What are the risks of not selling your Vested Company Shares?

What are the risks of not selling your Vested Company Shares?

22 March, 2022

Many multi-national companies that are based in Singapore provide their executive employees with a certain amount of Unvested Company Shares every year as part of their employment package.  An “unvested share” is one that you can only act on and sell after a period has passed, or an event occurs. A typical arrangement is that shares will vest after a period (usually three to four years).

An employee will need to decide if they should sell or retain their shares once they become “Vested”.

The purpose of this article is to provide a list of the risks associated with not selling your “Vested Company Shares”:

Risk 1: Inheritance and Estate Tax

In most cases the Vested Company Shares will be held via a broker domiciled in the U.S or U.K. UK inheritance tax and United States estate tax are assessable on situs assets regardless of whether the owner of the asset is resident or non-resident. For Non U.S  person with U.S company shares: U.S estate tax is levied on death on U.S situs assets where the value of the U.S situs assets is more than $60,000 USD. Tax is levied at rates of 18% to 40%.

Good news: Estate and Inheritance tax may be eliminated through the use of appropriate investment structures. Fill in form below for more details.

Risk 2: Increased Market Risk due to the lack of diversification

Many employees become emotionally attached to the company that they work for and as a result can find it extremely hard to sell their vested company shares. This emotional attachment can lead to an employee having too much exposure to one company share. Rather than diversifying their investment portfolio  and spreading their risk amongst 1000s of different shares in 100s of different markets, industries and countries an employee may choose to hold most of their wealth in only one share. This investment strategy can be of an extremely high risk because the share price of a well established company (No matter how big and secure) can possibly drop by 80% over night if it suffered from something as simple as an information technology breach (Computer Hack). Diversification is the key to achieving a secure portfolio.

Risk 3: Currency Risk

There is a currency risk, if for example, Vested Apple Co shares (USD Currency) were granted to an employee who plans on retiring and spending their wealth in Australia. If the Australia dollar strengthened against the U.S dollar like it did in 2012 then the value of an Apple share will depreciate from an Australian dollar perspective. If you wish to reduce or eliminate currency risk then it is extremely important to ensure that most of your portfolio is invested in the currency in which you plan to spend your wealth.

Risk 4: Capital Gains Tax

There is likely to be a Capital Gains Tax (CGT) bill if an expat chooses to sell their investments while being home in Australia or the U.K.

The good news?

The good news is that the above financial risks can be avoided by using the correct investment strategy.

Fill in the form below to book a complimentary no obligation meeting with Qualified Expat Financial Advisor Sean Abreu.

Nothing on this website should be considered financial advice of any kind. Please consult your professional adviser before making any investment decision. Any content on this site relating to tax matters is for general information only, may not be up to date, and should not be considered tax advice of any kind.  

By providing the personal information, I give consent to contact me via the email/contact number I have provided for the purpose of conducting financial planning. I am aware that I may withdraw my consent provided by me anytime by submitting the IPPFA PDPA Withdrawal Consent Form to IPPFA by mail or email at pdpa@ippfa.com.

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