Introduction
In the era of remote work and global talent acquisition, companies are increasingly leveraging Employer of Record (EOR) services to build international teams without the overhead of establishing local entities. This model has revolutionized global hiring, but it introduces significant complexity when it comes to a cornerstone of modern compensation: employee equity.
Offering stock options is a powerful tool for aligning incentives and fostering a sense of ownership, but navigating the legal and tax implications across different jurisdictions, especially within an EOR framework, presents a formidable challenge for legal and finance professionals.
The fundamental conflict arises from the very nature of the EOR relationship. An EOR is the legal employer of the individual in their country of residence, handling payroll, taxes, and local compliance. The employee, however, performs work for the client company. While this arrangement simplifies employment logistics, it complicates equity grants. Most tax-advantaged equity schemes around the world are built on a direct employer-employee relationship, a link that is severed in the EOR model.
Decision Tree: Should You Establish a Local Entity?
Answer a few questions to determine the best approach for granting equity to your international employees.
Where is your employee located?
Israel
Last Updated: February 2026The Section 102 Hurdle
Israel has a thriving tech scene and is a popular destination for global talent. However, its framework for equity compensation is notoriously rigid and presents the most significant challenge for the EOR model. The governing regulation is Section 102 of the Israeli Tax Ordinance, which provides a path to highly favorable tax treatment for employees, but only under strict conditions.
Local Trustee Requirement
Equity awards must be deposited with and held by an Israeli trustee for a mandatory 24-month holding period.
Local Entity Requirement
The plan must be filed with the Israel Tax Authority, and grants must be made by an Israeli company. This requires establishing a local subsidiary.
Critical Tax Impact
Without a local Israeli entity, equity granted to an Israeli employee is treated as ordinary income and taxed at marginal rates exceeding 50%, compared to the 25-30% capital gains rate under Section 102 (base 25% plus potential surtaxes for high earners). This largely defeats the purpose of equity as a wealth-building tool.
Granting tax-efficient equity to an employee through a pure EOR model is effectively impossible. The only compliant path is to establish a local subsidiary, which negates the primary benefit of using an EOR for that employee.
Deep expertise in Section 102 Capital Gains Track implementation, ensuring your employees benefit from 25-30% tax rates instead of 50%+ ordinary income taxation.
Comprehensive trustee coordination and management for your equity plans, handling the 24-month holding period and ITA filings with precision.
End-to-end support for establishing your Israeli subsidiary, from incorporation to ongoing compliance, enabling tax-efficient equity grants.
United States
Last Updated: February 2026The Land of Flexibility
The United States offers a much more permissive environment for granting equity to EOR-employed individuals. The US tax code provides for two main types of stock options: Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs).
Tax Treatment
No tax at grant or exercise (AMT may apply). Long-term capital gains on all appreciation.
Employment Requirement
Must be granted to employees of the granting corporation or its parent/subsidiary.
EOR Compatibility: Incompatible
Tax Treatment
No tax at grant. Ordinary income tax at exercise on spread. Capital gains on subsequent appreciation.
Flexibility
Can be granted to employees, contractors, consultants, and advisors.
EOR Compatibility: High
The US provides a clear and flexible path for granting equity to EOR employees through NSOs. While the tax benefit is less pronounced than with ISOs, it remains a viable and widely used method for incentivizing a global workforce.
UK & Europe
Last Updated: February 2026A Patchwork of Possibilities
Unlike the unified systems in Israel and the US, Europe is a mosaic of different legal and tax regimes. The viability and tax-efficiency of granting equity via an EOR vary significantly from one country to another.
The UK offers a highly attractive tax-advantaged scheme known as Enterprise Management Incentives (EMI). EMI options allow employees of smaller, qualifying companies to receive significant tax benefits, with gains subject to a 14% capital gains tax under Business Asset Disposal Relief (rising to 18% from April 2026).
📢 November 2025 EMI Expansion (Effective April 2026)
- Employee cap: 250 → 500 employees
- Gross asset limit: £30M → £120M
- Option exercise window: Extended to 15 years
Employment Requirement
The option holder must be an employee of the granting company or a qualifying subsidiary. This makes EMI options incompatible with the EOR model, as the EOR, not the client company, is the legal employer.
Companies can still grant non-tax-advantaged options to UK-based EOR employees, but the tax outcome is far less favorable, with gains at exercise subject to income tax and National Insurance contributions.
