Enacted on 6 August 2015, France's law for growth, activity and equal economic opportunities, known as the "Macron law", designed to boost the French economy, aims to "establish equal economic opportunities and increase economic activity by removing restrictions, promoting investment and creating jobs".

Certain employee share ownership schemes,  RSU (French AGA) and BSPCE (warrants for business creator shares) are at the heart of the new measures adopted by the Macron law. The legislator wishes to encourage employees' involvement in the growth of the company (or group of companies) in which they work and invest themselves each day. Through a reduction in compulsory contributions applying to RSU and a loosening of granting conditions of BSPCE, the Macron law provides companies with greater flexibility in the implementation of their policies for their employee incentive schemes.

  1. Changes made to RSU Regime

Applicable to RSU's authorised by an annual general meeting of shareholders held on or after 7 August 2015, the new provisions aim to increase the attractiveness of RSU schemes by reducing the legal constraints and the weight of tax and social security contributions both for employees and companies.

Easing of Legal Constraints

Before the Macron law came into force, employees that were granted RSU could  own and dispose of the  shares only after a total period of four years, generally comprising (i) a vesting period of at least two years, followed, where the vesting period was less than four years, (ii) by a holding period of at least two years.

The Macron law reduces the minimum vesting period from at least two years to at least one year and removes the obligation for the extraordinary general meeting of shareholders to set a holding period, provided there is a period of at least two years between the shares being granted and the date on which when they are sold. In practice, the extraordinary general meeting may decide a vesting period and a holding period of one year each or, alternatively, just a vesting period of two years.

Reduction of the Tax and Social Pressure

  1. On Employees:

Attribution gains, taxed in respect of the year in which the shares are sold, are no longer taxed under the category of wages and salaries and social contributions applicable on income of 8%, but under the category of capital gains on securities and social security contributions on investment income. Accordingly, subject to the beneficiaries keeping the shares that are issued to them following the vesting period for at least two years, the attribution gains are subject to progressive income tax but reduced (i) by tax relief for the holding period as provided for by law (50% for a holding period of more than two years, or 65% for a holding period of more than eight years) or, if applicable, (ii) by a specific tax relief for the holding period (50% for a holding period of at least one year, or 65% for a holding period of between one and four years, or 85% for a holding period of more than eight years) applying to shares in a small or medium-sized enterprise (SME)[1] subscribed or acquired in the 10 years following its incorporation, to sales of shares within a family group, and to sales of shares undertaken by a director upon retirement (after, in the last case, an additional specific tax relief of €500,000). The gains will, moreover, be subject to social security contributions at the rate of 15.5%. The treatment of tax and social security contributions on gains realised on the sale of the shares remains unchanged.

In practice, when shares from RSU's are sold, the total taxable gains will be equal to the sale price of the shares, reduced by tax relief for holding period, running from the date  the shares are delivered.

Employee social security contributions, which were until now paid by the employee when the shares were sold, at a rate of 10% and calculated on the gains on acquisition, are no longer levied for RSU's granted on the basis of the decision adopted by a shareholders' general meeting held on or after 7 August 2015.

  1.  On the Employer

Employer social security contributions, levied on employers when RSU's are granted, is reduced from 30% of the value of the shares on their granted date to 20% of the value of the shares on their delivery date (please note that employers may no longer  base these contributions on the value of the shares as estimated for the needs of their consolidated financial statements).

These contributions will, therefore, now be due (i) when the RSU's are delivered (and no longer when they are granted) and (ii) calculated on the fair  value of the benefit granted to the beneficiary, thus taking into account staff turnover between the acquisition date and delivery date of the shares as well as the risk arising from the almost systematic introduction of any presence or performance conditions in the plan rules.

Finally, in order not to penalise rapidly growing SME's and to encourage them conducting a reinvestment policy rather than a distribution policy, the Macron law exempts such companies from employer social security contributions, provided that they have not distributed any dividends since their creation and the RSU's are allocated within the social security annual threshold (up to €38,040 for 2015) for each employee.

  1. Easing of Conditions for BSPCE

BSPCE entitle their holders to subscribe shares of a company at a pre-determinated price set on the day the BSPCE's are granted by the extraordinary general meeting of shareholders.

This scheme, mainly intended for start-ups and innovative young businesses, enables such companies to incentivise their employees with the benefit of an attractive tax and social treatment.

Reserved to stock companies, subject to corporate income tax in France, which have been incorporated for less than 15 years, unlisted or whose market capitalisation is less than 150 million euros, and owned for at least 25% by individuals (or by companies directly or indirectly owned for at least 75% by individuals it being specified that holdings held by certain entities such as French venture capital funds (FCPR) are not taken into account for the determination of these thresholds), the scope of application of BSPCE was restricted because they could not be granted to employees of the issuer's subsidiaries nor issued by a company created from a reorganisation of companies.

The Macron law, applicable to BSPCE granted on or after 7 August 2015, aims to ease these conditions.

Extension of BSPCE to Companies resulting from a reorganisation

In order to end this restriction, which acted as a restraint on the growth of young businesses, especially on their ability to attract new talents, the Macron law now allows companies resulting  from a reorganisation (i.e. from a merger, restructuring, extension or resumption of pre-existing activities) to issue BSPCE. They must, of course, meet all the aforementioned conditions; it being specified, however, that a company's market capitalisation should be calculated by aggregating the market capitalisations of all the companies formed from the reorganisation operation. Moreover, the age of the company or companies will be determined by using the earliest creation date of companies having taken part in the reorganization.

Extension of the scheme to employees and directors of certain subsidiaries

The Macron law, moreover, extends the scheme to employees and directors of the issuer's subsidiaries provided such subsidiaries are owned at 75% by the issuer and meet the aforementioned eligibility conditions. In particular, given that the subsidiary whose employees or directors are granted BSPCE must be subject to corporate income tax in France, it must be noted that only employees and directors of French subsidiaries will be eligible for the BSPCE. It is likely that this restriction will be contested and will need to be corrected in the future, to the extent that it constitutes a restriction to the freedom of establishment within the European Union.