Cross-border investments between France and the United Kingdom are now common practice for international groups.
As a result, the taxation of dividends France UK has become a strategic issue for companies operating across both jurisdictions.
Dividend distributions frequently arise following acquisitions, group reorganisations or ongoing corporate operations. Therefore, understanding how these dividends are taxed is essential to avoid double taxation and unexpected tax exposure.
This article provides a clear and structured overview of the applicable tax rules, focusing on treaty mechanisms, holding structures and the consequences of Brexit.
General principles of dividend taxation between France and the UK
When a company distributes dividends to a foreign shareholder, two key tax questions arise.
First, does the source country apply a withholding tax on the dividend?
Second, how are those dividends taxed in the recipient’s country of residence?
The France–UK tax treaty plays a central role in answering both questions. Its purpose is to prevent double taxation while allocating taxing rights between the two states.
French-source dividends paid to a UK company
Withholding tax under French domestic law
Under French tax law, dividends paid by a French company to a non-resident company are, in principle, subject to a 25% withholding tax.
This rule applies regardless of the size of the distribution and often affects UK investors following corporate transactions or long-term investments.
Reduction or exemption under the tax treaty
However, the France–UK tax treaty allows this withholding tax to be reduced or eliminated.
In practice:
- the withholding tax is reduced to 0% if the UK recipient company directly holds at least 10% of the share capital of the French company for a minimum period of two years;
- in other cases, the treaty limits the withholding tax to 15%.
These treaty benefits apply only if the required legal and factual conditions are met.
UK-source dividends paid to a French company
No withholding tax in the United Kingdom
Since 2016, the United Kingdom has abolished withholding tax on outbound dividends.
Consequently, dividends paid by a UK company to a French company are generally received free of UK withholding tax.
This rule applies regardless of the level of participation or the duration of ownership.
Tax treatment in France
Although the UK does not tax these dividends at source, France may tax them at the level of the French recipient company.
Nevertheless, French companies may benefit from the parent-subsidiary regime if the relevant conditions are satisfied. This regime allows dividends to be largely exempt from corporate income tax, subject to a standard add-back for expenses.
Role and application of the France–UK tax treaty
The France–UK tax treaty constitutes the legal foundation of dividend taxation between the two countries.
Its objectives are to:
- prevent double taxation,
- limit withholding taxes,
- ensure that dividends are taxed primarily in the recipient’s country.
Documentary requirements
To benefit from reduced withholding tax rates or exemptions, companies must provide:
- valid tax residence certificates,
- treaty claim forms,
- evidence of direct and effective ownership.
Without proper documentation, tax authorities may deny treaty relief.
Use of holding companies: tax benefits and limits
Parent-subsidiary regime in France
Where a French company holds at least 5% of the share capital of a UK subsidiary, the French parent-subsidiary regime may apply.
Under this regime:
- dividends received are largely exempt from corporate income tax,
- a fixed 5% add-back applies to represent non-deductible expenses.
This mechanism is frequently used in international group structures.
Anti-abuse considerations
Tax authorities closely scrutinise holding structures.
Purely artificial arrangements, or structures created solely to obtain tax benefits, may be challenged.
Authorities typically assess:
- the economic substance of the holding company,
- the identity of the beneficial owner,
- the commercial rationale of the structure.
Dividend taxation after Brexit: key risks
End of EU tax directives
Following Brexit, EU tax directives such as the Parent-Subsidiary Directive no longer apply between France and the UK.
As a result, companies must now rely exclusively on the bilateral tax treaty to obtain withholding tax relief.
Increased tax scrutiny
Post-Brexit, tax authorities have intensified their focus on:
- substance requirements,
- hybrid structures,
- anti-abuse rules.
Where an arrangement is considered abusive, treaty benefits may be denied.
Conclusion
The taxation of dividends France UK is governed by a complex interaction between domestic tax rules, the bilateral tax treaty and post-Brexit developments.
While the treaty offers valuable relief mechanisms, their application requires careful planning, robust documentation and genuine economic substance.
In the current environment, anticipating tax risks remains essential for cross-border corporate groups.
