What Happens to Equity When Employees Move Countries

Key Takeaways

• When an employee moves countries while holding unvested equity, the taxable income generally gets split between both countries based on where they actually worked during the vesting period.
• Many companies withhold tax based on where the employee lives at vesting, not where the work was performed. This is usually wrong.
• Without planning, the same income can get taxed in two countries at once.
• Tax-qualified plans like US ISOs are not automatically recognized in the laws of the new country, which may have its own requirements for preferential treatment.
• The country an employee leaves does not forget about them. Filing obligations generally follow the equity, not the person.

Why This Matters

Your company grants stock options to an engineer in your New York office. Two years later, she relocates to Berlin. Her stock options have not fully vested yet.

Here is the question most companies do not think to ask: who owes tax on those stock options when exercised, and to which country?

The answer is probably both. The US may claim taxing rights because she earned part of the equity while working there, while Germany may also claim taxing rights because she was working there when the equity vested. The timing of the exercise shall also carry significant tax implications, potentially affecting sourcing, taxation, and reporting obligations in each jurisdiction. The employer is therefore responsible for determining the correct sourcing methodology, applying any relevant treaty relief, and withholding appropriately in each applicable jurisdiction.

This is not a rare edge case. Any company with employees who move internationally, work remotely from another country, or transfer between offices is dealing with this. The mechanics are straightforward once you understand them, but most companies have never set up their systems to handle it.

How the Tax Split Works

Most countries follow principles reflected in the OECD Model Tax Convention when determining how cross-border equity compensation should be sourced. Under those principles, equity compensation is generally treated as employment income connected to the period during which the employee performed the services related to the award.

In practice, this means countries often allocate equity income based on where the employee worked during the relevant earning period, rather than solely where the employee lives or where the shares vest. The OECD Commentary specifically discusses employee stock options and recognizes that multiple jurisdictions may assert taxing rights over the same award when employees relocate during the vesting period.

As a result, tax authorities generally look beyond the employee’s location on the vesting date and examine where the underlying services were performed during the relevant sourcing period associated with the award.

This is commonly referred to as workday allocation. The concept is straightforward: determine how many workdays the employee spent in each jurisdiction during the relevant earning period, then allocate the taxable income proportionally between those jurisdictions.

Example:

An employee receives 1,000 RSUs with a 4-year vesting schedule while working in the US. After 2 years, they move to Germany. At vesting, the shares are worth $50 each, so the total taxable income is $50,000.

• 2 years in the US / 4 years total = 50%
• 2 years in Germany / 4 years total = 50%
• The US expects withholding on $25,000
• Germany expects withholding on $25,000
  

Both claims are legitimate. The employer needs to calculate this split and withhold in both jurisdictions. If the move happens mid-year, the math adjusts accordingly. An employee who spends 18 months in the UK and 30 months in the US during a 4-year vest would have a 37.5% / 62.5% split.

The Mistake Almost Every Company Makes

When RSUs vest, most payroll systems do one thing: withhold tax in the country where the employee is currently located. If she is in Germany on vest day, German taxes get withheld on the full amount.

This is wrong when the employee worked in another country during part of the vesting period. The origin country (in this case, the US) still has a claim on its portion of the income. Withholding 100% in Germany means the US received nothing, which creates a compliance failure.

This happens because payroll systems are built for single-location employees. They are not designed to look backward through an employee's location history and produce a split calculation across two tax authorities. That requires either a manual override for every vesting event involving a mobile employee, or a platform that does it automatically.

Double Taxation: What It Looks Like

Here is a common scenario.

An employee is granted RSUs while working in Canada. Before the RSUs vest, they move to the US and become a US tax resident. At vesting, the RSU income is $100,000.

• Canada taxes the portion tied to Canadian workdays. If the employee worked half the vesting period in Canada, that is $50,000.
• The United States taxes its residents on worldwide income. The full $100,000 shows up on the US tax return.

Without intervention, the employee is paying tax on $50,000 in Canada and $100,000 in the US, with the Canadian portion taxed twice.

The fix is a foreign tax credit: the employee claims the Canadian taxes paid as a credit against their US tax bill. This works, but it requires the employee to file correctly, and it creates a cash-flow problem. They may need to pay full taxes in both countries during the year of vesting and wait until the next year's return to recover the credit. On a $100,000 vesting event, that gap can be significant.

The employer's role here is to get the sourcing right. If the employer withholds incorrectly or does not provide accurate documentation of how the income was split, the employee's ability to claim the credit is compromised.

Tax-Qualified Plans Do Not Travel

If your US-based employee holds Incentive Stock Options (ISOs), those options keep their US tax-qualified status after an international move. The IRS does not revoke the designation.

But here is the catch: Tax-favored treatment is generally country-specific. When employees relocate, the destination country may not recognize the original plan’s preferential tax treatment, or may apply a different taxing regime altogether.

If the grant does not meet the destination country’s tax-favored regime, stock option exercises are likely to constitute a taxable event, generally taxed immediately as ordinary employment income. That is exactly how Germany, the UK, or Israel will treat an ISO exercise treated as “non-qualified”/unapproved, regardless of what the US tax code says.

