Learn about equity from our international experts
We are passionate advocates of employee share plans; they can transform businesses, and enhance employment. As part of our mission to promote employee equity globally, our Knowledge Centre features our experts’ views on a range of subjects in the compliance sector.
Share plans reporting, our 5-minute guide
For companies operating international share plans, tax information reporting for equity is often a requirement, usually through the local company and/or the employee. The obligation is to report benefits to the relevant tax authority, such as the IRS in the USA and HMRC in UK.
This area of government reporting and corporate responsibility is continuously growing and there are many types of tax information returns like Form W-2, 1099 in the USA required to verify the accuracy of tax returns filed by individual taxpayers.
The reporting is often required on a specific date which can be weekly, biweekly, monthly, quarterly or annually and it can be reported by the local company or the employee.
Our 5 top tips on reporting:
1 Make sure the information goes from the parent company to the local company
The parent company must give all the information to the local company so that the local company can understand whether or not reporting is required. This information should include the tax point (usually grant or sale), the amounts that will be sent to the local company or the participant and whether or not the local company will be recharging the costs back to the parent company.
2 Each party must understand their responsibilities
The Parent company must give accurate information to the local company and/or to the employee. Similarly, the local company must check that the parent company sends that information to the employee and finally the local company must make sure that when they receive the benefit it has been correctly paid and reported.
3 The dates are key
Reporting can be weekly, monthly, quarterly etc and those dates have to be very clear for the parent company and the local company. Dates will be linked to grant, exercise or sale. The local company may need to also have key annual reporting dates and these should be an important part of your calendar/schedule.
4 Find and gather the relevant forms
Forms can be for either or both the local company and the employee. Most can be filed electronically, but some need to be done manually.
5 Plan your reporting globally
Countries can differ so never assume one country will be the same as another. Make sure you have a calendar of reporting dates, the forms to hand and a global strategy that covers all your countries.
The ShareReporter database is a useful tool that helps you see how to plan your reporting, and communicate the issues to the local company and the employees. If you discover that you have not reported correctly you should immediately work with the authorities because many countries will have a forgiving attitude, so don’t put your head in the sand!
Mike Pewton, Sharerporter CEO
How to do employee share plans compliance
Equity compliance for global employees is usually considered to be complex and expensive. Here, we give some useful tips as to how to get your approach right, and your costs low.
1) Believe you can do it!
Too many companies assume it is too difficult, and do not extend their equity to their international employees. Often, they offer cash as an alternative. This is such a shame – your overseas-based teams are just as motivated by an employee share plan as your ‘home country’ employees. Remember that thousands of companies around the world – big and small – manage to successfully operate their plans internationally.
2) Learn from other professionals
There are some excellent professional bodies for equity professionals, including the Global Equity Organization (https://www.globalequity.org/geo/index.php), and the National Association of Stock Plan Professionals (https://www.naspp.com). Many countries have national organisations promoting employee share ownership, such as ProShare in the UK (https://www.proshare.org). Joining these organisations is an excellent way of learning from others and seeking advice. Some of them have messageboards where information is exchanged, and this is a great way to share experience.
3) Get your plan design right
Good plan design is crucial, whether your plan is in one jurisdiction or multiple countries. When you are launching a plan internationally, take advice on the compliance consequences. Small adjustments to the plan before the launch can often make your life much easier.
4) Legal and tax issues are equally important
A share plan always has both regulatory and tax issues. You might have to make filings with national authorities, and there are sometimes annual tax declarations – both for the company and the participant. Plus, you need to be on top of the tax consequences of the different phases of your plan – for the parent company, the local company and, not least, the participants themselves.
5) Use professional advice carefully
Costs can quickly run out of control if you engage specialist advice in every country. By identifying key issues at the outset, you can control your budget and avoid paying top dollar for routine work.
6) Look at the technology options
A few specialists (like ShareReporter!) have set up databases of international regulatory and tax information. These can help reduce costs significantly, and give you a practical, commercial view of the issues. They are usually regularly updated, and available on a subscription basis, meaning the ongoing compliance can be budgeted.
7) Don’t forget employee communications
Companies tend to focus on employee communications to encourage take-up of the share plan, but then neglect to keep the participants up to date about the plan during its lifespan. Employees need to understand the tax (and sometimes regulatory) issues of the plans, and giving them tax guides for their country is recommended.
8) Some countries might be ‘impossible’ – it’s best to accept this reality
There are some countries where running your plan may just prove so difficult that it best to take a pragmatic view and accept that you will have to exclude them from the standard plan. Giving a cash alternative is a perfectly acceptable way to go.
9) Employee numbers make a difference
It is often assumed that it not worth operating a share plan in a country where you only have a handful of employees. In reality, the opposite can be true and your compliance risk rises with employee numbers. This is especially the case with security law filings.
10) Work with your administrator
The administrator of your share plan is a key ally, and should be able to offer some practical tips as to how other companies deal with international issues.
Mike Pewton, ShareReporter CEO