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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
 Stock option
Restricted stock
Convertible bond "ORA"
Entrepreneur bonds " BSPCE "
Right to subscribe shares " BSA "
Restricted stock
Company car
Golden Parachutes
 Stock option
The tax regime described below refers to stock options granted on and after April 4, 2000
Stock options allow managers and employees to purchase shares from the company or from a company of the group they are working for, at a fixed price. French rules provide for qualified and non qualified stock option plans.
Definitions
Non qualified stock option plan "NQSOP"
Qualified stock option plan "QSOP"
Definitions
Grant
Spread
Grant date
Exercise date
Vesting
Holding period
Exercise
Vesting period
Qualified holding period
Capital gain
Strike price
Discount
Grant = Decision of the employer to grant an employee or a manager the option to acquire a certain number of shares of the company or of a company of the group he (she) is working for at a pre-agreed price.
Example :
On May 15, 2003 Company A grants Mr. X, chairman the option to acquire between June 1st, 2003 and May 31, 2013, thousand shares of company A at a strike price of 500 euros each
Spread = Difference between the strike price and the market value of the share when the option is exercised.
Example :
Strike price = 500 euros
Market value of the share when option is exercised = 1500 euros
Spread = 1000 euros (1500 - 500)
Grant date = Date the option to acquire shares at a pre-agreed price is granted to a beneficiary.
Example :
On May 15, 2003, company A grants Mr. X, chairman the option to acquire between June 1st, 2003 and May 31, 2013, thousand shares of company A at a strike price of 500 euros each.
Exercise date = Date a beneficiary acquires the shares he has options on.
Example :
On September 30, 2010, Mr X exercises his options to acquire 500 shares of company A at 500 euros each.
Vesting = Date a beneficiary is entitled to exercise his option to acquire shares of company A at a pre-agreed price.<
Example :
On May 15, 2003, company A grants Mr. X, chairman the option to acquire between June 1st, 2003 and May 31, 2013, thousand shares of company A at a strike price of 500 euros each.
Holding period = Period between the exercise date and the date the beneficiary sales the shares he had options on.
Example :
Mr. X hold until October 1st, 2012 the 500 shares acquired on September 30, 2010 5 (2 years holding period)
Exercise = Decision of beneficiary to acquire the shares he has options on.
Example :
On September 30, 2010, Mr. X decides to acquire 500 shares of company A he has options on.
Vesting period = Period during which the beneficiary has the right to exercise his options.
Example :
On May 15, 2003, company A grants Mr. X, chairman the option to acquire between June 1st, 2003 and May 31, 2013,(Vesting period) thousand shares of company A at a strike price of 500 euros each.
Qualified holding period = Period during which the beneficiary is not entitled to sale or to convert the nominative shares acquired through option in bearer shares.
Example :
Mr. X is not entitled to sale before May 6, 2007, the company A shares acquired through the exercise of the options granted on May 15, 2003
(4 years qualified holding period)
Capital gain = Difference between the market value of the share at exercise and the subsequent selling price of the share by the beneficiary.
Example :
Strike price = 500 euros
Market value of the share when option is exercised = 1500 euros
Spread = 1000 euros (1500 - 500)
Selling price of share A 2 years later = 2000 euros
Capital gain = 500 euros (2000 - 1500)
Strike price = Pre-agreed price the beneficiary of the option has the right to purchase the underlying shares.
Example :
On May 15, 2003, company A grants Mr. X, chairman the option to acquire between June 1st, 2003 and May 31, 2013, thousand shares of company A at a strike price of 500 euros each.
Discount = Difference between the market value of the share at grant and the strike price.
Example :
Market value at grant = 500 euros
Strike price = 475 euros
Discount = 25 euros (5%)
Non qualified stock option plan "NQSOP"
Grant date = No income tax and no social taxes.
Vesting = No income tax and no social taxes.
Exercise date = Beneficiary is taxable as salary on discount exceeding 5%. Social taxes, CSG and CRDS are due. 2% social surcharge is not due.
