Taxation of foreign RSUs, stock options and free shares: returns, rates and optimization

Summary

• Types of plans: RSUs and free shares (AGA, French General Tax Code (CGI), article 80 quaterdecies), stock options (SO, CGI, article 80 bis), ESPP plans and phantom shares treated as salary.
• Key taxable event: RSUs / free shares taxed on the date of sale; stock options taxed in two stages – exercise gain, then capital gain on sale.
• French charges: progressive income tax scale + social levies (9.7%); 10% employee contribution specific to SOs; exemption of part of the gain if the activity was carried out outside France (“day-count” method).
• The decisive role of the tax lawyer: securing the France/foreign allocation, crediting the tax withheld at source, negotiating reassessments and optimizing overall taxation.

Exactly which instruments are covered by the term “foreign RSUs, stock options and free shares”?

• RSUs / free shares (AGA): free allocation of shares in a foreign company, acquired after a “vesting” period. The acquisition gain corresponds to the market value on the date of delivery, less, where applicable, a zero or nominal subscription price. Article 80 quaterdecies of the CGI governs this treatment and allows a territorial pro-rata when the employee has worked in several countries between the grant and the acquisition.
• Stock options (SO): an irrevocable right to purchase a share at a price fixed in advance. The French regime distinguishes between the exercise gain (wages & salaries) and the capital gain on sale (investment income). “Non-qualified” plans granted by US or UK groups nevertheless fall within the scope of article 80 bis of the CGI, even if they provide for an automatic cash-out.
• International free share awards: when a French subsidiary receives shares from its foreign parent company, BOI-RSA-ES-20-20 taxes the portion relating to the French activity following the same logic as RSUs. Matching shares or performance shares schemes are treated in the same way and reported on line 1TT.
• Phantom shares & ESPP: plans with no physical delivery of shares (or with a discount on a collective purchase) taxed as salary at settlement. They do not qualify for any holding-period allowance; only the “day-count” allocation can, where applicable, reduce the French tax base.

How are free shares (RSUs) granted by a foreign company taxed in France?

What is the French tax regime for gains on the exercise of foreign stock options?

• Exercise gain taxed as salary: the difference between the value of the share on the date of exercise and the purchase price is included in the wages & salaries category. It is subject to income tax at the progressive scale and to social levies (CSG 9.2%, CRDS 0.5%).
• Specific 10% employee contribution: due regardless of the employer’s tax residence, it is reported by the beneficiary on form 2042 C (box 3VN) and collected in the same way as social levies on investment income. This contribution does not give rise to any foreign tax credit.
• Separate capital gain on sale: when the shares are resold, the difference between the sale price and the value used for the exercise gain is taxed either at the flat tax (PFU) of 31.4% (12.8% income tax + 18.6% social levies), or at the progressive scale if this is more advantageous for the taxpayer (e.g. where capital losses can be offset).
• Foreign tax credit & territorial allocation: if the employer has withheld tax at source (e.g. US IRS), it is credited, depending on the treaty, up to the amount of French income tax on the territorially taxable portion; a “day-count” table detailing each period of activity is essential to justify the allocation key.

How do you report an RSU acquisition gain or a gain on the exercise of foreign options?

• Activating the appropriate sections: in the online form 2042, tick “Gains d’actionnariat salarié” (employee shareholding gains) to display the specific boxes; this step triggers the display of lines 1TT/3VN, which are essential for the partial exemption.
• Accurate reporting of amounts: enter the acquisition or exercise gain on line 1TT (1UT for the second filer); at the same time, enter the 10% employee contribution on line 3VN.
• Concurrent reporting of capital gains: if you resell all or part of the shares in the same year, complete schedule 2074 (or the simplified “Plus-values mobilières” (capital gains on securities) section), using the acquisition value reported as wages & salaries as the cost price.
• Supporting documents: upload the employer’s certificate, the brokerage statement certifying the valuation, the “day-count” table and, where applicable, the foreign tax assessments; the tax authorities may request these documents during the reassessment period (in principle until the end of the third year following the year of taxation, French Tax Procedure Code (LPF), article L169).
• Subsequent correction: in the event of an allocation error or omission, file an amended return before the reassessment period (three years) expires; taking the initiative spontaneously demonstrates your good faith.

How can double taxation of an employee shareholding gain earned partly abroad be avoided?

• Preliminary analysis of the bilateral treaty: most treaties allocate the gain to the State where the activity is carried out; some (France-US, France-UK) contain protocols specific to share plans. Identify the applicable article before allocating the gain.
• “Day-count” pro-rata method: calculate the ratio of days worked in France to the total number of days between the grant and the acquisition (or exercise). Apply this coefficient to the value of the gain to determine the portion taxable in France; keep a table signed by the employer.
• Crediting the foreign withholding: enter on line 8TK the amount of the income concerned (not the amount of tax paid outside France). The tax credit is capped at the amount of French income tax on the portion of the gain relating to the foreign activity.
• Careful retention of supporting documents: keep payslips, brokerage statements, foreign tax certificates, plane tickets and assignment orders.

Why entrust your foreign RSUs / stock options to a tax lawyer?

• Optimizing the timing and method of taxation: the lawyer models several scenarios (immediate sale, holding, spreading exercises over time) to smooth your taxable income, choose between the flat tax (PFU) and the progressive scale, make use of any capital losses that can be carried forward and integrate savings plans (PEA, PER) to reduce the effective rate.
• Treaty-based security: they draft a reasoned memo, based on the treaty text, to justify the “day-count” and the allocation key before the French tax administration (DGFIP); this anticipation prevents the application of a 40% penalty for deliberate failure.
• Handling disputes and penalties: in the event of a reassessment, the lawyer structures the response, negotiates the waiver of the 10% employee contribution in the event of double withholding and, if necessary, argues the case before the Administrative Court (Tribunal administratif).
• Post-sale wealth planning: they coordinate contribution-and-sale strategies (apport-cession, CGI, article 150-0 B ter), gifts before sale, trusts or non-trading companies (société civile) in order to capture the capital gain securely, prepare for a move abroad and limit the impact of the exit tax.

FAQ

Glossary & checklist

Vesting: The date on which your RSUs become definitively acquired.

Acquisition gain: Market value of the shares – price paid (often 0).

10% contribution: Specific employee levy on the SO exercise gain.

PFU: Prélèvement Forfaitaire Unique (single flat-rate levy): 12.8% income tax + 18.6% social levies.

Checklist: “5 steps to report”

□ Identify the vesting or exercise date

□ Calculate the gain + France/foreign portion

□ Report gains in boxes 1TT / 3VN / 2074

□ Credit the foreign tax (treaty tax credit)

□ Archive the contract, statements, “day-count” table

Further reading

• Article 80 bis of the CGI: stock option regime.
• Article 80 quaterdecies of the CGI: taxation of free shares.
• BOI-RSA-ES-20-10-20-60: “day-count” pro-rata method.