France changes the tax treatment of tax qualifying free share plans – again…
Readers may recall the 2015 ‘Macron Law’ which enhanced the favourable tax and social security treatment of the gains made from certain share incentive awards granted under French qualifying share plans.
However, this favourable tax treatment only had a limited life span, because the French parliament has since decided to amend the tax regime again, creating a new level of complexity in dealing with share plans.
What are the changes?
Under the amended law, any gain under the awards which exceeds €300,000 will be subject to the new regime, and shall be treated as salary for tax purposes. This means such gains no longer benefit from a 50% rebate which would otherwise apply in assessing the taxable amount, provided the shares were held at least two years after vesting. In addition, the same amount of gain is subject to CSG and CRDS social security charges (as salary) at a rate of 8%, and to a 10% special contribution (which had previously been abolished by the Macron Law). Finally, the employer’s social security contribution on such schemes, which had been reduced from 30% to 20% by the Macron Law, was increased again to 30%.
Who is affected by the changes?
Any award of free shares where shareholder authority for the grant (e.g. shareholder approval for a plan or sub-plan, or for a specific grant) was obtained after 31 December 2016 is subject to the new rules. However, grants made after 31 December 2016 pursuant to shareholder authority obtained before that date (but after 8 August 2015) remain subject to the previous Macron Law tax regime.
What action is required? And by when?
The new law applies automatically to awards made under a shareholder authorisation obtained after 31 December 2016, and so will apply to all awards once shareholder authorisations obtained before that date have expired.
However, as it was the case after the Macron Law entered into force, the position for foreign companies remains rather unclear. Those which obtained shareholder authorisation for the implementation of a free share plan after 7 August 2015 may continue granting awards pursuant to that authorisation (and note that shareholder authority obtained by foreign companies may last longer than is the case for French companies) and those grants will therefore remain covered by the Macron Law. However, the question of which rules are applicable to companies which did not arrange for such shareholder authorisation can be complex, and specific advice should be obtained.
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