The 2026 Finance Law raises the flat tax to 31.4%, up from the previous 30%. What should expatriates expect?
To recap, the Prélèvement Forfaitaire Unique (PFU), commonly known as the “flat tax,” is a tax applied to capital income. This includes income from assets (for example, rental income) as well as income from investments (dividends, bonds, interest, and capital gains on securities). Introduced in 2018, the flat tax was designed to simplify the taxation of savings by applying a single 30% rate regardless of the investment product. The flat tax is based on two components: income tax (12.8%) and social contributions (17.2%).
The increase in the flat tax is mainly due to a rise in social contributions. More specifically, it results from a 1.4 percentage point increase in the General Social Contribution (CSG), effective January 1, 2026.
The end of a single rate
However, the 2026 reform modifies the principle of a single rate, as it introduces different tax rates depending on the type of investment.
The CSG on certain types of capital income will increase from 9.2% to 10.6%. As a result, total social contributions on the affected income will rise from 17.2% to 18.6%, thereby raising the flat tax to 31.4%. By contrast, the rate applied to some savings products, such as life insurance policies, one of the preferred investment options for expats, will remain at 30%.
For expats, this means that life insurance will continue to benefit from the 30% rate. However, dividends and bonds are among the financial investments that will be affected by the higher tax rate.
What does differentiated taxation mean for expats?
Expats may need to review their investment strategies, particularly high-income foreign residents who opted for the flat tax system. The impact will largely depend on the type of investment involved. Investments affected by the higher rate (31.4%) include stocks, bonds, crypto-assets, dividends, capital gains on securities, equity savings plans (PEA) and certain retirement savings plans. Investments that will retain the previous rate (30%) include life insurance policies, real estate capital gains, rental income from unfurnished properties and professional furnished rentals.
Companies employing foreign workers will also need to update their payroll systems, as the increase in the flat tax affects employee savings schemes (employer-sponsored savings plans). The introduction of two tax levels (30% or 31.4%), therefore, makes the system more complex for investors and savers, who may benefit from consulting a tax specialist. However, experts remain confident that the flat tax increase will have a limited impact overall. They also point out that maintaining the 30% rate for life insurance may still represent a relative financial advantage for expats.
