The election of a new government in France last year has had a major impact on the country's tax landscape, and stock compensation has not escaped. Enacted on December 30, 2012, the French Finance Act of 2013 significantly changed the taxation of qualified stock options and RSUs granted on or after September 28, 2012. For these grants, income received at exercise/vesting is taxed at progressive rates of up to 45%, though the payment of this tax is deferred until the sale of the shares. In addition to the payment of income tax at sale, however, any appreciation in share value after exercise is also subject to progressive income tax rates up to the maximum of 45% plus additional social taxes of 15.5%. This tax treatment is effective from 2013 onward for all sales, regardless of the date when the underlying equity award was granted or the date when the shares were acquired.
However, holding the shares after acquisition can help reduce the capital gains tax at sale. For capital gains on shares that have been held for two years or longer, a progressive tax rebate is available on the following scale:
- 20% rebate for shares held between 2 and 4 years
- 30% rebate for shares held between 4 and 6 years
- 40% rebate for shares held longer than 6 years
Note that the rebate applies only to the income tax portion of the tax on capital gains. It does not apply to the social taxes.
Other recent tax developments in France that may affect mobile employees with equity awards include the following:
- In 2012, France introduced a new surtax on all forms of yearly income, including equity award gains at exercise/vesting, dividend income on shares, and capital gains at the sale of shares. For a single taxpayer with annual income above €250,000 (for joint filers, €500,000), the surtax is 3%. For a single taxpayer with annual income above €500,000 (for joint filers, €1 million), the surtax is 4%.
- With effect from January 1, 2013, a wealth tax applies to any French tax resident with net assets worth at least €1.3 million. If the wealth tax is triggered, the first €800,000 of net assets is exempt. Beyond that point, the tax rate ranges from 0.5% (on net assets between €800,000 and €1.3 million) up to 1.5% (on net assets worth more than €10 million). Wealth tax and income taxes are capped at 75% of an individual's worldwide net income during the preceding tax year.
- The rate of the French exit tax has changed. The exit tax applies to people who (1) have been tax residents of France for at least six of the ten years before the exit date and (2) either hold shares worth over €1.3 million or own at least 1% of financial rights in a company that is subject to corporate tax. The taxable moment is the date before the date of departure from France. Latent capital gains are taxed as if the assets were sold on that date. For people who ended French tax residency before September 28, 2012, the rate of exit tax is 19%. For departures that occurred at any time on or after September 28, 2012, through the end of 2012, the rate is 24%. From January 1, 2013, the exit tax is assessed at normal progressive tax rates up to the maximum of 45%.
For more on the complex taxation of stock comp in France, and on the taxation of equity awards in over 30 other countries around the world, see the Global Tax Guide at myStockOptions.com.
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