ESOP compliance checklist and essentials

What does ESOP compliance mean?

Rules applicable to ESOPs differ between jurisdictions. In most instances, the laws of the issuer’s country of incorporation determine how share options are treated.

Beyond defining compliance duties, this also has major implications for your company’s tax liabilities.

This checklist explains the main considerations when granting equity incentives to an international team.

Six-step ESOP compliance checklist

Below are the principal compliance areas to address when administering equity incentives for international hires:

Tax treatment

It is essential to establish the tax withholding and reporting obligations in every country where your staff are based. Failure to file correctly in those jurisdictions can expose your business to fines and penalties.

For example, an employee might owe equity-related taxes only in their home country, yet your company could still be liable to pay — or at minimum to withhold — taxes in both jurisdictions.

Review individual employees’ tax circumstances as well. Certain countries — for example the UK — provide tax-favoured schemes for employees; others do not. When evaluating award types by jurisdiction, confirm which tax-qualified programmes apply and whether any adverse tax consequences may affect your people.

Employment laws

To grant share options to staff abroad, you must understand each country’s employment rules as they relate to equity.

For instance, some jurisdictions forbid using specific performance metrics in equity grants, whereas others bar performance-based criteria entirely. In some places companies can substitute cash for shares; in others employees must receive identical asset types.

Complying with these rules is essential to avoid penalties.

Securities laws

Securities regimes differ across jurisdictions, and issuing share options may trigger registration or exemption filings with local regulators.

Currency exchange

In certain jurisdictions, strict foreign-exchange rules may govern the purchase, sale or transfer of shares, which could alter how employees receive stock benefits.

Reporting

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

Data protection

Because equity plans contain sensitive employee data, security is a major compliance consideration. Ensure your plan adheres to local data-protection laws where employees are based — for example GDPR in Europe — to avoid fines and penalties.

Feeling overwhelmed? Let Remote handle everything for you

Managing the complexities of ESOPs and equity incentives is challenging, and becomes far more complex once you operate across borders.

Fortunately, you can still grant equity incentives to your international team — without the heavy time and resource burden of compliance.

Using Remote Equity, we can:

• Review your equity-plan documentation and determine eligibility

• Advise you and provide guidance on taxable events

• Ensure tax withholding and reporting are compliant

To find out how Remote can help you offer equity incentives with ease, speak to one of our friendly experts today.