France Considers Raising Flat Tax on Capital Income Amid Wealth Tax Debate

As France prepares its 2026 budget, the government is contemplating increasing the flat tax (prélèvement forfaitaire unique, PFU) on capital income by 3 to 6 points, potentially raising the current 30% rate to between 33% and 36%. The PFU, implemented in 2018, currently comprises 12.8% income tax and 17.2% social contributions on capital income such as interest, dividends, and capital gains. This move aims to address the country’s persistent public deficit by increasing taxation on wealthy individuals.

However, this proposal faces criticism. Mounir Laggoune, a specialist in investment and wealth management, calls the planned hike a “real step backwards,” emphasizing that it unfairly penalizes savers. Meanwhile, Jean-Philippe Delsol, lawyer and president of the Institute of Economic and Fiscal Research, warns that in a global economy, France must consider tax competitiveness, noting most OECD countries have trended toward lowering taxes on the wealthy since the late 1990s. He highlights that many neighboring countries are decreasing taxes to attract capital and talent, creating a challenging context for France’s plans.

Currently, France is already among the countries with the highest capital income taxation rates in Europe. These new proposals mark an intensified effort by the left-wing in France to balance public finances without cutting spending, contrasting with regional trends favoring tax reductions to boost economic activity. The debate underscores tensions between fiscal responsibility and maintaining attractiveness to wealthy individuals and investors in a globalized economy.