Equity for employees in other countries

1. The core idea#

An option grant that is simple in one country can be expensive or awkward in another. The same grant can be taxed at a different moment (grant, vesting, exercise or sale), at a different rate (salary or capital gains), and can require filings by the company, the employee or both. When the company granting the equity is in a different country from the employer, a third set of rules applies: foreign-exchange controls, cross-border reporting and recharge arrangements.

Deeptech companies hit this early. A typical pattern is a Delaware parent with an Indian subsidiary where the lab is, a commercial lead in the US, and a scientist or two in the UK or Germany. Each of those people should receive equity that works in their own country.

Who this is for: a founder with, or about to have, employees outside the country where the company issuing the equity is based.

The principles this playbook works from:

• One plan, local sub-plans or addenda. Keep one master plan for consistency, and add a short country addendum where local law or tax needs a different instrument or wording.
• Use the local tax-favoured route where one exists: India's DPIIT deferral, US ISOs, UK EMI, Germany's section 19a deferral. The tax difference is often larger than any difference in grant size.
• Get the valuation right for each tax system. A US employee needs a 409A-standard strike price; an Indian employee's perquisite is measured by an Indian valuation; HMRC agrees EMI values. One number rarely satisfies all three.
• Map the filings before the first grant. Foreign-exchange reports in India, securities exemptions in the US and elsewhere, and employer withholding are the parts most often missed.
• Use cash-settled phantom awards (5.15) where local rules make real equity too hard, but recognise that they are usually taxed less favourably.

Related: 5.02 (ESOP plan design: India vs US), 5.07 (strike price), 5.08 (ESOP tax), 5.15 (alternatives to options), 4.03 (flipping to Delaware), 4.19 (FEMA, FDI and ODI), 6.17 (hiring abroad and EORs).

2. How the main countries treat employee equity (November 2026)#

When tax falls, and what helps#

Cross-border plans: the foreign-exchange layer in India#

If a foreign parent (for example a Delaware company after a flip) grants equity to employees of its Indian subsidiary:

• Classification. A resident employee holding up to 10% of the foreign company without control holds an overseas portfolio investment (OPI) under the Overseas Investment Rules, 2022. Above that, or with control, it becomes overseas direct investment (ODI), with the employee filing personally.
• Company reporting. The Indian employer reports through its authorised dealer bank on Form OPI, half-yearly, within 60 days of each half-year end. For 2026–27 that means 29 November 2026 (for the half-year to 30 September) and 30 May 2027.
• Remittances. Paying the exercise price abroad counts towards the employee's $250,000 a year Liberalised Remittance Scheme limit, with 20% tax collected at source above ₹10 lakh a year (creditable in their return). Cashless exercises involve no remittance.
• Employee reporting. Resident employees must disclose foreign shares and brokerage accounts in Schedule FA of their return. Black Money Act penalties of ₹10 lakh a year apply to undisclosed foreign assets, with relief only where foreign assets other than property total ₹20 lakh or less, and disclosure is still required.
• Recharge. If the parent charges the Indian subsidiary for the cost of grants, a cost-tocost recharge is generally a deductible employee cost and, under a 2024 GST circular, not a taxable supply; any markup is taxable. It is also an international transaction for transfer pricing, needing a written agreement.
• Late filing. Late Form OPI filings within three years attract a fee of ₹7,500 per return; beyond that, compounding is needed.

What this means#

• The tax-favoured routes are worth real money: in Germany, the difference between section 19a treatment and immediate wage tax can be the difference between keeping roughly three-quarters and roughly half of a gain.
• The compliance burden is mostly on the company: half-yearly OPI reporting in India, 409A valuations for US grants, EMI notifications in the UK.
• Employees need help with their own filings, especially Schedule FA in India.

3. How to do it: granting across borders#

Step 1. Map each person#

For every grantee, write down four things: where they live and are tax resident, which entity employs them (a subsidiary, an employer of record, or none because they are a contractor), which entity's shares they will get, and whether they might move country during vesting. This table decides everything else.

