Employee share plans in France: regulatory overview

A Q&A guide to employee share plans law in France.

The Q&A gives a high level overview of the key practical issues including, whether share plans are common and can be offered by foreign parent companies, the structure and rules relating to the different types of share option plan, share purchase plan and phantom share plan, taxation, corporate governance guidelines, consultation duties, exchange control regulations, taxation of internationally mobile employees, prospectus requirements, and necessary regulatory consents and filings.

To compare answers across multiple jurisdictions, visit the Employee Share Plans: Country Q&A tool.

This Q&A is part of the global guide to employee share plans law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employeeshareplans-guide.

Contents

Employee participation

1. Is it common for employees to be offered participation in an employee share plan?

The offering of participation in an employee share plan depends on the type of company. It is a common practice in international groups of companies.

French law provides for specific incentives for employees, in particular employee profit-sharing (participation) which is mandatory in companies employing at least 50 employees, and various optional profit-sharing plans.

 
2. Can employees be offered a share plan where the shares to be acquired are in a foreign parent company?

It is lawful to offer participation in an employee share plan over shares in a foreign entity. Under certain conditions, these foreign employee share plans are eligible for the same specific tax and social security regime as French plans.

 

Share option plans

3. What types of share option plan are operated in your jurisdiction?

Plans can provide for grants of options to purchase shares or to subscribe to newly issued shares. The following are types of option plan:

  • Share option plan. Options to purchase or to subscribe shares.

  • Bons de souscription de parts de créateurs d'entreprise (BSPCE). These are warrants giving the holder the right to subscribe to newly issued shares at a specific future date for a fixed price.

A foreign company can grant share options in France under a foreign plan without complying with the conditions below.

French-qualified share option plan

Main characteristics. The beneficiary is granted a right to purchase or subscribe to a share of the granting company at an option price set at the time of grant of the options.

The main conditions are as follows:

  • The issuing company must be a parent, holding at least 10% of the French company in which the beneficiaries are employed (or a subsidiary of the employing company in which it holds at least 10%). Corporate officers of a subsidiary are only eligible if the granting company is a listed company.

  • Beneficiaries can be employees or certain corporate officers if they hold less than 10% of the share capital of the issuing company.

  • The shareholders must authorise the grant for a maximum of 38 months for a French company or up to 76 months for foreign entities granting options under French conditions.

  • The exercise price must be paid by the optionee to the issuing company either in cash or by compensation with debts owed.

  • The exercise price must be definitively fixed when the option is granted and can only be modified if certain capitalisation or reorganisation events occur.

  • In the event of the employee's death, the heirs can exercise the options within six months following the death. Otherwise, the option is non-transferable.

  • If the shares of a company are listed, the company cannot grant French-qualified options to French employees during the following "closed periods":

    • before the end of a period of 20 trading days following the issuance of a coupon granting the right to receive dividends or to purchase shares of the company;

    • ten trading days preceding and following the disclosure to the public of the company's consolidated financial or annual statements;

    • from the date the company's corporate management bodies become aware of information that could, if disclosed to the public, materially affect the trading price of the shares, until ten trading days after the day such information is disclosed to the public.

  • Managing corporate officers of the granting company must either:

    • be prevented from exercising options until the termination of their corporate duties;

    • keep a certain number of shares in a nominative account until the end of their corporate duties.

    This does not apply to foreign companies granting French-qualified options to corporate officers of a French subsidiary.

  • If French-qualified options are granted to managing directors of a listed granting company under a shareholders' authorisation dated on or after 4 December 2008, this triggers a broad based grant or improved profit sharing requirement to:

    • grant French-qualified options or qualified shares awards to at least 90% of the employees of the French granting company and of the French subsidiary (held at least at 50%);

    • implement an optional profit sharing agreement (intéressement), or a profit sharing agreement with a derogatory formula (accord de participation dérogatoire), or to improve their profit sharing agreement with voluntary participation (accord de participation volontaire).

  • If options were granted before 28 September 2012, a four-year period must elapse between the grant of the options and the sale of the optioned shares for the spread to benefit from a specific tax and social security regime. For grants after this date, there is no minimum holding period of the shares.

  • Vesting, exercise and forfeiture conditions are mainly contractual.

  • Reporting obligations must be satisfied.

Types of company. Options can be granted by listed or non-listed, French or foreign companies (under certain conditions, such as providing the specific conditions in a sub-plan or addendum to the foreign plan). The issuing company must be a company whose share capital is divided into shares, with a similar requirement for foreign companies.

Popularity. Option plans are very popular for French or foreign listed companies, and are also quite popular for non-listed companies.