There is no EU-wide framework for employee stock options. Some countries have developed favorable regimes, while others have not:
France
Has specific regimes including BSPCEs (startup warrants) and stock options, with complex eligibility and tax treatment varying by instrument type.
Germany
Historically less favorable, but 2024 Future Financing Act (ZuFinG) introduced significant tax deferral improvements under Section 19a EStG for qualifying companies.
Other Countries
Many lack specific legislation, leading to uncertainty and equity gains often being taxed as ordinary income.
The region requires a bespoke approach. While tax-advantaged schemes are generally off-limits for EOR employees due to direct employment requirements, non-qualified grants are often possible. Success hinges on conducting thorough, country-specific due diligence.
Comparative Analysis
| Feature | Israel | United States | UK / Europe |
|---|---|---|---|
| EOR Compatibility | Very Low Tax-efficient plans require a local entity, defeating the purpose of EOR. | High NSOs provide a flexible and compliant mechanism for direct grants. | Medium Varies by country. Tax-advantaged plans generally incompatible, but non-qualified grants often feasible. |
| Tax Efficiency for Employee | With local entity: 25-30% capital gains tax Via EOR: Up to 50%+ ordinary income tax | NSOs taxed as ordinary income at exercise, with subsequent gains taxed as capital gains. | Generally taxed as ordinary income, unless a specific country's rules allow different treatment. |
| Administrative Burden | Very High Requires establishing subsidiary, appointing trustee, navigating complex ITA rules. | Low Straightforward grant process for NSOs with clear tax withholding rules. | High Requires country-by-country legal and tax analysis, plan localization. |
Strategic Recommendations
For a global EOR workforce, NSOs or similar non-tax-advantaged awards should be the default. They offer the greatest flexibility and are most likely to be compliant across multiple jurisdictions.
In countries with significant legal hurdles to granting actual equity (like Israel) or where currency controls are an issue, phantom stock or other cash-settled awards are a powerful alternative. These mimic the financial upside of stock ownership without transferring actual shares.
For key employees in strategic markets, especially in countries like Israel or the UK where tax-advantaged plans are a significant part of the compensation culture, the need to offer competitive equity may be the tipping point for establishing a local entity.
Do not attempt to navigate this alone. A successful global equity strategy requires a partnership between your legal counsel, tax advisors, and a knowledgeable EOR provider. The ultimate responsibility for securities law compliance and corporate governance rests with the granting company.
Clear, proactive communication about the structure, tax implications, and value of the equity is essential to maintaining trust and motivation. An employee in Israel who receives NSOs may not understand why their tax treatment differs from Section 102.
Companies should view their equity strategy as dynamic, not static. What starts as an EOR relationship may evolve into a local entity as the business scales. Building flexibility into your equity plan documents from the outset can save significant time and legal expense.
Emerging Trends and Future Outlook
The landscape of global equity compensation is not standing still. Regulatory changes, particularly in Europe, are beginning to reflect the new realities of remote work and cross-border employment.
Several countries updated their equity regulations in 2025, signaling a growing recognition by regulators that traditional employment models are evolving:
- Japan simplified exemptions for subsidiary employees
- The Philippines amended its SEC rules
- China eliminated quarterly SAFE reporting requirements for equity grants
There is also increasing discussion within the European Union about harmonizing equity compensation rules across member states, though any such initiative is likely years away. In the meantime, companies must continue to navigate the current patchwork on a country-by-country basis.
Another trend worth watching is the rise of alternative equity instruments designed specifically for international and EOR workforces. Phantom stock, profit interests, and other synthetic equity structures are gaining traction because they offer economic alignment without the legal complexity of actual share ownership.
Conclusion
As global teams become the norm, the demand for international equity will only grow. While the EOR model provides an agile solution for global employment, it is not a panacea for the complexities of cross-border equity compensation.
The United States offers a clear and flexible model, but Israel and the fragmented European landscape demonstrate the critical importance of jurisdiction-specific expertise. By understanding these differences and planning strategically, companies can design compliant and compelling equity programs that attract, retain, and motivate top talent, no matter where they are in the world.
Key Takeaway
Success in global equity compensation requires balancing three competing priorities: compliance, cost-effectiveness, and competitive positioning in the talent market. There is no one-size-fits-all solution, but with the right expertise and strategic planning, companies can navigate these challenges effectively.