Are you one of the many American expats living in France with American stock options from a previous employer? If you are looking for US stock options for US expats, you are in the right place. Life in France is exciting, but can unfortunately lead to some tax and financial challenges. Below, we will demystify the world of employee stock options and the implications for US expats living in France. 

Your Ticket to Ride the Company Rocket: Employee Stock Options

There are two types of employee stock options, which give employees the right, but not the obligation, to buy a certain number of shares of company stock at a certain price before an expiration date.

• Non-Qualified Stock Options (NSOs): The most common stock options are NSOs, which a company can offer to employees, board members, and other business partners. The name “non-qualified” comes from the fact that it doesn’t qualify for the tax benefits of its ISO counterpart (see below). An important date is the day that you exercise the option and receive your stock, because the difference between your purchase price and the current value price is added to your taxable income of that year. In addition, you will need to pay capital gains tax the day you decide to sell the stock, just like any other stock sale.

• Incentive Stock Options (ISOs): ISOs act similar to NSOs, but there is no income tax on the day you exercise your option. However, the day you sell the stock, the capital gains tax will be calculated on the difference between your purchase price and the current value price. However, in the United-States and France, long-term capital gains tax tends to be lower than income tax. 

Decoding the Alphabet Soup: ESOPs, SPPs, RSUs, and SARs

Instead of stock options, employees can also simply get shares in the company, so they are not technically options to buy but rather just a direct purchase of company stock. 

• Direct ownership: SPPs and ESOPs are company incentive programs which directly offer company stock to employees. ESOPs have an added tax benefit because they can be placed in a 401(k) plan, and can provide some hidden tax strategies for US expats.
• Performance based: Much like ISO options discussed above, RSUs are granted on a time or ¨vesting¨ basis, but will directly provide stock, instead of an option to buy stock.
• Stock performance based: Another alternative for employers is to provide a Stock Appreciation Right (SAR) which provides a compensation linked to the performance of the stock price of the company.
  

Double Duty: Tax in the US and in France 

As an American living in France, complications can arise when trying to comply with your American and French tax duties. As you may already know, Americans are required to file taxes with the IRS every year, no matter where they live in the world. For stock options, tax implications will arise when you exercise the option – possible income declaration – and when you sell the stock – capital gains. Thankfully, the United-States and France have a very favorable tax treaty, but it’s still important to know what your obligations are.

When you exercise an option and receive the stock

• US: The fiscal implications will depend on the differences between ISOs and NSOs listed above: for NSOs, the difference between the purchase price and the current-value price of the stock is added to your income; for ISOs there will be no additional income to declare.
• France: Thanks to the US-France tax treaty, if you are a French resident at the time of exercising your stock options, there is no fiscal declaration in France. As we will see below, the declaration only comes into play when you finally sell the stock 

US Stock Options for US expats when living in France – When you sell the stock

• US: Even as a resident in France, you are required to declare the capital gains when you finally sell the shares, and pay the related tax to the IRS. 
• France: As a US expat living in France, the US-France tax treaty has created a very favorable environment when selling US stocks. In short, the capital gains tax you pay to the IRS will offset all French capital gains tax, leaving you with nothing to pay in France. It’s sometimes a bit hard to believe, but this is one of the big advantages of the treaty for US expats living in France.

It is important to consider that your French marginal tax rate on your French income if you have any can be increased when including your US income. 

Heads Up! – What to Keep an Eye On

• Stock diversity: One issue you can have after exercising your stock option is an unbalanced investment portfolio, as it’s overly invested in just one stock. 
• Exit tax: Certain Americans expats may be thinking about revoking their US citizenship if they plan to live overseas permanently, in order to be done with their US tax obligations. It’s a significant decision on the emotional front, but unfortunately, can also be costly. Besides the substantial processing fee, you may be subject to an exit tax which will include your stock options. 
• NUA: If you are planning for your estate, there is a little known tax strategy for stock options holders, where you can pass on your stocks while avoiding potentially costly capital gains. Contact a Harrison Brook advisor for more details.

Expert advice and Peace of Mind with Harrison Brook

Advice from a cross-border professional is vital to ensure that you are investing efficiently and complying with all the necessary American and French rules. At Harrison Brook, we have done the legwork to find the partners that comply with the complex web of regulations facing U.S.-connected individuals. We work hand in hand with a top-notch team of leading international estate, immigration and tax advisors in order to manage your finances properly. Harrison Brook is here to assist you with your cross-border financial needs, so don’t hesitate to book a meeting with us.