BSPCE

Main characteristics. These plans are used in growth companies. The main conditions are as follows:

  • The issue of the warrants must be authorised by the shareholders who set the period during which the warrants can be exercised, the conditions of exercise and the exercise price.

  • The shareholders must set a list of beneficiaries and the number of warrants to be issued.

  • Reporting obligations must be fulfilled.

Types of company. Companies that are non-listed or listed on an EU regulated market, normally with less than EUR150 million capitalisation, and that are subject to corporate income tax in France can grant these warrants. The company must have existed for less than 15 years and at least 25% of the share capital must be held by individuals, or by companies that are held directly at least 75% by individuals.

Popularity. These awards are used in non-listed, small and mid-level French companies.

Grant

4. What rules apply to the grant of employee share options?

French-qualified share option plan

Discretionary/all-employee. The grant is discretionary. However, companies must be able to prove that it was not made on a discriminatory basis and was made on objective grounds with justification as to why only a part of the company's personnel is eligible for grant.

In the event the grant is considered to be discriminatory, damages may be available to the non-eligible employees and, as the case may be, potential criminal sanctions for both the company and its corporate representatives may apply.

Non-employee participation. Only employees and certain corporate officers are eligible.

Maximum value of shares. There is no maximum value of shares for options. However, the grant of options is limited to one-third of the share capital of the French granting company.

Market value. If the shares of the company are listed, the exercise price for a subscription option cannot be less than 80% of the average quotation price during the 20 quotation days immediately preceding the grant date.

For a purchase option, the exercise price cannot be less than the higher of either:

  • 80% of the average quotation price during the 20 quotation days immediately preceding the grant date.

  • 80% of the average purchase price paid by the company for the shares to implement the plan.

If the shares of the company are not listed, the option price must be equal to the value of the shares at the date of grant determined in compliance with the method provided for by the extraordinary shareholders' meeting based on the report from the corporate auditors. This must reflect the market value of the shares. A valuation by an outside valuator is recommended.

BSPCE

Discretionary/all-employee. The grant is discretionary. However, companies must be able to provide evidence that it was not made on a discriminatory basis (see above, French-qualified share option plan).

Non-employee participation. Since the adoption of a law in 2015, employees and certain corporate officers of the granting company and of subsidiaries (provided that certain conditions are met) are eligible.

Maximum value of shares. There is no maximum value.

Market value. To benefit from the specific tax and social security regime, the purchase price of the warrants must be at least equal to the price of shares issued in the case where the issuing company increased its share capital by issuing shares within a six-month period preceding the issue of the warrants, and provided the shares then issued give the same rights as the shares obtained through the exercise of the warrants.

 
5. What are the tax and social security implications of the grant of the option?

French-qualified share option plan

No tax and no social security charges are due on grant for the employee.

An employer social contribution is due on grant of French-qualified options made on or after 16 October 2007, and is due by the French employer of beneficiaries subject to the French social security regime, at 30% of either:

  • 100% of the estimated fair market value of the options as determined for consolidated financial statements (international financial reporting standards (IFRS) regulation).

  • 25% of the share value on the grant date.

French non-qualified share option plan

Share options granted by a foreign company under conditions that do not meet the requirements listed in Question 3, French-qualified share option plan are not eligible to benefit from the specific tax and social regime in France.

No tax and no social security charges are due on grant by the employee or the employer.

BSPCE

No tax or social security charges are due on grant.

Vesting

6. Can the company specify that the options are only exercisable if certain performance or time-based vesting conditions are met?

Share option plan (both qualified and non-qualified)

Many plans provide for vesting conditions based on the employee's performance, rather than on objective criteria. This is not recommended because vesting based on employee performance increases the risk that the value of the option be considered as a salary item. However, a French Supreme Court's decision dated 30 March 2011 (known as the Nike case) stated that such value is not a salary item to be taken into account for the purpose of calculating severance payments. The vesting and exercisability of the options may or may not depend on the employee's continued employment with the company. Therefore, this condition must be provided if the intention is to make the options items to be retained until a future date.

BSPCE

This is the same as for options (see above, Share option plan (both qualified and non-qualified)).

 
7. What are the tax and social security implications when the performance or time-based vesting conditions are met?

French-qualified or non-qualified share option plan and BSPCE

No tax or social security charges are due on vesting.

Exercise

8. What are the tax and social security implications of the exercise of the option?

French-qualified share option plan

For the employee, in principle, no tax or social security charges are due on exercise. However, the following exceptions apply:

  • If there is a deemed excessive discount (to the extent that the exercise price is less than 95% of the average of the trading price of the underlying shares for the 20 trading days before the grant date, or less than 95% of the average purchase price paid for these shares by the company), the discount is subject to the employee's portion of social security charges and marginal rate of personal income tax as salary.

