Trading is a profitable activity which unfortunately does not escape tax. Capital gains and dividends generated by your investments in a securities account are taxed each year. To reduce the bill, you can make your investments within a PEA, which does not come without some limitations.
➡️ We take stock of trade taxation!
Taxation of trading in a securities account
Most traders make their investments in a regular securities account. It is actually this type of account that gives access to the most varied financial investments: shares, derivatives, bonds, ETFs, investment funds, etc.
Note that some trading platforms like Libertex, Capital.com, FXCM, IG, CMC Markets and a few others only offer “CFD Accounts” or “Derivatives Account”. However, the tax framework is the same.
➡️ The gains you make on these financial assets are taxed every year, regardless of whether you choose to reinvest them in the same securities account.
If I don’t withdraw, I don’t have to pay tax? A well-known saying among investors partially answers this question: Until you sell, you have neither won nor lost.
In other words, it is the sale of a security that triggers taxation. and not raising the cash balance. Likewise, dividends should be systematically included in your earnings for the year.
Your trading profit is subject to PFU
By default, the gains from your trading operations are subject to the common fixed tax (PFU or hearing tax) by 30%. The PFU is divided as follows:
- 12.8% for income tax;
- 17.2% for social contributions.
This tax scheme applies to all types of gains (capital gains, dividends, interest) and regardless of stock market investments (shares, bonds, derivatives, UCITS).
Regarding your capital gains, they will be taxed in PFU after compensation for any losses you may have suffered during the year. If your losses in one year exceed your capital gains, you can deduct the remainder from your capital gains for the next 10 years.
IR taxation on option
As an irrevocable option, you can choose to tax your trading profits on the progressive income tax scale. However, be aware that all income from your financial assets for the year will then be affected by this scheme: redemptions from your life insurance, term accounts, crowdfunding, etc.
This option is rarely beneficial, except for taxpayers whose marginal tax bracket is zero or equal to 11%. In this case, however, you benefit from a reduction on dividends and in certain cases on capital gains. It is also possible to deduct costs associated with holding the securities account or insurance premiums. If these expenses are greater than your tax, then you create a deficit that can be attributed to the category income from movable property for 6 years. We tell you more in this article dedicated to the taxation of securities accounts.
You must continue to pay social contributions of 17.2%.
If you have made a profit within the framework of a securities account, you must declare all the profits realized during the year. In other words, capital gains on securities sold during the year and dividends received.
If you have a French account, the broker will normally have passed on the information to the tax authorities. You then only have to check that they are in accordance with your operation. To help you, your broker will also send you an IFU.
If you have an account abroad (for example Degiro, eToro or even XTB), it is very likely that your broker will not transfer the information to the tax authorities. But it’s not much more complicated, you just have to fill in box 3VG when you make your tax return, stating your earnings. However, do not forget to declare this account abroad with form 11916.
Consider declaring:
- gains made during the financial year (and not all latent capital gains);
- exchange rate loss realized during the financial year, in box 3VH; you are only taxed on the difference.
Be careful not to play with fire as you risk being hit with a tax adjustment, in which case bad timing will work against you!
Unfortunately, there are not many solutions to reduce the taxation of your trading activity.
The first consists of keep your securities from one year to the next, to delay the taxation of your capital gains. If you sell a share and you generate a capital gain, it will be taxed at the end of the year. Conversely, a latent capital gain (that which you can hope to realize) is not taxed. Dividends, on the other hand, will always be taxed in the year in which they are earned.
Another avenue worth exploring to optimize your taxation is to conduct your trading operations within a PEA and not in a securities account. PEA actually benefits from a tax exemption!
How PEA works
PEA is a securities account which only allows you to acquire shares in French and European companies. Let’s stop for a moment at this point, because for many traders this is the biggest flaw of PEA. With PEA, you will not actually have the option to buy US stocks or commodities. You will also not be able to invest with leverage, either with derivatives or through SRD. The only way to diversify your portfolio is to use PEA-eligible international equity ETFs.
