The newly elected French parliament enacted the Second Amending Finance Bill for 2012, which took effect in July.
Taxation of stock-options and free shares
Grants of stock-options and awards of free shares (such as Restricted Stock Units, Performance Shares, etc.) are exempt from social security contributions upon exercise of the options and vesting of the shares. The employer is however liable to make a special contribution, payable upon the grant of the options or the award of the free shares. The rate of the contribution is increased by the Finance Bill from 14% to 30% for any grant made from 11 July 2012. In addition, the rate of employee's social security contribution of 8%, which applies on the sale of the shares resulting from the exercise of the options or from the free shares increased from 8% to 10%, with effect from 11 July 2012.
Termination indemnities, defined benefits pensions and savings
Termination indemnities under a certain amount may benefit from a tax and social security exemption for both the employer and the employee. During recent years the cap of the social security exemption has progressively decreased and the new Finance Bill now lowers the limit from 30 times the social security cap for 2012 (EUR 1,091,160) to 10 times the cap (EUR 363,720). Any termination indemnity in excess of the cap will trigger social security contributions for both the employer and the employee on the whole of the termination indemnity.
The new law doubles the rate of the employer’s social tax due on defined benefits schemes, either on the pension or on the premium paid for the financing of the schemes. The rates have increased from 16% to 32% when the employer elects to be taxed on the pension contributions it has paid, and from 12% to 24% when the employer elects to be taxed on the insurance premiums.
The Finance Bill has also increased the rate of the special social contribution on compensation items which benefit from a social security exemption, such as compulsory and non-compulsory profit-sharing, employer’s contributions to supplementary pension schemes and employer’s contributions to savings plans, from 8% to 20%. Employer’s contributions to complementary contingency schemes remain subject to the 8% rate.
Changes covered in this article are only an introduction to the tax program announced by the new French government. The main tax measures for 2013 disclosed on 28 September 2012 include a possible withdrawal of the special regime for stock options and free shares gains (providing for taxation at a flat rate), taxation of dividends and capital gains at the normal progressive rates of personal income tax (instead of flat rates of 21% and 19% respectively). The draft finance bill for 2013 also provides for an increase of the marginal tax rate up to 45% and for a special contribution of 18% in addition to the normal personal income tax for taxpayers whose professional income exceeds EUR 1,000,000. In total, the proposal is for the income tax rate for these tax payers to increase to 75%.