International Equity Grants

International equity grants are equity awards granted to employees and contractors located outside the United States. They involve significant complexity from country-by-country differences in tax treatment, securities laws, employment laws, currency, and reporting, typically requiring per-country analysis and often country-specific sub-plans or alternative structures such as phantom equity. It's the area where US-default thinking creates expensive surprises.

The complexity dimensions:

Tax treatment (varies by country):

• UK: tax-favored EMI options or unapproved schemes; complex calculation.
• Canada: similar to US but with country-specific rules.
• Germany: equity grants taxed at grant or vesting in some cases.
• France: complex tax-favored "qualified" plans available.
• India: significant tax at exercise; ESOP rules.

Securities laws (registration vs. exemption):

• US Rule 701 doesn't apply outside US.
• Each country has own securities registration or exemption.
• Some countries (UK, Canada) have employee equity exemptions.
• Others require registration or prospectus.

Employment law:

• Some countries treat equity as employment compensation subject to severance calculation, holiday pay, etc.
• France notably treats equity as "regular pay" with implications.
• UK rules around constructive dismissal and equity rights.

Currency:

• USD-denominated grants in non-USD countries.
• Currency fluctuation between grant and exercise/vesting.
• Tax calculation on conversion.

Reporting requirements:

• US foreign filing requirements (FBAR, Form 5471 for entities).
• Local country reporting on equity grants to residents.

Common structures:

Direct grant under US plan: simplest but often suboptimal. Treats foreign grantees same as US employees under US plan terms.

Country sub-plans: country-specific addenda to US plan with country-specific terms (tax-favored treatment, etc.).

Alternative equity (where direct grants problematic):

• Phantom equity: cash bonus tied to equity value.
• Stock Appreciation Rights (SARs): cash settled.
• Profit interests (LLC-specific).

EOR/PEO arrangements: Employer of Record (Deel, Remote.com, etc.) employs the person; company contracts with EOR. Equity grants still require structuring.

Common pitfalls:

Default US treatment: granting same terms as US employees in countries where it's suboptimal or invalid.

Tax surprises: foreign employees discovering at exercise/vesting that tax treatment is different and worse than expected.

Securities violations: granting without country-specific exemption or registration.

Employment law exposure: equity grants creating unexpected employment obligations.

Currency mismatch: USD-denominated grants in highly inflationary currencies.

When to engage international equity advisors:

First international hire: get advice before granting equity to anyone outside US.

Multiple country expansion: country-specific plans typically warrant outside counsel.

Major exit event: international tax planning for liquidity events.

What founders get wrong: Granting US-default equity to foreign employees without country-specific analysis, then facing tax, securities, and employment law issues. The right discipline: per-country analysis; country-specific structuring; alternative compensation where appropriate.

Related: Stock Option · RSUs · Employee Equity · Equity Incentive Plan · Employer of Record

FAQ

What are international equity grants?
Equity awards (stock options, RSUs, restricted stock) granted to employees and contractors located outside the United States. Significant complexity arises from country-by-country differences in tax treatment, securities laws, employment laws, currency, and reporting.

Why are international equity grants complex?
Tax treatment varies by country (some tax at grant, others at vesting, exercise, or sale). Securities laws require country-specific registration or exemption (US Rule 701 doesn't apply abroad). Employment laws may treat equity as employment compensation. Currency mismatches add complexity.

How should startups structure international equity?
Engage international equity counsel before first foreign grant. Consider country-specific sub-plans, alternative structures (phantom equity, SARs), or working through EOR/PEO. Use cap table software with international support (Carta). Don't default to US treatment.