This article was originally published in BDO Spotlight - July 2025
In Singapore, companies often utilise share-based remuneration schemes, such as share options or share award programs, to incentivise employees and align their interests with corporate performance. These schemes typically allow employees to acquire company shares at a later date, either for free or at a discounted price. Under Singapore's tax law, companies are allowed to deduct certain employment equity-based remuneration if they use treasury shares to fulfil their obligations under these schemes. The deduction was contingent on the actual costs incurred by the company in acquiring those treasury shares.
However, a significant update was introduced in Budget 2025, offering a more comprehensive framework for share-based remuneration deductions.
What’s New in Budget 2025?
The latest enhancement in Budget 2025 shifts the focus from the actual costs incurred to the act of making a payment. Specifically, the deduction scheme has been expanded to allow companies to claim deductions for payments related to the issuance of new shares, not just treasury shares. The core principle of the scheme remains the same: a company must make a payment, but the need to demonstrate that an actual cost was incurred is now irrelevant.
Key Changes in the Deduction Scheme
Under the enhanced framework, the main criteria for eligibility are:
- Payment Requirement: A company must make a payment related to the issuance of new shares to fulfil its obligations under the share option or share award scheme. This means that even if the company does not incur any cost in issuing the shares, as long as there is a payment, the deduction is allowed.
- No Deduction for Own Shares: If a company issues its own shares directly to employees under the scheme and does not make a payment, it will not be eligible for the deduction. This means that a company must pay either a holding company or an SPV for the shares issued, and the payment must be linked to the issuance of new shares, not just the transfer of treasury shares.
- The enhancement introduces a new layer of complexity in terms of taxability, particularly when the issuer of the shares is a Singapore entity.
If the holding company or issuer is a foreign company, the taxability of the receipts depends on the tax treatment in the foreign jurisdiction where the issuer is based. Where the issuer is a Singapore company, the taxability of the receipt by the issuer is unclear at this juncture, and further clarification is expected from the tax authorities.
Implications of the Budget 2025 Enhancement
The changes introduced in Budget 2025 provide significant flexibility and clarity for companies utilising share-based remuneration schemes. By allowing deductions for payments made in relation to the issuance of new shares—regardless of whether any actual costs are incurred—the government has streamlined the process and expanded the opportunities for tax efficiency. However, businesses will need to carefully navigate the complexities surrounding the taxability of receipts, especially when the shares are issued by a Singapore entity.
Ultimately, the enhancement creates new avenues for structuring employee incentive programs, especially in multinational corporations, but it also raises important considerations about tax compliance. Companies must ensure they understand both the mechanics of the new deduction scheme and the broader tax implications to maximise the benefits of this update. Further clarification on the taxability of receipts from Singapore issuers is expected, and companies will need to stay informed on this matter as the tax authorities issue further guidance.