Remuneration principles of managing directors in France
The income of a company’s managing director encompasses all the elements received by the person in charge of the company.
Income includes all direct remunerations (salary, attendance fees, incentives,...), indirect remunerations (housing, vehicles…), hidden remunerations (tax term for unidentified beneficiaries of income paid by the company subject to corporate income tax), dividends (benefits received in proportion to the ownership of the company), and capital remuneration (this corresponds to shares or capital within the company).
Different tax treatment
The tax treatment on this income is different depending on the legal forms and tax rules per the type of company, the responsibilities of the directors and the nature of the remunerations received.
Direct income (salaries) paid to directors of a public company and to the minority directors of a limited company fall under the salary category. In the case of remuneration of an individual as a majority director of a limited liability company (SARL or EURL) (read our article “becoming independent”), it will follow the same tax treatment as a salary based income. This means related social contributions and a 10% deduction for professional expenses, pursuant to the provisions of Article 62 of the General Tax Code (CGI).
Indirect remuneration, or those that are benefits in kind, will have the same tax treatment as direct remuneration, both in terms of social contributions and income tax, after they have been evaluated.
The taxation system on dividends on shares or capital, on income from bonds, etc. paid to directors is that of income from movable property. Since 2013, these dividends are subject to income tax on a progressive scale after a 40% allowance, less expenses incurred for the purchase and retention of the related securities. Additionally, the paying company will have to make a deduction at the source from the income tax as well as the social contributions on the basis of the gross amount of these dividends.
In the case of sales of shares or company capital, the tax treatment is that of capital gains on transferrable securities. Since 2013, these capital gains are taxed according to a progressive scale on income tax. A general reduction is applicable depending on the holding period prior to the sale of these securities. At the moment, special provisions exist mainly for cases of young SMEs, when they retire or in the case of a family holding. Just as in the other cases, the social contribution is calculated on the basis of the gross amount of capital gains on securities.