Restricted Stock Units (RSUs) have become a key component of compensation in many American corporations, particularly in the tech sector and high-growth industries. Companies like Apple, Microsoft, Amazon, Google (Alphabet), and Meta (Facebook) regularly grant RSUs to employees as part of their compensation packages, offering them a direct stake in the company’s success.
For employees, RSUs can be highly rewarding, often forming a significant portion of their total compensation and providing opportunities for wealth accumulation beyond their base salary. When the company’s stock performs well, RSUs can represent a significant financial gain. However, for non-U.S. citizens working abroad, there are important tax considerations and financial risks that should not be overlooked.
RSUs serve as both an incentive and a retention tool, aligning employee interests with those of shareholders. Unlike stock options, RSUs do not require an employee to purchase shares. Once they vest, the shares are granted outright, making them a valuable benefit that requires no upfront cost. If the company performs well, the shares may appreciate significantly in value, contributing to long-term wealth creation. RSUs are also designed to encourage employees to remain with the company, as they typically vest over time rather than being awarded all at once.
Most U.S. companies’ structure RSUs with a three- to four-year vesting schedule, often including a one-year cliff followed by monthly or quarterly vesting. This means that an employee who leaves the company after three years will usually take their vested shares with them, even if they no longer work for the company. If they leave before completing the vesting period, they may forfeit unvested shares. This structure rewards those who stay, while also ensuring employees can still benefit from the shares they have already vested if they decide to move on.
For non-U.S. citizens, RSUs from American companies introduce significant tax complexities. When RSUs vest, they are taxed as income based on the stock’s market value at that time. This can push employees into a higher tax bracket, depending on their country of residence. Additionally, U.S. companies may withhold a portion of the RSU income for taxes, even for employees working outside the U.S. Once vested shares are sold, any additional gains are typically subject to capital gains tax in the employee’s country of residence, which may be taxed at a higher rate than in the U.S.
Expats working in Spain under the Beckham Law, for example, may face an increased tax burden once they exit the preferential tax regime. RSUs and other foreign-held assets could become subject to full Spanish income tax, and employees may also be required to report holdings in U.S. companies under Spain’s Modelo 720 declaration, further complicating tax obligations.
While RSUs provide a valuable financial opportunity, holding too many shares in one company can be risky. Employees whose salary and RSUs are tied to the same employer are particularly vulnerable to downturns in the company’s stock. If the company underperforms or experiences a major decline, they could face both a loss of income and a significant reduction in their equity holdings. U.S. tech stocks are known for their volatility, and employees at companies like Meta, Tesla, and Amazon have witnessed dramatic swings in stock value, with some shares losing half their value within months.
To manage these risks, employees should consider selling a portion of their RSUs upon vesting and reinvesting in a more diversified portfolio. Tax planning is equally important, as understanding withholding requirements and capital gains tax obligations can prevent unexpected liabilities. RSUs should be viewed as part of a broader financial strategy rather than the sole source of long-term wealth.
While RSUs can be a powerful tool for wealth creation, understanding the tax implications and managing the associated risks is crucial to maximising their benefits. With the complexities involved, particularly for non-U.S. citizens working abroad, it’s important to take a strategic approach to your RSUs, ensuring they fit into your broader financial plan.
If you’re navigating the world of RSUs and want to make sure you’re optimising your benefits while managing potential tax liabilities, I’d be happy to help. Let’s take a closer look at your specific situation and develop a tailored strategy that works for you.
Feel free to reach out today for a consultation, and together we can ensure that your RSUs are contributing to your long-term financial success.