Management Packages in France: What the 2025 Tax Reform Means for You

Historically, whether your gain was taxed as capital or salary depended on complex factual criteria: performance conditions, contractual clauses, risk allocation, and more. Even instruments normally viewed as safe (e.g. free share allocations or stock options) came under scrutiny when ratchet mechanisms inflated gains (See details).

Under the new regime, all management instruments are covered — whether statutory (AGA, BSPCE, stock options) or bespoke (warrants, preference shares) — under a unified rule (See details).

The approach is binary:

• Gains below a defined threshold are taxed as capital gains at ~34%.
• Excess gains are taxed as employment income at progressive rates (up to 45%) plus a 10% special social contribution (See details).

At first, practitioners decided that legally recognized instruments – such as free shares (AGA) and stock options or share warrants (including BSPCE) – were safe. The logic was the following: the tax administration could not use the link with the salaried or management functions to requalify the gains because such a link was a legal prerequisite to granting those instruments.

However, over the last couple of years, tax audits have targeted legally recognized instruments (mostly AGA) when the underlying shares used ratchet mechanisms leading to the aggressive accretion of the managers’ financial rights in case performance criteria were met.

In any case, the absence of clear statutory guidance created legal uncertainty and led to a surge in tax audits and litigation.

To address this legal limbo, the 2025 Finance Bill introduces a new legal framework, codified under Article 163 bis H of the French General Tax Code (CGI), applicable from 15 February 2025.
This reform aims to provide clarity by creating a dedicated regime for gains realized on securities acquired or granted in consideration for salaried or management functions (whether in the issuing company, its subsidiaries, or its parent entity).

The new regime replaces the previous ambiguity with a binary approach:

• Up to three times “the multiple of financial performance”, the gain qualifies as capital gain, taxed at a flat rate (usually around 34%);
• Beyond that threshold, the excess portion is treated as employment income, subject to progressive tax (up to 45%), potentially to the contribution on high income (up to 4%) and to a new 10% special social contribution (but excluded from standard employer social charges).

• This regime is aimed at providing legal certainty.

Previously, taxpayers had to argue—often with little success—that the gain was disconnected from their employment or management functions.

Now, there is no need to engage in complex factual assessments. Either the threshold is not exceeded, and the gain is capital gain, or it is exceeded and there is a split between capital gain and salary.

It should however be said that capital gain taxation is only available when there is a real risk of loss for the manager. As a result, a favorable price formula guaranteeing that the manager will receive more than her purchase price means that the whole gain will be taxed as salary.

As a reminder, when instruments such as stock options, free shares or BSPCE are issued in a cross-border context, OECD recommendations and French guidelines dictate that gains must be split into two distinct components:

• The gain realized upon exercising the instrument, treated as employment income, falling under Article 15 of the OECD Model Tax Convention.
• The gain arising from the sale of the shares acquired through the instruments treated as capital gains falling under the provisions of Article 13 of the OECD Model (Capital Gains), or under Article 21 (Other Income) if the treaty does not contain a capital gains article.

At first, there was no clear answer as to how to deal with the part of the gain exceeding the threshold of three times the multiple. Should it be taxed in the State of residence as capital gain, or should it be taxed at source as employment income?

Choosing the latter could lead to a qualification conflict between France and the State of residence and, possibly, double taxation. Choosing the former could defeat the purpose of the new regime in an international context.

A similar uncertainty arises when considering the exit tax. When a taxpayer leaves France, the exit tax applies to her latent capital gains.

However, when stock options and other free shares are involved, the exit tax does not apply to the fraction of the latent gain which is treated as employment income (since, in most cases, the right to tax will be allocated based on where the beneficiary effectively carried out its activities during the vesting period).

Then, the question is: when the beneficiary of a French package leaves France, what will happen to the share of the (latent) gain which is over threshold and, as such, taxed as salary?

Very recently, the French Treasury has let it be known that, both for the exit tax and under bilateral tax treaties, the entire gain—including the slice above the three‑times multiple threshold—was to be treated as employment income.

A written (and binding) confirmation is expected in guidelines to be published this May 2025.

In practice, however, some cross‑border frictions are expected to remain: for example, some countries view package gains as capital gains and tax them accordingly, giving rise to potential double taxation for French‑package beneficiaries residing there, on the share treated as employment income in France.

While the new regime exempts employers from traditional social contributions, it introduces a 10% special contribution borne by the manager.

However, if a manager disputes the application of the regime, claiming a capital gain instead of employment income and is later reassessed by the tax authorities, the employer could face full social security reassessment, including back-charges, penalties, and interest.

As a result, contractual clauses should be introduced in management packages, requiring managers to comply with the new rules and report the employment income portion appropriately.