Knowledge Hub
for Growth


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.

GDPR

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.

About our expert

Samantha Lenox

Samantha Lenox

Partner and Head of Employee Share Schemes
Samantha is a Partner and Head of Employee Share Schemes at Harper James. Having qualified as a solicitor in 2001, she has been advising entrepreneurial businesses on their employee and management ownership programmes for more than 20 years.  


What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no-obligation to instruct us. We aim to respond to all messages received within 24 hours.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.


Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Head Office

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Regional Spaces

Capital Tower Business Centre, 3rd Floor, Capital Tower, Greyfriars Road, Cardiff, CF10 3AG
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
1st Floor, Dearing House, 1 Young St, Sheffield, S1 4UP
White Building Studios, 1-4 Cumberland Place, Southampton, SO15 2NP
A national law firm

Like what you’re reading?

Get new articles delivered to your inbox

Join 8,153 entrepreneurs reading our latest news, guides and insights.

Subscribe


To access legal support from just £145 per hour arrange your no-obligation initial consultation to discuss your business requirements.

Make an enquiry