Employee Equity-Based Remuneration Schemes

Companies currently are allowed tax deductions on the cost incurred to acquire their own shares (i.e. treasury shares) or where treasury shares of their holding company are transferred to their employees under an Equity-Based Remuneration (EEBR) scheme. Tax deduction is also allowed on costs incurred for a holding company’s treasury shares transferred to employees under an EEBR scheme administered by a special purpose vehicle (SPV). Tax deduction would not be available where new shares are issued to employees under EEBR schemes.

In Budget 2025, the Prime Minister proposed an enhancement to allow a tax deduction for payments to the holding company or an SPV even where new shares (instead of only treasury shares) of the holding company are issued to fulfill obligations under the EEBR scheme. The amount qualifying for tax deduction will be the lower of (a) the amount paid by the company; or (b) the fair market value (or net asset value of the shares if the fair market value is not readily available) at the time the shares are applied for the benefit of the employee, as reduced by any amount payable by employees for the shares. The enhancement will take effect from Year of Assessment 2026.

More details will be provided by the Inland Revenue Authority of Singapore by the third quarter of 2025.

It remains to be seen whether there could be prescribed requirements for valuing unlisted shares (similar to that for external valuation of intellectual property rights for purposes of section 19B writing down allowance) If the company so wishes to demonstrate the fair value of the company and optimise tax deduction claims on such share-based payment schemes. 

The enhancement is nonetheless an encouraging move by the Government, bringing Singapore on a level playing field with jurisdictions such as Hong Kong and the United Kingdom which have allowed employers’ deduction claims on the cost of new shares issued by holding companies, subject to conditions. 

As a follow-on enhancement, the Government may consider extending the tax deduction to cover cases where shares are issued by the Singapore company itself to its employees under EEBR schemes. Given that many high growth businesses, especially cash-strapped start-ups, rely on EEBR schemes to incentivise their employees, it would seem these may be left out in the cold and have to restructure their EEBR schemes to access the benefits of the tax deduction.