Introduction
⚠️ The tax information below is an extremely brief summary for standard situations of the referred relationship, and each situation may of course be different from the norm and have its own specificities. ⚠️
A more comprehensive set of information for this country and work relationship is available on Easop.
If you’re looking for more detailed information in this country (or if you are just curious about our global compliance offering and pricing), get in touch with us and we’ll tell you more about it! 💡
Regular employee
Understanding NSOs and ISOs.
In the US, the two major stock options formats are (i) incentive stock option (ISO) and (ii) non-qualified stock options (NSO). Both of them work exactly the same: they give the grantee the option to purchase shares during a certain period of time following the date of grant at a predetermined price. The difference, as we’ll see, lies in their tax treatment. While ISOs can, under certain circumstances, be more tax advantageous than NSOs, they come with a lot more strings attached.
ISO
✅ Yes, you can grant incentive stock-options (ISO) to local residents employed as regular employees in the United States.
In a nutshell, what are the requirements for issuing ISOs?
- Dedicated plan 👉 There is a written equity plan that is approved by the shareholders detailing which classes of employees are entitled to be offered ISOs (the equity plan is valid for 10 years max).
- Maximum grant date 👉 Stock options must be granted within the 10 years “validity” of the plan.
- Maximum exercise date 👉 Stock options’ exercise must generally take place within 10 years after grant, unless the grantee is a greater than 10% shareholder in the company, in which case this period is 5 years.
- Exercise price minimum 👉 The exercise price (also called strike price) is generally at a minimum the fair market value (FMV) at the time of the ISO’s grant, i.e., no original discount possible here. Note that, for the 10% shareholders mentioned above, the strike price must be at least 110% of FMV of the underlying shares on the date of grant.
- Non-transferability 👉 Stock options are non-transferable (except by death).
- Limit in grant amount 👉 The total value of all ISOs that become exercisable per employee per year must not exceed $100,000 FMV, measured by reference to the FMV of the underlying shares on the grant date. Anything beyond that will be treated as NSO.
- Employee 👉 The person receiving ISO must be an employee of the group on the grant date and must generally remain an employee to be able to exercise the stock options.
In a nutshell, what does taxation look like?
- At grant 👉 There should be no taxation.
- At exercise 👉 There should be no taxation.
- At sale 👉 The grantee will pay taxes on gains upon sale. The time they spent holding the shares before selling them will impact this calculation.
NSO
✅ Yes, you can grant non-qualified stock-options (NSO) to local residents employed as regular employees in the United States.
In a nutshell, what does taxation look like?
- At grant 👉 There should be no taxation.
- At exercise 👉 The grantee will need to pay regular income taxes on the spread (i.e. the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price paid by the grantee).
- At sale 👉 The grantee will pay taxes on gains upon sale. The time they spent holding the shares before selling them will impact this calculation.
