If it seems that most of my blog posts are dedicated to France, then you are correct.
For this, we can blame the many changes that have been adopted to the French-qualified regime for RSUs over the last few years, most recently discussed in my post from April 2017. And, alas, another change is on the horizon.
The 2018 Finance Bill, which was released by the French government in September and is expected to be adopted later this month, introduces yet another regime for French-qualified RSUs, in addition to the Pre-Macron regime, the Macron regime and the Modified Macron regime. Let’s call this one the “Further Modified Macron (or FMM)” regime.
As the Macron and the Modified Macron regimes, the application of the FMM regime will depend on when the plan or sub-plan, under which the qualified RSUs are to be granted, was last approved by shareholders. Only plans or sub-plans which were last approved by shareholders on or after the date on which the 2018 Finance Bill becomes effective may be granted (or have to be granted) under the FMM regime.
Requirements for RSUs granted under FMM regime
RSUs granted under the FMM regime must have a minimum vesting period of one year from the grant date, and a minimum holding period of two years from the grant date. This means that, if RSUs start vesting on the first anniversary of the grant date, a sale restriction must be placed on the shares until the second anniversary of the grant date (that can be deviated from only if an employee terminates due to death or disability). For any RSUs that vest on or after the second anniversary of the grant date, no sale restriction is required.
These vesting and sale restrictions are the same as under the Macron and Modified Macron regimes, and less restrictive than the requirements under the Pre-Macron regime (which provide for a minimum vesting period of two years from the grant date and a minimum holding period of two years, calculated from each vesting date).
Employer tax treatment under FMM regime
As is the case under the Macron and Modified Macron regimes, employer social tax will be due at vesting on the fair market value of the shares at vesting. However, the applicable rate still seems to be up in the air, but it is possible that it will be brought back down to 20%, as under the Macron regime (while the rate under the Modified Macron regime is 30%).
Employee tax treatment under FMM regime
The employee tax treatment promises to be beneficial under the FMM regime. In particular, to the extent the gain realized by an employee during the calendar year from French-qualified RSUs does not exceed €300,000, the vesting gain (i.e., the fair market value of shares at vesting) will be subject to an automatic 50% reduction, regardless of how long the shares are held after vesting. Under another proposal in the Finance Bill affecting the taxation of investment income (including capital gain), any additional capital gain (i.e., the difference between the sale proceeds and the fair market value of the shares at vesting) will be subject to a flat 30% tax (combining 17.2% social taxes and 12.8% income taxes), regardless of how long the shares are held.
To the extent the gain exceeds €300,000, the vesting gain will not benefit from the 50% reduction. The capital gain will still be taxed at the 30% flat rate. As always for French-qualified RSUs, tax on the vesting gain and capital gain will not be due until the shares are sold.
The automatic 50% reduction of the vesting gain for the portion of the gain below €300,000 per year makes the employee taxation under the FMM regime arguably more attractive than under any of the other regimes, which provide for similarly beneficial treatment for the vesting gain only if shares are held for at least two years after vesting.
Don’t count your chickens yet because we are still waiting for the adoption of the Finance Bill, but it seems very likely that the new FMM regime will be adopted (exactly as described above or with some small variations).
For companies that are granting RSUs under one of the other regimes, this will have no immediate impact, as long as they are not taking their plan back to shareholders. If and when they do, new awards will need to be granted under the FMM regime (or under the regime that is then in place…), while outstanding awards continue to be governed under the regime in place at the time of grant.
For companies that have decided not to grant French-qualified RSUs in the past or stopped granting French-qualified RSUs due to administrative concerns, the new regime is likely to reinforce this decision because it will be exceedingly difficult to administer multiple regimes in parallel.
On the other hand, for companies that are just starting to grant in France and are in the process of approving a new plan in 2018 (e.g., companies that plan an IPO for 2018), the FMM regime could be attractive because it certainly provides savings for both the employee and employer, when compared to non-qualified RSUs.
Therefore, as was the conclusion of my prior blog post, each company has to carefully evaluate whether granting French-qualified RSUs makes sense given its specific circumstances. But it also remains clear that going down this path requires constant monitoring of the legislative changes in France of which I am sure there will be more…