Equity-based compensationTypical forms
What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?
The prevalent form of equity compensation is awarding stock options at a preferential price or free shares, which enjoy favourable social and tax treatment when conditions provided for by French regulations are met (notably minimum acquisition and conservation periods as mentioned in question 11).
As mentioned in question 12, the grant is discretionary. Nevertheless, the ‘equal work, equal pay’ principle applies and discrimination is prohibited.
Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?
Statutory law reserves the right to decide to grant free shares or stock options to the extraordinary general meeting. The extraordinary general meeting will authorise the board of directors or the management board to allocate free shares or stock options, as the case may be, and for a period that it fixes and which may not exceed 38 months.
Once the authorisation has been granted by the extraordinary general meeting, the board of directors or the management board grants the options or shares to their beneficiaries and sets the conditions under which they will be granted.Tax treatment
Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?
As described above, the forms of equity compensation that are advantageous are mainly stock options and free shares.
The tax regime remains complex and the level of tax advantage was falling until 2017, when some tax advantages were reintroduced, particularly for free shares.
Capital gains from stocks or free shares are exempt from social security contributions, subject to a declaration by employers to its collection agency, as mentioned in question 20. Capital gains from stocks are, however, subject to the CSG/CRDS taxes, as well as to specific contributions (30 per cent to be paid by the company and 10 per cent by the employee). Prior to the Macron Law, the same regime applied to capital gains from free shares. Now, capital gains from free shares issued through a shareholders’ meeting taking place after 30 December 2016 are subject to:
- CSG/CRDS taxes, whose rate depends on whether or not a €300,000 threshold has been exceeded;
- a specific employer’s contribution amounting to:
- 30 per cent for shares allocated through a shareholders’ meeting taking place after 30 December 2016 but before 1 January 2018; or
- 20 per cent for shares allocated through a shareholders’ meeting taking place from 1 January 2018; and
- a specific employee’s contribution amounting to 10 per cent on the fraction of the capital gain that exceeds a €300,000 threshold.
A more favourable regime applies to small and medium-sized companies which have not granted dividends since their funding, up to a certain threshold (€40,524 for 2019).
When free shares are connected with a company savings plan, the gain on a subsequent disposal of the shares, including the benefit related to the acquisition gain, is exempt from income tax.
It should also be noted that the PACTE Law of 22 May 2019 increased the tax exemption threshold for the discount authorised in the event of a capital increase reserved for employees.Registration
Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?
For free shares and capital gains on stock options, the exemption from social security contributions is subject to the annual notification to the collecting agency of the identity of the employees or officers to whom free shares or stock options were definitively granted during the previous calendar year, and the number and value of shares allocated to each of them.
Failing to comply with these declaration duties will mean that employers will be ordered to pay social security contributions, including the employee’s part plus additional indemnity to the French administration in charge of collecting social security contributions.Withholding tax
Are there tax withholding requirements for equity-based awards?
In France, social contributions are withheld on salary elements. Equity based awards are also subject to withholding social contributions where applicable. In addition, docking at source for income revenue was implemented in January 2019.Inter-company chargeback
Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?
In large groups, such agreements are common. The amount of chargeback deductibility for French employers depends on various conditions that need to be carefully assessed.Stock purchase plans
Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?
In large groups, employee stock purchase plans are prevalent and available. A typical issue concerns the condition of presence, which is often part of the plans in order to be able to acquire or sell the stocks. This becomes a possible source of litigation in the event that an employee is terminated or transferred, and the condition of presence is no longer fulfilled.