Stock Savings Plan (PEA)
The PEA is the best tax wrapper in France if you want to invest in stocks.
It is designed for buying European stocks but also allows the purchase of ETFs that provide exposure to international markets, particularly the US market.
In this article, we will present the main advantages of the PEA and important details you should know about it.
Advantages
Taxation on Withdrawal
What makes the PEA so attractive is undoubtedly the fact that you don’t pay income tax on it, but only social security contributions after holding it for 5 years without making any withdrawals between opening and the 5-year mark. Thus, after 5 years, you only pay 17.2% on realized capital gains instead of the 30% flat tax commonly used in France for stock market products.
No Tax on Sales
The other major advantage of the PEA relates to taxation. Having a PEA also allows you not to pay taxes when selling at a profit, as long as you don’t withdraw from the wrapper. Indeed, in France, an immediate taxable event occurs when selling a stock market product, even if you don’t withdraw the money from the wrapper and just want to close a position to buy another.
European Product
As mentioned above, the PEA allows the purchase of European stocks. Indeed, you can never buy stocks like Microsoft, Tesla, etc. However, the PEA offers several quality ETFs to invest in international markets, notably the MSCI WORLD or S&P 500. You can see the article dedicated to ETFs here.
Tips
Cap
The PEA remains a capped investment where you cannot invest more than 150,000 euros excluding capital gains.
PEA Outside France
If you plan to expatriate, then the PEA becomes useless (loss of tax advantage upon exit) and it would be better to research what the country you’re moving to offers. However, if you plan to expatriate only for a certain time and think about returning, then it’s useful to keep it.
Money Locked for 5 Years
When you open a PEA, you should plan not to touch this money for at least 5 years. Indeed, if you withdraw money before 5 years, you won’t benefit from the tax advantage upon exit, essentially breaking the tax agreement.
Social Security Contributions
We mentioned a figure of 17.2% in social security contributions that you’ll pay on exit for capital gains after 5 years. It should be noted that this figure has only increased over several decades. Below is a graph showing the evolution of social security contributions in France. Thus, this figure can evolve, particularly upward.
“Taking the Date”
Even if at time T you cannot fund the PEA account, don’t hesitate to open it to start the 5-year countdown to benefit from the tax advantage as soon as possible in your life.
Some Quality Brokers to Open a PEA
How Does It Work?
The simplest way is to open a PEA account with one of the brokers mentioned above.
When opening, the broker will ask for some documentation such as ID proof.
After verification, your account will be opened. Once opened, you can transfer money to it from your current account.
Your money arrives in your PEA account, and that’s when you can start investing by buying stocks or ETFs with your money.
The best PEAs, like those above, don’t charge custody fees. However, you will have to pay fees for buying and selling stocks or ETFs.
Note that you can only open 1 PEA per person, and if you’re in a couple (PACS/Marriage), you can have one together with an increased cap of 300K€.
There’s also the Youth PEA from 18 to 25 years old with a 20K€ cap for young people still attached to their parents’ tax household. At 25 and older, the Youth PEA automatically transforms into a classic PEA.
Summary
- - Best wrapper due to its tax advantage.
- - All French tax residents should have one opened.
- - Money locked for 5 years to benefit from tax advantage.
- - 17.2% social security contributions may increase in the long term.
- - 150K€ cap excluding capital gains