The new law (Loi Macron), which introduces changes to the requirements and tax and social tax treatment of French-qualified restricted stock units (“RSUs”), was finally published in the Official Gazette on August 7, 2015.
Under the new law, only grants of RSUs authorized by a shareholder meeting after August 7, 2015 can benefit from the new regime.
We hope that the French tax and social authorities will interpret this shareholder approval requirement in such a way that foreign issuers that grant RSUs under a sub-plan to a shareholder approved plan can also benefit from the new regime provided the sub-plan is adopted by a company’s board of directors (or compensation committee) after August 7, 2015. In the meantime, the shareholder approval requirement may be a hurdle for companies until they otherwise have occasion to obtain shareholder approval for the equity plan under which they intend to grant French-qualified RSUs.
The old rules governing French-qualified RSUs will continue to apply to any outstanding French-qualified RSUs and to any French-qualified RSUs granted after August 7, 2015 if the requisite approvals described above have not yet been obtained.
- A minimum vesting period of one year from the grant date (previously, the minimum vesting period was two years).
- A minimum two-year period between the grant date and the date the shares are sold, which can be achieved by a vesting and/or holding period (previously, the minimum holding period was two years from the vesting/share issuance date for RSUs vesting within four years of grant).
- Other conditions of the French-qualified RSU regime still apply (e.g., vesting must be accelerated upon death, shares cannot be sold during French “closed periods”).
Employer Social Tax Treatment
- Employer social tax is payable at vesting at a rate of 20% on the value of the shares at vesting (previously employer social tax was payable at grant of French-qualified RSUs at a rate of 30% on the value of the shares at grant, with no refund if RSUs were forfeited before vesting; also, in contrast, employer social security contributions on non-qualified RSUs are payable at a rate of up to 46% on the value of the shares at vesting).
- Note: A company qualifying as a small or medium enterprise which has not distributed dividends since its incorporation, could be exempt from this employer social tax on the gain at vesting up to €38,000 per employee over three calendar years.
Employee Tax Treatment
Employees will continue to be taxed when the shares are sold on the “gain at vesting” and the “gain at sale” but some additional benefits are available under the new regime:
- The gain at vesting continues to be taxed at progressive rates but the amount of tax can now be reduced by 50% if the shares are held for 2 to 8 years or by 65% if the shares are held for more than 8 years (similar to the reductions available for the gain at sale).
- The gain at vesting is now subject to only 15.5% social tax with 5.1% of this amount being deductible (previously, the social tax and special contributions were 18%).
- The gain at sale continues to be subject to income tax at progressive rates, and the 50% or 65% reduction described above continues to apply, as well as social tax at 15.5%.
Impact on French-Qualified Options
The new changes do not affect French-qualified options.