Singapore has introduced a major enhancement to the tax regime for Employee Equity-Based Remuneration (EEBR) schemes. As from Year of Assessment (YA) 2026, companies may claim tax deductions on payments made to a holding company or special purpose vehicle (SPV) for the issuance of new shares under EEBR schemes, marking a significant expansion of the rules. Previously, a tax deduction was allowed only if the obligation under the EEBR scheme was fulfilled by using treasury shares.
EEBR schemes, under which share awards or stock options are given to employees in lieu of salaries or as part of performance-related remuneration, are a valuable tool for companies to retain staff and motivate them towards higher performance.
Where an SPV acquires the shares of the company or its holding company from the open market, the tax deduction rule remains the same: the deductible amount is the lower of (i) the cost incurred by the SPV in acquiring the shares from the open market, and (ii) the amount paid by the company for the shares transferred to its employee.
Where the SPV acquires treasury shares of the company or its holding company, other than from the open market, the rules are as follows:
In summary, when determining the amount of the tax deduction for treasury shares transferred by an SPV, there is no longer a need to consider the actual costs incurred by the SPV in acquiring the treasury shares.
The enhancement to Singapore's tax regime for EEBR solidifies Singapore’s commitment to maintaining a competitive and business-friendly environment. With these tax deductions, companies are encouraged to use share-based compensation to attract and retain top talent, aligning employee goals with long-term company growth. Affected companies should consider reviewing their EEBR schemes and plan ahead to enjoy the tax benefits.
Evelyn Lim
Loke Yew Ken
Wong Sook Ling
BDO in Singapore
EEBR schemes, under which share awards or stock options are given to employees in lieu of salaries or as part of performance-related remuneration, are a valuable tool for companies to retain staff and motivate them towards higher performance.
Highlights of the Tax Deduction
- The timing for claiming a deduction on payments for new shares is aligned with the existing rules for treasury shares, i.e., a tax deduction is allowed at the time the shares vest to the employees or when the company becomes liable to pay the recharge to its holding company or SPV, whichever occurs later. This provides consistency across different share delivery mechanisms and ensures that tax deductions align with the actual benefit received by employees.
- Deduction is tied to the vesting date. While the vesting of shares to employees must occur in the basis period for YA 2026 or later, the granting of such shares under an EEBR scheme may take place before the basis period for YA 2026. In line with the above, the recharge may also take place before the basis period for YA 2026.
Comparison Between Treasury Shares and the Issuance of New Shares
The key conditions and tax treatment of expenses in relation to treasury shares and the issuance of new shares used to fulfil obligations under an EEBR scheme are as follows:| Treasury shares | Issuance of new shares | |
| Applicable to shares of the company | Yes | No |
| Applicable to shares of the holding company | Yes | Yes |
| Deductible amount |
|
The lower of: - The recharge by the holding company or SPV for the issuance of the new shares; and - the fair market value of the shares at the time the shares are applied for the benefit of the employee |
| In all instances, the amount deductible is reduced by any amount payable by the employees for the shares | ||
| Recharge by holding company or SPV | Applicable if the EEBR scheme is fulfilled by treasury shares of the holding company | Must have a recharge by the holding company or SPV |
| Timing of the deduction | When the shares vest to the employees or when the company is liable to pay the recharge for the shares, whichever occurs later | |
Tax Deduction Rules for Treasury Shares Under an EEBR Scheme Administered by an SPV
Where an SPV acquires the shares of the company or its holding company from the open market, the tax deduction rule remains the same: the deductible amount is the lower of (i) the cost incurred by the SPV in acquiring the shares from the open market, and (ii) the amount paid by the company for the shares transferred to its employee. Where the SPV acquires treasury shares of the company or its holding company, other than from the open market, the rules are as follows:
| Tax deduction – before YA 2026 | Tax deduction – As from YA 2026 | ||
| Treasury shares | Shares of company/holding company | Shares of company | Shares of holding company |
| SPV pays for shares it acquires and recharges the company for the shares transferred | The lower of: - Actual costs incurred by the company/holding company to acquire the treasury shares; - Actual costs incurred by the SPV to acquire the treasury shares; and - The recharge by the SPV |
Actual costs incurred by the company to acquire the treasury shares | The lower of: - Actual costs incurred by the holding company to acquire the treasury shares; and - The recharge by the SPV |
| In all instances, the amount deductible is reduced by any amount payable by employees for the shares | |||
In summary, when determining the amount of the tax deduction for treasury shares transferred by an SPV, there is no longer a need to consider the actual costs incurred by the SPV in acquiring the treasury shares.
Looking Ahead
The enhancement to Singapore's tax regime for EEBR solidifies Singapore’s commitment to maintaining a competitive and business-friendly environment. With these tax deductions, companies are encouraged to use share-based compensation to attract and retain top talent, aligning employee goals with long-term company growth. Affected companies should consider reviewing their EEBR schemes and plan ahead to enjoy the tax benefits.Evelyn Lim
Loke Yew Ken
Wong Sook Ling
BDO in Singapore