Cross-Border Teams & Foreign Contributors

Common Scenario: Non-US Founder in US C-Corp

Foreign nationals founding US Delaware C-Corps face unique challenges:

• No ITIN or SSN required to receive founder shares
• 83(b) election still recommended but filing logistics differ
• May need to file with IRS using Form W-7 (ITIN application) along with 83(b)
• Tax treaty benefits may reduce or eliminate US tax on equity gains
• Home country may tax US equity differently than US residents
• Consider dual structure for tax optimization (US operating + foreign holding)

Structuring for Non-Resident Founders

• Direct ownership: Simplest but may have adverse home-country tax implications
• Through foreign holding company: Adds complexity but may optimize taxes
• Through US LLC (disregarded): Creates US tax filing obligations
• Consider Qualified Small Business Stock (QSBS) benefits - may not apply to non-residents
• Exit planning: Where will you be tax resident at time of sale?

Key Considerations for Foreign Contractors

When granting equity to service providers located outside the US:

• Securities laws: US exemptions apply, but home country laws may also apply
• Employment law: Local law may characterize contractor as employee
• Benefits: Some countries mandate benefits even for contractors
• Currency: Equity value may fluctuate with exchange rates
• Communication: Time zones and language barriers affect negotiations

When US Withholding Applies

The US company may have withholding obligations on payments to non-residents:

• FDAP income (fixed, determinable, annual, periodic): 30% default withholding
• Equity compensation: Generally not subject to withholding if properly structured
• Services performed in US: May trigger withholding regardless of residence
• Treaty rates may reduce withholding (e.g., to 15% or 0%)
• W-8BEN required to claim treaty benefits

Equity Grants vs. Cash Payments

Treatment differs based on what you are paying:

• Stock grants: Generally no withholding at grant or vesting for non-residents
• Option exercise: Spread may be subject to withholding if services performed in US
• RSU settlement: Similar to option exercise - depends on where services performed
• Cash payments for services: 30% withholding unless treaty or exemption applies
• Dividends on stock: 30% withholding (reduced by treaty)

US Delaware C-Corp (Most Common)

• Standard for VC-backed startups
• Foreign shareholders treated same as US shareholders
• QSBS benefits generally not available to non-residents
• Dividends subject to withholding (treaty rates available)
• Capital gains on stock sale often exempt from US tax for non-residents

Key IP Assignment Challenges

• Moral rights: Many countries give creators inalienable rights US does not recognize
• Work for hire: Concept may not exist or work differently abroad
• Future works: Assignment of not-yet-created IP may be unenforceable
• Formalities: Some countries require notarization, registration, or specific language
• Language: Assignment may need to be in local language to be enforceable

Best Practices for International IP Assignment

• Use local counsel to review assignments for each jurisdiction
• Include broad present assignment + obligation to assign in future
• Get moral rights waivers where legally possible
• Require cooperation in IP filings and proceedings
• Consider having IP created in US (stronger protection)
• Document chain of title thoroughly for due diligence

Cryptocurrency Considerations

Some startups pay contractors in crypto. Issues to consider:

• Tax treatment: Generally taxable as ordinary income at receipt FMV
• Volatility: Value may change significantly before recipient converts
• Regulatory: Many countries have unclear or restrictive crypto rules
• Documentation: Record FMV at transfer for tax purposes
• Equity payments: Cannot easily pay equity in crypto (still issuing stock)

Choosing the Right Forum

Cross-border disputes are expensive. Choose your forum carefully:

• US courts: Familiar law but may be hard to enforce abroad
• Local courts: Easier enforcement but unfamiliar procedures
• Arbitration: Often preferred for international disputes
• Mediation: Non-binding but can resolve disputes faster

Common Cross-Border Issues