Sale of shares = The beneficiary is taxable as salary up to the spread. Social taxes, CSG and CRDS are due. 2% social surcharge is not due.
If applicable the beneficiary is also taxable on the capital gain at a rate of 26%, CSG, CRDS and 2% social included (check " Social taxes "). Social taxes are not applicable.
Expatriates who received stock-options before moving to France and who exercise their option during their stay in France cannot rely on specific tax rules. It is strongly advised to seek a ruling from the French tax authorities before moving to France.
Qualified stock option plan "QSOP"
Stock options may benefit of a favorable tax regime subject to 3 conditions:
a. Shares acquired at exercise must be in nominative form or registered on a nominative account.
b. Qualified holding period of 4 years minimum as of grant date. The qualified holding period is not required in case of dismissal of employee, disability, death, pensioned-off or in our opinion dismissal of a manager.
c. Employer and beneficiary must disclose some pieces of information to the French tax authorities when the options are exercised and when the underlying shares are sold.
Grant date = No income tax and no social taxes.
Vesting = No income tax and no social taxes.
Exercise date = Beneficiary is taxable as salary on discount exceeding 5%. Social taxes , CSG and CRDS are due. 2% social surcharge is not due.
If shares are sold at the end of the 4 years qualified holding period =
Beneficiary is taxable on the spread at a rate of 40% up to 152 500 euros and at a rate of 50% above this amount, CSG, CRDS and 2% social included (to know more about this subject check " Social taxes "). Social taxes are not applicable.
If applicable the beneficiary is also taxable on the capital gain at a rate of 26%, CSG, CRDS and 2% social surcharge included (check" Social taxes "). Social taxes are not applicable.
If shares are sold at the end of the 4 years qualified holding period and an additional 2 years holding period (6 years in total ) =
Beneficiary is taxable on the spread at a rate of 26% up to 152 500 euros and at a rate of 40% above this amount, CSG, CRDS and 2% social surcharge included (to know more about this subject check " Social taxes "). Social taxes are not applicable.
If applicable the beneficiary is also taxable on the capital gain at a rate of 26%, CSG, CRDS and 2% social surcharge included (to know more about this subject check" Social taxes ") Social taxes " are not applicable.
In order to qualify under French tax rules, foreign stock option plans must generally be modified.
Expatriates who received stock-options before moving to France and who exercise their option during their stay in France cannot rely on specific tax rules. It is strongly advised to seek a ruling from the French tax authorities before moving to France.
The tax treatment of the stock options granted by a company subject to merger, spin-off, tender offer etc..must be closely reviewed case by case. It is recommended to seek a ruling from the French tax authorities.
In case of gift of stock-options after the holding period, the gain equal to the difference between the market value of the share on exercise and the strike price was not taxable because it was not a transfer for consideration.
As from June 20th, 2007, this gain is also taxable in case of gift.
Restricted stock
As of January 1st 2005 French Corporations have the right to grant free shares (Restricted stock) to employees and directors as long the beneficiary hold less than 10% of the shares after acquisition of the restricted stocks. The total number of restricted stock issued cannot exceed 10% of the share capital.
The extraordinary shareholder meeting of the company must decide the grant, the length of the acquisition period and the length of the holding period.
The acquisition period starts when the restricted stocks are granted and ends when the ownership of the shares is transferred to the beneficiary. The law provides that the acquisition period last 2 years minimum.
The holding period starts the day the ownership of the shares is transferred to the beneficiary and ends the day the beneficiary sell the shares. The beneficiary is the legal owner of the shares during the holding period and is entitled to the dividends. The law provides that the holding period last at least 2 years.
As a consequence of the acquisition period and the holding period, the restricted stocks are unavailable during 4 years.
According to French tax law the capital gain tax related to the acquisition of the restricted stock at the end of the acquisition period (Fair market value of the shares the day of the acquisition) is deferred until the beneficiary will sell the restricted stock (At least 4 years after the grant). The beneficiary may elect to tax the gain as a salary (Highest marginal rate of 49,69% = marginal rate of 48,09% + CSG partially tax deductible + CRDS ) or as capital gain (Flat 41% = Flat rate of 30% + 11% CSG + CRDS + Social contribution).
