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Incentivising overseas employees: What do you need to know about cross border share schemes?

Doing business overseas is part and parcel of a globalised marketplace, and it’s not something you can afford to ignore: but working across borders also presents its own special set of challenges.

Creating an overseas client base is just the beginning…entrenching and growing resilient, long term business relationships gets progressively harder unless you establish a physical presence in the relevant market. And a tried and tested way of doing that is to send the right employee to the right location (either on a full time or temporary basis). But once they do relocate, what happens to their rights under your Employee Share Option Scheme (ESOS)?

Our employee share schemes team review the issues and challenges and explain why it pays to plan ahead.

Tax residence and the location in which you carry out your duties

Once living and working full-time abroad your employee will likely become non-resident for UK tax purposes which means that your employer tax withholding and tax reporting obligations will need to be reviewed for this change in circumstances. As a general rule, the employee will become subject to the tax system and other laws of the new country.

However issues of tax residence are heavily fact dependent, so hard cases can (and do) arise: for example, where the employee works alternative weeks in the home and host territories and therefore it is critical to take advice in advance.

Benefits before and after relocation

For participants in current share plans, these are some of the relevant considerations for the ESOS:

  • the rules of the plan will need to be checked to see what the plan says about employees moving abroad or becoming leavers if the employee will no longer be employed by the company or a group company (e.g. they will be employed by an employer of record). For example, can the employee exercise a tax-advantaged share option before they leave to preserve any UK tax benefits or would this be a new exercise right which might have additional implications;
  • where employees are not obliged to pay UK tax as they are non-resident and have no UK duties, they will not benefit from tax-advantaged share plans in relation to the benefits attributable to their non-UK work;
  • what are the implications of receiving equity or shares in the new territory and are there any red flags from a legal or tax perspective which can be a particular issue given the  variety of arrangements for engaging workforce; and
  • as a general rule for employees, the benefit relating to a share option or award will need to be time-apportioned over the period the benefit is earned and the country where the benefit is earned will have primary tax rights in relation to their portion of the benefit.
  • where national insurance contributions (NIC) are payable in relation to share awards, the NIC implications can differ from the income tax implications.

How it works in practice

Suppose, your UK employee holding a tax-advantaged enterprise management incentive (EMI) option is going to relocate to the USA and become a US taxpayer.

They will become subject to US taxes when they enter the US tax net which will reduce the tax efficiency of the EMI option. In addition, the EMI option may be treated as a discounted option for US tax purposes which can have adverse tax consequences under US tax rules.

The company will need to take advice to determine whether the employee can exercise the share option before leaving the UK in order to preserve EMI tax benefits.

The company will also need to consider how to incentivise the individual in the US and what the relevant tax and legal considerations are.


And a word of warning too: even after Brexit(1st February 2020), GDPR Regulations continue to apply to EU personal data processed by UK organisations, so local data sent to the UK by your employee and received by the employee while working abroad is still subject to GDPR restrictions.

Getting it right

You never want to find out, down the line, that UK tax benefits have been lost or unexpected liabilities incurred overseas, and that’s where careful forward planning becomes an essential part of any cross-border strategy.

Our skilled team of employee share scheme solicitors can help you manage these challenges and make the most of emerging opportunities. Contact us on 0800 689 1700 or fill out the short enquiry form below and a member of our team will be in contact.

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