Employee stock options in a US company - India tax implications etc?

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vishalrao

vishalrao

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I wanted to see if you folks have any advice/pointers to understand the process of exercising (purchasing) employee stock options in a pre-IPO US software company, me being an India employee, and what are the tax implications especially?

Some things I'm looking to understand, so I have a bunch of questions:

1. Let's say I have 1,000 (one thousand) vested stock options at an exercise price of USD $ 1 (one US dollar) - will I be able to make a payment to the company abroad in dollars or are there any legal/foreign exchange restrictions for an Indian to do this from India?

2. If allowed, what are the modes of payment I can do? Online bank transfer? Any other methods? Note that I would have to pay them in US dollars.

3. What would be the tax implications? How much tax liability would there be if the current fair market value (FMV) of each stock is (say) USD $ 2 (two US dollars) ? Note this is still a pre-IPO stage software company. Any documentation I can expect or ask from the company for such a transaction? What happens (tax implications wise) after an IPO and I want to sell the stocks if they are then worth (say) USD $5 (five US dollars)?

4. In addition to your own advice here, are there any tax consultants or websites/documents you can recommend where I can get further advice on this topic?

I'm hoping this being a techie forum there are other people who have been in similar situations and/or would know more about this :D

Thanks!
 
^ Many things depend on the broker or custodian your company has and what access they provide.

My last two companies had an opt-in but they were tied to our salaries. So basically I could say -"deduct 10% of my salary and assign me shares at FMV". Those shares were held by the custodian/broker. Check if your company has that facility. If not, then while you can transfer money but there will be an upper cap at 125k USD. For transferrin the money you need a RFC account (read it on ICICI site here: http://www.icicibank.com/Personal-B...ier=prod-outward-remittance-20131212173002343 -- check shares).

But I am not sure if you can get a RFC account easily, as per my understanding they require 1 yr stay outside the country.


2. See above.


3. Again depends on what kind of custodianship your company provides. In my case, we were charged at flat 30% when winding the purchases, which is the upper tax limit. Company would then submit money to my account. While filling taxes at year-end I can declare and subsequently my tax liabilities will be adjusted. Capital gains will remain same if pre or post IPO.


4. You can look up videos on YT but most are US oriented. So can't really say.
 
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When you say pre IPO stock options, what you have is a promise from the company that you will be able to get a certain number of shares at a certain fixed price whenever they go public. So you really should have no immediate tax liability because what you have is just a promise written on paper.

When the company goes public, I would assume that they will arrange a broker to handle the accounts which I guess would be in a foreign stock exchange.

When you want to redeem the options for its value, the the fixed value of the shares at which they were assigned to you would be deducted inline from the current total value and the broker will transfer the amount to you as per your agreed mode of transfer. They will change a fee for each transaction. Since the amount is in $, you will get the INR value as per the exchange rate at the time the transfer was made to you. Do note that the how your company handles these logistics may differ.

Any tax deduction made in US will be ultimately refunded to you, but you will need to treat the final amount you got in INR as income in India and tax would be deducted by your company as TDS or you yourself will have take care of the tax payment via the Advance/Self assessment tax payment route.
 
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^^ Not necessary if the company handles the necessary paper work for you. Of course rules may be different for US as my experience is with UK.

My company is listed in LSE and gives us stock options to the tune of 20% on top of yearly gross every year. When I liquidate the options though our broker, I first get an amount with tax deducted in UK. By the end of that month, I get the tax amount refunded along with salary. Then that whole amount is treated as additional income and tax calculated as per the Indian norms and additional deduction made every month. I have never had to file returns in UK to get the amount deducted in UK. I guess my company handles any necessary paper work in the background.
 
Thanks for your inputs guys!

Note that at the moment I do not get any broker support from the US/company as I am no longer working in the company at this time. I only have the opportunity to purchase/exercise whatever stock options have vested within in the next month after which they will expire - it's a different matter that I'm still contemplating whether to go through this at all.

Since I am not on the payroll anymore, I'm not sure I will get that "refund" in India of the amount deducted/withheld in the US as tax and am concerned about how to handle the immediate tax implications/procedures mainly (avoid double tax, proper documentation etc)

When/if the company goes IPO later on and I become able to sell the shares then it will be another concern for that time :)

My secondary concern is being able to make the payment to them in USD $ but I guess I can get in touch with my bank to arrange a forex cheque/DD.[DOUBLEPOST=1424237063][/DOUBLEPOST]
axeman said:
Note that this needs you to file your tax return claim in the US and for this as well you will need a agency (many are listed online)
Click to expand...

Do you have any agencies you can point me to , that you know/think should be competent/professional enough to handle my situation?
 
vishalrao said:
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My secondary concern is being able to make the payment to them in USD $ but I guess I can get in touch with my bank to arrange a forex cheque/DD.[DOUBLEPOST=1424237063][/DOUBLEPOST]

Do you have any agencies you can point me to , that you know/think should be competent/professional enough to handle my situation?
Click to expand...

USD payment any bank will allow you to do, you need to take care of some paper work. Annual limit of 250K USD.

Agencies, just Google around, check threads on reddit etc. You will find many who help in doing it for free, some who will do everything for you for a fee (100-600$ depending on complexity)
 
^ While I posted ICICI in my first post here's what RBI has to say:
http://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=18

A. General permission has been granted to persons (individual) resident in India for purchase / acquisition of securities as under:
1. Out of funds held in the RFC account;
2. As bonus shares on existing holding of foreign currency shares;
3. When not permanently resident in India, from the foreign currency resources outside India.

General permission is also available to sell the shares so purchased or acquired. A resident Indian can remit, up to the limit prescribed by the Reserve Bank from time to time, per financial year under the Liberalised Remittance Scheme (LRS), for permitted current and capital account transactions including purchase of securities and also setting up/acquisition of JV/WOS overseas with effect from August 5, 2013 (vide Notification No. 263).
Click to expand...
While 2 might have been applicable, if he had been assigned USD shares instead of options, he will have to go with 1.
One incorrect thing was ICICI had not updated its 125k LRS limit, which changed recently
 
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