France Introduces a 20% Minimum Income Tax on High-Income Individuals: Key Takeaways
For the year 2025, French tax residents with annual income exceeding €250,000 for single taxpayers and €500,000 for married couples or those in a civil partnership will be subject to an effective minimum tax of 20%. This mechanism is designed to ensure that their level of taxation does not fall below this threshold, a situation previously possible mainly due to the 12.8% flat tax on certain gains and income from financial assets. In this article, we will use numerical examples to illustrate how this tax operates and help our readers better understand its overall fiscal impact.
We strive to simplify complex matters to make this reading more accessible and help understand the 20% effective minimum tax introduced by the Finance Law for 2025 on 'high incomes' earned in 2025 by certain French tax residents.
The new tax, designated "Differential Contribution Applicable to Certain High-Income Taxpayers" (hereafter referred to as “CDHR”, which is the French acronym for "Contribution Différentielle sur les Hauts Revenus"), will be illustrated using the example of a single taxpayer tax resident in France, with no dependent children for tax purposes, who receives exclusively dividends each year. For our study, we assume that this taxpayer earns €400,000 in both 2024 and 2025. The year 2024 is characterized by the absence of the CHDR, whereas 2025 marks its introduction. This dual scenario will allow us to analyze the overall fiscal impact of the CDHR on the taxpayer.
2024: The Pre-CDHR Taxation Rules
Generally, French income tax is calculated using a scale composed of income brackets with progressive rates. For the year 2024, the scale is as follows:
- Up to €11,497: 0%
- From €11,498 to €29,315: 11%
- From €29,316 to €83,823: 30%
- From €83,824 to €180,294: 41%
- Over €180,294: 45%
However, dividends (like some other financial income and gains) receive special treatment: they are first subject to the flat tax (PFU, acronym of "Prélèvement Forfaitaire Unique") at 12.8%, withheld by the paying institution or corporation. When declaring their income, the taxpayer may opt for the progressive scale if that method proves more advantageous. In fact, the PFU applies to the gross amount, while the progressive scale takes into account a 40% deduction on certain dividends. In such a case, any excess PFU already paid is refunded.
For a single taxpayer with no dependent children receiving only €30,000 in dividends in a given year, opting for the progressive scale (which would result in a tax of approximately €715, calculated on €18,000 after the deduction) appears more advantageous than the PFU (€3,840), since the dividend amount to which the scale is applied benefits from a 40% deduction.
Wealth income, such as dividends, is also subject to social taxes in France at a rate of 17.2%.
Furthermore, when a single taxpayer’s reference tax income (RFR) exceeds €250,000, the portion above that threshold is subject to the Exceptional Contribution on High Incomes (CEHR, French acronym of "Contribution Exceptionnelle sur les Hauts Revenus" - not to be confused with the CDHR): 3% on the bracket between €250,000 and €500,000, and 4% beyond that.
The RFR - an essential concept for the remainder of this article - represents the total income and gains received by the taxpayer, before applying certain abatements, exemptions, and deductions (such as the above mentioned 40% deduction applicable to dividends).
Let us revisit our example of the taxpayer earning €400,000 in dividends in 2024. According to our estimates, the PFU proves more favorable:
- PFU Outcome: €51,200 in income tax (i.e., 12.8% of the gross amount).
- Progressive Scale Outcome (if opted for): €84,734 in income tax (calculated on €260,000, i.e., after applying the 40% deduction).
The difference is significant: the PFU yields a saving of €33,534 compared to the progressive scale option, with an effective tax rate of 12.8% versus 21% when opting for the scale. To this tax amount, one must add €4,500 of CEHR (3% on the portion of the gross dividends exceeding the €250,000 threshold—i.e., €150,000) as well as €68,800 in social contributions (17.2% of the gross amount).
Thus, the taxpayer’s effective tax rate amounts to 14%—a result that takes into account both the income tax (€51,200) and the CEHR (€4,500) on the €400,000 income. If social taxes (€68,800) are included, the tax rate rises to 31.2%.
2025: The Impact of the CDHR on the Taxation Rules
The CDHR is a tax distinct from the CEHR. The CDHR has the same scope as the CEHR and applies exclusively to taxpayers whose the adjusted RFR exceeds €250,000 for single individuals and €500,000 for married couples or partners in a civil union (PACS).
In our example, it equals the difference between:
- The 20% rate applied to the RFR (represented by the €400,000 amount), which amounts to €80,000; and
- The sum of the French income tax (€51,200) and the CEHR (€4,500) on the dividends.
This difference corresponds to €24,300. This CDHR amount will bring the taxpayer’s effective tax rate to 20% (or to 37.2% when including the impact of social taxes). This is why the CDHR is also called "minimum tax" on high incomes: its purpose is to establish a minimum tax rate of 20% (excluding social taxes).
The CDHR due on 2025 income requires an advance payment to be made between December 1 and December 15, 2025. This advance is set at 95% of the estimated amount of the CDHR, based on the income known as of December 1, supplemented by a projection for the remainder of the year. In the event of a delay or insufficient payment, a surcharge of 20% is applied if the advance is more than 20% below the amount due, in addition to a late payment interest of 0.2% per month.
An “Adjusted” RFR for the CDHR
While the scope of the CEHR is limited by the RFR, the CDHR is calculated on the basis of an adjusted RFR. In both cases, the reference remains the RFR, but for the application of the CDHR, specific adjustment rules apply.
The adjusted RFR not only determines the threshold for being subject to thie CDHR, but also forms the basis for the theoretical tax due—namely 20% of the adjusted RFR.
The adjusted RFR assesses the overall level of a taxpayer’s income by aggregating earnings from employment, capital, and wealth, reintegrating certain exempt incomes, and partially neutralizing deductions that reduce the final tax.
To establish this adjusted RFR, several adjustments are made. It is reduced by various abatements and exempt benefits, as well as by certain capital gains arising from specific mechanisms for which the tax deferral expires—these amounts being excluded from the calculation. Moreover, it is further reduced by wages exempt under the inpatriate regime, by the net proceeds from the disposal or concession of patents and similar intangible assets subject to a preferential rate, by income received by an inventor benefiting from a specific reduced rate, and by income exempt under international double taxation agreements. For the taxation of 2025 income, the RFR will also be adjusted for amounts subject to certain withholding tax schemes.
Furthermore, exceptional incomes - those that, by their nature, are not received annually and whose amount exceeds the average net income of the past three years - are included in the RFR at only one-quarter of their value. Likewise, the tax corresponding to these exceptional incomes is accounted for only to the extent of 25% in the calculation of the effective tax rate. This mechanism, which aims to smooth their impact, ensures that their tax treatment remains independent of the option for income splitting, which is reserved for incomes taxed under the progressive scale.
Anticipating the Impact of the CDHR
Affected taxpayers must anticipate its impact on their wealth and tax strategies. At TaxLhab, we assist our clients in securing their positions and ensuring compliance with the new obligations.
Would you like to assess your exposure to this contribution? Contact us for a consultation: contact@taxlhab.com.
