The France-Estonia tax treaty: dividends at 5% or 15% of 13% of taxable income, royalties to the State of residence

The France-Estonia convention caps dividends at 5 % or 15 %. Since December 11, 2015, a most-favored-nation clause reserves royalties, and bank loan interest, for the beneficiary's state of residence.

A 1997 text modified without amendment

The convention was signed in Paris on October 28, 1997, along with a protocol. It entered into force on May 1, 2001, and has been applicable since January 1, 1996. The administrative list classifies it among the texts concerning income and wealth. Estonia is not included in the list of conventions amended by the MLI (BOI-ANNX-000511).

The change stems from points 9 and 10 of the protocol: these allow for the application of lower withholding tax rates, or a narrower scope, as stipulated in the agreements concluded by Estonia with OECD member states. Following the Estonia-Luxembourg agreement, signed on July 7, 2014, two sets of rules have been in effect since December 11, 2015.

The ceilings and key rules

The text does not specify any minimum detention period for the 5 % rate.

Royalties and bank loans: what the clause replaced

For royalties, the 1997 legislation set ceilings. The most-favored-nation clause replaces these ceilings with taxation solely in the country of residence of the beneficial owner, as defined in Article 12 of the Estonia-Luxembourg Convention. According to the French tax authorities (BOFiP), this excludes payments made for the use of, or the right to use, a copyright on certain films and television or radio recordings, or on industrial, commercial, or scientific equipment.

Regarding interest, the 10% cap in Article 11, paragraph 2, remains in the text. A new exemption is added in paragraph 3(d) for loans granted by a credit institution. On the consolidated text page, paragraph 2 of Article 12 appears blank: the original rate is not legible.

183 days: twelve consecutive months

Article 15, paragraph 2(a), stipulates a stay not exceeding a total of 183 days in any twelve-month period. The employer must not be a resident of the other State, and the remuneration must not be paid through a permanent establishment or fixed base.

Wealth and elimination of double taxation

Regarding wealth, Article 22 leaves real estate and assets of a permanent establishment or fixed base to their location, and reserves the tax treatment of all other assets to the state of residence. The text refers to the wealth tax (ISF); the real estate wealth tax (IFI) is not mentioned, and this document does not address it.

Article 23 provides for the tax credit on both sides. In France, the credit is applied against French tax and cannot exceed the corresponding French tax. Estonia grants a credit equal to the tax paid in France, limited to the corresponding portion of its tax. For an individual resident in both countries, Article 4 applies the criteria of permanent home, then center of vital interests, habitual residence, nationality, and the agreement of the authorities.

What this sheet does not cover

The convention covers income and wealth taxes; the list does not mention any provisions concerning inheritance. Estonian domestic taxation, the Estonia-Luxembourg convention itself, and the mutual agreement procedure are not addressed.

What changes depending on your situation

• Your residence as defined in Article 4.
• Your shareholding and the residence of the paying company, for the rate of 5 %.
• The classification of your royalties with regard to the definition in the Estonia-Luxembourg convention.
• The schedule of your stays for each period of twelve consecutive months.