GEO Boston Chapter Presents:
Update on France-Recent Tax Law Changes
May 7, 2013
Amy Reina
Deloitte Tax LLP
Agenda
General Overview
New Tax Law and Proposed Tax Increase
Qualified plan changes
Where Do we Go From Here?
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I am so
pleased
to be a
Russian
citizen!
3
Welcome
Gerard!
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What has already changed?
From January 1, 2011
• Contribution on high revenue CHR – ALL CATEGORIES
• 3% / 4 %
From March 3, 2011
•Individuals leaving France are subject to capital gains tax on
unrealized gains (“exit tax”)
From January 1,2012
• Social surtaxes on investment income increased;
• From 13.5% to 15.5%
From July 11, 2012
• Qualified grants: Employer tax at grant increased;
• From 14% to 30%
From August 18, 2012
• Qualified plans: Employee contribution increased;
• From 8% to 10%
From August 1, 2012
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• Forfait social rate on all-employee profit sharing schemes
• Increased to 20%
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2013 Key Rate Changes
•
Income Tax
•
•
•
•
Dividends and Interests
•
•
•
•
•
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New tax bracket: 45% for 2012 annual income bracket over €
150,000;
75% rate proposal struck down, but has been reintroduced;
Wage tax (Taxe sur les salaires) increased to 20% at top bracket
Subject to progressive income tax rates. Overall top marginal
rate including CHR and social surtaxes is 64.5%
40% deduction for dividends brings overall top marginal rate to
46.5%
Some exceptions (life insurance / PEA)
New withholding tax
Subject to progressive income tax rates.
Taper relief of 20% to 40% bringing top overall rates to between
46.5% and 64.5%.
Some exceptions: entrepreneurs / reinvestments
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75% Company Tax
French President announced his intention to reintroduce a temporary 75% personal income
tax on income earned in excess of EUR 1 Million. Last December, the High Court struck
down the 75% tax. Not an employee income tax rate this time around, but a 75% company
tax.
What does this mean for you?
 Company social charges & payroll taxes on this income already capped at 25%.
 Additional tax amounts to an additional 50% in taxes applied.
 Temporary tax will apply for 2 years.
Draft legislation expected in July
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Qualified vs. non-qualified plans
Are qualified plans worth pursuing?
The 2013 Finance Bill amended the tax treatment of qualified awards- no longer
the same tax advantages for employees
The main benefit of a qualified plan is
tax deferral to The
date of sale; and
company tax savings
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Stock Options - Qualified v Nonqualified
Employee Tax
Employee Income Tax
Qualified Tax Treatment
For qualified grants after For qualified grants on
October 16, 2007 and
or after September 28,
before September 28, 2012
2012
Sale
Progressive rates up to
18%, 30%, 41%
45%
Exercise
Progressive rates up to
45%
Sale
Exercise
Employee Social
Contributions
Basic social security
contributions
CSG
CRDS
Employee contribution
CHR (High Income
Contribution)
Employer Social
Contributions
Basic social security
contributions
Employer contribution
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Non-qualified Tax
Treatment
NA
Non qualified grants
NA
23%-8.85%
15.5%
8% (5.1% deductible)
10%
10%
N/A
3-4%
3-4%
3-4%
30%
Grant
Exercise
N/A
45%-26.5%
30%
N/A
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Free Shares- Qualified v Nonqualified
Qualified Tax Treatment
For qualified grants after
For qualified grants on
October 16, 2007 and
or after September 28,
before September 28,
2012
2012
Employee Tax
Employee Income Tax
Employee Social
Contributions
Basic social security
contributions
CSG
CRDS
Employee contribution
CHR (High Income
Contribution)
Employer Social
Contributions
Basic social security
contributions
Employer contribution
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Sale
30%
Non-qualified Tax
Treatment
Non qualified grants
Vest
Progressive rates up to
45%
Sale
Progressive rates up to
45%
Vest
NA
NA
23%-8.85%
15.5%
8% (5.1% deductible)
10%
10%
N/A
3%-4%
3%-4%
3%-4%
30%
Grant
Vest
N/A
45%-26.5%
30%
N/A
© 2013 Deloitte LLP. Private and confidential.
New law
What does not change – Qualified Plans
•New qualified awards will still benefit from the employee deferral of income and
social tax until the sale of the shares
•Company tax of 30% remains payable at grant : choice on taxable basis =>
strongly recommended to do an plan specific IFRS 2 valuation to reduce employed
costs
•Full exemption from any type of social charges and taxation as capital gain
on sale of shares remain for “start-up” company stock option plans :
maximum rate is 19% plus 15.5% = 34.5% (before CHR)
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New law
What does change – Qualified Plans
• New flexibility with holding periods:
•Stock options – no longer required?
•Free shares – if release is year 4, no longer required?
•This is a strict reading of new code articles – may be unintended
•Reporting at grant linked to social security exemption
•Stay tuned for legislation in summer/fall 2013
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New employer qualified plan reporting obligations
• DADS Reporting is due by the end of January 2014 for calendar year 2013.
‒ For year of grant for free shares/stock options (reporting at grant tied to employer
social security exemption)
‒ For year of exercise for stock options
‒ For year of vest for free shares
‒ French sourcing
• In some cases, individual certificates to be filed with tax administration directly
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Employer withholding obligations
•Withholding obligation for French non-residents - both qualified and non qualified
plans.
• Qualified options/awards granted prior June 20, 2007 not subject to any
withholding.
• The plan administrator or the broker is often the responsible party for any
withholding due on qualified awards/options at sale.
Company action items:
• Identify responsible party for withholding (plan administrator ? broker ? )
• Ensure responsible party is complying
• Alternatives if not complying: in-house/outsourcing/French broker
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Wage tax
•
Beginning in 2013, for equity compensation exceeding EUR 150,000, an
additional wage tax will be payable at a rate of 20% by the employer where the
business is VAT exempt. So generally applicable to financial industry.
•
The legislation is currently unclear and further clarification is being sought in the
wage tax application to qualified equity plans.
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Action Steps
Look at impacts for your
population
Qualified plans vs. non
qualified: not always obvious;
remember IFRS2 tax basis,
employee deferral
Eligible for start-up stock
option regime? No company
taxes; 34.5%
Beware not to disqualify
outstanding qualified awards
=> Additional social charges
New flexibility on holding
periods
Specific attention on
international mobility:
movement out of France
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Questions?
Contact information
Amy Reina
Senior Tax Manager
Deloitte Tax LLP
(1) 203 708 4622
amyreina@deloitte.com
© 2013 Deloitte LLP. Private and confidential.
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