FRANCE - Increased Employer Social Tax Due on French-Qualified Awards - 30 Dec 2010

Unfortunately, there is
some bad news before the year ends: under a new law published on
December 20, 2010, the employer social tax due at grant of
French-qualified options and RSUs has been increased for all grants made on or after December 21, 2010.
As you know, this tax has to be reported and paid by the French entity
to the French social security authorities approximately one month after
the grant; therefore, the increased tax may be payable as early as
January if you have made grants in late December.

For French-qualified
options, the rate has increased from 10% to 14%. Since most companies
have elected to pay the employer social tax on 25% of the market value
of the shares subject to the option at grant, this means the rate
effectively increases from 2.5% to 3.5%.

For French-qualified
RSUs, the rate also increased from 10% to 14% (typically payable on the
market value of the underlying shares subject to the RSUs at grant).
However, the law provides that, where the annual value of the grant per
employee is lower than the amount of the applicable social security
contribution ceiling (

Please note that there also are changes to the employee's taxation of French-qualified awards. The new law introduced various increases to the social taxes payable by the employees, both on French-qualified awards (payable at sale) and non-qualified awards. In addition, the 2011 Tax Bill, which was published today, has adopted increases to personal income taxes due on French-qualified and non-qualified awards (which we discussed in our Third Quarter Clients & Friends newsletter).
Please contact your GES attorney for more information on these rate
increases and how they will affect your French employees. Also, please
make sure to update any tax supplements distributed to employees.

Lastly, we also recently learned that the employer will
likely be required to withhold income tax due on non-qualified awards
(and other salary income) as of April 1, 2011. Currently, no income tax
withholding is required (provided the employee is a French tax
resident). For companies granting awards
that are not French-qualified, please stay tuned. If these changes take
effect as expected, you will need to update your tax withholding
procedures as well as any tax supplements provided to your employees in
France.