Taxation of AGAs: employer contribution (30%), acquisition gain, capital gain on disposal, applicable income tax and social security tax rates, and DSN reporting requirements.
Since the 2005 Finance Act, corporations (SA, SAS, SCA, etc.) have been able to grant free shares to their employees and executives. This employee stock ownership program is designed to motivate and retain company employees by offering them the opportunity to become shareholders of the company at no cost. It complements existing equity incentive plans (BSPCE, stock options, BSA, etc.).
The tax and social security treatment of free shares (AGA) has undergone several major reforms, notably:
The grant of free shares triggers the payment of an employer contribution (Article L.137-13 of the Social Security Code). The employer contribution is due at the time of the shares’ definitive vesting (and not on the grant date). It is therefore the vesting date that determines the applicable rate, not the date the plan was approved.
Prior to 2015, this rate was set at 30%, a level considered relatively high, which could discourage companies from using this type of mechanism.
The Macron Law of August 6, 2015, marked a significant shift by lowering this rate to 20%. This reform was part of a strategy to enhance the attractiveness of employee stock ownership plans, particularly in growing companies.
However, with the 2017 Finance Act, lawmakers reversed this policy by reinstating a 30% rate, aspart of efforts to generate additional revenue for social security.
This increase was short-lived, as the 2018 Finance Act once again lowered the rate to 20%, in an effort to revive the use of free shares, particularly among SMEs and innovative companies.
Finally, the 2025 Social Security Financing Act raisedthis rate once again to 30%. This latest change is part of an effort to strengthen the financing of social security.
The grant of free shares results in double taxation for the recipient: first on the acquisition gain and second on the capital gain realized upon the sale of the shares.
The acquisition gain corresponds to the actual value of the shares on the date of their definitive acquisition by the recipient.
The acquisition gain on free shares granted on or after January 1, 2018, is taxed according to the rules set forth in Article 80 quaterdecies of the General Tax Code (CGI):
1. The portion of the capital gain less than €300,000 is taxed according to the progressive income tax scale after applying a one-time 50% deduction, subject to certain conditions (the “Macron” regime)
That portion of the gain is subject to social security contributions (18.6%).
2. The capital gain exceeding €300,000 is taxed under general tax law as wages and salaries.
The portion of the capital gain exceeding €300,000 is treated as earned income and subject to standard social security contributions (10%) and social levies (9.7%).
The sale of bonus shares may result in a capital gain when the value of the shares has increased. This capital gain corresponds to the difference between the sale price of the shares and their fair market value on the date of their definitive acquisition.
Since January 1, 2018, capital gains from the sale of such shares have been subject to the tax regime governing capital gains on the sale of securities. In principle, it is subject to the single flat-rate withholding tax (PFU) of 12.8%, plus social security contributions at a rate of 18.6%, for a total tax rate of 31.4%. However, taxpayers may opt to be taxed according to the progressive income tax scale, plus social security contributions of 18.6%.
When the taxpayer opts for the progressive tax scale, the capital gain may, where applicable, qualify for the holding period deduction provided for in Article 150-0 D of the General Tax Code, applicable only to securities acquired or subscribed to before January 1, 2018:
Furthermore, an SME executive who sells their shares upon retirement may, under certain conditions, benefit from a fixed deduction of €500,000 on the capital gain from the sale, as provided for in Article 150-0 D of the General Tax Code. This deduction applies before, if applicable, the application of the holding period deduction when the latter is applicable. Eligibility requirements relate in particular to the nature of the company, the management position held by the seller, and the effective termination of their duties.
The company issuing bonus shares and the recipients are subject to separate reporting requirements, both at the time of allocation and at the time of definitive acquisition and disposal of the shares.
The issuing corporation must file several tax and social security reports following the grant of bonus shares and upon their definitive acquisition by the recipient.
The issuing company must report to its tax collection agency the identities of the employees or corporate officers to whom free shares have been granted, as well as the number of shares granted.
This report is submitted via the Nominative Social Declaration (DSN), filed monthly, in accordance with , among other provisions , Article 87 of the General Tax Code (CGI) and Article L133-5-3 of the Social Security Code.
Pursuant toArticle 38 septdecies of Annex III to the General Tax Code, the granting company must provide the beneficiary with an individual statement containing the following information:
In addition, the company must also report in the DSN for the year of final vesting the information relating to the bonus shares, including the number of shares vested, their value on the date of final vesting, and the corresponding gain on vesting.
Beneficiaries are required to report their gains to the tax authorities upon the definitive acquisition of the free shares and upon their sale.
The employee or executive who is the beneficiary is not required to attach the individual statement provided by the company to their tax return for the year in which the shares are definitively acquired. However, they must retain this document until the tax authority’s right of recovery expires and be prepared to present it upon request.
Failure to do so may result in a tax penalty of €150, as provided for in Article 1729 B of the General Tax Code.
If bonus shares are sold, the recipient must report:
These amounts must be reported on the annual income tax return for the year of sale, specifically on Forms 2042 and 2042 C.
Free shares are an effective tool for employee stock ownership, but their tax treatment remains complex. It involves several levels of taxation: the initial acquisition gain, the capital gain on sale, and company-specific obligations.
Tax treatment also varies depending on the key dates of the program (grant, definitive vesting, and sale), which requires particular care in its implementation.
It is therefore essential to have a thorough understanding of these various stages in order to ensure compliance with both reporting requirements and tax treatment, for both the company and the beneficiaries.
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