Checklist for ESOP compliance

What does ESOP compliance mean?

Regulatory requirements for ESOPs differ between countries. In most instances, the law of the jurisdiction where the issuing company is incorporated determines how share options are treated.

Beyond setting compliance obligations, this can also have a major impact on your company’s tax liabilities.

This checklist will take you through the main considerations when granting equity incentives to an international team.

Six-step ESOP compliance checklist

The following are the principal compliance areas to address when administering equity incentives for hires based overseas:

Tax treatment

It is essential to be clear on the tax withholding and reporting obligations in every country where your team members are located. Incorrect filings in those jurisdictions can result in penalties and fines for your business.

For example, an individual may only owe equity-related taxes in their own country, while your company might still be required to pay, or at least withhold, tax in one or more jurisdictions.

Take account of your employees’ personal tax circumstances. Some jurisdictions — for example the UK — have tax-advantaged employee programmes, whereas others do not. When evaluating award types by country, make sure you know which tax-qualified schemes apply and whether employees may face adverse tax consequences.

Employment laws

To grant share options to employees abroad, you must understand those countries’ employment laws as they relate to equity.

For instance, in some jurisdictions certain performance criteria may be excluded from equity awards, while in others performance cannot be factored in whatsoever. Some countries permit companies to substitute cash for shares; others insist that all employees receive the same form of asset.

Complying with these rules is vital to avoid sanctions.

Securities laws

Securities regulations differ by country, and issuing share options may necessitate registration or filing for an exemption with local securities authorities.

Currency exchange

In certain jurisdictions, stringent foreign exchange controls can apply to the purchase, sale or transfer of shares, which may affect the way employees receive their equity benefits.

Reporting

Many countries require businesses to disclose ESOP details to tax authorities, regulators and employees, including statements about the plan’s financial risks and potential rewards.

Data protection

Because equity plans contain sensitive employee data, information security is a central compliance issue. Your plan must meet data protection requirements in each location where you have employees — for example GDPR in Europe — to avoid penalties.

Overwhelmed? Let Remote manage the whole process for you

Navigating the complexities of ESOPs and equity incentives is challenging, and the difficulty increases considerably when you operate across borders.

Fortunately, you can continue to provide equity incentives to an international workforce — without the time-consuming and resource-heavy compliance burden.

Via Remote Equity, we can:

• Review your equity scheme and determine eligibility

• Provide advice on taxable events and guide you through them

• 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.