The NASPP Blog

Managing a global equity compensation program entails helping your non-U.S. employees overcome the significant barriers to understanding and accessing their stock compensation. Non-U.S. employees may have to absorb information in a language they aren’t comfortable with and embark on a business relationship with a U.S. broker in addition to the more universal challenge of conceptualizing compensation that does not come in the form of a simple paycheck.

One of the issues that only your non-U.S. participants will face is keeping their W-8BEN current with their broker. I say keeping it current because most, if not all, brokers have incorporated the submission of an initial W-8BEN into the account activation process.

Backup Withholding

Brokers are required to ask for a SSN–or taxpayer ID–when individuals open a new account. If the SSN is missing or incomplete, brokers must process backup withholding, which is 28% through 2012, on any transaction. However, a W-8BEN is a form that establishes an individual (or organization, really) is both not a U.S. resident or citizen and not subject to tax on income that would otherwise be taxable in the United States. Most importantly for your non-U.S. employees, the W-8BEN confirms that shares sold through their U.S. brokerage account are exempt from backup withholding.

Once and Again

Once a person has a U.S. taxpayer ID or SSN, it’s permanent. Being exempt from backup withholding, on the other hand, is not a static status. Therefore, a W-8BEN expires at the end of the third calendar year after it was completed and a new one must be signed in order to continue to be exempt from backup withholding. No matter how the W-8BEN is completed, this can be confusing. A broker can remind employees of an impending expiration, but not to force them to complete it.

Backup Plan

If you have non-U.S. employees, it’s important to coordinate with your broker on how to handle expiring W-8BENs. Your broker can help you identify and target employees with communications. You can even set up a post-transaction verification process to try and catch employees with expired W-8BENs before backup withholding is actually remitted to the IRS. However, you should still have a backup plan for how your company will handle situations where backup withholding has passed the point of no return. Once tax withholding has been remitted to the IRS, the only person who can get the funds back is the individual. Having a protocol in place for how much hand-holding the company will do.

Back Again

In order for your employee to recover backup withholding, she or he must file a tax return, which means a SSN or tax ID is required. Your employee may complete a Form W-7 and submit it along with the tax return, which would most likely be the Form 1040NR-EZ if the backup withholding is the only reason your employee is filing.

If you have more questions about managing a global stock plan, find the answers you need in the NASPP’s Global Stock Plans portal.

-Rachel