Free Shares in France (Actions Gratuites): How They Work and How They Are Taxed

The Free Share Mechanism

Any French company whose capital is divided into shares — whether listed or unlisted — may attribute shares to all or some of its employees and/or corporate officers free of charge, under C. com. Art. L 22-10-59, L 22-10-60, and L 225-197-1 to L 225-197-5. The company may attribute existing shares (held in treasury) or issue new shares for the purpose.

The fundamental difference from stock options is that free share beneficiaries make no payment and are certain to realise a gain regardless of how the share price evolves after attribution. The only uncertainty is whether the vesting conditions — presence in the company and/or performance targets — will be satisfied before the acquisition date. This certainty of gain, combined with increasingly favourable tax treatment since the 2015 and 2018 reforms, has made free shares the preferred equity compensation tool for both large listed groups and smaller unlisted companies.

Eligible companies and beneficiaries

All sociétés par actions (SA, SAS, SCA, SE) whether listed or not may operate a free share plan. There is no size condition, no age condition, and no requirement to be profitable. Beneficiaries are employees and, provided the plan rules so provide, corporate officers: the president, chief executive, deputy chief executives, and directoire members in an SA or SAS; managers (gérants) in an SCA. In listed companies, the attribution of free shares to corporate officers is conditional on simultaneously making a collective benefit available to all employees and at least 90% of the French subsidiaries' employees (C. com. Art. L 22-10-60). Free shares may also be attributed to employees and officers of subsidiaries in which the company holds at least a specified ownership interest.

The Vesting and Holding Periods

The acquisition period (période d'acquisition)

The acquisition period is the time between the AGE authorisation and the date on which the attribution of the shares to the beneficiary becomes definitive. It must be at least one year for plans authorised from 8 August 2015 onwards. For plans authorised before that date, the minimum was two years. At the end of the acquisition period, provided all conditions are met, the shares are definitively attributed — the beneficiary becomes their owner. Two exceptions exist: where the beneficiary is classified as permanently incapable of professional activity, the attribution may be made immediately and the shares may be sold free of the holding period; and where the beneficiary dies, the heirs may demand attribution within six months of death and sell the shares immediately.

The holding period (période de conservation)

For plans authorised from 8 August 2015 onwards, the AGE may or may not impose a holding period. The constraint is that the combined acquisition and holding periods must total at least two years. Where the acquisition period is already at least two years, no holding period is required. For plans authorised before 8 August 2015, a minimum two-year holding period was mandatory, counting from the date of definitive attribution. Where the acquisition period was at least four years, no holding period was required.

Additional constraints for corporate officers

For plans attributing shares to corporate officers, the board of directors or supervisory board must impose one of two additional conservation obligations: either prohibit the officers from selling any of their free shares before the end of their functions, or identify a specified quantity of shares that must be held in registered form until the end of their functions.

The Acquisition Gain: Five Successive Tax Regimes

The acquisition gain (avantage tiré de l'attribution d'actions gratuites) is equal to the value of the shares on the date of their definitive attribution — the end of the acquisition period. It is taxed in the hands of the beneficiary in the year of disposal of the shares (whether by sale or by donation), not in the year of definitive attribution. This deferred taxation is set out in CGI Art. 80 quaterdecies. The applicable regime depends on the date of the AGE authorisation, not the date of attribution or the date of disposal.

Plans authorised before 28 September 2012

Where shares remained unavailable for at least two years from definitive attribution, the acquisition gain is taxed at a flat 30% rate. The beneficiary may alternatively elect to be taxed as salary income at the progressive scale. In both cases, social charges apply at 17.2% on the revenue-from-assets basis; the CSG component is not deductible from taxable income under either option.

Plans authorised from 28 September 2012 with AGE approval before 8 August 2015

The acquisition gain is taxable as salary income at the progressive income tax scale. Social charges apply at 9.7% as employment income (CSG 9.2% + CRDS 0.5%). This is the most heavily taxed regime, imposing full progressive-scale income tax without any abatement.

Plans authorised from 8 August 2015 to 30 December 2016

The acquisition gain retains its nature as salary income but is taxed at the progressive scale with the benefit of proportional duration abatements or the specific €500,000 flat abatement for retiring SME directors. Social charges apply at 17.2% on the revenue-from-assets basis (CSG partially deductible at 6.8%). No 10% specific employee contribution applies to gains from plans authorised in this window.

Plans authorised from 31 December 2016 to 31 December 2017

A €300,000 annual threshold splits the acquisition gain into two tranches:

• The fraction not exceeding €300,000: progressive income tax scale with duration abatements (calculated from the definitive attribution date). Social charges at 17.2% on the revenue-from-assets basis (6.8% CSG deductible). No 10% specific contribution.
• The fraction above €300,000: taxed as salary income without any abatement. Social charges at 9.7% as employment income (6.8% CSG deductible). Subject to the 10% specific employee contribution (CSS Art. L 137-14).

Plans authorised from 1 January 2018 (current regime)

The €300,000 annual threshold is maintained, with the same two-tranche structure, but the 50% flat abatement replaces the proportional duration abatements for the below-threshold tranche:

• The fraction not exceeding €300,000: progressive income tax scale after a 50% flat abatement (or the specific €500,000 abatement for retiring SME directors, which applies first to the disposal gain and then to any remaining acquisition gain). Social charges at 17.2% on revenue-from-assets basis (6.8% CSG deductible). No 10% specific contribution.
• The fraction above €300,000: taxed as salary income without abatement. Social charges at 9.7% as employment income (6.8% CSG deductible). Subject to the 10% specific employee contribution.