Step 2. Pick the instrument per country#

Step 3. Get one valuation per tax system#

A US 409A valuation, an Indian merchant banker or registered valuer report (5.07), and an HMRC-agreed EMI value can differ. Set each grant's strike price at or above the value the relevant tax system will use, and keep the reports on file.

Step 4. Write country addenda#

Each addendum should cover: the local tax treatment in plain words, who withholds tax and how (often sell-to-cover or payroll deduction), any securities-law statement required locally, consent to transfer personal data to the plan administrator, and any foreignexchange steps the employee must take.

Step 5. Set up withholding and reporting#

• The local employer usually withholds: TDS in India at exercise, PAYE in the UK where tax is due, US payroll for NSOs.
• Calendar the filings: Form OPI half-yearly in India for parent-company grants; EMI notifications to HMRC; Form 3921 in the US for ISO exercises; securities exemption filings where needed.
• If the parent recharges the cost to subsidiaries, put a written recharge agreement in place and reflect it in transfer pricing.

Step 6. Plan for people who move#

When an employee moves countries during vesting, many countries tax the gain in proportion to the days worked there between grant and vesting (or exercise). Ask employees to tell you before they move, and get advice on each move.

Step 7. Review when the structure changes#

A flip to a foreign parent (4.03), a reverse flip back to India, a new subsidiary, or switching someone from an EOR to a local entity can change which schemes are available. Review the plan and addenda each time.

Worked example#

A battery-materials company has a Delaware parent and an Indian subsidiary running the lab in Pune (30 people). It also has a commercial lead in Texas, a UK subsidiary employing one electrochemist in Oxford, and a process engineer in Munich hired through an employer of record.

What the founders learn. The Indian team cannot use the DPIIT perquisite deferral, which is designed for an eligible Indian startup's own ESOPs, not for shares in a foreign parent. Combined with the half-yearly OPI reporting and Schedule FA burden, this becomes one of the arguments the board weighs when it later considers a reverse flip to India (4.03).

4. Country notes#

India#

• An Indian company can grant ESOPs to its permanent employees working outside India, and to employees of a subsidiary or holding company in India or abroad, under the Companies Act rules (5.02).
• Issuing shares to a non-resident on exercise is foreign investment under the NonDebt Instruments Rules, and must be reported to the RBI through your bank within the prescribed time. Check sectoral conditions (4.19).
• Shares of a foreign parent held by Indian residents fall under the Overseas Investment Rules, 2022, with half-yearly Form OPI reporting by the Indian employer and LRS limits for employees (section 2).
• Tax: the perquisite at exercise is salary, and the employer deducts TDS. Since 1 April 2026 the provisions sit in the Income-tax Act, 2025 (salary TDS in section 392). From tax year 2026–27, foreign tax credit is claimed on Form 44 rather than Form 67.
• The DPIIT deferral applies to eligible startups' own ESOPs; do not promise it to staff receiving parent-company shares.
• Disclosure window: a one-time FAST-DS scheme for disclosing previously unreported foreign assets runs to 31 December 2026. It gives Black Money Act immunity only, not FEMA relief. Tell affected employees and let them take their own advice.

United States#

• US-taxpayer employees of a non-US company still need a 409A-compliant strike price. An Indian valuation report is not automatically enough; get a 409A-standard valuation for US grants.
• ISOs can in principle be granted by a non-US corporation if the plan meets section 422 (shareholder approval, plan limits, $100,000 annual limit), but most Indian companies use NSOs for the few US employees they have.
• Securities law: Rule 701 is available to companies that are not SEC-reporting, including non-US companies, within its limits; check state exemptions too.
• Withholding: NSO exercises by US employees create wages that must be reported and withheld through US payroll. A US entity or a payroll provider is usually needed.

United Kingdom#

• EMI with a foreign parent. A non-UK parent can grant EMI options if the group meets the independence, size and trading tests and has a permanent establishment in the UK (a UK subsidiary is enough), and the employee meets the working-time test. The 2026 limits are in section 2.
• CSOP is an alternative for employees who do not qualify for EMI, up to a £60,000 limit per employee.
• Non-tax-advantaged options are taxed through PAYE at exercise if the shares are readily convertible assets, with employer National Insurance.

