French Finance Law 2025 and Management Packages: key considerations

Management packages are a key tool used by companies to attract, motivate, and retain their senior executives. They allow managers to become shareholders in their company and have a financial interest in its performance. This mechanism is particularly popular in startups and high-growth companies.

The French Finance Law for 2025, enacted on February 14, 2025, and published in the Official Journal of the French Republic on February 15, 2025, significantly modifies the tax regime applicable in France to capital gains realized on the sale of shares acquired or allocated to employees or executives « as compensation for their functions. » These new rules, set out in Articles 92 and 93 of the French Finance Law, are detailed in Articles 163 bis H and 163 bis G of the French General Tax Code (CGI).

A major change is taking place: under French tax law, gains from management packages will now be taxed as salaries instead of capital gains. The result is often a higher tax burden for beneficiaries and new constraints for companies operating in France or with employees benefiting from such schemes under French jurisdiction. What are the new applicable rules? What are the consequences for foreign companies with subsidiaries or executives in France? Here is a breakdown of the impacts of this reform and the key points to watch.

Which employee shareholding plans are affected?

The reform applies to both « qualified » employee shareholding plans (free shares (AGA), founder share subscription warrants (BSPCE), stock options) and non-qualified employee shareholding plans (subscription by employees or through a management company (Manco) to ordinary or preferred shares under general corporate law mechanisms).

A major shift: gains now taxed as salaries

Previously, capital gains on management package shares were taxed under capital gains rules. Now, by default, they are taxed as salaries.

By exception, part of the gain from a sale may still qualify for capital gains tax treatment, provided the following cumulative conditions are met:

• Holding period of at least 2 years: the shares must have been held for at least two years.

Note: This holding period requirement does not apply to shares acquired through (i) stock option plans, (ii) free share plans, or (iii) BSPCEs, for which no minimum holding period is required.

• Capital risk: the shares must carry a real risk of capital loss, meaning, for example, that there must be no extra-statutory liquidity mechanism offered by the majority shareholder.

If these conditions are met:

• The portion of the sale gain exceeding the threshold is taxed as salary.
• The portion of the gain not exceeding the threshold is taxed under the capital gains tax regime.

The Threshold calculation formula is the following :

Acquisition price x 3 x (company’s fair market value at the sale date / company’s fair market value at the acquisition date) – acquisition price.

Fair market value is determined based on the company’s equity capital, increased by debts owed to shareholders or affiliated entities.

A clarification that reduces the risk of reclassification as salary

This new formula provides a clearer distinction between income taxed as salary and capital gains, an issue that had previously been a source of legal uncertainty (see the case law from the French Conseil d’État decisions of July 13^th, 2021). The risk of reclassification of management package gains as salary is therefore reduced.

A reform that applies to both future and existing plans

This reform entered info force on February 15, 2025, and applies to all sales of shares from management packages established before this date.

Introduction of an additional 10% employee contribution

A new 10% social contribution is now imposed on beneficiaries of management packages when the net gain is taxed as salary.

BSPCE: differentiating between acquisition gain (salary) and sale gain (capital gains)

The exercise gain (the difference between the value of shares subscribed at the time of exercising the warrants and the exercise price) is subject to :

• the flat tax (30%) or, upon election, the progressive income tax scale, plus social contributions (17.2%), if the beneficiary has worked for the company for more than three years,
• if the beneficiary has worked for the company for less than three years, the exercise gain is taxed at 30% plus social contributions (17.2%).

The sale gain (the difference between the value of shares at the time of sale and their value at exercise) is taxed under the general capital gains tax regime, potentially benefiting from tax deferral or roll-over mechanisms under Article 150-0 B ter of the French General Tax Code.

This new tax regime applies to warrants and shares subscribed through warrant exercises when the share subscription occurs on or after January 1, 2025.

Exclusion of management package shares from the PEA (French Equity Savings Plan)

Shares acquired or subscribed under management packages can no longer be held within a Equity Savings Plan (“Plan d’Épargne en Actions” (PEA)). Regarding BSPCEs, this restriction applies to shares or warrants granted or exercised as from October 10, 2024.

Summary

This new tax regime is less favourable for management package beneficiaries, as it increases their tax burden (performance-based capping, 10% social contribution, exclusion from the PEA). While it does provide a welcome clarification by reducing the risk of reclassification as salary income, it also introduces legal uncertainty since it applies to both new and existing employee shareholding plans, whether qualified or not.

As a result, these mechanisms may lose much of their attractiveness, even though they have historically been a key tool for motivating and retaining talents, particularly in startups.

Further clarifications from the tax authorities are expected, particularly regarding the interpretation of shares acquired « as compensation for employment or executive functions”.

DELCADE helps you structure and secure your management packages in light of these new constraints

With this reform, management packages are becoming less attractive and more complex to structure. However, when carefully designed, these mechanisms remain a powerful tool for motivating and retaining talent, particularly in growing businesses and SMEs/mid-sized companies.

DELCADE supports you in anticipating these changes and structuring your employee shareholding plans in an optimal manner. Thanks to our extensive experience in structuring management packages and our multidisciplinary approach, we offer our clients tailored support, including:

• Assessing the impact of the reform on your existing schemes and identifying necessary adjustments.
• Securing and structuring your management packages to ensure both performance and tax compliance.
• Anticipating and managing risks related to the new tax rules.
• Facilitating the implementation and understanding of the employee shareholding plan among internal teams (legal department, general management, and human resources) and beneficiaries.

Our lawyers assist you at every step to secure and optimize your schemes, ensuring compliance with the latest tax and social regulations.