Checklist for ESOP compliance

What does ESOP compliance involve?

Regulatory requirements for ESOPs differ by country. In most instances, the laws of the jurisdiction where the issuing company is incorporated govern how share options are dealt with.

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

This checklist walks you through the main considerations when offering equity incentives to an international team.

Six-step ESOP compliance checklist

Below are the principal compliance areas to consider when managing equity incentives for hires abroad:

Tax treatment

It is essential to understand the tax withholding and reporting obligations in each country where your team members are based. Failure to file correctly in those jurisdictions may result in penalties and fines for your business.

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

Take your employees’ individual tax circumstances into account as well. Some countries — for example the UK — provide tax-advantaged schemes for employees, while others do not. When evaluating different equity award types for each jurisdiction, ensure you understand the tax-qualified programmes available and whether any adverse tax treatment might apply to your people.

Employment laws

If you plan to grant share options to employees overseas, you must have a solid understanding of those countries’ employment laws as they relate to equity.

For instance, certain jurisdictions may bar particular performance metrics from being used in equity grants, whereas others may disallow performance conditions entirely. Some countries permit companies to substitute cash for shares; others may insist that all employees receive the same form of asset.

Complying with and understanding these rules is essential to avoid penalties.

Securities laws

Securities rules vary between countries, and offering share options may necessitate registration or exemption filings with local securities regulators.

Currency exchange

In certain jurisdictions, tight foreign exchange rules can apply to the purchase, sale or transfer of shares, which may affect how employees actually receive their stock benefits.

Reporting

In most countries, businesses must report ESOP details to local tax authorities, regulators and employees, including disclosures on the plan’s financial risks and potential rewards.

Data protection

Because equity plans contain sensitive employee data, security is a central compliance concern. Your plan must meet the data protection laws that apply where your employees are located—such as GDPR in Europe—to avoid penalties and fines.

Sound like a lot of work? Let Remote handle everything for you

Dealing with the intricacies of ESOPs and equity incentives is challenging on its own—and becomes far more complex when you cross borders.

Fortunately, you can still provide equity incentives to your international team—without the time-consuming and resource-heavy compliance burdens.

Using Remote Equity, we are able to:

• Examine your equity plan and determine eligibility

• Give advice and guidance on 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.