The tax and social regimes of the free-shares grant again revised
The Law 2016-1917 of December 29, 2016 (the 2017 Finance Act) revised the free-shares legal regime freshly amended by the so-called Law Macron of August 6, 2015, more specifically the tax and social regimes applicable to the advantage obtained by the employee from the free grant of the shares by the company (i.e. the acquisition gain).
The present publication aims at outlining the modifications introduced by the 2017 Finance Act which will apply to free-shares whose granting is authorized by a decision of the extraordinary shareholders’ meeting held as from December 31, 2016 (to the extent that the free-shares grant complies with the eligibility conditions set forth in the Commercial Code and the employer satisfies to its obligations required by the Social Security Code).
As a reminder, the acquisition gain is equal to the value of the shares at the date they are definitely granted to the employee (i.e. at the expiry of the vesting period, the vesting date). As long as the eligibility conditions are met and the employer’s obligations are satisfied, the acquisition gain is subject to income tax and social charges (CSG, CRDS and additional levies as the case may be), triggered upon the disposal, lease, or conversion to bearer of the shares by the employee as further described. Moreover, the acquisition gain is exempted from social security contributions. It is nevertheless subject to a specific employer social contribution, based on the value of the shares at the vesting date, which is due the month following the vesting date (unless specific exemption applies). Further developments concern the specific employee social contribution which has been reintroduced by the 2017 Finance Act.
It being said, the 2017 Finance Act provides for an annual limit of 300,000 € leading to the application of different tax and social regimes for the acquisition gain which remains within such limit and the acquisition gain which exceeds it.
The current tax and social regimes applicable to free-shares whose granting is authorized by a decision of the extraordinary shareholders’ meeting held as from August 8, 2015 mostly continue to apply to the portion of the acquisition gain which remains within the annual limit of 300,000 €. Within the year of a triggering event, it is therefore subject to:
- capital gain tax treatment at progressive income tax rate with the benefit of tax allowances based on the duration of the holding period starting upon vesting (it being specified that the advantage remains regarded as a salary);
- CSG and CRDS, together with additional levies, on investment income at a global rate of 15.5%.
The portion of the acquisition gain exceeding the annual limit of 300,000 € is now subject to:
- common salary tax treatment at progressive income tax rate without any tax allowance based on the duration of the holding period or the lump sum professional expense deduction of 1.75%;
- CSG and CRDS on work income at the respective rates of 7.50% and 0.50%, and,
- the specific employee social contribution at a rate of 10%, which is also triggered upon disposal, lease or conversion to bearer of the shares.
Furthermore, whatever the amount of the acquisition gain is (i.e. under or above 300K€), the rate of the specific employer social contribution is increased by the 2017 Finance Act from 20% to 30%.