This Guide to France for equity plans provides information on the exchange control, securities law, labor law and taxation landscape in the jurisdiction as relates to various forms of stock compensation.
France: Summary of Considerations for Offering Equity
Full guide and summary can be downloaded at the bottom of this section
Exchange Controls: No restrictions. Reporting requirements apply if certain thresholds are reached.
Securities Laws: EU Prospectus Regulation includes exceptions for offers that are addressed to fewer than 150 persons or where the shares have a consideration of less than €1 million (calculated over a 12-month period) if certain other conditions are met. The “employee share plan” exemption, which previously could only be relied upon by companies that traded its shares on an EEA market, is now available to companies that trade on certain markets outside of the EEA.
Labor Laws: Employees deprived of the rights to stock-based benefits by virtue of a termination that is not based on “real and serious” motives are entitled to claim compensation. Consultation with works council is required prior to implementation of certain stockbased benefits, such as where a majority of the employees will be covered by the plan.
Social Security Taxes: Salary income is subject to social security contributions of approximately 45% by the employer and 23% by the employee. Various other social taxes, social levies, and special taxes often apply. Qualifying plans are in many cases exempt from social security taxes
Payroll Deductions: Deductions from an employee’s salary are not permitted, except in narrowly defined situations.
Privacy Laws: The French Civil Code, French Law No. 78-17 on Data Processing, Data Files and Individual Liberties (which was originally implemented in 2005 and subsequently amended) and the EU General Data Protection Regulation govern the processing of personal data, including the collection, recording, storage of, and access to, personal data in France and require that any data collection must be implemented in such a way as to ensure certain fundamental rights to privacy.
Electronic Signature: Under French law, an electronic signature is defined as a reliable process of identification that safeguards its link with the instrument to which it relates. The electronic signature is presumed or deemed reliable when various conditions are satisfied.
Taxation of Employee:
Nonqualified stock options: No tax on grant. Spread is taxable as salary upon exercise or vesting, depending on the factual circumstances. Capital gains treatment applies upon sale at progressive rates.
Qualified stock options: No tax at grant or exercise if discount does not exceed 5%. Discount and spread are taxable at various preferential rates upon sale of the shares depending on certain terms of the award. Capital gains treatment applies upon sale at a flat rate of 30%.
Restricted stock: For nonqualifying stock grants, the value of the stock at the vesting date is treated as salary income. Preferential rates apply at the time of sale to qualifying free stock grants that meet specified conditions. Under the Social Security Financing Act adopted in 2007 and subsequently amended, a 30% tax must be borne by the employer at grant and a 10% tax must be paid by the employee depending on certain terms of the award.
Restricted stock units: Same as Restricted Stock. Performance stock: Same as Restricted Stock. Bonus stock: Taxable as salary income when the stock is available to the employee.
Stock purchase plans: Any discount is taxable upon receipt. Establishment of a Business Savings Plan permits employer contributions and accumulation of income to be tax-free. Retirement savings plans: Several types of tax-favored vehicles are available, including Business Savings Plans, profit-sharing plans, and optional profit-sharing plans.
Tax Withholding: Effective January 1, 2019, there is a withholding mechanism for salary income incurred by French resident employees/officers from non-qualified awards. Social insurance contributions are also required to be withheld in certain instances.
Stamp Duties and Other Factors: Generally, no transfer tax upon an employer’s purchase of Parent Stock. Stock option discounts may not exceed 20% under French company law. It is highly recommended that agreements relating to stock-based benefits be translated into French.