As software companies expand to South America, one challenge they face is how to offer equity compensation to non-U.S. team members. While equity is a common practice for U.S.-based teams, providing this benefit to employees in other regions can be tricky due to differing legal, tax, and regulatory frameworks. However, with the right strategy, equity can be just as effective in motivating and retaining top international talent.

In this article, we explore the benefits of offering equity to non-U.S. employees, how it can be legally and efficiently done, and how Ubiminds leverages phantom shares to help U.S. companies reward their top-performing South American team members while navigating complex tax and financial landscapes.

Why Offer Equity to Non-U.S. Team Members?

Equity compensation provides numerous benefits for software companies looking to expand their talent pool and keep South American teams motivated. Here’s why it’s worth considering for your international hires:

  1. Attracting and Retaining Top Talent: Equity is a powerful tool to attract high-quality talent. It’s often more appealing than a higher salary, especially for top performers who want to share in the success of a growing company.
  2. Motivating Teams to South America: By offering a financial stake in the company’s future, you align your team’s goals with the long-term success of the company, increasing motivation and productivity.
  3. Cost-Effective Compensation: For software startups or companies scaling internationally, equity can be a more sustainable way to reward employees without the immediate cash flow pressure of higher salaries.
  4. Building Ownership Mentality: Equity makes team members feel more invested in the company’s direction and performance, which translates into greater accountability and innovation.

What Types of Equity Compensation Can You Offer to Non-U.S. Employees?

The types of equity compensation that can be offered to non-U.S. employees are similar to those available to U.S.-based employees. Here are the most common options:

Stock options grant employees the right to purchase company shares at a set price in the future. While stock options are widely used in the U.S., offering them to international employees can be complex due to varying tax and securities laws.

Legal Considerations:

  • Tax treatment varies by country. In some regions, stock options are taxed as income upon grant or vesting, while others treat them as capital gains when sold.
  • Companies must comply with local securities laws, which may require registration or disclosure of equity plans.

RSUs are shares granted to employees after a certain vesting period, without the need for an initial purchase. They’re attractive for employees who may not want to pay upfront for stock options.

Legal Considerations:

  • The tax treatment of RSUs varies greatly by region. For instance, in some countries, RSUs are taxed as income when they vest, while in others, they may be taxed later when sold.

Phantom stock is a form of equity compensation that does not involve issuing actual shares. Instead, employees receive a payout based on the value of the company’s stock, mirroring the benefit of stock ownership.

Ubiminds Approach

Ubiminds facilitates the use of phantom shares to reward top performers in South America. This model allows U.S. companies to provide financial incentives to their non-U.S. team members without the complexities of issuing actual shares. Phantom shares avoid the complications of different tax regulations and ensure that both sides—the company and the employee—get the best possible tax and financial outcomes.

Phantom shares are particularly advantageous for companies expanding into Latin America because they can be structured in a way that minimizes tax liabilities for both the employee and the company, all while maintaining the alignment of interests between the two parties.

Ubiminds' Core Values- What It's Like Working With Ubiminders

Ubiminds’ Core Values are all about accountability and putting people first. Carolina Arruda

Legal and Tax Considerations When Offering Equity to Non-U.S. Employees

Offering equity to international employees is not without its challenges. Below are the most critical legal and tax considerations companies should keep in mind:

Each country has its own regulations about offering equity to employees. For example, some countries require that equity plans be registered with local authorities, while others have restrictions on the number of shares that can be issued. Companies must ensure they comply with these regulations to avoid legal issues.

The tax treatment of equity compensation varies by country, and this is particularly important for phantom shares. While phantom shares do not involve issuing actual stock, the payouts employees receive may still be subject to income tax. Some countries may also have different rules for how these payouts are calculated, and it’s important to work with tax advisors who understand international tax law to ensure compliance.

For U.S. companies expanding into regions like Latin America, phantom shares offer a streamlined solution for offering equity without triggering complex tax consequences.

Equity compensation can also be governed by local employment laws. For example, vesting periods, eligibility requirements, and even how equity is granted can differ by country. Companies need to ensure their equity plans align with the labor laws in each country to avoid legal complications.

Cultural attitudes towards equity compensation can vary significantly across countries. In some regions, equity compensation is a well-understood concept, while in others, it might be unfamiliar. Clear communication about the value of equity and how it aligns with a company’s success is essential for ensuring that employees understand and value their compensation package.

How Ubiminds Can Help You Offer Equity to Non-U.S. Teams

At Ubiminds, we specialize in nearshore staff augmentation and connecting software companies with top-tier talent across Latin America. We help companies design and implement compensation packages tailored to non-U.S. team members, ensuring alignment with both company goals and local regulations. 

Our approach to equity compensation, particularly through phantom shares, ensures that U.S. companies can reward their South American team members without the complexity of cross-border tax issues or legal hurdles.

We assist with:

  • Talent Sourcing: We can help you source top-tier developers across Latin America, providing the expertise needed to implement equity programs that drive employee retention and performance.
  • Designing Phantom Share Plans: Ubiminds works closely with your HR and legal teams to create equity compensation plans that suit your South American workforce and adhere to local tax and labor laws.
  • Navigating Legal and Tax Compliance: Our experts help ensure that your equity offerings comply with both U.S. and local regulations, minimizing tax liabilities and maximizing benefits for your non-U.S. employees.

Get Started with Phantom Shares Today

Ready to offer equity to your non-U.S. team members? Learn how Ubiminds can help you implement phantom share plans that drive motivation and retention, all while keeping your South American team aligned and compliant. Contact us today to learn more!

FAQs

Equity offers a unique incentive for attracting and retaining top talent to South America, while aligning employee interests with company goals.

Stock options, RSUs, phantom shares, and profit-sharing are all viable options.

Yes, the tax treatment of equity compensation varies by country, and companies should consult with local tax advisors to ensure compliance.

Ubiminders help structure phantom share plans, navigate tax and legal compliance, and source top talent across Latin America for your software company.