  • If there is a sale of the shares before the fourth anniversary of the grant of options granted prior to 28 September 2012, unless an exception applies, the spread (that is, the difference between the fair market value of the shares at the date of exercise and the exercise price) is subject to the employee's portion of social security charges and marginal rate of personal income tax as salary.

At the level of the employer there are, in principle, no tax or social security charges on exercise. However, the following exceptions apply:

  • If there is a deemed excessive discount, the discount is subject to the employer's portion of social security charges and any tax assessed on salaries.

  • If there is a sale of the shares before the fourth anniversary of the grant of options granted prior to 28 September 2012, unless an exception applies, the spread is subject to the employer's portion of social security charges and any tax assessed on salaries.

  • If the employer does not satisfy its reporting obligations for options granted after 28 September 2012, the spread is subject to social security charges and to any tax assessed on salaries. The employer is sanctioned and must therefore pay the employee a portion of social charges.

French non-qualified share option plan

At exercise, the spread equal to the difference between the exercise price paid and the market value of the shares on the date of exercise is treated as a salary for social security and tax purposes. Therefore, the gain is subject to employee and employer's portions of social security charges, to any tax assessed on salaries for the employer and to personal income tax at the applicable marginal rate for the employees.

BSPCE

There are no tax and no social security payments due on exercise by the employee or the employer.

Shares acquired by employees are part of their wealth and must be reported for French wealth tax purposes, if any is due. Specific allowances may be granted.

Sale

9. What are the tax and social security implications when shares acquired on exercise of the option are sold?

French-qualified share option plan

For options granted before 28 September 2012, the spread is taxed as follows for the employee:

  • Shares sold within four years from the grant date: the net taxable spread is subject to the employee's personal income tax at his marginal rate as salary (up to 45% for 2015 income).

  • Shares sold after the expiration of four years from the grant date:

    • for an annual spread up to EUR152,500: 30% personal income tax and 15.5% social taxes are due;

    • for an annual spread higher than EUR152,500: 41% personal income tax and 15.5% social taxes are due;

    • at the election of the employee: taxation of the spread as salary income at the employee's marginal rate and 15.5% social taxes are due.

  • Shares sold after the six-year holding period and after expiration of the additional two-year effective holding period as from the exercise of the options:

    • for an annual spread up to EUR152,500: 18% personal income tax and 15.5% social taxes are due;

    • for an annual spread higher than EUR152,500: 30% personal income tax and 15.5% social taxes are due;

    • at the election of the employee, the possible taxation of the spread as salary income is the marginal rate of personal income tax of the employee and 15.5% social taxes.

In either case, the employee must pay a special 10% social contribution for grants made on or after 16 October 2007 and for shares sold after 17 August 2012.

For options granted after 28 September 2012, the spread is taxed as follows for the employee:

  • Treated as a salary subject to the employee's personal income tax at his marginal rate as salary (up to 45% for 2015 income).

  • 8% social taxes.

  • An additional 10% special employee social contribution.

The capital gain on the sale of shares (difference between the net sale price and the fair market value of the shares at the date of exercise) is subject to personal income tax at the progressive rates applicable up to 45% (for 2015 income) and to 15.5% additional social taxes. The general social contribution (contribution sociale généralisée) (CSG) at 5.1% (from the 15.5% additional social taxes) paid the year following the sale of the shares is deducted from the taxable income of the year of payment of the CSG.

For sales realised after 1 January 2013, the taxpayer can benefit from a reduction of his taxable basis for personal income tax purposes only (but not for social taxes) as follows:

  • If the shares sold were held at least for two years and less than eight years, the capital gain basis is reduced by an allowance of 50%.

  • If the shares sold were held at least for eight years, the capital gain basis is reduced by an allowance of 65%.

  • Increased rates of allowance can apply under specific circumstances for shares held in EU small and medium companies.

If the taxpayer realises a capital loss, it can be offset against qualified spread on options and capital gains arising from the sale of securities realised by the taxpayer and his household during the same year or during the ten following years.

No taxes or social security contributions apply at the level of the employer, except in the case of sale of the shares during the four-year holding period from the grant date of options granted before 28 September 2012.

Accounting for tax/social security. Social security contributions/charges paid by the employer are tax deductible for corporate income tax purposes.

How liability is recovered from employee. Employee social contributions are withheld by the employer from the employee's gain or salary with his consent, except in the case of disqualification of the qualified status of the options because of misreporting by the employer (for options granted after 28 September 2012). Personal income tax and social taxes due by the employee are not withheld by the employer provided that the employee remains French tax resident from the grant to the sale of shares.

French non-qualified share option plan

Capital gains are taxable in the way described above. Capital loss can only be offset against the capital gain on the sale of securities.

