Providing incentives beyond salaries, cross-border equity compensation refers to stock options, restricted stock units (RSUs), or other equity-based incentives companies offer to employees working outside their home country.
As businesses expand globally, these tools have become critical for attracting talent and aligning employee interests with organizational success. Equity awards now are a pivotal tool for competitive total rewards strategies, particularly in tech, finance, and startups, where talent competition spans borders.
The rise of remote work and global talent pools has accelerated adoption—16% of companies operate entirely remotely, with cross-border teams becoming a standard. Employers increasingly leverage equity to retain key personnel across regions, but this approach introduces multilayered challenges. Tax regimes, securities laws, and employment regulations vary dramatically: some countries tax equity at grant, others at vesting or sale, while a few treat awards as taxable benefits immediately.
Navigating these complexities requires careful planning to avoid double taxation, noncompliance penalties, or unintended labor disputes. For example, Germany recently eliminated its “one-fifth rule” for equity taxation, while China extended preferential tax rates for public company awards. Companies must also address currency controls, local reporting mandates like India’s FEMA guidelines, and data privacy laws such as GDPR when administering plans.
Structuring cross-border equity demands expertise in harmonizing home-country incentives with host-country legal frameworks. Without proper alignment, organizations risk financial liabilities, administrative bottlenecks, and employee dissatisfaction.
Common types of equity compensation
Equity compensation comes in various forms, each with distinct structures and strategic advantages for global workforces. Below are key instruments employers use to incentivize employees across borders, along with their applications in international contexts:
- Stock options (ISO and NSO). Incentive Stock Options (ISOs) offer tax benefits in the U.S. but rarely apply globally due to country-specific eligibility rules. Non-Qualified Stock Options (NSOs) are more flexible for cross-border teams, though taxation timing (at exercise or sale) varies by jurisdiction.
- Restricted stock units (RSUs). These grant shares upon vesting and are popular for their simplicity. Many countries tax RSUs at vesting (e.g., Canada, Australia), but others, like France, tax earlier and require careful plan design to avoid double taxation.
- Employee stock purchase plans (ESPPs). ESPPs let employees buy company stock at a discount. While common in the U.S., they face hurdles in regions with strict securities laws (e.g., Brazil) or currency controls, often requiring localized enrollment limits.
- Performance share units (PSUs). PSUs award shares based on hitting metrics like revenue or stock price targets. Multinationals may adjust performance criteria to reflect regional goals, but must align with local labor laws to avoid disputes over subjective benchmarks.
Each type requires tailoring to balance employee appeal with host-country regulations, from tax reporting to disclosure rules.
Legal considerations for cross-border equity compensation
Designing equity compensation for global teams requires navigating a mosaic of legal frameworks. From securities filings to localized documentation, employers must anticipate fundamental challenges to ensure compliance and mitigate risk.
Securities law compliance
Many countries mandate filings or exemptions before offering equity. For example, Japan requires Forms 6, 7, and 10 for stock awards, while Brazil restricts ESPPs without Central Bank approvals. The EU’s Prospectus Regulation often requires exemptions for private companies, and Australia’s ASIC class orders simplify registration for foreign issuers.
Failure to comply can trigger fines or program suspensions. For instance, Italy’s CONSOB imposes penalties for unregistered equity negotiations. Public companies face additional hurdles, such as China’s securities disclosures for employee stock plans.
Employment law implications
In some jurisdictions, equity may be classified as statutory compensation, impacting severance calculations and termination disputes. Finland’s Equality Ombudsman now requires equity grants to follow transparent, objective criteria under equal pay laws.
In Germany, unvested equity could factor into wrongful termination damages, while France treats RSUs as salary for social security contributions. Employers must also review notice periods: Brazil’s labor courts recently ruled stock options exempt from standard remuneration rules, but this varies by country.
Data privacy regulations
Administering equity involves cross-border data transfers, requiring GDPR compliance or equivalent frameworks. Consent mechanisms must be explicit – Belgium and Austria demand separate opt-in forms for data sharing with U.S. brokers, beyond standard award agreements.
France’s CNIL fines companies that fail to anonymize employee data in ESPP enrollment. Post-Brexit, the U.K.’s GDPR requires distinct data processing agreements for transfers outside the EU.
Challenges in administering global equity plans
Administering equity compensation across borders involves balancing ambition with practicality. Multinational organizations often encounter these universal hurdles when scaling programs internationally:
- Navigating local rules across multiple jurisdictions. Divergent tax treatments, securities regulations, and labor laws create a patchwork of compliance requirements. Aligning equity plans with these variations demands meticulous adaptation to avoid penalties or operational disruptions.
- Currency conversion and share pricing transparency. Exchange rate volatility complicates equity valuations and payout calculations. Employees in markets with restrictive currency policies may face barriers when converting or transferring shares, leading to perceived inequities.
