ESOP compliance checklist

What is ESOP compliance?

Regulatory requirements for ESOPs vary by country. And, in most cases, the laws of the country where the issuing company is incorporated govern how the stock options are handled.

As well as dictating your compliance requirements, this can also significantly affect your company’s tax obligations.

In this checklist, we’ll guide you through the primary things to consider when offering equity incentives to a global team.

6-step ESOP compliance checklist

Here are the key compliance components to navigate when handling equity incentives for international hires:

Tax treatment

It’s crucial to understand the tax withholding and reporting requirements for each country you have team members in. If you do not file correctly in those countries, it could lead to penalties and fines for your business.

For instance, your team member may only need to pay equity-related taxes in their country, but you may be responsible for paying (or at least withholding) in both countries.

Consider your employees’ tax situations, too. Some countries — such as the UK — offer tax-advantaged schemes for employees, but others don’t. When considering different types of equity awards for each country, be sure to understand the tax-qualified programs available and whether there will be any negative tax treatment for your people.

Employment laws

To offer stock options to your employees in other countries, you need to have a firm grasp of those countries’ labor laws in relation to equity.

For example, some countries may prohibit certain performance metrics from being considered as part of an equity grant, while others may not allow performance to be considered at all. Some countries may allow companies to substitute cash for stock, while others may require all employees to receive the same types of assets.

Understanding and complying with these laws is crucial for avoiding penalties.

Securities laws

Different countries have varying securities regulations, and offering stock options may require registration or exemption filings with local securities regulators.

Currency exchange

In some countries, strict foreign exchange regulations may apply when shares are bought, sold, or transferred, potentially affecting how your employees receive their stock benefits.

Reporting

Most countries require businesses to report ESOP details to local tax authorities, regulators, and employees, including disclosures about the plan’s financial risks and rewards.

Data protection

As any equity plan will contain sensitive employee information, security is another key compliance concern. Your plan must comply with all local data protection laws in your employees’ locations, such as GDPR in Europe, to avoid penalties and fines.