Are there any exchange control restrictions that affect the operation of incentive plans?
There are no exchange control issues in the US. That said, the maintenance of financial interests and/or financial accounts outside of the US to hold securities for US persons such as bank or brokerage accounts or (potentially) the use of offshore employee benefits trusts (“EBTs”) can give rise to annual reporting by individual plan participants. For example, depending upon specific facts and circumstances, a US employee may need to file a Report of Foreign Banks and Financial Accounts (FBAR) FinCEN Form 114 if the employee holds more than USD10,000 of a non-US company’s shares in an account, and/or a Statement of Specified Foreign Financial Assets Form 8938 pursuant to the Foreign Account Tax Compliance Act if the employee has interests in foreign assets exceeding USD50,000 on the last day of the tax year or USD75,000 at any time during the calendar year (thresholds amount are doubled for married individuals filing jointly). A full analysis of this topic is beyond the scope of this Guide.
There are no controls on the transfer of foreign currency into or out of Mexico.
In principle, there are no foreign exchange restrictions applicable in this context.
However, should payments be made to Romanian employees in connection with the options through a Romanian subsidiary, it may be construed that such payments need to be made in Romanian currency.
Also, should an employee, Romanian resident, hold at least 10% from the share capital of a non-resident company, the respective employee would need to notify the National Bank of Romania of the acquisition of the respective shares.
The only controls are those concerning tax matters.
Under Dutch law, no exchange controls are currently applicable to the operation of incentive plans involving Dutch employees.
Yes if the operation of such incentive plan applies to foreign exchange and the following regulations shall be applied,
- Administrative Regulations of the People's Republic of China on Foreign Exchange applies to foreign exchange receipts and disbursements and to the foreign exchange business activities of domestic organizations and individuals, foreign organizations, and foreign individuals.
- Individuals shall follow the Administrative Measures for Individual Foreign Exchange in handling relevant foreign exchange business.
- Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas provides that individuals participating in the equity incentive scheme of the same overseas listed company shall, through their domestic companies, centrally entrust a domestic agency (hereinafter referred to as the domestic agency) to conduct the matters such as foreign exchange registration, opening of accounts and the transfer of funds and exchange, and shall appoint a foreign agency (hereinafter referred to as the foreign agency) to conduct the matters such as individual exercise of the option, purchase and sell corresponding share or equity and related capital transfer. If the incentive recipient conforms to the requirement of option exercise exercised the option, the recipient shall set up an account abroad and pay the company the full consideration of the incentive option and tax and expenses. In practice, when the company repurchases the restricted stock or option, it will pay the repurchase price to the individual account of the incentive recipient through the overseas SPV, and the incentive recipient, as an individual, needs to file for the foreign exchange registration procedure according to Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles (hereinafter referred to as "circular 37th"), and complete the foreign exchange settlement procedures through the filing of circular 37th.
Under Dutch law, no exchange controls are applicable to employees participating in incentive plans.
If the incentive plan requires the acquisition of shares by the participants, there can be exchange control rules related to (i) the acquisition of shares in Brazil by participants who are non-resident in Brazil or (ii) the acquisition, by participants resident in Brazil, of shares of an overseas company.
(i) There are two major types of investments that are applicable to non-resident investors investing in Brazil (“NRIs”), which are respectively regulated by (i) Law No. 4,131, dated September 3, 1962 and (ii) Brazilian Monetary Council (“CMN”) Resolution No. 4,373, dated September 29, 2014.
Law 4131/62. Direct acquisition of shares in Brazilian companies by non-resident participants must be registered with the Brazilian Central Bank (“Central Bank”) as a foreign direct investment. The registration with the Central Bank is declaratory in nature – i.e., as a rule, the declarations of the parties are the sole basis for the registration, and parties are required to retain supporting documentation, which may be requested by the Central Bank at any time.
Resolution 4373/14. Resolution 4373/14 rules investments made in the Brazilian financial and capital markets and the mechanisms through which non-resident investors are authorized to perform this type of investment. In general, such investors have access to the same investments opportunities in the financial and capital markets that are available for Brazilian residents. Under Resolution 4373/14 regime, after the acquisition/receipt of the awarded shares, the participants may elect to sell their shares in the market. Shares held under this regime may only be traded within organized markets.
(ii) Foreign Exchange Control. The remittance of dividends, interest on capital or as a result of divestment in the awarded shares must be completed through a foreign exchange transaction with a financial institution. There are no restrictions on repatriation of funds or remittance of profits in terms of the amount of capital and the length of time funds must remain in Brazil.
(iii) Acquisition of Shares abroad of Brazil. Brazilian Central Bank does not require a prior authorization in order to allow the remittance of funds abroad by the participants to acquire the awarded shares. Participants will be required to execute foreign exchange transactions with local banks in order to allow the remittance of funds abroad.
The participants that are Brazilian residents and own interest in foreign entities have to file the so-called "CBE" with the Brazilian Central Bank in case the equity value of the investment is equal or higher than USD 100,000.00. As a rule, the CBE is filed with BACEN annually.
When a Japanese resident (i.e., Japanese employee) makes a payment to a non-resident outside of Japan (i.e., foreign parent company of an employer) in an amount exceeding JPY 30 million (or its foreign currency equivalent) in a single transaction, such transaction may have to be reported to the Bank of Japan after the transaction has been concluded.
Other than the Corporate Governance rules as further described above (clause 12 above), there are no specific stock exchange restrictions. Please however note that section 6-16a of the Norwegian Public Limited Companies Act (which applies to all listed Norwegian companies), states that the board of directors shall prepare a declaration on the fixing of salaries and other remuneration to the general manager and other senior employees. The clause in the said act is further described in section 16 below.
While there are no general currency restrictions in force in the UK, dealing with certain countries is restricted. When dealing with a country that has problematic relations with the international community, it is important to check that no restrictions apply.
For transfers of amounts abroad exceeding EUR 12,500 a formal notice must be made to the German Federal Bank, if the amount is supposed to be used for purchasing shares in a foreign parent company.
Depending on the plans’ provisions, exchange control restrictions may affect the operation of incentive plan. Also, exchange control regulations may require reporting to the French authorities.
There are exchange control restrictions in incentive plans that affect the operation of incentive plans under Spanish mercantile regulations.
Exchange control restrictions will only be applicable to incentive plans, if the same include foreign companies’ shares or stocks, or payments that will be done abroad.
Portugal does not have any general control exchange regulations which could impact the operation of stock option plans.
Residents of Turkey may only purchase shares (or beneficial interests therein) traded in markets outside of Turkey through banks or authorized institutions licensed in Turkey or other duly authorized intermediary institutions. If the employee does not make a payment to acquire the shares (eg. options using a cashless settlement method) these exchange controls should not apply on the acquisition of shares. If cashless settlement is not used, employees must remit funds to purchase shares through an approved intermediary bank when they exercise their option rights.