BSPCE

The employee is subject to personal income tax at 19%, or 30% if the employee performs his business activity in the company for less than three years at the date of sale on the gain realised at sale. 15.5% social taxes apply. No allowance applies for holding the shares.

Accounting for tax/social security. There is no tax/social security cost for the employer.

How liability is recovered from employee. Personal income tax and social taxes due by the employee are not withheld by the employer provided the employee remains French tax resident from the grant to the sale of shares.

 

Share acquisition or purchase plans

10. What types of share acquisition or share purchase plan are operated in your jurisdiction?

Shares can be offered to employees for no consideration under a French-qualified or non-qualified scheme. Indeed, a foreign company can grant share awards in France under the foreign plan without complying with the conditions described below. In France, an employee share saving plan allows employees to save money to purchase shares of their employer's group under a specific beneficial regime.

French-qualified shares awards

Plans for the grant of shares for no consideration to be paid by the employee, also called conditional shares awards, which can be presence or performance-based, are available. French and foreign companies can grant the awards provided the below conditions are satisfied.

A Law dated 6 August 2015 (Loi Macron) created an additional attractive legal, tax and social regime for qualified share awards.

Main characteristics. The main characteristics are as follows:

  • The issuing company must be a parent holding at least 10% of the French company where the beneficiaries are employed, or a subsidiary of the latter under the same shareholding condition. Corporate officers of a subsidiary are only eligible if the granting company is a listed company.

  • Share awards can only be issued to employees or officers who do not own more than 10% of the issuing company's share capital.

  • The share awards can be settled either using treasury shares or newly issued shares.

  • The shareholders must give the authorisation of grant for a limited and reasonable period. For a French granting company, the maximum period is 38 months, for a foreign company the maximum is 76 months.

  • The total number of shares must not exceed 10% of the share capital of the French issuing company. Under specific circumstances, the limit is increased up to 30% of the share capital.

  • Shares must be granted for no consideration.

  • Except in cases of death, shares awards cannot be transferred to any third party.

  • In cases of death, the grantee's heirs can request delivery of the shares within six months following the death.

  • The shares acquired with the awards must be recorded in an account in the name of the grantee until their sale.

  • Acquired shares cannot be sold during the following "closed periods":

    • ten trading days preceding and three trading days following the disclosure to the public of the company's consolidated financial or annual statements;

    • from the date that the company's corporate management entities become aware of information that could, if disclosed to the public, materially affect the trading price of the shares, until ten trading days after the day the information is disclosed to the public.

  • Managing directors of the granting company must hold a certain percentage of shares acquired at the vesting, in a nominative account until the termination of their duties.

  • If French-qualified shares awards are granted to the managing directors of a listed granting company or of its French subsidiary under a shareholder's authorisation dated on or after 4 December 2008, the granting company must also make a broad based grant or improve profit sharing (see Question 4, French-qualified share option plan) for French-qualified options grants.

  • For grants made pursuant to an authorisation of the shareholders or of the relevant body under a foreign law (for example, the company's board), when this authorisation was granted before 7 August 2015:

    • the share awards must in principle be subject to a minimum two-year vesting period as from the date of grant of the shares awards, except in cases of total disability and death; and

    • the grantee must hold the shares for an additional minimum two-year period as from vesting, except in cases of total disability and death, or except where the vesting period was a minimum of four years.

  • For grants made pursuant to an authorisation of the shareholders or of the relevant body under a foreign law (for example, the company's board), when this authorisation was granted after 7 August 2015:

    • the share awards must in principle be subject to a minimum one-year vesting period as from the date of grant of the shares awards, except in cases of total disability and death; and

    • the grantee must hold the shares for an additional minimum one-year period, so that there is a two-year period between the grant date and the sale date, except in cases of total disability and death. If the vesting period is a minimum of two years, no holding period is required.

  • Reporting obligations must be satisfied.

Types of company. Shares awards can be granted by listed or non-listed, French or foreign companies (under certain conditions, such as providing the specific conditions in a sub-plan or addendum to the foreign plan). The issuing company must be a company whose share capital is divided into shares.

Popularity. Shares awards are popular for French or foreign-listed companies, and are less popular for non-listed companies.

Company savings plan (plan d'épargne entreprise) (PEE)

A PEE is a form of collective voluntary savings scheme that allows employees to participate in a portfolio of securities (including sometimes shares of the employer group companies), and that is eligible for a specific tax and social security regime.

Main characteristics. The main characteristics are as follows:

  • The PEE rules must be filed with the local employment authorities.

  • The eligible employees are:

    • employees of the French company establishing the PEE and of its affiliates;

    • retired and pre-retired employees of the company and its affiliates;

    • certain corporate officers of the company and its affiliates, provided the total number of employees of the French company is more than one and does not exceed 250.

