What are the conditions of the French participation exemption?

The parent company must hold at least 5% of the subsidiary's capital, as qualifying participation shares, with a minimum 2-year holding commitment. Dividends received are then 95% exempt: only a 5% expenses add-back is included in taxable profit, giving an effective rate of around 1.25% (5% × 25% corporate tax).

What is the difference between the participation exemption and tax consolidation?

The participation exemption exempts 95% of dividends received, from a 5% shareholding. Tax consolidation goes further: from 95% ownership, the taxable results of group companies are consolidated — profits of some offset losses of others, and the parent alone is liable for the group's corporate tax. The two regimes are often combined depending on the group structure.

Is there withholding tax on dividends paid by the holding company?

For resident individual shareholders, the 30% flat tax applies (12.8% income tax + 17.2% social levies). For non-resident individuals, withholding tax is 12.8%, subject to tax treaties. Dividends paid to an EU parent company holding at least 10% of the capital are exempt from withholding tax (article 119 ter of the French Tax Code, 2-year holding).

Which legal form should a French holding company take?

The SAS is the most common form: no minimum capital, great statutory flexibility, assimilated-employee social regime for the president. The SARL, also with no minimum capital, can suit a family holding. The SA (EUR 37,000 capital) is reserved for large structures. All qualify for the participation exemption once the conditions are met.

Does a holding company need substance?

Yes. A purely artificial holding is exposed to anti-abuse rules, in France and in its subsidiaries' jurisdictions: premises, resources, real governance and decisions actually taken in France are all assessed. Structuring must come before the flows, not after — that is precisely the tax lawyer's job.

French Holding: Parent-Subsidiary & Tax Group

Q: How are capital gains on participation shares taxed?

Capital gains on participation shares held for more than 2 years benefit from the long-term regime: 88% exemption, with only a 12% expenses add-back included and taxed at corporate rate — an effective rate of around 3%. Shares held for less than 2 years are taxed at the standard 25% rate.

What is a holding company and why create one?

A holding company is a company whose main purpose is to hold shareholdings in other companies. In France it is typically used to:

Bring up dividends from operating subsidiaries almost tax-free (participation exemption);
Consolidate the results of a group and offset profits against losses (tax consolidation);
Prepare a sale by housing the shares in a structure eligible for the long-term capital-gains regime;
Organise ownership within a family or among co-investors, and centralise group treasury;
Structure international investment, drawing on France's network of more than 120 tax treaties and on the EU directives.

The two tax pillars are the participation exemption (articles 145 and 216 of the French Tax Code) and tax consolidation (articles 223 A et seq.). They follow different logics and are often combined.

How does the participation exemption work?

The participation exemption (régime mère-fille) exempts 95% of the dividends the holding receives from its subsidiaries. In practice, only a 5% expenses add-back is included in the parent's taxable profit.

The conditions:

Participation: at least 5% of the subsidiary's capital;
Nature of the shares: qualifying participation shares;
Holding period: a minimum 2-year holding commitment;
Tax status: the companies involved are subject to corporate tax (or an equivalent tax for foreign subsidiaries).

The figure to remember: with corporate tax at 25%, the effective taxation of subsidiary dividends comes to around 1.25% (25% × 5%). On EUR 1,000,000 of dividends brought up, the tax is in the order of EUR 12,500, against EUR 250,000 without the regime.

How does tax consolidation work?

Tax consolidation (intégration fiscale) is a group regime: the parent company becomes solely liable for corporate tax computed on an aggregate group result.

Threshold: ownership of at least 95% of the capital (and voting rights) of the consolidated subsidiaries;
Scope: the parent and its French subsidiaries subject to corporate tax;
Main effect: members' profits and losses offset each other at group level;
Neutralisations: certain intra-group flows are neutralised in computing the aggregate result.

It is the natural regime for a (near-)wholly-owned group: a loss-making subsidiary in its investment phase reduces the tax due on the others' profits.

Participation exemption or tax consolidation: which to choose?

The question really only arises once ownership reaches 95% — below that, only the participation exemption is available. Above it, the two logics compare as follows:

Criterion	Participation exemption	Tax consolidation
Ownership threshold	5% of capital	95% of capital and voting rights
Duration condition	2-year holding	Election made for the group
Effect on dividends	95% exemption (5% add-back)	Intra-group flows neutralised in the aggregate result
Profit / loss offsetting	No	Yes — the core of the regime
Foreign subsidiaries	Dividends eligible (equivalent tax)	Outside the scope (French subsidiaries)
Typical profile	Minority stakes or co-investment	~100% controlled group

How are capital gains on share disposals taxed?

The long-term capital-gains regime completes the framework: the disposal of participation shares held for more than 2 years is 88% exempt, with only a 12% expenses add-back included and taxed at corporate rate.

Effective rate: around 3% (12% × 25%) where there is a net gain — the add-back is computed on gross gains;
Shares held less than 2 years: taxed at the standard corporate rate (25%).

This regime is what makes the holding company the classic tool for preparing a business sale: housing the shares in the holding early enough is what secures access to the long-term regime.

What withholding tax applies to cross-border flows?

To an EU parent company: full exemption from withholding tax on dividends where the parent holds at least 10% of the capital for 2 years and is subject to corporate tax in its state (article 119 ter of the French Tax Code, transposing the Parent-Subsidiary Directive).
To non-resident individuals: withholding tax of 12.8%, subject to tax treaties.
To resident individuals: the 30% flat tax (12.8% income tax + 17.2% social levies).
Other states: France's network of more than 120 tax treaties reduces withholding taxes and prevents double taxation.

Which legal form for the holding company?

The tax regime does not depend on the corporate form: the SAS, SARL and SA all qualify under the same conditions. The choice is about governance:

SAS: no minimum capital, tailor-made articles (shareholders' agreements, preference shares, multi-level governance) — the most used form for group and co-investment holdings;
SARL: no minimum capital, a simple legal framework — suited to family holdings;
SA: minimum capital of EUR 37,000 and heavy governance — reserved for large structures.

For the practical formation steps (INPI one-stop shop, articles, capital deposit), see our guide Starting a Company in France as a Foreigner.

Mistakes to avoid

Selling too early: breaking the 2-year holding commitment forfeits the participation exemption on the dividends received.
Mixing up the thresholds: 5% (participation exemption), 10% (EU withholding-tax exemption), 95% (tax consolidation) — three thresholds, three distinct regimes.
Neglecting substance: a holding with no resources or real governance is exposed to French and foreign anti-abuse rules.
Undocumented management fees: services invoiced by the holding to its subsidiaries must be real, justified and at market price.
Structuring after the fact: the order of operations (share contribution, holding formation, distribution) determines the tax treatment — structuring is designed before the flows, with a tax lawyer.

For an overview of the regime and our referral service, see the page Holding Company in France.