Giving digital assets to employees: the tax implications to be aware of
Giving digital assets to employees: the tax implications to be aware of
Token based incentives for employees are becoming increasingly common amongst companies which operate in the digital assets industry. Cryptocurrency exchange platforms, payment providers, game developers, and other companies in the digital asset space offer native tokens or established tokens as a reward for services or as a tool to recruit, retain and motivate staff. Token based incentives can compliment the other incentives offered by the employer, for example equity incentives such as EMI options, CSOP options, growth shares or Restricted Stock Units (“RSUs”).
How do restricted token awards to employees work?
Companies make an award of tokens, subject to a vesting period and/or unlocking schedule. Tokens usually cannot be staked prior to vesting. Tokens vest if the employee remains in employment on the vesting date / allocation date. No vesting usually happens after termination of employment and unvested tokens will usually be lost if employment is terminated prior to vesting.
Performance criteria can be attached to the award. After the tokens vest, they can be sold freely (subject to the limitations of the market on which the tokens are listed, if applicable).
The vesting of tokens can be accelerated in the event of a corporate event, such as a company sale.
There can be a gap between when the tokens are allocated and when they are distributed to the employee.
Tokens are usually held in escrow until they vest and/or unlock.
The employee must have an appropriate digital wallet to receive the tokens and failure to provide an appropriate digital wallet may mean that the tokens may become irretrievable.