The employee may end up with capital gains treatment in the US (if they meet the ISO holding periods) and ordinary income tax in the new country at exercise. Both obligations are real, and they need to be planned for.

The same principle applies to other country-specific qualified plans. UK EMI options, Israeli Section 102 plans, and French qualified RSUs all have tax advantages that are specific to that country and do not transfer automatically when an employee leaves.

The Country You Left Still Expects Filings

One of the most overlooked parts of this: compliance obligations do not end when the employee leaves a country.

If an employee worked in the UK during part of their vesting period, the UK expects to see that income reflected in the company's annual equity return to HMRC. These filings are detailed enough that tax authorities can cross-reference departure dates with vesting dates. If the return shows a vesting event but the employee is no longer in the UK payroll system, that discrepancy invites questions.

This applies broadly, not just to the UK. Any country where the employee worked during the vesting period may have trailing reporting and withholding obligations that persist after the employee has left. Removing someone from a local payroll system does not remove the company's obligation to report and withhold on income sourced to that jurisdiction.

A useful gut check for whether your company has this exposure:

• Do you have employees who have relocated internationally?
• Do you have employees who moved between US states?
• Do you have business travelers who work in other countries?
• Do you have remote workers in a different jurisdiction from their employer of record?

If the answer to any of those is yes, you likely have equity withholding obligations that are not being fully addressed.

What Happens When You Get It Wrong

US law assigns specific penalties to employers who fail to withhold employment taxes correctly.

Section 6672 imposes a 100% civil penalty on responsible officers for failure to collect or pay over employment taxes. This applies to the individual (a CFO, VP of Finance, or payroll manager), not just the company. The penalty equals the full unpaid tax amount.

Section 7202 classifies willful failure to meet employment tax obligations as a felony, with penalties of up to $10,000 and up to 5 years in prison. These do not require a large dollar amount to trigger. A single missed vesting event with incorrect withholding can open an audit.

Why Manual Tracking Breaks Down at Scale

One employee relocating mid-vest is manageable if the finance team has enough lead time. But this is no longer a one-off event for most growing companies.

A Series B company with 150 employees might have 30 people in different countries, 10 who relocated in the past two years, and several more planning moves. Each of those employees may hold multiple award types with different grant dates and vesting schedules. Each vesting event for a mobile employee requires a separate workday allocation calculation and split withholding across jurisdictions.

Tracking this in spreadsheets means someone has to maintain location histories for every equity-holding employee, cross-reference those histories against every upcoming vest, produce the split calculation, coordinate with payroll in multiple countries, and repeat every quarter. At a certain point, events get missed, calculations default to current-location withholding because that is what the system does automatically, and trailing obligations go unaddressed because nobody has a process for flagging them.

How Slice Handles This

Slice Global's Exposure Intelligence is built for exactly this problem. When an employee moves countries, the system automatically recalculates compliance requirements for all of their outstanding awards. It identifies the withholding obligations in both jurisdictions and surfaces any trailing reporting requirements in the origin country. Finance teams see what needs to happen before vesting events occur, not after.

This matters because the window for getting it right is narrow. Once an RSU vests and payroll runs, the withholding has already happened. Discovering a sourcing error after the fact means amended returns, penalty exposure, and potentially correcting amounts already withheld from employees.

Companies using Slice describe the shift this way:

"Slice has automated our entire equity compliance process. With the platform's real-time compliance alerts, we can now proactively manage employees' equity compliance and tax issues." Hila Shabtai Shemesh, VP Finance, Optimove.

"Slice gives me peace of mind through automated compliance monitoring in every country we operate in." Shiran Bar-Lev, VP Finance, Pentera.

The value is not in automating something that was previously easy. It is in replacing a process that was genuinely difficult to do reliably.

Frequently Asked Questions

What happens to stock options when you move to another country?

The income gets split between your origin and destination countries based on where you worked during the vesting period. Your origin country keeps a tax claim on its portion. Your new country claims the rest. If your options had tax-qualified status (like ISOs in the US), that status stays in the US but your new country will not honor it.

Who is responsible for withholding when employees move countries?

The employer. Responsibility does not shift to the employee because they relocated. The company must calculate the correct sourcing split and withhold in each jurisdiction. Individuals within the company who are responsible for payroll can be held personally liable for failures.

What is workday allocation?

It is the method for dividing equity income between countries. Take the total workdays from grant to vest, figure out how many were in each country, and apply that percentage to the total income. If you have not tracked workdays, many jurisdictions will accept calendar days as an alternative.

Can the same equity income be taxed in two countries?

Yes, without proper planning. Foreign tax credits exist to prevent true double taxation, but they require proactive filing by the employee and accurate sourcing documentation from the employer. There is often a cash-flow gap where the employee has paid taxes in both countries and must wait for a refund.

Do I still have filing obligations in a country after my employee leaves?

Yes. If equity vests after the employee has left, and any portion of that income is sourced to the prior country, the employer may still have reporting and withholding obligations there.

Does this apply to remote workers who never formally relocated?

Yes. If a remote worker lives and works in a different jurisdiction from their employer of record, equity that vests during their employment may have sourcing obligations in their actual work location. The trigger is where the work was performed, not where the employment contract is based.

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