French PEA definition
What is a French PEA?
A French PEA refers to a Plan d’Epargne en Actions, which is a tax-efficient investment wrapper for residents of France. It allows French investors to buy and sell European securities with preferential conditions. In English, a PEA would be defined as a stock savings plan, similar to a stocks and shares ISA.
PEAs were created in 1992 with the intention of encouraging French residents to invest in the stock market, which at the time was experiencing very low participation. Individuals are eligible if they live in France or an overseas French territory.
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Pros and cons of a French PEA
A French PEA functions in a similar way to a normal securities account, but with a specific set of tax benefits and payment constraints.
Pros of a French PEA
The primary benefit of a French PEA is its tax appeal: investors can profit from increases in stock prices and dividend payments in a favourable tax environment. There is a minimum five-year holding period, but after this has passed, any profits made in a PEA are exempt from tax.
It is considered as a simplified stock savings plan because a PEA account contains both a securities account and a cash account. The cash account is debited when a security is purchased, and credited when a security is sold or a company pays dividends.
Cons of a French PEA
Although a PEA can accommodate all kinds of securities, including equities and tracking funds, it cannot hold short-term investments such as options, spread bets or CFDs.
Any securities it does hold are subject to specific restrictions, in order to qualify for the tax benefits. The only eligible assets are those of French companies, and companies with their headquarters within the European Union or a European Economic Area that has a tax agreement with France, such as Norway or Iceland.
The total amount of cash held in a French PEA cannot exceed a set level, and the account is subject to restrictions on withdrawals of cash. Any withdrawals before the five-year minimum holding period is complete will be subject to tax and the account may be closed.
Although you’d open a French PEA account with the hope that its contents would increase in value over time, there is always the possibility of a stock market crisis. There is a significant need for research and risk management by anyone seeking to hold a French PEA account.
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