Types of company. A PEE can be established by any type of company, subsidiary or related entity.

Popularity. PEE plans are very popular in French companies.

Acquisition or purchase

11. What rules apply to the initial acquisition or purchase of shares?

French qualified or non-qualified shares awards

Discretionary/all-employee. The grant is discretionary. However, companies must be able to show that it was not made on a discriminatory basis (see Question 5).

Non-employee participation. Non-employees or non-officers cannot be granted shares awards.

Maximum value of shares. There is no maximum value per employee except the 10% limitations outlined in Question 10, French qualified shares awards: Main characteristics.

Payment for shares and price. The employee must not pay any price for the shares awards except, subject to strict conditions, where it is compulsory under the law of the foreign granting company and the price is not significant.

Company savings plan (plan d'épargne entreprise) (PEE)

Discretionary/all-employee. The PEE is available to all employees, but a maximum three-month seniority requirement can be implemented.

Non-employee participation. See Question 9.

Maximum value of shares. There is no maximum value.

Payment for shares and price. The employee can contribute up to 25% of his annual gross remuneration, plus his profit sharing (if any).

The employer must either bear the costs relating to the implementation and maintenance of the PEE or must contribute in cash on behalf of the employee for an amount that cannot exceed either:

  • EUR3,089.28 (for 2016) per employee, per calendar year.

  • Three times the amount invested by the employee per year.

This limit can be exceeded in the case of purchase of shares of the company or an affiliate.

For the purchase of shares of the employer entity or its parents, the employee can enjoy a 20% discount (free of tax and contributions) on the price of the shares as determined on a date close to the purchase date.

 
12. What are the tax and social security implications of the acquisition or purchase of shares?

French-qualified shares awards

There are no tax and no social security charges due on grant by the employee.

An employer social contribution is due on grant of French-qualified shares awards granted on or after 16 October 2007 pursuant to an authorisation of the shareholders or of the relevant body under a foreign law (for example, the company's board), when such authorisation was granted before 7 August 2015, at either:

  • 30% of the estimated fair market value of the awards, as determined in consolidated financial statements (IFRS regulation).

  • 30% of the share value on the grant date.

An employer social contribution is due on vesting of French-qualified shares awards granted pursuant to an authorisation of the shareholders or of the relevant body under a foreign law (for example, the company's board), when such authorisation was granted after 7 August 2015, at 20% of the share value at vesting.

French non-qualified share awards

Share awards granted by a foreign company under conditions that do not meet the requirements outlined in Question 10 are not subject to the specific employer contribution.

No tax and no social security charges are due on grant by the employee or the employer.

Company savings plan (plan d'épargne entreprise) (PEE)

There is no employer tax due on the investment into the PEE. However, if the employer contributes, there is a 20% special social contribution due by the employer on the employer's contribution.

Vesting

13. Can the company award the shares subject to performance or time-based vesting conditions?

French-qualified shares awards

The vesting can be subject to performance and time-based conditions. For listed companies, the MEDEF/AFEP Code of Corporate Governance recommends imposing:

  • Performance conditions for grants to corporate officers.

  • Continuous presence conditions for grants to employees.

Company savings plan (plan d'épargne entreprise)

There are no vesting conditions.

 
14. What are the tax and social security implications when any performance or time-based vesting conditions are met?

French-qualified shares awards

There is no tax and no social security contributions due on vesting, except in the event the gain is disqualified.

French non-qualified share awards

At acquisition, the gain equal to the market value of the shares on the date of acquisition is treated as a salary for social security and tax purposes. Therefore, the gain is subject to employee and employer's portions of social security charges, to any tax assessed on salaries for the employer and to personal income tax at the applicable marginal rate for the employees.

Company savings plan (plan d'épargne entreprise)

Not applicable.

Shares acquired by employees are part of their wealth and must be reported for French wealth tax purposes, if any is due. Specific allowances may be granted.

Sale

15. What are the tax and social security implications when the shares are sold?

French-qualified shares awards

Taxation occurs at sale of the shares.

For grants made before 28 September 2012, for the employee the gain at vesting (that is, the fair market value of the shares at the date of vesting) is taxed on the sale of shares, at the employee's election, either:

  • At 30% personal income tax and 15.5% social taxes.

  • As salary at the employee's marginal rate plus 15.5% social taxes.

In both cases, 10% employee social contributions are due for grants made on or after 16 October 2007 and shares sold as from 17 August 2012.

For grants made after 28 September 2012 pursuant to an authorisation of the shareholders or of the relevant body under a foreign law (for example, the company's board), when such authorisation was granted before 7 August 2015, the gain at vesting is subject, for the employee, to:

  • Personal income tax at progressive rates up to 45% (for 2015).