As provided by the French tax rules, the capital gain on the sale of the shares (Selling price – Value of the shares the day of the acquisition) is taxable when the beneficiary sells the restricted shares. The gain is taxed at a rate of 26% (16% + 11% CSG+CRDS+ social contribution)
When a restricted stock plan complies with the rules above, the related income is exempt from social taxes.
French tax authorities published a guideline 5F-17-06 dated November 10, 2006 which comments this regime.
Convertible bond "ORA"
Bonds redeemable only in shares or "ORA" are a valid stock options substitute. Tax treatment is much more favorable (No minimum holding period and capital gain taxable at a rate of 26%, CSG, CRDS and 2% social included (whatever is the amount of the spread) (check "Social taxes")
However compare to the stock options, ORA require a cash down payment by the beneficiary at grants.
Entrepreneur bonds " BSPCE "
Non listed companies and companies listed on some specific segment of the stock-markets have the right to issue BSPCE if individuals hold directly or indirectly at least 25% of the shares and if they are incorporated for less than 15 years (7 years for BSPCE issues between 1/1/1998 and 9/1/98).
Capital gains are taxable at a rate of 26%, CSG, CRDS and 2% social surcharge included (check " Social taxes ") if the beneficiary works for the company for at least 3 years when he exercises the BSPCE. The rate is 40% if exercised before.
"BSPCE" are a valid stock options substitute for start-up. Qualified holding period to get the 26% tax rate is 3 years instead of 6 years. 26% tax rate applies whatever is the amount of the spread.
"BSPCE" are a valid stock options substitute for start-up. Qualified holding period to get the 26% tax rate is 3 years instead of 6 years. 26% tax rate applies whatever is the amount of the spread.
Right to subscribe shares " BSA "
BSA are a right to subscribe or purchase shares at a pre-agreed price. They are a valid stock options substitute.
Tax treatment is much more favorable (No minimum holding period and capital gain taxable at a rate of 26%, CSG, CRDS and 2% social surcharge included lien " Social taxes " whatever is the total amount of the spread).
Compared to the stock options, BSA must be purchased at market value by the beneficiary at grant. The down payment is very often much lower than the down payment required for ORA.
Restricted stock
See New french restricted stock regime.
Company car
The beneficiary of a company car must include in his taxable income a taxable benefit calculated as indicated bellow:
Purchased vehicle = 9% of the purchase price VAT included (6% if the car is older than 5 years) + 3% of the purchase price VAT included for the “private” gas paid by the company (or actual “private” gas expense paid by the company).
Leased vehicle = 30% of the annual global rental cost + 10% of this cost for the “private” gas paid by the company (or actual “private” gas expense paid by the company). This benefit cannot exceed the benefit calculated according to the rules used for a purchased vehicle.
Golden Parachutes
In listed companies, any remuneration, indemnity or benefit which do not refer to individual performance indicators themselves based on the performance of the company are prohibited. These performance criteria will be approved by the board of Directors. In addition, when the beneficiary leave or has left the company, the board must acknowledges that the individual met his (her) performance criteria before paying the indemnity. Companies have 18 months to comply with these rules. All commitments which will not comply after the transition period will be void.
For fiscal years closed as of December 31. 2008, new article 39-5 CGI (French tax code) caps the tax deductibility of golden parachutes paid by company to their managers.
Compensation of articles L 225-42-1 et L 225-90-1 of the French commercial code paid as golden parachute and “retraites chapeaux” (bonus pension schemes) are no longer tax deductible when exceeding, per beneficiary, six times the yearly social security cap, i.e. 199 656 € for 2008 and 205 848 € for 2009.
New rule applies to deferred compensation paid by listed public companies to their chairman, general managers, deputy general managers or members of the board of directors.
Private companies or company listed on an Alternext type stock market, are not subject to this limitation.
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