You can definitely grant non-qualified stock options (NSO) to local residents in France!
Moreover, France has various tax-favored equity incentives that are available for foreign companies too, such as BSPCE (bons de souscription de parts de créateur d’entreprise), French qualified “stock options” or actions gratuites.
- If you have a local subsidiary in France and comply with the conditions for offering BSPCE, you should definitely offer stock options qualifying as BSPCE ("bons de souscription de parts de créateur d’entreprise"), which we’ll simply call “BSPCE”.
- Before making grants, you’ll need to set up a subplan to your main equity plan. It can be done in a matter of days with Easop, and it then allows you to make as many grants as you want, which are tax efficient both for you and your grantees!
- With BSPCE, you and your grantees won’t have to pay taxes or social security charges when the BSPCE are granted, when they vest, or when they are exercised. It’s only when the shares are eventually sold that the grantee will have to pay taxes.
- There are certain formalities at the time of exercise, which Easop will take care of.
- If the grantee stays for 3 years with the company, taxation will be even more favorable, a good incentive for them to stay longer!
- If you have contractors or advisors in France, you won’t be able to incentivize them with BSPCE.
Employee via EoR
You can definitely grant non-qualified stock options (NSO) to local residents employed via EoR in France!
France has various tax-favored equity incentives that are available for foreign companies too, such as BSPCE (bons de souscription de parts de créateur d’entreprise), French qualified “stock options” or actions gratuites. Unfortunately, none of these equity incentives is available for employees employed via an Employer of Record (EoR).
- There’s no taxation at grant.
- The stock options are taxed at the time of exercise, as salary income (which is taxed at progressive income tax rates that can go up to 45%). The EoR will be responsible for withholding and reporting the necessary taxes and social security contributions so inform them asap when the grantee informs you he/she wants to exercise the stock options.
- Once the grantee sells the shares, he/she will be taxed on the sale gain, at a flat tax rate of 12.8% (plus a “general social contribution” of 17.2%).
💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective so it’s not recommended if your legal budget is limited or if you don’t have enough internal resources to manage your ESOP.
You can grant non-qualified stock options (NSOs) to French residents employed as contractors.
🛎 There are no legal obstacles but the tax treatment of stock options offered to contractors is not clear: it’s difficult to tell how and when stock options are going to be taxed by the French tax authorities.
Taxation could theoretically occur only at the time of sale (on the difference between the price at which the contractor sells his/her shares and the exercise price paid by the contractor to buy the shares) as a capital gain (which is taxed favourably).
The problem is that if stock options have been offered outside of an existing legal framework - which is the case when stock options have been granted to contractors -, then the tax authorities have the right to requalify the gains and treat them as either (i) employment income, or (ii) non-commercial business income or distributed income, depending on the nature of the business relationship between the grantee and the company.
The company won’t legally have to do anything vis-à-vis the local authorities as it will be the grantee’s responsibility to report the taxable gains and pay the taxes.
🛎 The grantee could potentially be taxed when the stock options are granted.
It’s recommended that the grantee contacts his/her personal tax or financial advisor to assess his/her specific situation when receiving the stock options and deciding whether to exercise them!
Another easier, less risky and more flexible option to incentivize contractors in France could be granting Stock Appreciation Rights (SARs) instead of NSOs.
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