  • 8% social taxes.

  • 10% employee social contribution.

For grants made pursuant to an authorisation of the shareholders or of the relevant body under a foreign law (for example, the company's board), when such authorisation was granted after 7 August 2015, the gain at vesting is subject, for the employee, to:

  • Personal income tax at progressive rates up to 45% (for 2015).

  • 15.5% social taxes.

The new regime allows for the application of an allowance on the vesting gain for personal income tax purposes, depending on the effective holding period of the shares. The allowances are the same as those applicable to the capital gains (see below). The allowances do not apply to the 15.5% social taxes.

Any capital gain at the sale of the shares is subject to personal income tax at the progressive rates applicable up to 45% (for 2015 income) and to 15.5% additional social taxes, but 5.1% from the 15.5% paid is deducted from the taxable income of the year of payment of the general social contribution (contribution sociale généralisée).

For sales realised after 1 January 2013, the taxpayer may benefit from a reduction of his taxable basis for personal income tax purposes only (but not for social taxes) as follows:

  • If the shares sold were held at least for two years and less than eight years, the capital gain basis is reduced by an allowance of 50%.

  • If the shares sold were held at least for eight years, the capital gain basis is reduced by an allowance of 65%.

If the taxpayer realises a capital loss, it can be offset against qualified gain on share awards vesting and against capital gains arising from the sale of securities realised by the taxpayer and his household during the same year or during the ten following years.

For the employer, no taxes or social security charges arise when the shares are sold except in cases of disqualification where the employer pays both employee and employer portions of social charges.

Personal income tax and social taxes due by the employee are not withheld by the employer, provided the employee remains French tax resident from the grant to the sale of shares.

French non-qualified share option plan

Capital gains are taxable as described above (see above, French-qualified shares awards). Capital loss can only be offset against capital gain on the sale of securities.

Company savings plan (plan d'épargne entreprise) (PEE)

A tax and social security specific regime is available to the employees and the company, provided all shares and gains are not paid to the employees before the fifth anniversary of the date the shares were purchased, except in certain limited cases (for example, marriage or employment contract termination).

For the employee, sums invested and related gains are exempt from personal income tax if these gains are invested into the PEE and subject to the unavailability period. These gains are not subject to social security contributions but remain subject to the 15.5% social taxes.

 

Phantom or cash-settled share plans

16. What types of phantom or cash-settled share plan are operated in your jurisdiction?

Phantom share plan

Phantom or cash-settled share plans are not often offered by French companies, but are sometimes offered by foreign companies. Awards granted under these plans are not eligible for any French specific regime. French companies can implement bonus schemes reflecting a phantom share plan mechanism.

Main characteristics. The characteristics are provided in the plan. In general, employees receive a cash amount by reference to the share growth.

Types of company. Foreign companies most commonly offer phantom share plans to employees of their French subsidiaries. However, due to recent changes in the cost of French share plans, certain French companies are starting to do so.

Popularity. Phantom share plans are not the most popular type of employee share plan in France.

Grant

17. What rules apply to the grant of phantom or cash-settled awards?

Phantom share plan

Discretionary/all-employee. The awards are discretionary. However, companies must be able to provide evidence that they were not made on a discriminatory basis (see Question 5).

Non-employee participation. There is no rule prohibiting non-employee participation.

Maximum value of awards. There is no maximum award value.

 
18. What are the tax and social security implications when the award is made?

Phantom share plan

For both the employee and the employer, there are no tax or social security contributions that are payable when the award is made.

Vesting

19. Can phantom or cash-settled awards be made to vest only where performance or time-based vesting conditions are met?

Phantom share plan

Although many plans provide for awards to vest only where performance or time-based vesting conditions are met, it is recommended that vesting conditions be objective and not based on the employee's performance, as this would substantially increase the risk that the value of the award is considered as a salary item to be taken into account, among other things, for the purpose of calculating the employee's severance payments.

 
20. What are the tax and social security implications when performance or time-based vesting conditions are met?

Phantom share plan

It is unlikely that the award will be treated as salary subject to social contributions and employee personal income tax at the time of vesting, but this may depend on the terms and conditions of the phantom awards. See Question 17.

Payment

21. What are the tax and social security implications when the phantom or cash-settled award is paid out?

Phantom share plan

At the level of the employee, the following are due when the award is paid out in cash or in-kind, on the value of payment:

  • Personal income tax at the employee's marginal rate up to 45% for 2015.

  • The employee's portion of social security contributions.

At the level of the employer, the employer must pay its portion of social security contributions due on the cash amount the month the payment occurred.

The employer withholds the employee's portion of social contributions from cash payment. Personal income tax is not withheld at source for French tax residents.

