U.S. Tax Rules for Foreign-Sourced RSUs: Key Considerations by Country

1. Taxability and Tax Timing

General US Rule:

US taxpayers are taxed on worldwide income, including RSUs, at the time of vesting or delivery, based on the fair market value of the shares. Sourcing is determined by where services were performed during the grant-to-vest period.

France

  • Tax Event: If the RSUs are “qualified,” tax is deferred until sale, and certain employer/employee social security contributions are eliminated. However, an employer-paid social tax is due (either at grant or vesting), and minimum vesting/holding periods apply.

  • Regimes: The applicable regime (pre-Macron, Macron I, II, or III) depends on grant date and shareholder approval. Each regime has specific requirements, including sub-plan adoption and special closed periods for public companies.

  • Reporting: Special reporting is required for qualified RSUs. Tax on sale is due for qualified RSUs, but income tax withholding is generally not required except for outbound transfers.

Australia

  • Tax Event: Taxable at vesting. Employers must report taxable events to the tax authorities and the employee after the end of the tax year (June 30).

  • Withholding: Required only if the employee’s tax ID is not provided.

Singapore

  • Tax Event: Tax at vesting for RSUs. The taxable amount is the fair market value of the shares at vesting.

  • Expatriate Rule: Expatriate employees ceasing employment or leaving Singapore may be deemed to have vested in RSUs and be taxed upon termination/leaving.

  • Sourcing: RSUs granted in Singapore are 100% Singapore-sourced. RSUs not granted in Singapore are not taxed by Singapore, even if vesting occurs while the employee is working in Singapore.

  • Withholding: Generally, no withholding. No tax on sale.

Mexico

  • Tax Event: RSUs are taxed at vesting.

  • Sourcing: Sourced based on workdays during the grant-to-vest period.

  • Non-Residents: Withholding taxes are often due at vest on the Mexico-source portion, even if not withheld by the employer.

Canada

  • Tax Event: Taxable at vesting.

  • Withholding: Employees may file Form T1213 with the CRA to proactively request reduced income tax withholding at source, especially when a portion of the income is sourced to another country and will be subject to foreign tax and eligible for a Canadian tax credit.

2. Withholding and Reporting

  • US Withholding: US employers must generally withhold on RSUs, including foreign-sourced, unless foreign law requires mandatory withholding. Voluntary foreign withholding does not relieve the US obligation. The foreign earned income exclusion (FEIE) may reduce withholding if Form 673 is provided.

  • France: No income tax withholding for qualified RSUs except for outbound transfers. Employer social tax is due at grant or vesting.

  • Australia: Withholding required only if employee tax ID is not provided. Reporting to authorities and employee is mandatory after the tax year.

  • Singapore: Generally, no withholding. Special rules for expatriates leaving Singapore.

  • Mexico: Withholding often required for non-residents on the Mexico-source portion.

  • Canada: Form T1213 can be used to reduce withholding when foreign tax credits will apply.

3. Foreign Tax Credit (FTC) Timing Considerations

  • General Rule: The FTC for RSU income can be claimed in the year the income is included in US taxable income, provided the foreign tax is paid or accrued on the same income in that year. If the foreign tax is paid in a different year, the taxpayer must use carryback/carryforward rules to match the credit to the correct year.

  • Country-Specific: Most countries above tax RSUs at vesting, which typically aligns with US timing. However, mismatches can occur, especially with fiscal year differences or special expatriate rules (e.g., Singapore).

4. Fiscal Year Considerations

  • General Rule: Fiscal year mismatches between the US and foreign countries can cause timing differences for income inclusion and FTC, potentially resulting in double taxation unless relief is available through carrybacks, carryforwards, or matching rules.

  • Examples: The UK tax year runs April 6–April 5, Australia’s is July 1–June 30, India’s is April 1–March 31. RSUs vesting near fiscal year-end may create mismatches.

5. Sourcing

  • General Rule: Sourcing of RSU income is based on where services were performed during the grant-to-vest period, using a time-based apportionment method.

  • France, Australia, Singapore, Mexico, Canada: The US applies the same sourcing rules regardless of the country. For Mexico, local law also sources RSUs based on workdays during the grant-to-vest period. For Singapore, only RSUs granted in Singapore are Singapore-sourced.

Conclusion

US taxpayers with qualified RSUs sourced to France, Australia, Singapore, Mexico, or Canada must navigate both US and local tax rules. Key issues include the timing of US and foreign taxation, withholding obligations, foreign tax credit timing, fiscal year mismatches, and sourcing. Each country has unique compliance and administrative requirements, especially for qualified RSUs. Careful planning and documentation are essential to optimize tax outcomes and avoid double taxation.

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