Germany#

• Section 19a EStG defers wage tax on free or discounted shares (not options until exercise) for up to 15 years, for companies under 1,000 employees and €100m turnover or €86m balance sheet, founded within 20 years. Since 2024 a group privilege allows it for shares in a parent company if the whole group qualifies.
• It does not apply to freelancers or EOR staff. Many German startups still use virtual (cash) plans because issuing GmbH shares needs notarisation.
• A tax-free allowance for employee share participation of €2,000 a year also applies.

Elsewhere#

• EU: employee share offers are generally exempt from the requirement to publish a prospectus, including for non-EU companies, but some member states still require a local notice or filing.
• Other countries (for example Singapore, Canada, Australia, Israel) have their own taxfavoured schemes, timing rules and filings. Treat each new country as a mini-project: get a short written memo from local counsel or your equity administrator before the first grant.

5. Scripts, mistakes and sources#

Scripts#

Explaining a parent-company grant to an Indian employee

"Your options are in our Delaware parent company. You pay nothing until you exercise. At exercise, the gain is taxed in India as salary and we deduct the tax through payroll. Because these are shares in a foreign company, you'll need to list them in Schedule FA of your income-tax return every year. We'll give you a one-page guide and our tax adviser will run a session before the filing season."

Explaining EMI to a UK hire

"You'll get EMI options, which is the UK's tax-favoured scheme. If the exercise price is at least the market value agreed with HMRC, there's normally no income tax when you exercise, and the gain is taxed as a capital gain when you sell."

Explaining a phantom award to someone hired through an EOR

"Because you're employed through our employer-of-record partner, we can't give you options on the same terms as staff employed by our own subsidiaries. Instead we'll give you phantom units that pay out in cash on an exit, on the same vesting schedule. If we set up a local company and move your employment to it, we'll look at converting them."

Asking employees to tell you before they move

"If you're planning to move to another country while your options are vesting, please tell us first. The tax on your options may be split between countries, and we need to set up the right withholding."

Common mistakes#

1. Using one valuation for every country. A US employee needs a 409A-standard strike price.
2. Missing India's half-yearly Form OPI for parent-company grants. Small fees become compounding applications if left for years.
3. Promising the DPIIT deferral on parent-company shares. It is designed for an eligible Indian startup's own ESOPs.
4. Assuming EOR staff can use local schemes. Germany's section 19a, for example, excludes them.
5. No country addendum. Employees then get a US-style plan with no explanation of their local tax.
6. Ignoring movers. A move mid-vesting can split the tax between countries and change withholding duties.
7. No recharge agreement. Without one, the subsidiary may lose the deduction and face transfer-pricing questions.

Related playbooks#

• 5.02 ESOP plan design: India (Companies Act rules) vs US (ISOs and NSOs)
• 5.07 Setting the strike price: US 409A and Indian valuations
• 5.08 ESOP tax: Indian perquisite tax and the DPIIT deferral; US ISO and AMT
• 5.11 Explaining equity to employees
• 5.15 Alternatives to options: phantom stock, SARs, RSUs
• 4.03 Flipping to a Delaware holding company, and reverse-flipping back to India
• 4.19 FEMA, FDI and ODI rules for foreign money
• 6.17 Hiring abroad and using employers of record (EORs)

Sources#

• Treelife, Foreign parent company ESOP for Indian employees: FEMA, reporting (2026); Patron Accounting and RSM India notes on OI Rules 2022 reporting
• Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions, 2022; RBI Master Direction on Overseas Investment
• Orrick, Making US ESOPs work for German employees: navigating section 19a EStG (November 2025) and related Legal Ninja Snapshots (2024)
• Rödl & Partner, Employee participation schemes: new tax regulations from 2024 ; Leapsome glossary on German employee equity
• HMRC EMI guidance; UK EMI changes from 6 April 2026 (see 5.02)
• Earlier playbooks in this library for India ESOP tax (5.08) and US 409A (5.07)

This playbook is general information, not legal, tax or foreign-exchange advice. Crossborder equity rules change often; get local advice before the first grant in each new country.