Employee Share Option Plan (ESOP)

A type of employee benefit plan designed to invest primarily in employer stock. To establish an ESOP, a firm sets up a trust and make tax-deductible contributions to it. The ESOP can be funded through tax-deductible corporate contributions to the ESOP.

A typical ESOP for a multi-national company may well be set up in an offshore centre and therefore be unapproved by any particular onshore taxation authority. For example, a multi-national corporation with employees in, say 30 countries may well decide to set up an unapproved scheme offshore. However, in certain circumstances, case law can provide that contributions to the scheme, which are used to buy shares in the sponsored equity company, may be tax deductible expenses in the books of that company.