Therefore, PEA will not be suitable for all styles of traders. Intraday trading and scalping, which are generally practiced with leverage, will not be suitable for PEA.
On the other hand, if you are a fan of stock picking, we highly recommend PEA, at least for your European stocks. And if you are more of a trader global macro and your strategies are based on major long-term economic trends, you will be able to do very well with PEA-eligible ETFs.
Also note that there are two types of PEA:
- The classic PEA : limited to €150,000.
- PEA-PME : limited to €225,000 and limited to SMEs and medium-sized companies.
It is possible to combine a classic PEA and a PEA-PME. But in this case, the combination of the two must not exceed €225,000.
What is the tax applicable to PEA?
First advantage of PEA: it is an envelope with capital letters. In other words, as long as you do not withdraw, you pay neither tax nor social contributions on the gains in your plan.
And if you keep your PEA for at least 5 years, the gains you make will not be taxed when you withdraw. However, you must still pay social contributions of 17.2%.
If you wish to release the funds under 5 years, you will then be taxed in PFU.
If you make a withdrawal during the first 5 years of your PEA, the plan will be closed; unless the withdrawal is linked to the establishment or takeover of a business, invalidity, dismissal or retirement or withdrawal of securities from companies in liquidation.
Life insurance: an alternative to PEA?
Life insurance also benefits from favorable taxation. Your earnings are partially tax-free if you keep them for more than 8 years.
The advantage of life insurance is to give you access to assets with little or no risk:
- the Eurofund, whose capital is guaranteed;
- bond funds and ETFs, which are less volatile than stocks.
Life insurance is strictly not suitable for trading. On the other hand, it is an excellent tax envelope for making long-term, less risky investments, in addition to your trading activities.
Case of professional trading
If you are a general trader, your trading activity can be considered a commercial activity, and then the taxation that applies is different. In this case, your winnings are not subject to flat tax but are considered Non-Commercial Profits (NBC) and will be taxed as such… which is much less beneficial!
Let’s take stock of this situation ⤵️
When do the tax authorities consider you to be a professional trader?
The Act considers trading activities as:
carried out under conditions similar to those characterizing an activity carried out by a person carrying out this type of operation in a professional capacity.
Article 92 of the General Tax Act
As you can see, the law is relatively vague. To see more clearly, we can turn to the case law described in Bofip. We then see that the following elements can make the tax authorities consider you a professional trader:
- you have a usual and regular practice (for example, you place orders every day);
- you invest in different markets and different products, and you use financial derivatives in particular;
- you have professional-like trading equipment (including, for example, subscriptions to market data);
- the income from your trading is much higher than your other income.
Additionally, if you are or have been a financial professional, this will work against you. If you check these boxes, we recommend that you ask the tax authorities to investigate your situation by requesting a tax ruling.
What taxation for professional traders?
IF you fall under the category of professional traders, you must create a company where you will carry out your trading activity. The company’s profits will then be taxed at a rate that depends on the chosen legal form. E.g :
- in the case of a sole proprietorship (EI)is your profit taxed with income tax;
- in the case of an SASyour profit is then taxed with corporation tax (IS). flat tax if you distribute them as dividends.
To find the best solution, we recommend that you seek advice from an accountant!
Tax on cryptocurrency trading: some subtleties
If you also trade with cryptocurrencies, there is many similarities with what was presented to you earlier. But also a few different points to keep in mind.
Primarily, your capital gains are also subject flat tax. On the other hand, there is currently no beneficial tax package like PEA to optimize your taxation on cryptocurrency trading. But notice it if you sell your positions for stablecoinsyou have nothing to declare and no tax to pay (if you are an individual, this does not apply to companies). In fact, taxation is only triggered when you convert your cryptocurrencies to fiat currencies (euro, dollar, pound sterling, etc.). So to avoid tax on your crypto, favor exits in stablecoins between two investments if you are not to get your money back.
🔎 Want to know more about this topic? See our article on cryptocurrency taxation.