Checklist: ESOP compliance

What does ESOP compliance mean?

ESOP regulatory rules differ across jurisdictions. In most cases, the laws of the country where the issuing company is incorporated determine how share options are administered.

Beyond setting your compliance obligations, these rules can also have a material impact on the company’s tax responsibilities.

This checklist outlines the main considerations when you offer equity incentives to an international team.

Six-step ESOP compliance checklist

Below are the essential compliance elements to consider when managing equity incentives for international hires:

Tax treatment

Understanding tax withholding and reporting obligations in every country where your team is located is vital. Failure to file correctly in those jurisdictions can expose your business to penalties and fines.

For example, an employee may only be required to pay equity-related taxes in their home country, while your company could still be responsible for paying—or at a minimum withholding—taxes in one or both jurisdictions.

Also review employees’ individual tax circumstances. Some countries—such as the UK—offer tax-favoured schemes for employees, whereas others do not. When selecting different award types by jurisdiction, confirm which tax-qualified programmes apply and whether recipients may face adverse tax treatment.

Employment laws

Offering share options to staff abroad requires a clear understanding of each country’s employment laws as they relate to equity.

For instance, some jurisdictions may forbid using particular performance metrics in equity grants, while others prohibit performance-based criteria entirely. In certain places companies can substitute cash for stock; in others, regulators may insist that all employees receive the same asset types.

Complying with these rules is essential to avoid penalties.

Securities laws

Securities regulations vary by country, and issuing share options may require registration or exemption filings with local securities authorities.

Currency exchange

In certain jurisdictions, stringent foreign-exchange controls can apply when shares are bought, sold or transferred, which may affect how employees actually receive their stock benefits.

Reporting

Most jurisdictions require businesses to disclose ESOP information to local tax authorities, regulators and employees, including details about the plan’s financial risks and potential rewards.

Data protection

Because equity plans contain sensitive employee data, security is a significant compliance concern. Ensure your plan adheres to data-protection laws in the locations where your employees are based—such as GDPR in Europe—to avoid penalties or fines.

Sounds like a lot of work? Let Remote take care of everything for you

Navigating ESOPs and equity incentives is complex on its own—and becomes considerably more complicated when you cross borders.

Fortunately, you can still provide equity incentives to your global team—without the time-consuming, resource-intensive compliance headaches.

Via Remote Equity, we will:

• Assess your equity plan and determine eligibility

• Advise on and explain taxable events

• Ensure tax withholding and reporting are compliant

To find out how Remote can simplify offering equity incentives, speak to one of our friendly experts today.