The reform of allocations of free shares
The law for growth and business referred to as the “Loi Macron” was adopted in its final form on 10 July 2015. Although the “Conseil Constitutionnel” has rejected some measures including the limitation of dismissal compensation, the other provisions of the law have gone into effect, and among them are new measures concerning the allocation of free shares.
Reduction of the term of ownership
The new provisions affect companies whose special general meetings that allocate free shares will meet after publication of the law.
Hitherto, the minimum term of ownership of free shares was four (4) years, this period being split into an acquisition period of two years and a holding period of two years. The special general meeting, however, could stipulate longer terms of ownership. The acquisition period is the one at the end of which the beneficiary of the free allocation of shares becomes the actual owner of the shares, when the conditions of the plan are observed.
The holding period is the period at the end of which the shares become negotiable. During that period, the beneficiary is indeed the owner and may therefore enjoy a certain number of prerogatives (such as attendance at the general meetings, receipt of dividend payments), but the shares are not able to be sold.
In future, the acquisition period will be able to be one year. The minimum term of the holding period, meanwhile, has been eliminated.
Nonetheless, the entire term of ownership must be at least two years. The special general meeting, therefore, shall be entitled to set an acquisition period and a holding period of one year each, or simply an acquisition period of two years, eliminating the holding period.
Special employer contribution
“PMEs”, in the definition used by the EU, are now exempted from the employer contribution if:
– they have not paid any dividends since they were formed;
– the shares are allocated within the limit of the annual social security cap (€38,040 in 2015) per employee. This limit is assessed by combining the free shares allocated which were acquired during the year in progress and the three previous years.
These conditions are assessed as at the date of the decision to allocate. Moreover, the basis for the contribution, the rate of which is reduced from 30% to 20%, now applies to the value of the shares at their acquisition date. It is payable the month after that date, rather than the month after the allocation date, as formerly.
Gain on purchase
For the beneficiary, the tax treatment of the gain on purchase has been changed. Previously, beneficiaries of free allocation of shares were assessed on this gain in the category of wages and salaries: for shares purchased in year Y, selling them in Y+2 led not only to assessment for tax on the capital gain from sale (the value at Y+2 minus the value in Y), but also the gain on purchase (equal to the value Y).
Example: For a share allocated in 2010, the beneficiary became the actual owner of it after a two-year acquisition period, i.e., in 2012. It would then be able to sell it in 2014, after the two-year holding period. If the share had a value of €10 in 2012 and €30 in 2014, the beneficiary would be assessed for taxation on the following bases:
– gain on purchase = €10 – €0 = €10
– capital gain on sale = €30 – €10 = €20
From now on, although the gain on purchase will continue to be subject to the income tax scale, it no longer comes under the category of salary, but rather under that of capital gains from sale of securities. The major attraction of this change is in the application of the abatements for term of ownership which apply to the sales of securities.
The abatements under the codified law are as follows:
– 50% of the total capital gain on acquisition for securities owned for between two and eight years;
– 65% of the total capital gain on acquisition for securities owned for at least eight years.
On the other hand, the gain on purchase that since 29 September 2012 has been subject to the special taxes, CSG and CRDS, at the rate of eight per cent (8%) is now subject to deductions of social security levies, at a total rate of 15.5%.
Special employee contribution
The special employee contribution of 10% is eliminated for the gain on purchase of the free shares allocated under an authorisation given after publication of the law.
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