In-depth reform of the French tax regime governing management packages

published on 15 Juli 2025 | reading time approx. 3 minutes

The French Finance Bill for 2025, which entered into force last February 15th, introduces significant changes to the tax treatment of management packages, which are essentially designed to give managers and employees a stake in the performance of the issuing company. In this article we will focus solely on the introduction of the new article 163 bis H of the French General Tax Code ("FTC"), which sets out a new general regime that is intended to apply alongside with other existing regimes. Experts are currently awaiting further clarification from the tax authorities on this text, and we will relay this information as soon as it becomes available.

I. Simplified presentation of the new general regime codified in Article 163 bis H FTC

The new general regime codified in Article 163 bis H FTC covers the "net gain" realized on securities subscribed or acquired by employees or managers, or allocated to them, when this gain is acquired in consideration for their duties. This notion of net gain is not specified in the law, and pending further clarification from the tax authorities, the doctrine considers that all the various components of the net gain are taxable, including, where applicable, the "acquisition gain" (the difference between the fair market value of the securities at their acquisition or subscription date and the preferential price at which they were acquired or subscribed) and the "exercise gain" (the difference between the fair market value of the securities at the date the option is exercised and the subscription or purchase price, plus the amount paid to acquire the option, and where applicable, the previously taxed gain on acquisition), in addition to the "capital gain" (the difference between the sale price of the securities and the amounts paid in advance, plus any previously taxed gains on acquisition and exercise).
The new regime is general in its scope, covering all types of employee and executive equity interests. As such, the new regime applies to both "qualified" plans (i.e. those benefiting from a defined preferential regime, such as stock options, free shares and “BSPCE” – stock options for founders of small to mid-size companies) and "non-qualified" plans (i.e. all other forms of employee and management equity interests which, until the advent of Article 163 bis H of the FTC, depended on a case-by-case analysis based on the solutions provided by case law). However, for qualified plans, their acquisition gains are excluded from the net gain. Thus, for qualified plans, both the provisions of Article 163 bis H of the FTC and the rules specific to the type of qualified plan concerned must be applied. Experts are particularly looking to the tax authorities to clarify how to apply the two regimes in parallel (i.e. the new common law regime of Article 163 bis H FTC and the special regime applicable to a qualified plan).
The single triggering event for the new regime applies to any disposal, transfer, conversion or leasing of shares carried out on or after February 15, 2025, including where the shares were allocated prior to that date but have not yet been disposed of by the beneficiary. This means that all management package plans entered into before February 15, 2025, fall within the scope of the new provisions.
Despite the principle of taxing the net gain as employment income, part of the gain realized upon disposal (excluding the part of the gain governed by qualified plans) may be taxed under the capital gains on securities regime. However, the acquisition gain and the exercise gain remain exclusively subject to taxation as employment income.
To fall within the scope of capital gains tax, the acquired securities must meet the following conditions:
for non-qualified plans, the securities must present a risk of loss of the capital subscribed or acquired and must have been held for at least two years;
for qualified plans, the securities must present a risk of loss of their acquisition or subscription value.
If the risk of capital loss and, where applicable, the holding period are met, the gain on disposal is taxed as follows:
Taxed as a capital gain on securities up to the limit = (acquisition value x a financial performance multiple) - acquisition value. The financial performance multiple =
3 x fair market value of the issuing company on the date of disposal of the securities / fair market value of the issuing company on the date of acquisition
Net gains exceeding the above limit are taxed as employment income.
Here again, experts are awaiting clarification of the concepts of capital losses and the calculation rules to be applied to the portion taxable as capital gains on securities.

II. Simplified overview of the difference in mandatory levy costs under employment income regime and the capital gains regime for employees or managers disposing of their securities

For the portion of the net gain taxable as employment income, the tax burden can in principle be as high as 59%, i.e. 45% (marginal personal income tax rate) + 4% (marginal exceptional contribution on high incomes tax rate) + 10% (specific employee contribution at source).
For the taxable portion of the net gain taxable as capital gains on securities, the burden of compulsory deductions is in principle limited to 34%, i.e. 12.8% (single flat-rate withholding tax) + 17.2% (social security charges on income from assets) + 4% (marginal exceptional contribution on high incomes tax rate).
It should also be noted that, regardless of the applicable the tax regime, the net gain is excluded from the assessment basis for the general and specific social security charges (contribution sociale généralisée (CSG))contribution au remboursement de la dette sociale (CRDS)) on income from professional activity (art. L 136-1-1, III-3°-a bis new of the Social Security Code), as well as fromthe base for both employee’s and employer’s social security contributions,(new article L 242-1, II-8° of the French Social Security Code). This exclusion is particularly favorable, since it represents a departure from the general rule under which the assessment basis for these charges and contributions includes benefits in return for, or in connection with, employment.

III. Practical points to remember at this stage

As we have seen, even management package plans concluded before February 15, 2025, are affected by the reform. It would therefore be advisable to carry out an audit of these plans to determine whether or not some of them can benefit from the capital gains regime. If necessary, they could be amended to ensure that the beneficiaries are theoretically eligible for the capital gains regime.

Similarly, particular ongoing attention should be given to monitoring acquisition values and the timing and amounts of sales, as well as to calculating the portion taxable as a capital gains on the date of the triggering event, in particular by determining the financial performance multiple, since this will be binding on both the employer and the beneficiaries.