Yes, a company may grant stock awards to employees and independent contractors who reside outside of the United States that are similar to the stock awards that it grants to its U.S.-resident employees and independent contractors. When offering stock awards to employees and independent contractors residing outside of the United States, the company must consider the cultural and legal climate of each country in which the stock awards will be offered. Specifically, the company must consider the tax, regulatory, and employment compliance requirements of each country when “going global” with its stock awards. The company should consider the requirements listed below.
Income Tax and Social Insurance. The taxation of stock awards is always a concern for issuing companies, local subsidiaries, and employees. In several countries, the standard income tax and social insurance charges can be so high that the stock awards do not provide a real incentive or retention tool for the employees. In many countries, companies may set up tax-advantaged alternatives that allow the company and its employees preferential tax treatment (such as reduced or deferred tax obligations).
Tax Withholding and Reporting. Tax withholding and reporting is one of the most complicated and regulated areas for stock awards. The withholding and reporting requirements vary greatly by country. In addition, the type of award offered and the company’s local corporate structure impacts the company’s obligations. Because the collection of tax generates revenue for the country, the withholding and reporting processes are often audited by the local tax authorities.
Local Tax Deductions. The availability of a tax deduction for the local subsidiary is important when determining how to implement the stock awards. If structured appropriately, the local subsidiary should be able to deduct the costs of the stock awards from its local tax obligations and reimburse the parent for the expenses.
Securities Compliance. Stock awards may be subject to securities registration and disclosure requirements in the countries where the offers are made. These requirements may include registering the stock awards, drafting prospectuses, publishing offer information, and/or compliance with filing requirements. In many countries, exemptions or exclusions from these requirements are available if the offer is structured properly.
Currency Exchange Controls. Companies must address the intricacies of currency exchange restrictions that affect the conversion and transfer of funds across borders between the parent, local subsidiary, and employees. Compliance with currency exchange restrictions will likely require obtaining exemptions or approvals from the regulatory authorities.
Data Privacy. Data privacy is an important and often confusing area of the law. Because employee information is always collected, stored, and transferred in the administration of the equity award programs, the local data privacy laws must be addressed. Companies must structure the administration of these programs so that they comply with the local data privacy laws and, where necessary, must obtain the appropriate approvals from the local data privacy authorities.
Employment Issues. Employment issues are becoming more problematic for companies that offer stock awards. Employment issues include acquired rights to plan benefits, works council co-determination rights, and discrimination. These issues, if not addressed properly, can result in fines or judgments against both the parent and the local subsidiary.