News - France

France - January 2012

Exemption from social security contributions on termination payments reduced

The portion of termination sums that may be exempt from employment social security contributions has been further reduced by the 2012 Social Security Financing Law as part of the austerity plan.

The exempt termination payment is limited to twice the annual social security ceiling.  This corresponds to EUR 72,744 in 2012.  The previous limitation was three times the annual social security ceiling (EUR 109,116).

The new restriction covers all sums paid to employees or executives upon termination of their employment contracts or tenure.  The limitation does not apply to payments made within a redundancy or social plan.

In practice the new limitation will apply to termination payments made from 1 January 2013.  Transitional rules have been introduced for payments made in 2012.  Such payments may continue to be exempt from social contributions within the limit of EUR 109,116, if they are related to a termination decided and notified in 2011.  Termination payments made in 2012 in relation to termination decided in 2012 will also benefit from the favorable limitation of EUR 109,116 if they exceed EUR 72,744.

The tax treatment of termination payment remains unchanged.  For income tax purposes, termination payments are totally tax exempt if they do not exceed the termination entitlement as stated by the law or the applicable collective agreement.  When the payment exceeds the legal entitlement as would generally be the case, the tax exemption is limited to the higher of (i) two year’s gross salary or (ii) 50% of the total termination payment, but the tax exempt amount under (i) and (ii) may not exceed six times the annual social security ceiling (EUR 218,232 in 2012).

Resources:

2012 Social Security Financing Law (Law no.2011-1906 dated 21 December 2011 Journal Officiel 22 December 2011 p. 21682).

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