Trading tax in France: flat tax, reclassification and prop firms

Buying and selling financial instruments with your own money, from France, requires no authorisation. You are not an investment services provider: you are your broker’s client. No paperwork, no licence, no registration.

The line sits elsewhere, and it is a sharp one. You cross it the moment you act for someone else: managing a third party’s capital, even a relative’s and even for free, providing investment advice, or issuing personalised recommendations. That falls under the monetary and financial code, the AMF, and the financial investment adviser status, with serious obligations attached.

That is exactly why, on this site, I sell no signals, manage no third-party capital and give no personalised advice. Teaching a method and commenting on charts is education; telling someone what to buy with their money is a different, regulated activity.

One point that is often misread: a prop firm funded account changes nothing in this analysis on the authorisation side. You are not managing client money, you are executing under a contract with a company that allocates capital to you. On the tax side, however, it changes a great deal, as we are about to see.

France taxes your gains from the first euro. The default regime is the single flat-rate levy, the flat tax: 30% in total, made up of 12.8% income tax and 17.2% social levies.

One point that bears directly on you if you trade futures, CFDs or forex: those profits do not fall under gains on the sale of securities but under the regime for financial futures instruments, article 150 ter of the tax code. The rate lands in the same place — 30% — but they are two separate compartments: the declaration boxes differ, and above all a loss on derivatives does not offset a gain on shares. Check which compartment each of your instruments belongs to before netting anything.

That rate applies to gains on the sale of securities, and dividends and interest follow the same regime. You may opt for the progressive income tax scale instead, but the option is global: it covers all your investment income for the year, not only the parts where it suits you.

The upside of being taxable, and it is a real one: your losses offset gains of the same nature, and any remainder carries forward for ten years. A bad year is therefore not lost — provided you declared it, which means keeping your records.

A word on the PEA, since the question always comes up: it is of no use here. Derivatives and CFDs are not eligible for it, and active trading is not what that wrapper exists to shelter. Do not build your tax arrangements around a plan that cannot hold your activity.

The flat tax assumes you are an individual managing personal wealth. If the tax office decides your market operations are habitual and carried out under conditions comparable to a professional’s, it reclassifies your gains as business income — and the regime changes entirely.

On the unfavourable side: your gains leave the flat tax for the progressive scale. Depending on your bracket, the gap with 30% can be considerable, and it is usually discovered a year late. Do not confuse two separate steps: a reclassification into non-professional BNC leaves your income under the social levies on wealth, whereas being liable for self-employed contributions assumes an activity recognised as professional. They are two tiers, and climbing one does not climb the other.

On the favourable side, because there is one: under the régime réel your costs become deductible — platform, market data, hardware, a share of your housing, and training to the extent it serves the activity. Under the micro regime there is no deduction of real costs but a flat allowance instead: the two do not stack. Your losses, meanwhile, offset according to the rules of the relevant category rather than only against gains of the same nature.

This reclassification is neither requested nor chosen: it is assessed case by case. That is what makes it uncomfortable, and why a general view — this one included — is not enough to settle your situation.

One point deserves honesty: France offers no equivalent of the Swiss circular no. 36, which sets out a quantified safe harbour. Here the line is read in administrative doctrine and case law, which makes it less predictable.

The factors weighed turn on three axes. Habit: how often and how regularly you operate, assessed over time rather than over one exceptional month. Means: the use of tools, techniques and an organisation comparable to a professional’s, including the time you devote to it. And the place of the activity in your income: living off your gains is not looked at the way topping up a salary is.

None of these decides on its own, and no published threshold puts you in the clear. It is an overall assessment, and two comparable files can get different answers depending on how they are presented and reviewed.

For an active trader the conclusion is blunt: an intraday style mechanically ticks habit and means. That does not mean you will be reclassified — but you are exactly the profile that should ask a professional beforehand, not afterwards.

Here is the most frequently overlooked point, and it bears directly on the approach I teach. When you are paid on a prop firm funded account, you are not realising a gain on your own wealth: the capital is not yours. You are receiving consideration under a contract.

The capital gains regime, which by definition assumes the asset belongs to you, therefore has no reason to apply. These payments have the characteristics of remuneration for a service, and that is how to plan for them — with the questions that follow: taxation as activity income, social contributions, and taking a self-employed status if the activity becomes regular.

I put that in the conditional deliberately. The tax treatment of prop firm payouts is a recent subject, contracts differ from one company to the next, and the classification can depend on the exact structure of the one you sign. I know of no published position settling the question generally.

The practical conclusion is simple: do not assume the 30% flat tax applies to prop firm payouts. It very probably does not, and that is the kind of mistake that is paid for with late interest.

Good news first: France has no wealth tax on securities. The property wealth tax targets real estate only; your portfolio does not enter into it. Do not carry that reflex across.

There is, however, an obligation almost everyone discovers too late: every account opened, held, used or closed abroad must be declared each year with your income tax return. That covers your account at a foreign broker, and depending on the case it also covers the payment accounts your payouts travel through.

The penalty for an undeclared account is a flat one, in the order of €1,500 per account per undeclared year, and it applies regardless of any adjustment to your gains. In other words: you can be entirely in order on the tax and still penalised for a missing box. The amounts change, so check the figure in force.

It is by far the point on which I have seen the most people get into difficulty with no intention of evading anything. It costs nothing to handle properly, and a great deal to ignore.

Keep a record from the very first trade. Date, instrument, direction, size, result, and costs. You will need it for your return, and above all to answer if the tax office takes an interest in your volume. Reconstructing two years of history after the fact is painful work and sometimes impossible.

Keep your annual broker statements, along with the contracts and payment evidence from your prop firms. Those documents are what will establish the nature of your income, not your interpretation. And do not forget the annual declaration of your foreign accounts, even in a year without gains.

Finally, ask beforehand, not afterwards: an appointment with an accountant costs little next to an adjustment carrying backdated social contributions. If your style is intraday, or if you are planning regular prop firm payouts, this is not excessive caution, it is the normal course of action.

None of the above is tax advice, and I am not a tax adviser. The general framework is the one described here, and rates and thresholds move from one finance act to the next; your situation depends on your style, your other income and your contracts. Only a qualified professional can answer for you.