 

Corporate governance guidelines, market or other guidelines

22. Are there any corporate governance guidelines, market rules or other guidelines that apply to any employee share plan?

Private companies are not subject to specific guidelines but are limited by law, articles of association and shareholders' agreements.

Listed companies are subject to:

  • Specific rules, such as insider trading rules, and requirements relating to declaration of holding and sale of shares, disclosure of awards and compensation of the corporate officers.

  • Directive 2010/76/EU on capital requirements, for companies in the financial sector.

Institutional investor guidelines

There are no institutional investor guidelines.

Other shareholder guidelines

Listed companies typically adopt internal rules for the grant of awards to certain executives and officers.

Market rules or guidelines

Recommendations are issued by professional organisations (such as MEDEF-AFEP) covering grants to corporate officers and the French securities regulator, the Financial Markets Authority (Autorité des Marchés Financiers). When a company is subject to these guidelines, it must apply the rules or explain why it has not.

 

Employment law

23. Is consultation or agreement with, or notification to, employee representative bodies required before an employee share plan can be launched?

Whether consultation is necessary is reviewed on a case-by-case basis.

If a parent company implements a plan in a foreign country, consultation with the French works council may not be necessary as the grants are made by the parent company and the French employer company is in principle not involved in this decision. However, this must be determined with regard to past practice within the French company.

If a plan is implemented by the French employer, it is more likely that prior consultation with the French works council is required. In any case, although the works council's opinion must be obtained (as otherwise it could trigger criminal sanctions for both the company and its corporate representatives), it is not binding on the employer (there is no veto right).

 
24. Do participants in employee share plans have rights to compensation for loss of options or awards on termination of employment?

In principle, participants in share plans have no rights to compensation for loss of options or awards on termination of employment. However, when termination is construed as an unfair dismissal by French labour courts, in the framework of a dispute, damages can be awarded to compensate for the "loss of chance" triggered by the loss of options or awards.

 

Exchange control

25. How do exchange control regulations affect employees sending money from your jurisdiction to another to purchase shares under an employee share plan?

Exchange control regulations do not prevent employees from sending money from France, but the value of any cash or securities exported without using a financial institution must be reported to the customs authorities when the value of the cash or securities reaches EUR10,000 (for 2016). Shares held outside France and foreign bank accounts must be reported to the French tax authorities annually with the income tax return. Failure to make this reporting triggers severe penalties.

 
26. Do exchange control regulations permit or require employees to repatriate proceeds derived from selling shares in another jurisdiction?

Employees can repatriate proceeds in compliance with the applicable reporting requirements (see Question 25).

 

Internationally mobile employees

27. What is the tax position when an employee who is tax resident in your jurisdiction at the time of grant of a share option or award leaves your jurisdiction before any taxable event affecting the option or award takes place?

From a tax standpoint, the issue is to determine the gain realised during the period of time spent in France, and to determine if this gain is taxable in France.

The tax doctrine considers that a French tax resident with a qualified or non-qualified award, who has worked part of the vesting period in one state and part in another state and who has been taxed in both states, is entitled to an apportionment of the gain between the two states for taxation purposes based on working days spent (and taxable) in each state from grant to vesting, when the vesting is based on continued employment.

A personal income tax withholding on the French source gain of employee share schemes for individuals who have transferred their tax residence out of France after the grant and acquire and sell shares after April 2011 is due. This withholding tax is due on both qualified and non-qualified awards. The rates are the standard rates applicable for each relevant share scheme. Withholding is the responsibility of either the administrator of the plan, the paying agent, the granting entity or the employer, depending on the scheme.

From a social security standpoint, the gain treated as salary is subject to French charges on the entire gain. Contrary to the French tax principles, there is no apportionment of the gain between France and the country where the employee may have worked during the vesting period of the awards. If at the time of the taxable event, the individual contributes to the French social regime, the full gain is subject to French charges.

In addition, a specific exit tax on shares held at the time of transfer of tax residence out of France can be due if either:

  • The total value of shares exceeds EUR800,000.

  • The shares represent 50% of the share capital of a company.

 
28. What is the tax position when an employee becomes tax resident in your jurisdiction while holding share options or awards granted abroad and a taxable event occurs?

For employees sent to work in France, personal income tax is due on the entire gain, unless it is taxable in another state under a tax treaty.

For the social security implications see Question 27.

 

Securities laws

29. What are the requirements under securities laws or regulations for the offer of shares under, and participation in, an employee share plan?

Generally, companies must comply with Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading.

 
30. Are there any exemptions from securities laws or regulations for employee share plans? If so, what are the conditions for the exemption(s) to apply?

If the company offers securities to employees and does not fall under an exemption, it must file a prospectus with the Financial Markets Authority (Autorité des Marchés Financiers) (AMF).

