Gains and profits arising from Employee Share Options (ESOP) plans and other forms of Employee Share Ownership (ESOW) plans are subject to tax if the plans are granted to an employee when he/she is employed in Singapore.
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Employee Share Option (ESOP) and other forms of Employee Share Ownership (ESOW)
Employee Share Option (ESOP)
An ESOP plan gives an employee the right to purchase shares in a company (usually the employer or a parent company of the employer) at a specific pre-determined price on or after specific dates under the plan.
An employee who is granted rights under an ESOP plan by an employer will be taxed on any gains or profits arising from the ESOP plan. Generally, this is when the share options under the plan are exercised by the employee.
Other forms of Employee Share Ownership (ESOW)
ESOW plans allow an employee to own or purchase shares in a company (usually the employer or a parent company of the employer). They include share awards plans where shares are credited to the employee after a period of time (commonly referred to as a vesting period).
ESOW plans do not include plans where an employee receives cash payments that are linked to the price of shares in a company, but there is no possibility (under the plan) for the employee to receive shares in the company (commonly referred to as phantom share plans).
An employee who is granted rights under an ESOW plan by an employer will be taxed on any gains or profits arising from the ESOW plan. Generally, this is when the shares under the plan vest for the employee.
The above applies equally to ESOP/ESOW plans that are:
- Granted by an overseas parent company operating a group ESOP/ESOW plan (i.e. the plan is not administered by the Singapore employer of the employee); or
- Granted to a person as a result of any office held by him, for example, as a director of a company (i.e. there is no contract of employment between the taxpayer and the company that grants the rights under the plan).
Taxable gains from ESOP and ESOW
ESOP plans
Generally, the gains are taxable when the share options are exercised by the employee. This is the case even if the employee has ended his employment with the employer or if the employee has been posted overseas and is no longer employed in Singapore. For an employee who is not a Singapore Citizen, a “deemed exercise” rule[1] is applied when the employee is no longer employed in Singapore so that tax is payable at that time.
If the ESOP plan imposes any restriction on the sale of the shares (acquired under the share options), the gains are taxable in the year when that restriction ends. This does not apply if the “deemed exercise” rule[1] had already been applied when the employee was no longer employed in Singapore.
ESOW plans with no vesting period imposed
Generally, the gains are taxable in the year when the shares are granted.
However, if the ESOW plan imposes any restriction on the sale of the shares, the gains are taxable in the year when that restriction ends.
ESOP plans/ESOW plans granted with vesting period imposed
Generally, the gains are taxable when the shares vest for the employee. This is the case even if the employee has ended his employment with the employer or if the employee has been posted overseas and is no longer employed in Singapore. For an employee who is not a Singapore Citizen, a “deemed exercise” rule[1] is applied when the employee is no longer employed in Singapore so that tax is payable at that time.
If the ESOP/ESOW plan imposes any restriction on the sale of the shares, the gains are taxable in the year when that restriction ends. This does not apply if the “deemed exercise” rule[1] had already been applied when the employee was no longer employed in Singapore.
[1] You may refer to the section ‘What should I do if there are unexercised share options?’ for more details on “deemed exercise” rule.
