Checklist: ESOP compliance

What does ESOP compliance mean?

Regulatory obligations for ESOPs differ across jurisdictions. Please note that, in most cases, the law of the country where the issuing company is incorporated determines how share options are administered.

Beyond defining compliance obligations, this can materially influence your company’s tax liabilities.

This checklist outlines the principal considerations when offering equity incentives to an international team.

6-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 understand each country’s tax withholding and reporting obligations for your team members. Failure to file accurately in those jurisdictions may expose your business to penalties and fines.

For example, while an individual employee may only owe equity-related taxes in their country of residence, your company might still be obliged to pay — or at minimum withhold — taxes in both jurisdictions.

Also take into account your employees’ individual tax circumstances. Certain jurisdictions — for example, the UK — provide tax-advantaged employee schemes, whereas others do not. When assessing the various forms of equity awards per country, ensure you understand any tax-qualified programmes available and whether employees may face adverse tax treatment.

Employment laws

To grant share options to employees abroad, you must have a clear understanding of each country’s employment laws as they relate to equity.

For instance, some jurisdictions may forbid the use of particular performance metrics in equity grants, while others may disallow performance-based criteria entirely. Certain countries permit substitution of cash for shares; others may mandate that all employees receive identical asset types.

Understanding and complying with these legal requirements is essential to avoid penalties.

Securities laws

Securities regulation differs between countries, and offering share options may necessitate registration or reliance on exemptions with local securities authorities.

Currency exchange

In certain jurisdictions, stringent foreign exchange controls can affect the purchase, sale or transfer of shares, which in turn may impact how employees receive stock benefits.

Reporting

Most jurisdictions oblige businesses to report ESOP information to local tax authorities, regulators and employees, including disclosures regarding the plan’s financial risks and potential rewards.

Does that sound like a lot of work? Allow Remote to manage everything for you

Navigating the details of ESOPs and equity incentives is challenging, and the complexity increases considerably when operating across borders.

Fortunately, you can still provide equity incentives to your global team without incurring the extensive time and resource demands of cross-border compliance.

Through Remote Equity, we can:

• Review your equity plan and determine eligibility

• Provide advice and guidance regarding taxable events

• Ensure tax withholding and reporting are compliant

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