Checklist for ESOP compliance

What does ESOP compliance involve?

Regulations governing ESOPs differ between countries, and typically the rules of the jurisdiction where the issuing company is incorporated determine how share options are managed.

Besides defining your compliance obligations, this can materially influence your company’s tax responsibilities.

This checklist outlines the main points to bear in mind when granting equity incentives to an international team.

Six-step ESOP compliance checklist

Below are the essential compliance areas to consider when managing equity incentives for hires based overseas:

Tax treatment

It is vital to grasp the withholding and reporting obligations for tax in every country where your team members are located. Failure to file correctly in those jurisdictions may expose your business to penalties and fines.

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

Also review your employees’ individual tax positions. Certain jurisdictions — for example the UK — provide tax-advantaged employee schemes, whereas others do not. When choosing equity award types for each country, make sure you understand any tax-qualified programmes available and whether awards will result in adverse tax consequences for your staff.

Employment laws

Offering share options to employees abroad requires a solid understanding of those countries’ employment laws relating to equity.

For instance, some jurisdictions might bar particular performance metrics from forming part of an equity grant, while others forbid performance criteria entirely. In certain places firms may be permitted to substitute cash for shares; in others all employees may have to receive the same class of assets.

Complying with these rules is essential to avoid penalties.

Securities laws

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

Currency exchange

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

Reporting

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

Data protection

Because equity plans hold sensitive employee data, security is a major compliance issue. Your plan must meet all applicable local data-protection laws where your employees are based — for example GDPR in Europe — to prevent penalties and fines.

Sounds like a lot of work? Let Remote manage everything on your behalf

Delving into the details of ESOPs and equity incentives is challenging, and becomes far more complex when crossing borders.

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

With Remote Equity, we can:

• Assess eligibility and review your equity plan

• Provide 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.