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Taxation on capital gains from the sale of securities

Taxation on capital gains from the sale of securities

In a challenging economic period, there will be increased opportunities for investment. We wanted to provide a brief overview of the taxation related to capital gains on the sale of securities.

Firstly, it is important to determine how the capital gains from the sale are calculated, then explore potential exemptions and deductions. We will briefly discuss the benefits of donations prior to the sale.

Determining capital gains or losses from the sale of securities:

Capital gains or losses are the difference between the selling price of the securities and their cost price.

The selling price is the amount received by the seller. Expenses and taxes related to the sale are deducted from the selling price (e.g., fees for the evaluation of the assets/securities being sold and fees for drafting the sales contract, etc.)

The cost price is the value at which the securities have been:

  • Created = value of the contribution made by the seller to the company’s capital whose securities are transferred;
  • Acquired for consideration = purchase price;
  • Acquired gratuitously = value considered for calculating transfer taxes.

The cost price must be increased by the acquisition expenses of the securities (e.g., contract fees, registration fees, etc.) and reduced from the Madelin Law.

Taxation of securities sale, two options:

  • The Flat Tax (Prélèvement Forfaitaire Unique – PFU) is applied at a comprehensive rate of 30% at the capital gain (Income Tax (IR): 12.8% and Social Contributions (CSG): 17.2%).
  • Alternatively, the comprehensive option at the progressive income tax rate plus 17.2% social contributions can be chosen.

Reduction of securities sale gains:

Reduction of securities sale gains:

To mitigate the tax impact, there are various relief mechanisms based either on the duration of holding the securities or on specific conditions of the seller, such as the retirement relief:

Incentive reduction:

  • 50% reduction for a holding period between 1 year and less than 4 years;
  • 65% reduction for a holding period between 4 years and less than 8 years;
  • 85% reduction for a holding period of 8 years or more.

CAUTION: social contributions remain applicable on 100% of the capital gain!

  • €500.000 reduction for retiring executives (subject to certain conditions related to the company itself and the seller)

Note that the €500.000 reduction applies to all gains related to the same target company and not per transaction.

To smooth out the taxation of the capital gain, it is interesting to consider a donation before the sale.

Why a donation before the sale? To avoid a double taxation.

The sale of company shares followed by the donor’s donation of all or part of the price to their children may result in double taxation:

  • first, on the capital gain,
  • and the second, on the gift tax.

Would you like to know more? Don’t hesitate to reach out to COGEP’s expert accountants and legal advisors.

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