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May 7, 2013 Amy Reina Deloitte Tax LLP GEO Boston Chapter Presents: Update on France-Recent Tax Law Changes
© 2013 Deloitte LLP. Private and confidential. General Overview New Tax Law and Proposed Tax Increase Qualified plan changes Where Do we Go From Here? 2 Agenda
© 2013 Deloitte LLP. Private and confidential. 3 I am so pleased to be a Russian citizen! Welcome Gerard!
© 2013 Deloitte LLP. Private and confidential. What has already changed? 4 From July 11, 2012 Qualified grants: Employer tax at grant increased; From 14% to 30% Contribution on high revenue CHR – ALL CATEGORIES 3% / 4 % From January 1, 2011 From January 1,2012 Social surtaxes on investment income increased; From 13.5% to 15.5% From August 18, 2012 Qualified plans: Employee contribution increased; From 8% to 10% From August 1, 2012 Forfait social rate on all-employee profit sharing schemes Increased to 20% Individuals leaving France are subject to capital gains tax on unrealized gains (“exit tax”) From March 3, 2011
© 2013 Deloitte LLP. Private and confidential Key Rate Changes 5 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 Dividends and Interests 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 Income Tax 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
© 2013 Deloitte LLP. Private and confidential. 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 6
© 2013 Deloitte LLP. Private and confidential. Qualified vs. non-qualified plans The 2013 Finance Bill amended the tax treatment of qualified awards- no longer the same tax advantages for employees 7 Are qualified plans worth pursuing? The The main benefit of a qualified plan is tax deferral to date of sale; and company tax savings
© 2013 Deloitte LLP. Private and confidential. Stock Options - Qualified v Nonqualified Qualified Tax Treatment Non-qualified Tax Treatment For qualified grants after October 16, 2007 and before September 28, 2012 For qualified grants on or after September 28, 2012 Non qualified grants Employee TaxSaleExercise Employee Income Tax18%, 30%, 41% Progressive rates up to 45% Employee Social Contributions SaleExercise Basic social security contributions NA 23%-8.85% CSG 15.5%8% (5.1% deductible) CRDS Employee contribution10% N/A CHR (High Income Contribution) 3-4% Employer Social Contributions GrantExercise Basic social security contributions N/A45%-26.5% Employer contribution30% N/A 8
© 2013 Deloitte LLP. Private and confidential. Free Shares- Qualified v Nonqualified 9 Qualified Tax Treatment Non-qualified Tax Treatment For qualified grants after October 16, 2007 and before September 28, 2012 For qualified grants on or after September 28, 2012 Non qualified grants Employee Tax SaleVest Employee Income Tax 30% Progressive rates up to 45% Employee Social Contributions SaleVest Basic social security contributions NA 23%-8.85% CSG 15.5%8% (5.1% deductible) CRDS Employee contribution10% N/A CHR (High Income Contribution) 3%-4% Employer Social Contributions GrantVest Basic social security contributions N/A45%-26.5% Employer contribution30% 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) 10
© 2013 Deloitte LLP. Private and confidential. 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 Deloitte LLP. Private and confidential. New employer qualified plan reporting obligations DADS Reporting is due by the end of January 2014 for calendar year ‒ 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 12
© 2013 Deloitte LLP. Private and confidential. 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. 13 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
© 2013 Deloitte LLP. Private and confidential. 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. 14
© 2013 Deloitte LLP. Private and confidential. Action Steps 15 Look at impacts for your population Qualified plans vs. non qualified: not always obvious; remember IFRS2 tax basis, employee deferral Specific attention on international mobility: movement out of France Beware not to disqualify outstanding qualified awards => Additional social charges New flexibility on holding periods Eligible for start-up stock option regime? No company taxes; 34.5%
© 2013 Deloitte LLP. Private and confidential. Contact information Amy Reina Senior Tax Manager Deloitte Tax LLP (1)
© 2013 Deloitte LLP. Private and confidential. This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.
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