Value sharing bonus and Retirement savings plan: Two ways to reduce tax results

The end of year is, for many companies, also the time for closing the annual accounts. At this point, company managers would like to discover a legal way to reduce their taxes.

The followings will present two options which can be a tool to boost employee’s motivations and appreciation as well as a mean of saving extra from which companies can also benefit:

1. The value sharing bonus (known as Prime Partage de la Valeur (PPV));
2. The retirement savings plan (known as Plan d’Epargne Retraite).

I – Value sharing bonus (Prime Partage de la Valeur – PPV)

1. 1. Definition

This bonus scheme is a system which allows employers to pay a bonus to their employees. It was first called the “Macron bonus” and was originally a one-time offer. It was eventually made permanent on August 16^th, 2022, by Law No. 2022-1158 relating to emergency measures for the protection of buying power.

Any employer can decide to pay a PPV, and the payment of this bonus does not mean it has to be done again in the following years.

The amount of the bonus, which can be modulated according to certain criteria, is freely set by the agreement or unilateral decision within the company.

1. 2. Setting up the PPV

There are two implementation methods:

1. Either by a company or group agreement concluded according to the terms of a profit-sharing agreement (accord d’intéressement);
2. Or by unilateral decision, after consultation with the CSE – the Social and Economic Committee, if one exists.

However, in companies with less than 11 employees, implementing the PPV by unilateral decision, in the absence of a CSE, employers must inform, by any communication means, their employees of their decision to pay a bonus.

The agreement or unilateral decision of the employer may have a duration of more than one year or for several financial years, but it will generally be planned for the duration of one financial year.

The PPV concerns employees bound to a company by an employment contract on the date of payment of the bonus, or on the date of filing of the agreement with the DDETS or of the signing of the unilateral decision implementing the bonus. The agreement or unilateral decision must specify the date of assessment of the presence of employees which is retained.

It is possible to reserve the payment of the PPV to employees whose remuneration is below a certain max-limit, which must then be set in the agreement or unilateral decision.

Company managers holding an employment contract benefit from the PPV under the same conditions as their employees with the same exemptions. However, when a bonus is paid to a manager who does not have an employment contract, this does not give rise to exemptions.

1. 3. Bonus amount

The decision which establishes the bonus provides for the amount which can be modulated according to a limited number of criteria (provided for by law) which are:

• Compensation;
• Classification level;
• Seniority in the company;
• Duration of effective presence during the past year;
• Working time stipulated in the contract in the case of part-time work.

Modulation can be established on the basis of a single criterion, or a combination of all or part of the authorized criteria.

Clarification: The criteria of remuneration, duration of effective presence and duration of work are assessed over the 12-rolling-months preceding payment of the bonus. The criteria of classification level and seniority are assessed at the time of payment of the bonus.

The bonus cannot replace an element of remuneration paid by the employer or which would become obligatory. It also cannot replace an increase in remuneration or a bonus provided for by a salary agreement, the employment contract or the practices in force in the company. If this rule is not respected, the bonus is then, not tax exempted.

1. 4. Exemption limit

The maximum amount of the bonus likely to be exempt of social security contributions is €3,000 per year and per employee.

As an exception, the exemption limit is set at €6,000 per year and per employee for the following companies:

• Companies which implement a value-sharing scheme on the bonus payment date;
• Companies not subject to the obligation to implement legal participation in results (mainly, companies with less than 50 employees) which voluntarily apply a value-sharing system on the date of payment of the bonus;
• Associations and foundations recognized as being of public utility or general interest;
• ESAT for their disabled workers under work support and assistance contracts.

The bonus is subject to income tax as well as the CSG/CRDS and the social package of 20% on the fraction exempt from contributions (only in companies with more than 250 employees).

In addition, since the adoption of the PPV improvement bill (November 22^nd,2023), it is possible to place the PPV on an employee savings plan or company retirement savings plan, and thus exempt it from income tax.

Note – reinforced exemption: Until December 31^st, 2023, in addition to the basic social exemption (mentioned above), the bonus is also exempt from income tax, CSG/CRDS (and therefore from the social package), when it is paid to employees who received remuneration less than 3 times the annual SMIC during the 12 months preceding payment of the bonus.

This reinforced exemption regime is applicable from 2024 to 2026 for companies with less than 50 employees.

1. 5. Payment of the PPV

The payment of the bonus can be done at once or paid monthly, up to once per quarter during the calendar year. The employer can therefore pay the bonus in 4 payments maximum. When the bonus is paid monthly, it is the same single bonus amount. Therefore, the criteria for awarding the bonus cannot be defined differently for each deadline.

Since the adoption of the PPV improvement bill (November 22^nd, 2023), employers can pay two PPV for the same calendar year, with always the possibility of splitting the payment of each bonus, in the limit of 4 fractions (one per quarter). When two bonuses are paid during the same calendar year, their cumulative amounts will be exempt up to the same overall limit of €3,000 or €6,000 per year depending on the case.

Employees hired after the reference attendance date defined by the agreement or unilateral decision are not eligible for bonus portions paid after their hiring.

The bonus must appear on the pay slip for the month(s) of payment, “if possible” on a specific line.

