Holding company: conditions and effects of the parent-subsidiary regime and tax consolidation

A holding company subject to corporate income tax that owns at least 5% of a subsidiary's capital and retains the shares for two years can opt for the parent-subsidiary regime. Dividends received are then not taxed, except for a portion of expenses and charges equal to 5%. Tax consolidation goes further with this threshold: the subsidiary must be owned at least 95%. In a consolidated group, this portion is reduced to 1%, subject to certain conditions.

This page presents the conditions of each regime, then their effects on dividends that go back to the holding company.

The mother-daughter regime: three things to check

The parent-subsidiary regime concerns dividends that the parent company receives from a subsidiary. It is based on three elements.

1. A participation of at least 5 % of the capital

The parent company must hold at least 5% of the issuing company's share capital. It may hold these shares in full ownership or bare ownership. It can then opt for the tax regime. This regime is intended for companies subject to corporation tax at the standard rate.

The percentage is measured on the share capital of the issuing company. In principle, a holding company that owns 4.9% of a company's share capital does not fall under the tax regime for that shareholding. However, the BOFiP (Official Bulletin of Public Finances) provides for specific cases below the 5% threshold, for example, for certain mutual credit entities, for companies controlled by non-profit organizations, or for a shareholding distributed between the head office and a foreign branch. These are examined on a case-by-case basis.

2. A shelf life of two years

The shares must be held for two years. This period must be taken into account before any decision to sell the subsidiary's shares.

3. An exemption, less a share of 5 %

Income from investments is not included in taxable income. However, a portion of expenses and charges remains taxable. This portion is equal to 5% of the income amount, including the tax credit.

The scheme therefore does not exempt the entire dividend. It leaves 5 % in the holding company's profit.

Tax consolidation: a threshold of 95 %

Tax consolidation follows a different logic. It brings together several companies within the same group. It only applies above a high threshold.

The condition relating to subsidiaries

Subsidiaries must be owned at least 95% of the share capital. Ownership must be continuous throughout the financial year. It can be direct or indirect, through group companies.

A subsidiary that crosses the threshold during the fiscal year is only included in the scope of consolidation from the following fiscal year. Therefore, the timing of when the threshold is reached is as important to monitor as the percentage.

The condition relating to the parent company

The capital of the parent company must not be held at least 95%, directly or indirectly, by another company subject to corporation tax.

This condition applies to the chain of ownership above the holding company. It must be verified before building a multi-tiered group.

Compare the two regimes

The two regimes are distinguished primarily by their thresholds: 5% of % on one side, and 95% of % on the other. The share of expenses and charges is the line item that determines the amount reintegrated into the holding company's profit. Administrative guidelines specify that this threshold is reduced to 1% of % for dividends received by companies belonging to a consolidated group (Articles 223 A and 223 A bis of the French General Tax Code), provided the dividends meet conditions detailed in a separate instruction from the French Official Tax Bulletin (BOFiP) (BOI-IS-BASE-10-10-20). These conditions are not repeated here: the 1% of % rate does not automatically apply to all dividends from a consolidated subsidiary.

Six points to check before making a decision

1. The percentage of capital held. At least 5 % for the parent-subsidiary regime, 95 % for tax consolidation.
2. The method of detention. Full ownership or bare ownership for the parent-subsidiary regime. Direct or indirect, via group companies, for integration.
3. Duration. Two years of holding for the parent-subsidiary regime. Continuous holding throughout the fiscal year for tax consolidation.
4. The chain of custody above the holding company. The capital of the parent company must not be held at least 95% by another company subject to corporation tax.
5. The parent company's liability to corporation tax. The parent-subsidiary regime targets companies subject to corporate income tax at the normal rate.
6. Tax credits attached to dividends. The share of expenses and charges is calculated on the products, including tax credits.

Numerical example (fictitious profile)

Situation. A 55-year-old founder owns 100 % shares in a holding company. The holding company has held 100 % shares in its operating company for over two years. The operating company pays €1,000,000 in dividends to the holding company. No tax credit is attached to these dividends.

Issue. What portion of this €1,000,000 is included in the holding company's taxable income?

Strategy. The firm first verifies the conditions: percentage of ownership, holding period, and chain of ownership above the holding company. It then compares the situation under the parent-subsidiary regime alone and, subject to certain conditions to be verified, within an integrated group.

Result.

In this scenario, €50,000 is reinstated under the parent-subsidiary regime, and €10,000 under an integrated group regime, provided the conditions for the 1 % rate are met. This profile is hypothetical. The rates applicable to these amounts depend on your specific situation and are not calculated here.

What this page does not cover

This page describes the conditions of the parent-subsidiary regime and those of tax consolidation. It does not address the other effects of tax consolidation, nor all the rules applicable to holding companies. Each structure requires separate examination.

The administrative texts consulted date from 2020 for the conditions of the parent-subsidiary regime, from 2021 for tax consolidation, and from 2024 for the share of expenses and charges. The rule applies as of the date of your transaction.

What changes depending on your situation

• The percentage of capital held and the method of ownership (full ownership or bare ownership).
• The holding period for the securities.
• The chain of ownership above and below the holding company.
• The date on which a subsidiary reaches the threshold of 95 %.
• The possible existence of a tax credit on dividends.

These factors determine what applies to your structure. No results are guaranteed.