each year? Yes — the decision is annual. PFU one year, progressive the next, PFU again the year after — based on whichever favors you in each tax year.

What about non-residents? The PFU applies to French-source investment income for non-residents, but the rate and the social contribution component depend on your residency country's tax treaty with France. Some treaties reduce the income tax portion to zero; some don't change anything. Individual advice pays for itself here.

Does the PFU apply to my employer's stock plan? Partly. RSUs (restricted stock units) and stock options follow specific regimes that differ from the PFU on the acquisition gain. Once the shares are in your hands and you later sell them, the gain on disposal does fall under the PFU. The PEA-PME (a variant of the PEA for small/medium European companies) is a related wrapper that may apply depending on the employer. Read your plan's tax page carefully — small differences matter.

Final thoughts

The PFU made France's investment tax landscape considerably simpler in 2018. One default rate, one annual decision, one common framework across most investment types outside wrappers. The trade-off is that "30 %" hides the layered structure of French taxation — and missing the structure means missing real opportunities.

The biggest wins aren't from choosing PFU over progressive (or vice versa) — they're from carrying losses forward properly, knowing the 17.2 % follows you into the PEA too, and noticing that the dividend allowance exists only outside the PFU. The 30 % is real, but it's only the visible part of a more nuanced architecture. Knowing the architecture lets you make smaller, better decisions over time.

Reminder: this article is informational, not investment or tax advice. For your specific situation, a CGP or chartered accountant is the right person to talk to.