It is not necessary to publish a prospectus subject to AMF approval in connection with a grant of shares awards or share options.

For phantom shares, there is no prospectus filing requirement if the employee does not invest money.

Conditions for exemptions

Exemptions available under EU rules as implemented in France depend on the number of offerees and the value of the offer.

Consents or filings

If a prospectus is required and France is selected as the home member state, the AMF approves and passports the employee share schemes prospectus (these processes usually take a few months).

 

Other regulatory consents or filings

31. Are there any other regulatory consents and filing requirements and/or other administrative obligations for an offer of shares under, and participation in, an employee share plan?

There is no tax and social filing except for company savings plans (plans d'épargne entreprise), for which notification to local authorities is mandatory (a very simple process).

 
32. Are there any data protection requirements or obligations for an offer of share under, and participation in, an employee share plan?

As the administration of an employee share plan likely involves the processing of personal data, a declaration must be filed with the Data Protection Authority (Commission Nationale de l' Informatique et des Libertés), stating whether data is transferred to a foreign country.

If the foreign country is a country located outside the EU that does not provide for an adequate level of protection of personal data, a data transfer agreement must be executed.

Employee consent is not needed, but the employee must be informed of the data transfer.

 

Formalities

33. What are the applicable legal formalities?

Translation requirements

Based on court decisions, the employees must understand the language of the terms and conditions of employee share plans. Therefore, the offering company must either have evidence that employees are fluent in the language used for the plans, translate the documents into French or, at least, insert a disclaimer in French language. For any plan that could constitute a contractual bonus scheme, a translation into French is required.

E-mail or online agreements

French law generally provides that electronic documents are written documents for the purposes of evidencing a transaction, and that an electronic signature can be sufficient to satisfy a writing requirement if certain requirements are met. However, these requirements are very stringent and the enforceability of a click-wrap procedure is highly uncertain. It is recommended that the offering company either use hard copies or include language in the grant materials indicating the conditions of enforceability for an electronic signature and online consent, in addition to implementing a double-click process.

Witnesses/notarisation requirements

There are no witness or notarisation requirements.

Employee consent

Employees' consent is required for any non-qualified share scheme, as there will be a withholding of the employee social contributions. Employees' consent is required for participation in plans requiring salary deductions.

 

Developments and reform

34. Are there any current trends, developments and reform proposals that have or will affect the operation of employee share plans?

Trends and developments

The trend has been to implement performance conditions for the vesting and/or exercise of employee share plans.

Reform proposals

In recent years, rules relating to employee share plans have often been subject to change and no further reform of share plans is contemplated. A reform of profit sharing is to be discussed in the next few months.

 

Online resources

Legifrance

W www.legifrance.gouv.fr/Traductions/en-English

Description. Legifrance is the French government entity responsible for publishing legal texts online. This website provides access, in French, to laws and decrees published in the Journal officiel, important court rulings, collective labour agreements, standards issued by European institutions, and international treaties and agreements to which France is a party. This website is official and in principle should be up to date. Content is mainly in French, but partly translated into English for guidance only.

Impot

W www.impots.gouv.fr

Description. This is a website of the Ministry of Economy and Finance. It provides access to online services for the Directorate General of Public Finance. This website is official and in principle should be up to date. Content is mainly in French, but partly translated into English for guidance only.



Contributor profiles

Gilles Jolivet, Partner

Baker McKenzie SCP

T +33 1 44 17 53 00
F +33 1 44 17 45 75
E gilles.jolivet@bakermckenzie.com
W www.bakermckenzie.com

Professional qualifications. France, 1991

Areas of practice. Labour and employment law; employee benefits.

Experience

  • Gilles Jolivet is a partner in employment law and co-manages the Paris office Employment law Group.

  • He has 29 years' experience as an employment lawyer and his practice covers the full range of labour law, on a national as well as an international level.

  • A particular emphasis on complex reorganisations and reductions in force, employee representation and trade unions, collective dismissals and related disputes, employee benefits, and the hiring of, and separation from, managerial employees.

Agnès Charpenet, Local partner

Baker McKenzie SCP

T +33 1 44 17 53 00
F +33 1 44 17 45 75
E agnes.charpenet@bakermckenzie.com
W www.bakermckenzie.com

Professional qualifications. France, 1999

Areas of practice. Tax; employee benefits law.

Experience

  • Agnès Charpenet is a local partner in tax and is in charge of the Employee Benefit Practice in Paris.

  • She advises multinational companies for the launch of employee equity plans, as well as managers for their management package.

  • She has 16 years' experience as a tax lawyer.

  • She assists Societé Générale Securities Services, French leader administrator of employee share schemes, for tax and legal services information in around 60 countries.


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