As announced in Singapore’s Budget 2025, the Government introduced a major enhancement to the tax regime for Employee Equity-Based Remuneration (EEBR) schemes. Starting from the Year of Assessment (YA) 2026, companies are allowed to claim tax deductions on payments made to a holding company or special purpose vehicle (SPV) for the issuance of new shares under such schemes. Before this enhancement, tax deduction will only be allowed if the obligation under the EEBR scheme is fulfilled by using treasury shares.
Following this, the Inland Revenue Authority of Singapore (IRAS) issued an updated e-Tax Guide in September 2025, providing further clarity on how and when companies can benefit from the enhanced deduction.
Timing for 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 point when 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.
Eligibility of deduction is tied to the vesting date
The e-Tax Guide has clarified that 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 happen before the basis period for YA 2026.
A comparison between treasury shares and the issuance of new shares
The key conditions and tax treatments of expenses in relation to treasury shares and issuance of new shares used to fulfil obligations under an EEBR scheme are summarised 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 following:
|
|
|
In all instances, less any amount payable by 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 recharge by the holding company or SPV |
|
Timing of deduction |
When the shares vest to the employees or when the company is liable to pay the recharge for the shares, whichever occurs later |
|
Streamlining tax deduction rules for treasury shares under the EEBR scheme administered by SPV
In addition to clarifying the rules for new shares, the tax deduction rules for treasury shares under the EEBR scheme, administered by the SPV have also been simplified with effect from YA 2026.
Where the 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 changes are summarised as follows:
|
|
Tax deduction - before YA2026 |
Tax deduction - YA2026 onwards |
|
|
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 the following:
|
Actual costs incurred by the company to acquire the treasury shares |
The lower of the following:
|
|
|
In all instances, less any amount payable by employees for the shares |
||
In summary, when determining the amount of 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. By providing these tax deductions, the Government encourages companies to use share-based compensation to attract and retain top talent, aligning employee goals with long-term company growth.
Companies are recommended to review their EEBR scheme and plan ahead to enjoy the tax benefits.
Contact
If you require advisory support on the tax implications arising from the enhancements to tax deductions on EEBR schemes for your company, please get in touch with us.