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.
As described in our client alert, the new French-qualified RSU regime (Loi Macron) finally became effective on August 7, 2015. I have discussed the benefits for the new regime in an earlier blog post.
Unfortunately, the news is not all good. This is because the law provides that qualified RSUs can be granted under the new regime only under a plan that has been approved by shareholders after the effective date of the law (i.e., after August 7, 2015). Of course, we do not expect that any of our clients will ask their shareholders to approve a new plan or re-approve an existing plan just to grant French-qualified RSUs. This means that it is currently impossible for the vast majority of our clients to rely on the new regime (with the exception of only those companies that coincidentally just approved a new plan or had shareholders approve amendments to an existing plan). For these companies, until and unless their shareholders approve a plan, the conservative advice is to either not grant qualified RSUs or grant them in reliance on the old regime (with 2-year vesting and 2-year additional holding period, as well as employer social tax due at grant at a rate of 30%).
As I had discussed back in January 2015, changes to the moribund French-qualified RSU regime had been proposed by the French Government which would have made granting French-qualified RSU awards again much more beneficial to both the company and the employees. Alas, the wheels in France turn slowly and we are still waiting for the law to be adopted.
What has happened in the meantime is as follows:
The French Parliament actually adopted the proposed law at the end of February 2015. The law was then sent to the French Senate for further debate. Unfortunately, at the Senate level, the law was amended and the reduced vesting/holding periods now only apply to so-called SMEs. These are small and medium size companies which employ fewer than 250 persons and which have an annual turnover not exceeding € 50 million, and/or an annual balance sheet total not exceeding € 43 million.
Just when we thought French-qualified awards were headed for extinction due to the ever decreasing tax benefits, there is change in the air!
In November, a draft law was presented (the “Loi Macron”) which proposes a number of changes to the requirements and tax treatment of French-qualified RSUs, most of them favorable. The draft law does not propose any changes for French-qualified options.
As currently drafted, the law provides the following:
- Minimum vesting period reduced from two years to one year from the grant date;
- Holding period after vesting (currently minimum of two years for RSUs that vest within four years of grant date) is optional, but shares cannot be sold for a minimum period of two years from the grant date (effectively requiring a minimum one-year holding period for RSUs that vest on the first anniversary of the grant date);
- Employer social tax liability moved to vesting and due at a rate of 20% on the value of the shares issued at vesting (currently 30% on the value of the shares subject to the RSUs at grant – no reimbursement if RSUs forfeited prior to vesting); and
- Gain at vesting taxed as capital gain (currently taxed as salary income).