France improves the tax treatment of tax qualifying free share plans
The new Macron Act, enacted on 7 August 2015, brings various changes to the rules regarding tax qualifying free share plans, both from a corporate and tax standpoint.
The new regime provides that the minimum vesting period applicable to conditional awards (such as Restricted Stock Units) is reduced from two years to one year, and the holding period is no longer compulsory. However, the total vesting and holding periods must be at least two years when combined. This will provide companies with greater flexibility as to how they structure awards within the tax qualifying regime.
The main changes relate to the tax regime applicable to free shares:
- The special 30% employer’s contribution, that applied upon grant of a conditional award, now applies only upon vesting of the awards and the rate has been reduced to 20%. This means that where awards have vesting conditions related to continued employment or performance, the contribution will only be payable if shares are actually acquired by employees. Under the previous regime, the contribution was payable regardless of whether the award ultimately vested.
- The acquisition gain remains taxable upon sale of the shares and is now subject to tax as a capital gain on securities. This provides the benefit of certain rebates if the shares are held for more than two years after vesting (50% after 2 years, 65% after 8 years for the standard rebates).
What action should be taken?
These changes remove some of the obstacles that may previously have dissuaded companies from operating a tax qualifying free share plan in France. Companies that currently grant non-qualifying free share awards to their employees in France should consider the benefits of amending their arrangements to take advantage of the new regime. Companies that already operate tax qualifying free share awards should also consider whether any changes to their arrangements are necessary or desirable to take account of the new regime.
What about foreign companies?
There are questions which remain unanswered including whether foreign companies may apply the new rules immediately. According to the law, these rules only apply to awards granted in accordance with an authorisation given by the company’s shareholders after the date of publication of the law (that is, 7 August 2015). Consequently, should this requirement apply to foreign companies, such companies would only be able to take advantage of the new rules once shareholders had authorised the grant of awards in accordance with the new requirements. It may not be administratively practical to seek specific shareholder authorisation for grants to French employees, especially where there are only a small number of them. However, it should be possible to incorporate such authorisation into other shareholder resolutions that are being proposed in connection with the company’s share plan arrangements more generally.
For further information or to discuss any of the issues raised, please contact Stéphanie Le Men-Tenailleau on +33 1 58 22 16 86.
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