The NASPP Blog

A recent Baker & McKenzie blog (“What To Do When Your Board Goes Global,” available in the NASPP’s Global Stock Plans portal), focuses on an accelerating trend – that of company boards of directors becoming more and more globally diversified. “We are seeing an accelerating trend among U.S. companies to add non-U.S. residents to their Board of Directors. This makes sense: as more and more companies “go global” and expand in ever more countries, their Boards should reflect the global nature of the company.” While it may be a positive that companies are comprising their boards of more globally diverse members, there are things to know.

Areas of Key Consideration

• Taxation can get complex. To ensure proper withholding occurs, companies need to verify the director’s tax status relative to the US. Are they a US citizen or permanent resident? Did they reside in the US for 183 or more days per year? These questions are essential in determining US tax withholding requirements. Additionally, companies will also need to assess and determine whether an exemption from US tax withholding exists based on a treaty with the director’s home country.
• Even if there is no complex US withholding required beyond a flat rate of 30%, the director may be subject to withholding taxes in his/her home country. Canada is one such country where this is a distinct possibility.
• Companies need to determine whether any income/tax reporting needs to occur at the US state level where the non-US director performed services.
• Careful attention should be given to analyzing regulatory exemptions in the home country that may be available. While some exemptions may apply to employees, those same exemptions may or may not be available to non-employees, including non-employee directors. It’s important not to outright assume that if employees qualify for an exemption that non-US directors will qualify too.

The Baker & McKenzie blog suggests thoroughly vetting tax and regulatory requirements that apply to non-US directors in each jurisdiction, similar to the practices many companies undertake in vetting requirements that are applicable to employees. Additionally, such analysis should be ideally conducted on an annual basis to capture changes to tax and regulatory requirements, as well as board demographics.

For more detailed information on possible considerations and implications, view the entire blog – “What To Do When Your Board Goes Global.”

-Jenn