The Disposal Gain and Loss Offset Rules

The disposal gain is the difference between the price at which the shares are eventually sold and their value at the date of definitive attribution (which constitutes the acquisition cost for capital gains purposes). It is taxed as an ordinary securities capital gain at PFU 12.8% (or, on global election, at the progressive scale), plus 17.2% social charges on the revenue-from-assets basis. Duration abatements (CGI Art. 150-0 D) are available for shares acquired before 1 January 2018 — the duration being calculated from the date of definitive attribution. The €500,000 fixed abatement for retiring SME directors applies to the disposal gain first, then to any residual acquisition gain.

Where shares are sold for less than their value at definitive attribution (a disposal loss), the loss is deducted from the acquisition gain. For plans authorised from 8 August 2015 onwards, the disposal loss is deducted from the raw acquisition gain before any duration abatement is applied — the abatement then applies only to the net remaining gain. For plans authorised after 30 December 2016 with a two-tranche acquisition gain, the €300,000 threshold is assessed after deduction of the disposal loss.

Social Charges and the Specific 10% Contribution

Free shares are excluded from the social security contribution base — both employee's and employer's contributions — regardless of the attribution date. This exclusion is conditional for pre-28-September-2012 plans on the two-year holding obligation being respected and on the employer meeting its URSSAF filing obligations. For post-28-September-2012 plans, only the URSSAF filing obligation remains. Where the employer fails to meet the filing obligation, it bears the full social security contributions, including the employee share.

For plans authorised from 16 October 2007 up to 7 August 2015, a specific 10% employee contribution (CSS Art. L 137-14) applies to the acquisition gain. For plans authorised after 30 December 2016, the same 10% contribution applies but only to the fraction of the acquisition gain exceeding €300,000. The contribution is assessed on the acquisition gain reduced by any disposal loss. It is due in the year of disposal and collected by the tax authorities alongside income tax.

International Taxation and Withholding Tax

The acquisition gain from free shares has, in French domestic law, the nature of a salary supplement. As a result, it falls under Article 15 of the OECD model convention (employment income) for treaty purposes, regardless of how it is taxed domestically. Where the beneficiary has worked in more than one country during the relevant period, taxation is apportioned between states pro-rata to the days worked in each state during the reference period.

The reference period runs from the attribution date to the date on which the beneficiary definitively acquires the right to be attributed the shares. Where acquisition is subject to a condition of presence at the acquisition date, the beneficiary only definitively owns the right to attribution on that date — the reference period therefore runs the full length of the acquisition period. Where acquisition is subject to a performance condition that is satisfied before the end of the acquisition period, the beneficiary definitively acquires the right on the date the performance condition is met. The apportionment uses a calendar-day basis (365 days per year) including non-working days. The residence taken into account for treaty purposes is the beneficiary's fiscal residence on the date of disposal of the shares (the taxable event).

Non-French-resident beneficiaries are subject to withholding tax at the time of disposal of the shares on the French-source portion of the acquisition gain (CGI Art. 182 A ter). For pre-28-September-2012 plans: withholding at 30% (liberatory where the holding condition is met and no salary-scale election has been made). For post-28-September-2012 plans: salary-scale withholding (0%/12%/20%), non-liberatory, creditable. The 75% ETNC rate applies where the beneficiary is domiciled in a non-cooperative territory.

Donation Before Sale: The Key Difference from Stock Options

The critical difference between free shares and pre-20-June-2007 stock options is that a donation of free shares does not purge the acquisition gain. Under CGI Art. 80 quaterdecies, the taxable event for the acquisition gain is the disposal of the shares — whether for consideration or by way of gift. A donation is a disposal. The acquisition gain is therefore triggered by the donation and taxed in the donor's hands in the year of the gift, regardless of whether the beneficiary of the donation subsequently sells.

However, a donation does purge the disposal gain (the appreciation between the definitive attribution value and the share price at the donation date). If the shares have appreciated significantly since attribution, this purge may still represent a substantial tax saving. The donor will owe income tax on the acquisition gain and gift duty on the donation value; the donee will owe no income tax on any gain from a subsequent sale if they sell at the donation value, but will owe income tax on any further appreciation above that value.

Free Shares in a PEE

At the end of the acquisition period, free shares attributed to all employees of the company may be transferred into a plan d'épargne entreprise up to a maximum of 7.5% of the annual Social Security ceiling per participant per year (€3,299.40 in 2023). This channel is available only for universal-attribution plans — it cannot be used for selective plans benefiting only some employees (C. trav. Art. L 3332-14).

Once in the PEE, the shares are locked for a minimum of five years. Dividends reinvested within the plan during the lock-in are income-tax-exempt. At the end of the five-year period, the entire gain on disposal — including the acquisition gain — is income-tax-exempt. Social charges remain due on the entire proceeds (treated as investment income upon exit). The 10% specific contribution applies at exit for the plans subject to it.

Donation-Partage and Dutreil Engagement

For company owners who wish to transfer business shares to key employees (including family members employed in the company), an alternative to a direct free share plan is a donation-partage combined with a collective conservation undertaking under CGI Art. 787 B (pacte Dutreil). Under Civil Code Art. 1075-2, a donation-partage may be extended to third parties (including non-heirs) where the assets donated are business shares in which the donor holds a management function. The Dutreil regime reduces the taxable base for gift duty by 75%. Combined with the 50% reduction in gift duty for donors under 70, the total transmission cost on business shares to key employees can be as low as 7.5% of share value. This structure is more cost-effective than a selective free share plan for very high-value transmissions and produces no dilutive effect from new share issuance.

This article covers attributions gratuites d'actions made under C. com. Art. L 225-197-1 to L 225-197-5 (and the updated articles L 22-10-59 and L 22-10-60 for listed companies). Stock options and BSPCE follow different rules covered in separate articles. The AGE authorisation date determines the applicable regime. References are correct to the best of the author's knowledge as of the date of publication.