II – Retirement savings plan (PER)

1. 1. PER definition

This is a long-term savings scheme which allows to save during the working life to obtain, from retirement age, a capital or annuity paid over a fixed period of time by contract or until death.

The retirement savings plan has been made available since October 1^st, 2019, and is gradually replacing other retirement savings plans. The PER comes in 3 forms:

1. The individual PER succeeds the PERP (Popular Retirement Savings Plan) and the Madelin contract (retirement savings contract for self-employed workers), it is subscribed individually and funded by voluntary payments from the holder.
2. The collective company PER succeeds the PERCO, it is collective, optional and open to all employees.
3. The mandatory company PER succeeds the article 83 contract: Group life insurance contract taken out by a company for the benefit of certain of its employees.

It is possible to transfer savings from old plans already opened to a new PER.

1. 2. Subscription to the PER

• People who can subscribe: The individual PER is open to everyone. There is no condition linked to professional situation (job seekers, employees, self-employed workers) or age.
  The collective company PER can be offered by any company to its employees. The plan must be open to all employees. However, a seniority condition may be required (3 months maximum). Singing up is optional, but the regulations may provide for automatic membership to all employees.
  
  The mandatory company PER is only provided for a certain category of employees (executives for example). All employees in this category must subscribe to the plan.

• Set up: The individual PER may result in the opening of securities account with a company which is an approved service provider to carry out the investment advisory activity (credit institution, investment firm, financial investment advisor). It can also give rise to membership in a group insurance contract. This is an association subscribing to group life insurance contracts (insurance companies, mutual societies and provident institutions) or an additional professional capitalized retirement fund.
  
  The collective company PER and the obligatory company PER must be set up in a company. They can be created at the initiative of the company’s managers or by an agreement with employee representatives (or an agreement by the majority of employees for the mandatory PER).
  
  The company may choose to combine the optional collective savings plan and the compulsory collective savings plan into a single plan.

1. 3. Functioning

• Payments: In principle and unless you request otherwise, the management of sums paid into the PER is done according to the principle of payment management. This means that when retirement is distant, savings can be invested in riskier and more profitable assets. As retirement age approaches, savings are gradually shifted towards less risky invesments.

• Additional payments: The individual PER is funded by voluntary payments but it is possible to transfer a company PER to an individual PER, it is also possible to transfer:
  • Amounts from value-sharing, participation and employer contributions;
  • Amounts from a time savings account (CET) and allocated to the company PER;
  • Mandatory payments made to a mandatory company PER.

There is no limit for voluntary cash payments to the individual PER, but the amount for which one can benefit from a tax advantage is capped.

Payments on the collective company PER and the compulsory PER operate substantially according to the same rules but payments by the employer are added.

The collective company PER can be funded by additional payments from the company, called contributions. They cannot exceed 3 times the amount paid by the employee nor be greater than €7,039.

1. 4. The end of the contract

• Early release: The amounts paid into the PER are blocked until retirement, however it is possible to recover the capital savings early in the following cases:

• • Disability (of the insured, children, husband or wife or PACS partner);
  • Death of spouse or life partner;
  • Expiration of rights to unemployment benefits;
  • Over-indebtedness;
  • Cessation of self-employed activity following a judicial liquidation judgment;
  • Acquisition of the main residence.

• Holder’s death: The sums saved will be transferred to their heirs or beneficiaries:
  • If it is a scheme opened in the form of a securities account, the savings are integrated into the estate;
  • If it is a scheme which has given rise to membership in a group insurance contract, the sums saved must be repaid to the beneficiaries designated in the contract, according to the rules of life insurance.

• At the time of retirement: For individuals and collective company PER, when the employee has reached retirement age and has not previously opted for the life annuity, they can request that the savings accumulated in the PER be paid either in capital, or in an annuity, or partially in capital. The capital can be paid in several instalments.
  
  Concerning the compulsory company PER, the rights arising from compulsory payments are necessarily liquidated in the form of a life annuity. The rights arising from other payments (voluntary payments, participation, profit-sharing, CET days, etc.) can be liquidated as an annuity, in capital, partly in annuity and in capital.

1. 5. Taxation

• Individual PER: Amounts paid into an individual PER during a year are deductible from taxable income for that year, within the limit of an overall ceiling set for each member of the tax household. This ceiling is different depending on whether you are an employee or a self-employed person.
  
  The tax regime for annuity or capital is different depending on whether or not the person concerned has deducted the voluntary payments from their taxable income (reach out if you would like to know more about the various deduction limits).

• Collective company PER and mandatory company PER:
  • Taxation on payments: Voluntary and compulsory payments made into a company PER during a year are deductible from taxable income for that year. This deduction must not exceed an overall ceiling amount set for each member of the tax household.
    
    This ceiling is equal to the greater of the following 2 amounts:

• • • 10% of professional income net of social security contributions and professional expenses, with a maximum deduction of €35,194 (for 2022) or
    • €4,114 if this amount is higher.

• • Tax scheme for annuity or capital: Annuities or capital are taxed according to various flat rates or according to the income tax rate, in certain cases, exempt depending on the various payments that have been made:
    • Voluntary tax-deductible payments;
    • Voluntary payments not tax deducted;
    • Payments from company employee savings;
    • Mandatory payments.

Feel free to reach out to find out more about tax regime in regard to these schemes!