- Compliance tracking and ongoing legal monitoring. Regulatory changes occur frequently, requiring continuous updates to plan structures and reporting processes. Delays in adapting to new rules risk fines, legal disputes, or invalidated grants.
- Difficulty ensuring fairness and consistency across geographies. Disparities in tax rates, cost of living, and cultural expectations can distort the perceived value of equity awards. Employers must reconcile these differences while maintaining a cohesive global compensation strategy.
Global mobility among employees adds complications for organizations. “If employees with equity-based compensation relocate during the life of the award, your company and those employees could face complicated tax issues,” warn Allan Rooney and Carl Berry, international tax attorneys at Rooney Law. “Failing to address those issues could generate compliance violations, damage reputation, spark legal penalties, and create ongoing audit nightmares,” they add.
These challenges underscore the importance of flexible systems and proactive governance to preserve equity as a unifying motivator for distributed teams.
Best practices for structuring compliant cross-border equity plans
Designing equity compensation for global teams demands a proactive approach to balance compliance, competitiveness, and employee engagement. Here are proven strategies to mitigate risks while maximizing the motivational impact of equity awards.
Conduct country-by-country legal reviews
Engage local counsel to verify whether equity can be legally granted and identify registration, tax, or labor law requirements. For example, some jurisdictions prohibit stock grants for private companies, while others mandate prospectus filings for ESPPs.
Legal reviews should also assess data privacy obligations (e.g., GDPR-compliant consent forms) and employment contract implications, such as whether equity counts toward severance calculations. Early alignment prevents costly retroactive adjustments.
Partner with a global equity administration provider
Third-party platforms streamline compliance through automated tax withholding, real-time regulatory updates, and localized reporting. Some platforms offer multilingual portals for employees to manage grants, exercise options, and access tax documents, while others enable customization of vesting schedules and country-specific plan parameters. These tools reduce administrative burdens and ensure consistency across jurisdictions.
Customize plan design by location
Tailor equity types and grant sizes to align with local tax efficiency. For instance, RSUs may be preferable in countries that tax awards as income at vesting, while stock options could optimize returns in regions where profits from share sales are taxed at lower rates than ordinary income.
Adjust metrics for performance share units (PSUs) to reflect regional business goals, and consider currency-stable pricing mechanisms for volatile markets. Flexibility ensures equity remains a meaningful incentive without triggering unexpected liabilities.
Align equity strategy with talent objectives
According to Michelle Gouldsberry, Manager at Betterworks, “Your compensation system should include incentives that directly encourage and reward the behaviors and performance outcomes that are most valued by the organization. This might include specific rewards for innovation, customer service excellence, efficiency improvements, or other behaviors that support and improve organizational culture.”
When structuring cross-border equity plans, match grant structures to local talent dynamics. In high-demand markets, larger equity allocations may offset salary disparities, while regions with cash-focused cultures might require education on long-term equity value.
Educate global employees on equity value and tax responsibilities
Provide localized training sessions, tax guides, and access to financial advisors to clarify vesting timelines, tax triggers, and reporting obligations. Platforms with multilingual support and real-time dashboards empower employees to model scenarios and avoid surprises. Transparent communication fosters trust and manages compliance risks from inadvertent errors.
When to use an employer of record (EOR) for equity compensation
Employers often face roadblocks when granting equity to employees in countries where they lack a legal entity or local expertise. An EOR partner can bridge this gap by acting as the legal employer, ensuring compliance while preserving the strategic value of equity incentives.
Direct equity grants may be legally impossible in regions where the company has no registered business. For example, some countries prohibit foreign employers from offering stock options without a domestic subsidiary. An EOR solves this by serving as the official employer, leveraging its existing entity to structure compliant equity agreements.
Tax withholding for equity income (e.g., RSU vesting) often requires local payroll infrastructure. An EOR handles deductions at source, files mandatory reports, and remits taxes to authorities, ensuring adherence to deadlines. They also navigate restrictions on cross-border share transfers (critical in markets with currency controls) by facilitating cash-settled awards or localized stock equivalent programs.
EORs further simplify compliance by integrating equity plans with employment contracts. For instance, they ensure grant terms align with statutory notice periods or severance rules, reducing litigation risks. By centralizing administration, companies maintain global consistency in equity strategy while deferring jurisdictional complexities to the EOR.
How Velocity Global can help
In addition to providing leading EOR services for international companies, Velocity Global’s Global Equity Program mitigates cross-border risks by handling in-country legal reviews, tax coordination, equity plan registration, payroll processing, and compliance reporting. Noncompliant equity plans risk financial penalties, talent attrition, and reputational damage, underscoring the need for integrated legal, tax, and administrative expertise. Contact Velocity Global to learn more.
