France Introduces Overhaul of Tax Rules for Management Packages and Founder Share Warrants in 2025 Finance Act

France’s Finance Act for 2025 introduces significant changes to the taxation and social security treatment of management packages and founder share purchase warrants (bons de souscription de parts de créateur d’entreprise, or BSPCEs). According to Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer, these reforms aim to eliminate longstanding legal ambiguity and deliver a more stable, predictable environment for both investors and tax authorities.

The new framework addresses the ongoing debate over whether gains from management incentive instruments should be taxed as capital gains or as salaried income. It also brings clarity on the compatibility of these instruments with share savings plans (plans d’épargne en actions, or PEAs). By doing so, it prevents the inappropriate cumulation of preferential regimes, and offers clearer guidance to businesses, managers, and compliance professionals alike.

A key feature of the reform is the unified treatment of gains from management packages, regardless of whether the instruments involved are part of a legally regulated structure such as stock options, free shares, preferred shares, or BSPCEs. This marks a deliberate departure from the legal uncertainty introduced by a 2021 French Supreme Administrative Court ruling, which held that gains realized by a manager under certain conditions should be taxed as employment income where a link to their position in the company could be established. This ruling, which lacked clarity on which types of instruments were affected, led to widespread reassessments—often with penalties attached.

Going forward, the new rules stipulate that where a connection between the granted incentive and the manager’s corporate role is demonstrable, the taxation will be twofold. The portion of the gain up to three times the company’s financial performance over the relevant investment period will be treated as a capital gain—taxed at a maximum effective rate of 34%—as long as the manager assumes a capital risk and satisfies a two-year holding period, unless using a legally regulated scheme. The portion exceeding that threshold will be classified as salaried income, attracting progressive income tax rates plus a 10% special social security contribution, leading to an effective marginal rate of up to 59%.

Regardless of the treatment—whether capital gain or salaried income—the law exempts such gains from employer social security contributions. Conversely, in instances where no link exists between the manager’s role and the incentive instrument, the entirety of the gain is taxed under capital gains rules. However, a notable restriction introduced by the law is the prohibition on using PEAs to acquire or subscribe to these instruments.

These measures are particularly welcomed by investment funds and private equity firms. As Knadjian and Piémont observe, “the new legal framework is anticipated to predominantly benefit investment funds and private equity entities, as it reduces the risk of exit gains being reclassified as salaries.” This, in turn, could forestall retrospective demands from French social security authorities for employer contributions at the target company level.

Still, some uncertainties persist. Chief among them is the continued ambiguity over what constitutes a link between the granted instrument and the manager’s position. The law offers no new guidance beyond the 2021 case law, which leaves practitioners grappling with the same conceptual fuzziness. “The main issue is that the new text lacks clear criteria for characterising a link between the granted instruments and a manager's position within a company,” note Knadjian and Piémont.

Practically speaking, this means that where a link is evident, older contract structuring conventions—like “good” and “bad leaver” clauses—are expected to reappear. In less clear-cut scenarios, documentation will likely continue to be carefully drafted to portray managers as investors, thus favoring capital gains treatment.

In non-official communications, the French tax authorities have clarified two points that may find their way into the 2026 Finance Act: first, allowing managers to apply tax deferral mechanisms under Articles 150-0 B and 150-0 B ter of the French Tax Code to the portion of gains exceeding the performance threshold; second, permitting the company’s performance to be calculated in aggregate across all types of incentive instruments, rather than on an instrument-by-instrument basis.

The Finance Act for 2025 also addresses legal ambiguities surrounding BSPCEs, aligning their treatment with that of stock options and free share plans. Under the reform, the “exercise gain”—defined as the difference between the share’s value at exercise and the BSPCE’s grant price—is now treated as salaried income. This amount is taxed at a flat rate of 34% or 51.2% depending on whether the manager has more or less than three years’ tenure with the issuing company at the time of share disposal. This taxation is deferred until the shares are disposed of, converted into bearer shares, or rented.

As for the “disposal gain”—the difference between the sale price and the share value at the time of exercise—the treatment depends on whether it qualifies as income from a management package. If so, the new dual tax regime applies. If not, the disposal gain is treated entirely as a capital gain and taxed at the flat 34% rate (or optionally under progressive rates with allowances).

However, this new regime introduces complications in leveraged buyout (LBO) contexts, where managers typically reinvest proceeds in a holding structure. Currently, contributions of BSPCE-derived shares to a new company are not eligible for tax deferral. “The contribution may trigger the payment of income tax and social security contributions even though the managers would not derive any proceeds from the transaction,” note the authors, though they expect this issue may be corrected in the next Finance Act.

Another drawback of the current BSPCE framework is the inability to offset losses from share sales against the corresponding exercise gain, unlike with free share or stock option plans. This creates theoretical scenarios where the tax burden could exceed actual sale proceeds—though in practice, simultaneous exercise and sale often mitigates this.

Finally, reflecting a broader trend following recent jurisprudence, BSPCEs, warrants, and shares acquired through these instruments are now excluded from PEAs, further limiting their tax-advantaged usability.

In sum, France’s 2025 tax reforms mark a decisive step toward rationalizing and stabilizing the taxation of management incentive instruments. Yet while the changes introduce much-needed clarity for employers and funds, they leave unresolved complexities for managers—particularly around establishing the connection between their roles and their incentives. As Knadjian and Piémont conclude, the reforms are a step forward, but “a few questions remain regarding this new framework, specifically for managers.”

By fLEXI tEAM