Ask HN: Advice on issuing equity to overseas team members

[karanjassar]

5 out 7 team members in our company are abroad. We'd like to issue them equity but they can't file 409a election as they don't have a US SSN or Tax ID. We are registered in Delaware.

As per my lawyer, who's not a tax expert, they face a problem only if at the time of liquidation they are in the US. They will be taxed as if they never filed the 409a Election with the equity grant.

There a real possibility that some of our team members will move to the US and face this issue.

Has anyone dealt with this issue? Any advise on handling this would be extremely helpful.

[patio11]

Get them Individual Taxpayer Identification Numbers, which will take about six weeks. The form you want is a W-7.

You can probably file the 409a elections and fill in the SSN of "non-resident alien; W-7 pending" if that is time-sensitive.

[karanjassar]

Sorry I mixed up 409a with 83b. I meant 83b.

At one point, anyone on visas other than business/visitor could file for SSN or a Tax ID. That's no longer possible unless: 1) You are in the US on a legitimate Visa that allows you to work & 2) You have an offer letter for paid employment.

Now students on F1 visa (who are allowed to work part time on campus) can't get SSN unless they pick up a job and have a letter to prove it. Earlier they could.

[patio11]

You absolutely can get ITINs, which are not SSNs, without being in the US or requiring a work-capable visa. That is, indeed, why they exist.

[karanjassar]

Ok, I'll explore this. Hopefully you are right.

[lukasm]

I wrote a tutorial how to get ITIN if you are not US citizen

https://coderwall.com/p/nmrosg

[karanjassar]

Thanks. This could be a direction we can explore.

Although, in our case, the receivers of the equity are individual salaried employees of our company, not sole proprietors. However, this seems like worth exploring so I'll take it up with a tax consultant.

[ares2012]

I think you mean an 83b election, which is what applies to income tax treatments for vesting schedules. You should be issuing everyone on your team stock options which do not require an 83b election. You can't issue incentive stock options (ISOs) to non-US citizens but you can issue them non-qualified options (NSOs).

83b elections only become a problem for people where you grant them actual shares which they vest in over time which is only common for founders.

Note that a 409a valuation helps you figure out the strike price to set for those options but can be expensive. Most very early stage companies will have the board set the strike price until the company has gotten far enough to justify a 409a valuation.

[karanjassar]

Yes, I meant 83b :-).

> 83b elections only become a problem for people where you grant them actual shares which they vest in over time which is only common for founders.

All equity we are planning to issue has a vesting schedule attached. My understanding is that it's uncommon it issue equity that doesn't have a vesting schedule attached and it's true for all employees and not just founders. Vesting is indeed at the core of this problem.

Regarding the board setting the strike price -> Someone on the board 'must have some reasonable experience' setting the strike price for it to be reasonable for IRS to believe. I'm the only one on the board so far so unfortunately for us, we don't have anyone with this experience.

[mjmahone17]

> 83b elections only become a problem for people where you grant them actual shares which they vest in over time which is only common for founders.

This has been common amongst companies like Google and Facebook, even pre-IPO. Don't most startups provide RSUs and similar? Options seem like a weird incentive, mostly because I have to have capital to pay for them before I receive them.

[walshemj]

Cannot you get a tax id as a non resident alien? I know that if you hold USA shares outside the USA you can get a tax Id by filling in the w-8 ben forms (to avoid double taxation on dividends)

[karanjassar]

I'll talk to an accountant about w-8 ben but my current understanding it that it's not feasible in our case. Perhaps because there's no immediate payment being made out.

Also, in our case, the problem will exist only if the beneficiary happens to be in the US at the time of these options vesting and liquidating due to a company sale/IPO. At that point, they can't make an 83b election so will end up paying much higher taxes.

[gamblor956]

Wrong form.

The W-8BEN is the form used to established beneficial ownership of a foreign-destined payment. It can also be used by individuals to claim treaty benefits (such as avoiding double taxation). An SSN, ITIN, or foreign equivalent is required to be provided on the form.

[walshemj]

Isn't that what the OP wants I looked at filing a W-8BEN and I don't have a USA SSN

[neil_s]

You can get an SSN as a non resident alien. I did, when I working there for a summer on a J1 visa.

[karanjassar]

In your case, it was possible because of the two conditions given below. Thats not true in our case. -- At one point, anyone on visas other than business/visitor could file for SSN or a Tax ID. That's no longer possible unless: 1) You are in the US on a legitimate Visa that allows you to work & 2) You have an offer letter for paid employment. Now students on F1 visa (who are allowed to work part time on campus) can't get SSN unless they pick up a job and have a letter to prove it. Earlier they could.

[toomuchtodo]

Off-topic: Does anyone know a decent equity attorney? I was issued options, and I'm looking for an hour or two of an attorney's time to go over it with me (<20 pages).