Product Updates — 7 min
If you’re building a benefits stack for your global team, then equity incentives are a great option. They foster genuine engagement and emotional investment across your workforce, making it easier to attract and retain top talent.
However, equity incentives also come with a whole lot of questions and concerns — most of which are related to the tax implications for your business.
In this article, we’ll go through some of these management challenges and explain how we can help you overcome them — and save you valuable time and resources in the process.
So let’s get straight to it.
Equity incentives are ideal for creating a culture of shared purpose and entrepreneurship in your team — especially if you’re a small business or startup. They’re also an excellent way to generate additional capital, either through the purchase of shares or the diversion of resources.
Underneath their shiny hood, though, is a complicated machine. Whether you’re setting up restricted stock units (RSUs), an employee stock ownership plan (ESOP), or any other form of equity incentive, here are some of the potential obstacles you need to consider.
Compliance is a massive part of equity management. There are a whole host of tax and securities laws to abide by, and failure to do so can result in all kinds of fines, penalties, and reputational damage for your organization.
To make things more complicated, these tax laws are different in each country. What might not be an issue in Germany, for instance, could be a major problem in Japan. There is no one-size-fits-all approach to managing your global tax obligations, and it can be daunting to even know where to start.
Don’t forget that these laws change, too — frequently, in some countries. For example, legislative changes in Portugal have significantly impacted the rules around equity taxation there for startups. If you had employees in Portugal, this might affect your tax obligations and expose you to potential jeopardy.
Without qualified, vigilant, country-specific tax experts, you run a huge compliance risk.
How Remote can help: Our global team of tax specialists know every relevant law and monitor every relevant change in each country we operate in. If you’re hiring in Malaysia, for example, one of our in-house experts in Kuala Lumpur will assist you — we won’t outsource your needs to a third party. If a taxable event is occurring, or you have a tax liability, we’ll explicitly and promptly inform you.
We’ll also let you know exactly which actions you need to take, from the name (and location) of the form you need to fill out, to the definitive decisions you’ll need to make. And if you’re unsure, we’ll do everything we can to help guide you.
One of the key tax obligations of equity incentives is the legal requirement to report and withhold your employees’ taxes. Without a local expert to guide you, this process can be full of potential pitfalls.
You can, of course, hire your own local tax consultants to help you submit the paperwork, but this is a costly and time-consuming process. And, given the consequences of failing to report and withhold your people’s taxes in most countries, you can end up in very hot water if you make a mistake.
How Remote can help: Unlike many EOR providers, we perform all the reporting and withholding of your tax liabilities arising from equity incentive taxable events. That’s right; you don’t need to do anything. This service is just another part of our all-in-one global HR service.
Not only does this save you a significant amount of time and resources, but it ensures that your compliance is watertight, too. In some countries, the law is quite clear about who is responsible for reporting and withholding, whereas in others there is a lot of ambiguity. By taking a consistent approach everywhere, we ensure that this important requirement is handled and completed correctly on time, every time.
Some countries offer specialized tax withholding systems for equity incentive schemes, which raises two potential issues.
First, you may not be aware of such regimes, or there may be a lack of clarity around the eligibility criteria. If a program is beneficial to your organization, you could be missing out on potential tax savings. Alternatively, if a particular situation requires you to take action, you could be running the risk of non-compliance.
Secondly, navigating such regimes can be complex and resource-intensive. Without intimate knowledge of how they work, you can easily make mistakes, or lose time and resources trying to understand and submit everything.
How Remote can help: Thanks to our deep local expertise, we can inform you of — and help you easily navigate — special tax withholding regimes in multiple countries.
For example, in the UK, employees can elect to pay their equity-related taxes earlier to reduce potentially larger bills in the future. This situation — known as a section 431 election — almost always triggers a taxable event. Remote ensures that you know about this, and provides the exact steps you need to take, depending on how you want to manage such a situation.
Unless you’re a major multinational, it’s unrealistic to have your own in-house tax and legal teams in every country you hire in. As a result, you’ll have to deal with multiple third-party vendors instead, all of whom offer different services, charge different rates, and provide varying levels of reliability.
Finding reputable providers — and managing your relationships with them — is a massively time-consuming process. And it’s not just your resources at stake: there needs to be a strong element of trust. This is difficult in any market, but even more so in foreign environments where you may not have the right level of local knowledge and experience.
How Remote can help: Remote has its own in-house, on-the-ground specialists in every single country we operate in. This means that, instead of navigating the chaos of dealing with multiple third parties, you only deal with your account manager at Remote — no matter how many countries you hire in.
This makes communication and management so much simpler, and ensures that you have a consistent, high-quality experience with your employees in every country.
As mentioned, there are several different types of equity incentive plans. It’s crucial to make sure that your employees are eligible for your chosen plan, wherever they are in the world.
Otherwise, you run the risk of creating iniquity in your global benefit offerings. This can be hugely demotivating for existing employees, and off-putting to potential hires.
How Remote can help: Once you’ve created a global equity incentive plan, we’ll quickly review it to check that your employees are eligible to receive the stock options. Specifically, we’ll look for:
Potential co-employment risk (which can carry significant legal consequences)
Any terminology in the plan agreement that might accidentally prohibit the employee from receiving their options
After that, we’ll work together to identify taxable events, and Remote will handle the rest!
When it comes to managing your global equity incentive plan, it’s important to understand the exact level of support you’ll be receiving from your global employment partner. Equity incentive taxes are complex, and you don’t want to be hung out to dry when a taxable event or liability occurs.
If you’re running (or planning to run) an equity incentive scheme for your global workforce, Remote provides a best-in-class support service. We have the know-how and — crucially — the experience to help you navigate your local tax obligations in every country where you hire, and avoid any nasty surprises.
To find out more, schedule a free consultation with one of our experts — and see how our equity incentive services can help you attract and retain the best talent in your industry.
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