Before the PFU, French capital gains were subject to the progressive income tax scale (up to 45%) plus social contributions (17.2%) — creating an effective marginal rate above 60% for high earners. The PFU capped this at 30%, dramatically improving the economics of business sale for founder-entrepreneurs and removing a significant obstacle to M&A activity.
The PFU applies to the net capital gain (sale price minus acquisition cost). For founding shareholders who created the company, the acquisition cost is often nominal (e.g., the par value of the shares at incorporation), meaning almost the entire sale price is taxable gain. Sellers may opt to apply the progressive income tax scale instead of PFU — this is advantageous only for very low earners where the marginal rate is below 12.8%.
Important: the PFU does not eliminate all tax optimizations. Specific abatements remain available: the 'abattement départ à la retraite' (retirement departure allowance — €500k deduction from taxable gain if the founder retires within 24 months of sale) can significantly reduce effective tax. Additionally, FCPR/FPCI structures and certain reinvestment schemes (Article 150-0 B ter — apport-cession) can defer or reduce the PFU. French tax counsel is essential before signing any sale agreement.
PFU calculation
Sale price: €8m. Acquisition cost (shares created at incorporation): €10,000. Net capital gain: €7,990,000. PFU at 30%: €2,397,000. After-tax proceeds: €5,603,000 (70% of gain). With retirement abatement (€500k): taxable gain = €7,490,000. PFU: €2,247,000. Saving from abatement: €150,000. After-tax proceeds with abatement: €5,753,000.
Frequently asked questions
Can French founders use the progressive tax scale instead of PFU?
Yes — French tax law allows individuals to opt for the progressive income tax scale (barème) instead of PFU when filing their annual tax return. This is advantageous only if their total taxable income (including the capital gain) places them in a marginal bracket below 12.8%. Given that a meaningful business sale creates substantial gain, the progressive scale virtually never benefits French founders in practice.
Does PFU apply to Swiss residents selling French company shares?
No — Swiss residents are generally taxable in Switzerland on capital gains from share sales (private capital gains are often exempt in Switzerland for federal tax). The French-Swiss tax treaty may apply specific rules for gains on 'immovable property companies' (sociétés à prépondérance immobilière). Cross-border sellers should take independent tax advice in both France and Switzerland.
What other taxes apply to a French business sale beyond PFU?
Potentially: (1) social contributions (prélèvements sociaux) at 17.2% — already included in the 30% PFU rate; (2) exceptional contribution on high revenues (CEHR) at 3–4% on income above €250k/€500k for single/joint filers — added on top of PFU; (3) wealth tax (IFI) implications if the seller's non-taxable assets change classification post-sale; (4) transfer taxes on the buyer (droits d'enregistrement) — typically borne by the buyer in share deals.