France – Update of the management package regime: 2026 Finance Acts

Clarification of social security regulations

4% increase in the general social contribution (“CSG”) on most capital gains

This increase in the CSG means, for example, that the “flat tax” (unless they opt for taxation at the income tax rate) payable by individuals  on capital gains and investment income will be raised from 30% to 31.4%.

Change in tax treatment – taxation as wages and salaries of the portion exceeding the portion taxed as capital gains

The LF contains clarifications on the rules for “management packages” (Article 163 bis H of the French General Tax Code, hereafter “CGI”), of which we outline only a few points here. In this regard, we refer to the publications on our website dated June 12, 2025, and December 11, 2025, which deal with the tax rules for management packages.

The new structure of Article 163 bis H of the CGI now provides that:

• by default, the net gain is taxed according to the rules for salaries and wages (Article 163 bis H, paragraph I of the CGI);
• however, if the securities sold meet the specific conditions of Article 163 bis H, paragraph II of the CGI (in particular the conditions relating to the risk of capital loss and potentially the holding period), the net gain is taxed:
  • within a certain limit of the company’s financial performance in accordance with the rules on capital gains (Art. 163 bis H, II of the CGI),
  • beyond this limit (hereinafter referred to as the “excess portion“), in accordance with the rules governing wages and salaries (Art. 163 bis H, paragraph IV new of the CGI), subject to certain special rules, which we will discuss in more detail below. This legal clarification of the taxation of the surplus portion as wages and salaries in a new paragraph IV seemed necessary because the original text of 2025 led to the taxation of this surplus portion on the basis of paragraph I of Article 163 bis H of the CGI, even though paragraph I only applied “subject to” paragraph II.

We will only provide a few legislative clarifications here, which relate in particular to the methods of taxation of this excess portion.

Case of “earn-outs”

If the excess portion is generally taxed in the year in which the beneficiary sold their securities, as is also the case for the portion taxable as capital gains, any additional price paid (earn-out clause) is taxed in the year in which this additional price is received (Art. 163 bis H, IV-B new of the CGI). However, as a measure against abuse, the LF contains a provision stipulating that the calculation of the tax limit for the portion taxable as capital gains is fixed at the time of sale of the securities and is not recalculated upon receipt of the additional price.

Simplification of reporting formalities for companies

In addition, as a simplification measure, the excess portion is not subject to either payroll tax (monthly deduction from pay slips) or to the withholding tax on salaries paid to non-residents (quarterly deduction with specific declaration), which will considerably facilitate the processing of this regulation by the payroll/HR departments of companies whose securities are sold by their employees/ executives.

Specific tax deferral mechanism

Finally, a new paragraph IV-C in the article introduces a new “specific” tax deferral mechanism (report d’imposition) on the excess portion that is reinvested in the company issuing the transferred securities (or a subsidiary or parent company thereof) as part of one of the transactions mentioned in Article 150-0 B of the CGI (transactions involving the exchange or contribution of securities).

What is particularly interesting about this specific tax deferral on the excess portion is that it applies to “transactions” pursuant to Article 150-0 B of the CGI (essentially exchange and contribution transactions involving securities), which normally qualify for a “tax suspension” (i.e., treatment as a purely interim transaction without realization of the capital gain, sursis d’imposition) regardless of whether the company in question is controlled by the contributor or not.

Note: It should be noted that, in the regular capital gains regime and in the event that the company is controlled by the contributor, the tax deferral regime under Article 150-0 B ter of the CGI applies in principle (i.e., the capital gain is realized but not yet taxed). It should also be noted that the portion subject to the capital gains regime remains subject to the general rules, which may be a tax suspension under Article 150-0 B of the CGI (sursis d’imposition) or a tax deferral under Article 150-0 B ter of the CGI (report d’imposition), depending on the case.

In addition, the beneficiary company must not have the purpose of managing the movable or immovable assets of the seller or their spouse, ascendants, descendants, or siblings.

The tax deferral is maintained for the excess portion if the securities received in exchange for the contribution or exchange are the subject of a new contribution or exchange that meets the conditions for the specific deferral (without limitation on the number of transactions). This applies to successive leveraged buyouts (LBOs), which enable employees/executives to maintain their tax deferral throughout the transactions. This was a concession achieved through intensive negotiations between various players in the private equity market and the French Ministry of Finance, with the former fearing taxation of the excess portion in each LBO transaction.

Finally, the tax deferral ends (in which case the excess portion is taxed as wages) upon the the sale, assignment, repurchase, repayment, or cancellation of:

• the securities received as consideration for the contribution or exchange;
• the securities contributed, if the transaction giving rise to the tax deferral results in securities being contributed to a company controlled by the contributor and this event occurs within a period of three years from the date of contribution of the securities.

All of the above new provisions on the treatment of the excess portion apply retroactively to all transfers falling within the scope of the management package rules and have taken place since February 15, 2025 (the date on which the new rules came into force), with these measures being generally favorable overall.

Webinar on 16 April 2026: Management Packages in France 2026