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What is a BSPCE?
BSPCE, short for Bons de Souscription de Parts de Créateur d'Entreprise, is a financial tool designed to attract and retain talented employees and managers, particularly in startups and young companies. It encourages entrepreneurship by giving team members a share in the company's success.
In simple terms, BSPCE grants the right—under specific conditions—to buy company shares at a fixed price. If the company grows in value, those shares could become much more valuable.
Although it’s typically used by unlisted French startups and small to mid-sized businesses, BSPCE became accessible to non-French companies in 2020.
Is BSPCE the same as a stock option?
BSPCE is technically a type of stock option, but it’s a bit more specific. The term refers to a particular tax regime under the French tax code, which kicks in if certain conditions are met.
The big thing that sets BSPCE apart from standard stock options is how it’s taxed. To qualify for the favorable tax treatment, certain rules apply:
- Target companies: BSPCE is typically limited to startups and small-to-mid-sized companies, especially those that aren’t publicly traded.
- Beneficiaries: BSPCE is usually reserved for employees, managers, or other similar corporate officers. Unlike regular stock options, which can sometimes be extended to external advisors or consultants, BSPCE stays in-house.
We’ll break down the details step by step.
How is BSPCE taxation different?
In most countries, including France, stock options are typically taxed when they are exercised. Exercising a stock option means the employee can turn their options into actual company shares. Sometimes they pay an exercise price, sometimes they get the shares for free—it all depends on the terms set in the grant agreement. Also, it’s smart to take the local tax laws into account.
Taxation of stock options often hinges on exercise price and how it compares to the share’s market value at the time of exercise. The tax is usually based on the difference between the exercise price and the market value. Therefore, any discount compared to the market price is treated as employee benefit and taxed accordingly.
Now, BSPCE offers two key tax advantages:
- Postponing taxation: Unlike regular stock options that are not qualified for tax benefits, BSPCE isn’t taxed when you exercise the option, but when you actually sell the shares and pocket the gain.
- Reduced tax rates: Provided certain conditions are met, income tax and social security contributions on those gains are lower than the standard rates.
Before diving into the nitty-gritty of the tax rules, let’s first look at which companies and individuals are eligible for BSPCE.
What companies can grant BSPCE?
While BSPCE is rooted in the French tax system, it's not just for French companies.
Since 2020, non-French companies can also offer BSPCE—provided their headquarters are in the EU or in any other country that has a double tax treaty with France, which includes an administrative cooperation clause. In simpler terms, that covers most places since France has a wide network of tax treaties across the globe.
That said, whether the company is based in France or elsewhere, it still needs to meet certain conditions:
- Subject to corporate income tax: The company’s profits must be subject to corporate income tax in France or an equivalent tax in their home country. This doesn’t mean the company needs to be profitable, just that it's within the corporate income tax framework.
- Age of the company: The company must be no older than 15 years, starting from its registration date.
- Not listed on regulated markets: The company can’t be listed on a regulated stock market — unless it’s within the European Economic Area, and even then, its market capitalisation must stay below 150 million euros. If it exceeds that amount, the company can still grant BSPCE for up to three more years.
- Individual shareholders: At least 25% of the company’s shares must be held by individual shareholders. If the shareholders is a legal entity, it must be at least 75% directly owned by individuals. And "directly" means there can be only one layer of legal entities between the company and the individual shareholders.
💡 Monitoring the shareholder holding requirement is crucial, especially for young startups where ownership changes frequently due to new investments and share awards. A cap table management platform like Salto X can help you stay on top of it 🎉
Who is eligible for a BSPCE grant?
BSPCEs can be granted to:
- All employees of the granting company.
- Directors, managers, and members of the management board (or similar corporate roles) if their salaries are subject to the employee tax regime.
- Employees and corporate officers of the company’s subsidiaries if the parent company owns at least 75% of the subsidiary.
Here’s a practical example: Suppose Pear Inc., headquartered in country X, owns 75% of Pear France, a French company. Pear Inc. wants to grant BSPCE options to its employees and others in France. The eligibility would look like this:
- Employees of Pear Inc.
- Directors and managers of Pear Inc., if they are considered employees.
- Employees of Pear France, as long as Pear Inc. holds at least 75% of Pear France.
- Directors and managers of Pear France, if they are considered employees and Pear Inc. holds at least 75% of Pear France.
However, consultants or advisors who are not employed by the company or its subsidiaries are not eligible for BSPCE benefits.
When is the BSPCE taxed?
