France – Modifications to Tax and Social Charges of Free Shares

France – Modifications to Tax and Social Charges

This GMS Flash Alert reports on changes to the income tax and social security regime applicable to free share grants.

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The 2017 French Finance Act amends the income tax and social security regime applicable to free share grants authorized by a shareholders’ meeting that occurs after the publication of the law (i.e., after December 30, 2016).1 

The Act modifies the regime previously adopted on August 7, 2015 (the “Macron law”).2  

WHY THIS MATTERS

The new rules usher in slightly higher taxation:

  • for employers, on the market value of the shares (at the vesting date); and 
  • for employees with gains at vesting in excess of €300,000, the gain at acquisition that exceeds €300,000 taxable as employment income without any reduction for the holding period and subject to the specific contribution of 10 percent.

Employers should take note of these tax changes and take this opportunity to review their share plans to establish what their compliance obligations are and determine if there may be some planning opportunities.  New grants of qualified free shares need to be examined carefully, as depending on the date of the authorization by the shareholders’ meeting the previous regimes (i.e., Macron or prior regimes) may remain applicable to grants made after the publication of the 2017 Finance Act.

Consequences for Employer

Previous Regime (“Macron Law”)

An employer’s contribution of 20 percent of the market value of the shares is due at vesting date.  An exemption can be granted for small- and medium-sized enterprises (SME) up to a threshold per beneficiary (€39,228 for 2017), provided that no dividend distribution has been made.

New Regime

The employer’s contribution rate is increased to 30 percent.  The exemption for SME is still applicable. 

Consequences for Beneficiary

Previous Regime (“Macron Law”)

Income tax and social surtaxes on the acquisition gain are due at the date of sale of the shares.

Income Tax

The acquisition gain is taxable at progressive income tax rates up to 45 percent.  The gain can be reduced depending on the length of the holding period.  The reduction is 50 percent if the shares have been held at least two years since the vesting date and a reduction of 65 percent occurs if they have been held more than eight years.

Social Surtaxes

The acquisition gain is subject to social surtaxes at a rate of 15.5 percent. 

Social Security Contributions 

No social security contribution is due on the acquisition gain.

New Regime

Income tax and social surtaxes on the acquisition gain are due at the date of sale of the shares.

Part of Gain Not Exceeding €300,000

There is no change regarding social security contributions and income tax applicable to the part of the gain that does not exceed €300,000.  Taxation occurs at progressive income tax rates up to 45 percent (plus a 3- or 4-percent exceptional contribution on high income depending on the beneficiary level of income).  The gain can be reduced depending on the length of the holding period.  The gain is reduced by 50 percent if the shares have been held for at least two years and by 65 percent above eight years.  Reductions are not applicable for the exceptional contribution on high income.

Part of Gain Exceeding €300,000

The part of the vesting gain exceeding €300,000 is now taxable as employment income without any reduction.

Social Surtaxes

The part of the acquisition gain equal to or below €300,000 is subject to social surtaxes at the rate of 15.5 percent. The part of the acquisition gain in excess of €300,000 is subject to social surtaxes at the rate of 8 percent. 

Social Security Contributions

The part of the acquisition gain in excess of €300,000 is subject to the employee-specific contribution of 10 percent

Taxation of Gain from Sale

The rules regarding the taxation of gains arising from a sale have not been modified.

FOOTNOTES

1  For the Finance Act, 2017 (in French) published online in the Journal Officiel of 30 December 2016.

2  For prior coverage, see GMS Flash Alert 2015-013 (January 29, 2015).  

CONTACTS

For further information or assistance, please contact your local GMS or People Services professional, or one of the following professionals with FIDAL Direction Internationale in France:

Alain Loehr  

Partner

Tel. +33 (1) 55 68 15 66  

Alain.Loehr@fidal.com   

 

Ann Atchadé

Partner 

Tel. +33 (1) 55 68 16 96 

Ann.Atchade@fidal.com 

The information contained in this newsletter was submitted by FIDAL in France.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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