News - France

France - June 2012

France - Increase of social contributions rates on capital income hits share plans

France is getting used to Amending Finance Bills: the Finance Bill for 2011 was amended four times, and the first Amending Bill for 2012 was published on March 14, 2012.

According to this new Finance Bill, the rate of social contributions on capital and investment income, which is due by all French tax resident on such types of income, is increased to 5.4% (previously 3.4%), which increases the global level of social contributions on such income to 15.5% (previously 13.5%).

The new rate applies to capital income (such as property income, capital gains on sale of securities, etc. made as from 1 January 2012, and to investment income subject to withholding of the contributions at source (interests, dividends, capital gain on real estate) as from 1 July 2012.

This new provision further increases the global burden on equity compensation such as Stock Options and Restricted Stock Units ("RSUs"). Indeed, the global tax on the acquisition gain realized by Stock Options and Restricted Stock Units holders is now collected at the respective maximum rates of 64.5% for Stock Options and 53.5% for RSUs. This new rate also applies to the tax on gains resulting from the sale of the shares, which now amounts to 34.5% (previously 32.5%).

The new French President, François Hollande, announced during his campaign his intention to abolish the Stock Options special regime. Given the prohibitive tax level which has now been reached, many French companies have already decided to terminate their stock options schemes in any event.

Resources

First Amending Finances Bill for 2012 (Loi de finances rectificative pour 2012)

For further information or to discuss any of the issues raised, Stéphanie Le Men-Tenailleau on +33 142 563 845.