The main point of the BSPCE setup is to enjoy its tax benefits. One major advantage is that taxation is deferred from the exercise of options to their eventual sale.
Here’s how it breaks down:
- No taxation at grant.
- No taxation at vesting.
- No taxation at exercise.
- Taxation at sale.
So, if you meet all the conditions, you only pay taxes on BSPCE options in the year when the shares are sold.
How is the BSPCE taxed?
When you sell shares acquired through BSPCE, the gain is taxed as a capital gain. The taxable amount is your net gain, calculated as the selling price of the shares minus the exercise price.
Tax rates vary depending on whether you’ve worked for the company for 3 years or more. Employees who have hit the 3-year mark benefit from a lower income tax rate. Here’s a breakdown of the tax rates for BSPCEs granted since January 1, 2018:
As shown, while the social tax rate remains the same, the income tax is lower for employees who stay with the company longer. This tax relief is designed to encourage employee retention.
Typically, income in France is taxed at progressive rates based on annual income. However, BSPCE income is taxed at a flat rate of 30%. If the progressive rates offer a better outcome, employees can choose to be taxed that way instead.
The social tax rate of 17.2% includes 9.7% for contribution sociale généralisée (CSG) and contribution remboursement de la dette sociale (CRDS), plus an additional 7.5% for social solidarity tax.
It's important to note that these taxes are the responsibility of the employee. If the BSPCE grant meets all conditions, the employer does not incur any tax on BSPCE gains.
Is there an exercise price for BSPCE?
Yes, there is an exercise price for BSPCE options. The tax laws require it to be fixed at the time the BSPCE is granted and the price should be equal to the real market value of the underlying common share at that time.
Determining the market value for tax purposes can be a bit tricky. While there isn’t a one-size-fits-all rule, French practice generally accepts the share price from the last funding round within the last 6 months.
A discount from the real market value is permissible as well, if the share price has decreased since the last valuation.
Additionally, remember that the market value can vary depending on the class of shares, so make sure to account for this.
However, the market value can fluctuate, and significant events can impact the share price. So it’s essential to be able to justify your valuation method.
Recently, there have been indications that the French tax authorities might accept the US 409A valuation, especially for shares tied to a US headquarters.
We’d love to see more guidance from tax authorities on this topic, but unfortunately, clear guidelines are still limited. If you come across any, please share!
What value I can get from BSPCE?
The goal of BSPCE is to motivate employees and managers to drive the company's success, which in turn boosts the value of their own stock options and potential gains.
For example, let’s say an employee receives a BSPCE grant on September 1, 2024. The exercise price is set on this date at the fair market value of a common share, which we'll assume is 100 euros per share. The employee is granted 100 options, which vest over 2 years — 50 options each year.
The employee can exercise and sell the BSPCE options as soon as they vest. There’s no mandatory vesting schedule for BSPCE, although it’s common for vesting to take a few years to encourage employee retention.
If the company thrives and its value increases, so will the share price, which benefits BSPCE holders.
Here’s how it works: Suppose the company’s value quadruples over 3 years, and by September 2027, the share price has risen to 400 euros. If the employee exercises the BSPCE, they buy shares at the fixed exercise price of 100 euros and sell them at the market price of 400 euros, their gain will be 300 euros per share.
Thanks to the favourable tax treatment of BSPCE, this gain is taxed at 30%, compared to the higher rates of 47.2% or up to 45% plus social taxes for other employee share awards in France.
Compared to other types of share awards in France the tax relief is pretty significant. The tax treatment of different share plans is described by the French tax authorities.
Can I sell my BSPCE?
BSPCEs are types of options that are personal in nature and non-transferable.
However, if the company allows it, you can sell the shares once the BSPCE option is exercised.
Can I invest my BSPCE shares into an employee savings plan?
No, you cannot. This restriction applies both to BSPCE options and to the shares you obtained after exercising them.
There has been some debate about whether you can transfer BSPCEs to a company without triggering taxation, but it seems that the tax authorities generally take a negative view of this. Further guidelines should be needed to clarify this issue.
The takeaway
BSPCEs provide significant benefits for employees and startups alike.
Key points of BSPCE include:
- Deferred Taxation: Taxes are only due when shares are sold.
- Attractive Tax Rates: Lower rates apply if you’ve been with the company for over 3 years.
- Flexible Rules: Grant terms are quite flexible, with the main requirement being a fixed exercise price reflecting the market value.
These features make BSPCEs an effective and adaptable incentive tool.
