Working Overseas & Traversing the Share Awards Tax Trail

Internationally mobile employees (IMEs) play an increasingly important role in a globalised world that requires more individuals to work overseas. As technology develops and businesses expand into new markets, complex employment arrangements are in place to move directors, executives and employees between different geographical locations.

Global Tax Impact of Share Awards

Motivating and retaining these key individuals, who are prepared to move from one jurisdiction to another in order to meet that employer’s specific business need, can be a real challenge, which is why it is commonplace for employer share awards to be offered as part of a tax efficient and attractive remuneration package.

Managing the tax impact of these share awards across all jurisdictions is important, and it’s critical that employers have the correct tracking mechanisms in place to comply with all tax and payroll reporting obligations. They will have to interact with tax authorities in multiple territories who now have a heightened focus on globally mobile employees.

Taxing Share Awards in the UK

The UK introduced legislation in 2015 to align the tax treatment of most share awards, broadly splitting the awards on a time apportionment basis, taxing the individual for the period when working and tax resident in the UK. This new approach should in theory reduce the need to rely on double tax treaties with other jurisdictions to claim relief for tax, however it is still the case that certain treaties allow for a different approach, meaning that each case will need to be approached carefully to ensure awards are not taxed twice, and relief for foreign tax paid can be claimed.

Employer Tax Equalisation Agreements

In recognition that the tax position can be complex for such individuals, employees are regularly offered a tax equalised contractual agreement, whereby the employer agrees to meet any or all of the tax costs associated with the overseas assignment. This undertakes to ensure that the employee continues to bear approximately the same tax costs as they would had they stayed in their home country, and involves a ‘hypothetical’ tax deduction from their pay which is used to meet all tax and social security costs. Put simply, it ensures that the individual does not gain, or lose out financially due to the different overseas liabilities, and can include any associated tax due on share award arrangements. Part of this arrangement usually includes the employer volunteering to complete the Individual’s Tax Returns for the country of assignment/host country, again making sure that any taxes associated with the awards are picked up and managed correctly.

Mind the Gap – does the Equalisation Agreement pick up the tax trail?

Provided the share awards vest/exercise when covered by this arrangement then in theory the correct taxes are paid and managed with help from the employer. Issues arise however, when there is no equalised arrangement, or the equalisation agreement only covers certain years outbound/inbound, or even specifically excludes share awards. This means responsibility for reporting /managing associated tax liabilities falls to the individual, and can cause real difficulties, especially when many employees can mistakenly believe that once they leave the UK, their tax obligations end, never considering they may have to pay UK tax on what they view as an historic share award.

AAB LLP are well placed to help manage the tax position of employee share awards, utilising our close relationships with HCWA Global Affiliates, we can efficiently navigate what can be exceptionally complex tax legislation to ensure the correct tax is paid both here and overseas.

talk to our Private Client Tax team