Description of the core change(s) brought by this policy instrument
The problem: Engineers, data scientists and other talented individuals are in high demand from large and well-resourced corporations. Oftentimes, startups are unable to compete for this talent in terms of salary and benefits.
The solution this policy instrument offers: Stock option schemes - the French BSPCE regime in this case- offer startup entrepreneurs the ability to offer employees an ownership stake, rewarding the risk human resources take by accepting employment with a young business with a promise of a higher payout if the startup succeeds.
Please name the policy advisor(s) or leader(s) who have been key in introducing and/or designing this policy instrument
For recent reforms, Secretary of State for Digital Economy Cédric O.
If you marked "start-up" and/or "scale-up" firms, please provide the specific definitions used
The eligible company must have been incorporated no longer than 15 years ago, be subject to French corporate income tax and privately held by individuals with a minimum shareholding quota of 25%.
Effective January 1, 2020, the law extended the scope of the BSPCE regime beyond French stock companies (SA, SAS, SCA) to any similar company regime governed by the laws of another EU member state or any country with which France maintains a double tax treaty, such that they can be entitled to qualify for the BSPCE treatment in view of their French employees.
Abstract summary of this Policy resource
“Bons de souscription de parts de créateur d’entreprise" (BSPCE) is a regime for a particular category of stock options under the French law which can be granted to employees and directors of stock companies.
The beneficiary of a BSPCE is entitled to purchase a pre-defined number of shares of the issuing company (i.e. the employer) for a pre-defined purchase price. Therefore, the BSPCE fall into the class of employee equity incentives.
If the beneficiary of a BSPCE stays for at least 3 years with its employer, the beneficiary is entitled to a reduced flat tax treatment (incl. social security charges) of 30% on any gain accruing from the exercise of the stock option right upon a sale of the shares in the company.
In January 2020, France’s Digital Minister Cédric O announced two major changes to the BSPCE scheme:
1. Employees can purchase stock options at a fair-market value, instead of at the latest value paid by investors. This avoids penalizing early employees. This new rule makes it possible to award stock option rights at a preferred price to employees which could eventually increase the positive tax advantage for employees participating in such a regime. TechCrunch illustrated the change with this example: "a VC fund invests in a Series A round, valuing the company at €12 million. If you join the company after, you can get stock options based on a lower valuation, which increases the chances of higher returns."
2. The BSPCE regime can also be applied to stock option grants by non-French companies from EU and other countries as an equity incentive for their French workforce.
Under the original scheme, those working for a foreign startup, even if based in its French office, could not receive stock options.
An analysis on Sifted.eu explained that opening up the BSPCE options scheme to foreign companies is a way to alleviate the tax burden. "When US companies hand out options to France-based staff as part of a US plan, both employer and employee get taxed more heavily than they would through a BSPCE-compliant alternative."
Along these two major revisions of the law code governing the French stock option BSPCE regime, the Minister announced the removal of restrictions on start-up visas that require eligible employers to be based in France. In other words, foreign companies can now hire talent for their offices in France via the fast-track visa process for startup employees (the French Tech Visa).
Notes and additional context
The 500+ European tech entrepreneurs who signed the NotOptional recommendations called for encouraging employee ownership in startups, demanding a stock option scheme for Europe, which they think should be designed building on existing models in the UK, Estonia or France to avoid further fragmentation and complexity across the European Union.
According to Index Ventures, a venture capital firm rallying the NotOptional.eu initiative, employee ownership is routinely used in Silicon Valley to attract and retain talent needed by startups with limited cash, while in Europe it is offered inconsistently and at far lower levels. On average, employees of US startups own twice as much of the companies they work for compared to their European counterparts, they claimed.
The signatories called for policymakers to:
d) Allow startups to issue stock options with non-voting rights, to avoid the burden of having to consult large numbers of minority shareholders.
e) Defer employee taxation to the point of sale of shares, when employees receive cash benefit for the first time.
f) Allow startups to issue stock options based on an accepted‘fair market valuation’, which removes tax uncertainty.
g) Apply capital gains (or better) tax rates to employee share sales. - Reduce or remove corporate taxes associated with the use of stock options.