What is PEA Plan d’Epargne en action in France? Why is it so popular? What are the key advantages? Risks?
We will explain in this post how this plan works based in our experience and knowledge, to help you decide if it is the right investment vehicle for you while living in France. Let’s start…
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What is a PEA Plan d'Epargne en Action in France?
PEA stands for ‘Plan d’Epargne Action’ (Stock Saving Plan) which is a tax-efficient investment wrapper for french residents.
Basically, it allows you to invest (mainly) in european stocks, funds, equities and trackers without paying revenue taxes if you keep it for minimum five years and with minimum fees. Only social contribution taxes will be due.
How does a PEA work?
A PEA works by allowing you to invest a set amount of money into a fund or group of funds on a regular basis.
In a PEA, deposits are limited to 150k€. You could open an additional ‘PEA-PME’ to invest in Small and Medium Enterprises companies and extend this limit up to 225k€.
Withdrawals from capital gains are subject of social contribution tax (CSG of 17,2% as 2023),
Most local banks allows opening a PEA online, however not all online banks and international brokers propose PEA accounts to french residents.
What are the benefits of a PEA in France?
The main benefit of a stock saving plan is the potential for long-term growth. By investing regularly over a long period of time, you can take advantage of compound interest and market fluctuations to grow your wealth.
In the case of a PEA in France, which is a regulated savings product, it allows you to invest in European stocks, funds, equities and trackers without paying income tax on the gains if you hold the plan for at least five years.
If after 5 years your PEA is +1000€ in gains and you decide to withdraw your money, then you will pay only 17,2% of social contribution tax compared to the 30% flat tax for capital gains hold in an standard broker account… that’s 12,8% more gains! or 42% less taxes!
Even though it is limited to European-based stocks, you can still invest outside EU through ETFs or trackers replicating foreign indexes like S&P500 or other developed markets, and sectors.
Who can open a PEA in France?
To open a stock saving plan in France, you must be a tax resident of France. This means that you must have lived in France for at least six months of the year, and that your main center of economic interest is in France.
You will need to provide proof of identity, such as a passport, national identity card or ‘carte de sejour’, as well a proof of residency, such as a rental contract or utility bill.
You can just open one (01) PEA per person. If you have children, you can open a ‘PEA-Jeune’ (PEA for young) for your dependant children between 18 and 25 years old.
What are the risks?
Like any investment, there are risks associated with a stock saving plan like PEA.
These include market fluctuations, the potential for losses, and the risk of investing in a poorly-performing fund or company that can lead you to lose all your capital invested.
If your broker files bankruptcy, there are guarantees in France to protect your funds. In addition, you own your stocks and values, the broker just holds it for you.
Tips to manage my stock saving plan PEA in France
- Diversify your portfolio. Do not put all your ‘eggs in the same basket’. Invest in different sectors, industries, regions.
- Staying invested for the long term. Stock markets in short term could be very volatile, however, in the long term (normally after 5 years) you may start seeing the benefits.
- Use ‘stop loss’ orders to sell. You can define when to sell a stock if it drops below a certain limit. Sometimes ‘it is better to cut a finger rather than the arm’.
- Invest gradually. Do not enter the market in one shot. The simplest would be to invest regularly the same amount, same day of the month. By doing this, you will average your entry point and avoid buying when at all time high.
What are the fees associated with a PEA in France?
There are several fees associated with a stock saving account, such as account opening fees, annual maintenance fees, and transaction fees.
The french government regulates PEA maximum fees. It means that regardless the bank you use, they cannot exceeded a certain amount.
However, these capped fees vary depending on the financial institution you choose, so it’s important to compare fees before opening an account. Normally online banks are very competitive.
We personally use and are very satisfied with Boursobank (in case you want to open an account, you can use our referral link to get benefits).
Our final thoughts
We are very satisfied with our PEA as it is the best way to invest in the European (and more) stock market while living in France, considering its major benefit which is capital gains and dividends are exempted from income tax.
We would did right as well when we opened first a PEA instead of an AV ‘Assurance Vie’ (Life Insurance contract) as it is easier to understand, less fees, and only 5 years of blocked funds (compared to 8 for AV).
In our case, we have a diversified portfolio invested in ETFs (following SP500, MSCI World, and some high yield dividend) and some individual stocks of solid dividend paying companies in France and Europe.
We invest for the long term (+5 years) and we avoid speculating or trading. This is considering that the markets are most of time going up (past performance, do not guarantee future performance) and the chances to earn money increases over time.
We are ok as well with the volatility and risk associated with investing in the stock market. This is very important to assess for yourself (risk tolerance) before investing in the stock market.
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Please remember that we are neither financial nor tax advisors. We are just sharing our best understanding based in our own experience. This blog is for educational purposes only. Do not make investment decisions solely based on what you read in this blog. What works for us, may not work for you. Do your own research and look for professional service if required. Read our full disclaimer in the ‘about’ page.