Navigating the Complexities of a Global Equity Plan
In today’s competitive talent landscape, equity remains a powerful tool for attracting and retaining employees around the world. But what many business leaders and VC investors don’t realize is that expanding an existing equity plan internationally can create many additional layers of complexity.
Understanding these complexities and having the tools to navigate them has the potential to save companies valuable time and resources, and ensure they are thoughtfully expanding their equity plan to meet their needs and those of their global employees.
A Different Set of Rules for Each Jurisdiction
From country to country there can be significant differences in the rules and compliance requirements for granting employee equity. Each rule creates its own set of considerations and potential added costs that companies will want to weigh before deciding to grant equity in that jurisdiction.
“The first step in providing equity to employees abroad is determining the legal requirements of each jurisdiction and what compliance looks like depending on your company’s profile — i.e., where you’re headquartered, how many participants are being offered equity, and the policies and practices unique to your company,” says Michael Cliff, Global Solutions Director for Morgan Stanley at Work’s Global Intelligence Team.
“Starting with an initial cost-benefit analysis can help you determine whether the additional regulatory filing costs, reporting requirements, and tax obligations outweigh the perceived benefit of adding employees in a specific country,” added Glory Kabila, AVP Global Intelligence and Tax and Regulatory at Morgan Stanley at Work.
At the same time, some countries may offer favorable tax treatments on specific equity plans or types of equity. For instance, in Canada – the 50% Stock Option Deduction is a tax favorable regime that allows for a 50% deduction of the benefit realized upon exercising an option, should certain requirements be met. On the other hand, the taxation of Stock Options issued by a Canadian-controlled Private Corporation (CCPC) is deferred until sale, and a separate 50% deduction of the deferred benefit at exercise is available. As such, CCPC options are able to qualify for a deduction either through the 50% Stock Option Deductions, or if those conditions are not met, through the avenue available for qualifying CCPC-options. In general, having a solid understanding of the tax obligations to the company and your employees is critical to the success of your equity plan. “No one likes tax surprises,” says Glory. “Understanding what taxes are due and when can help you communicate more proactively with employees and improve plan engagement.”
The Benefits of Up-to-Date Information on Local Tax Laws and Compliance Rules
The dynamic nature of tax and regulatory environments mandates that companies stay up to date with local laws and compliance requirements. Tax laws can change frequently, and failure to comply with the latest regulations can result in costly penalties and reputational damage. Furthermore, compliance with each jurisdiction’s rules isn’t just the job of your tax advisors and equity administrator; it requires tight collaboration between HR, Finance, Legal, and Payroll teams.
Having access to current and accurate information about local tax laws and compliance rules can be invaluable for managing a global equity plan successfully. It enables companies to adapt their equity program to changing regulations proactively, managing compliance requirements and mitigating potential risks. Timely awareness of tax law amendments can help organizations anticipate the impact on their global equity offerings and adjust plans accordingly, minimizing tax liabilities for the company and its employees. And, of course, regular training communication with employees can also facilitate a clearer understanding of tax obligations and promote compliance at an individual level.
Staying Ahead in the Global War for Talent
As companies consider expanding their workforces internationally, adopting a strategic and compliant approach to global equity plan management can position them to attract and retain talent, enhance employee engagement, and achieve their organizational goals while adhering to international tax and regulatory requirements.
To learn more about the nuances of global equity plan management, watch a replay of a recent Morgan Stanley at Work Global Intelligence webinar on “Offering and Managing Equity Globally.”
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