Computing gains from ESOP and ESOW
If the ESOP/ESOW plan imposes any restriction on the sale of the shares
Gains from ESOP/ESOW plan = Open market price of the shares on the date the selling restriction ends less any price paid for the shares
If the ESOP/ESOW plan does not impose any restriction on the sale of the shares
Gains from ESOP plan = Open market price of shares on the date of exercise less any price paid for the shares (exercise price)
Gains from ESOW plan (with a vesting period) = Open market price of shares on the date of vesting less any price paid for the shares
Gains from ESOW plan (with no vesting period) = Open market price of shares on the date of grant less any price paid for the shares
Example 1: Computing taxable gains from an ESOP plan
Mr Lim exercised his share options. Below is the amount of his gains from the ESOP plan:
| Gains from ESOP plan | Amount |
|---|---|
|
Open market price per share on date of exercise (a) |
$10 |
|
Exercise price per share (b) |
$5 |
|
Number of shares acquired (c) |
100 |
|
Gains from ESOP plan [(a) - (b)] x (c) |
500 |
Tax deferment scheme
| Qualified Employee Equity-based Remuneration Scheme (Qualified EEBR Scheme) | Details |
|---|---|
| Incentives | Payment of tax on gains arising from stock options/shares can be deferred for up to five years. The deferred tax is subject to an interest charge. |
| How to qualify | Please refer to the e-Tax Guide on Tax Treatment of Employees on Share Options and Other Forms of Employee Share Ownership Plans (Fourth Edition) (PDF, 721KB). |
| How to apply | You must submit the form Application for deferment of tax attributable to gains from ESOP/ESOW plans under the Qualified EEBR Scheme (DOC, 121KB). The form must be submitted (with the employer's certification) to the Comptroller of Income Tax not later than 15 Apr of the relevant year, together with your Income Tax Return or separately if you e-File your Income Tax Return. |
| Alternative payment | If you do not wish to apply for the tax deferment scheme, you may pay your taxable gains from ESOP/ESOW plans via GIRO instalments. |
Equity Remuneration Incentive Schemes (ERIS)
Equity Remuneration Incentive Schemes (ERIS) provide tax incentives to employees who derive gains from ESOP and ESOW plans granted by their employers. There are 3 types of ERIS:
- ERIS (Start-ups)
- ERIS (SMEs)
- ERIS (All corporations)
As announced in the Budget Statement for 2013, ERIS will be phased out to rationalise the tax treatment of remuneration for employees.
ERIS (Start-ups)
| Applies to | Tax incentives |
|---|---|
|
Stock options or shares granted from 16 Feb 2008 to 15 Feb 2013 and within the first 3 years of the company's incorporation. |
Tax exemption of 75% of the gains arising from the ESOP or ESOW plan. Tax exemption is available over a period of 10 years, subject to qualifying criteria. The cumulative gains on which the tax exemption applies are capped at $10 million over the 10-year period and the gains must be derived on or before 31 Dec 2023. |
ERIS (SMEs)
| Applies to | Tax incentives |
|---|---|
|
Stock options granted from 1 Jun 2000 to 31 Dec 2013 or shares granted from 1 Jan 2002 to 31 Dec 2013. |
Tax exemption of 50% of the gains arising from the ESOP or ESOW plan. Tax exemption is available for each YA over a period of 10 years, subject to qualifying criteria. The cumulative gains on which the tax exemption applies are capped at $10 million over the 10-year period and the gains must be derived on or before 31 Dec 2023. |
ERIS (All corporations)
| Applies to | Tax incentives |
|---|---|
|
Stock options granted from 1 Apr 2001 to 31 Dec 2013 or shares granted from 1 Jan 2002 to 31 Dec 2013. |
Tax exemption on the first $2,000 of gains, and exemption of 25% of the remaining amount of gains from the ESOP or ESOW plan. Tax exemption is available for each YA over a period of 10 years, subject to qualifying criteria. The cumulative gains on which the tax exemption applies are capped at $1 million over a 10-year period and the gains must be derived on or before 31 Dec 2023. |
Qualifying for ERIS
For details, please refer to the e-Tax Guide on Equity Remuneration Incentive Scheme (ERIS) (Second Edition) (PDF, 535KB).
Use the ERIS Calculator (XLS, 288KB) to check the eligibility for partial tax exemption under ERIS.
Reporting gains
If your employer is participating in the Auto-Inclusion Scheme, you do not need to report your employment income. Your employer will transmit your employment income details to us directly.
If your employer is not participating in the Auto-Inclusion Scheme, you must declare the gains from ESOP/ESOW plans under 'Employment Income' in your Income Tax Return. You must submit the Form IR8A and Appendix 8B (details of gains and profits from ESOP/ESOW plans) together with your Income Tax Return or separately if you e-File.