e-Tax Guide: Tax deduction for shares used to fulfill obligations under an Employee Equity-Based Remuneration scheme

8 July 2011

This new e-tax guide issued by IRAS relates to companies that use shares to compensate their employees under an Employee Equity-Based Remuneration  (“EEBR”) scheme. It consolidates the two e-tax guides issued previously on the tax deduction for treasury shares used to fulfill obligations under an EEBR scheme and sets out the expanded scope of tax deduction where a Special Purpose Vehicle (“SPV”) administers the EEBR scheme.

Under an EEBR scheme, a company is allowed tax deduction for treasury shares transferred to its employees. The deduction is allowed on the actual cost incurred in acquiring the treasury shares, less any amount payable by employees for such shares. No tax deduction is allowed if new shares are issued for the purpose of the transfer.

Where a holding company transfers its treasury shares to employees of a subsidiary under an EEBR scheme, the subsidiary is allowed tax deduction if the holding company recharges it for the shares transferred. Tax deduction is allowed to the subsidiary based on the lower of actual cost incurred by the holding company to acquire the treasury shares and the recharge, reduced by any amount payable by employees for the shares.

From YA 2012, a company may also claim tax deduction on the cost incurred for its holding company’s shares transferred to employees under an EEBR scheme administered by a SPV. The timing of tax deduction and the amount deductible in such a case are substantially aligned with that of treasury shares.

For both treasury shares and shares administered through a SPV, the timing of tax deduction for costs incurred by a company for shares transferred to employees under an EEBR scheme would generally correspond with that of the vesting of the shares to the employees, typically determined as follows:

(a) For Employee Stock Option (“ESO”) schemes, the date options are exercised;

(b) For share award schemes, the date shares are vested and if there is no vesting condition, the date of share grant.

Where the company is charged for the cost of the shares transferred by its holding company or SPV, tax deduction is allowed when the shares vest to the employees or when the company is liable to pay the recharge for the shares, whichever occurs later.

The events mentioned above must occur on or after the following relevant effective dates for the related share cost to be eligible for tax deduction:

Shares transferred under EEBR

Relevant effective date

Tax deduction to be allowed

Treasury shares

30 January 2006


Holding Company shares
transferred through SPV

Basis period for YA 2012


If the SPV acquires the shares from the open market, the amount deductible to a company is the lower of:

(a) the amount paid by the company for the shares transferred to is employees, and

(b) the cost to the SPV in acquiring the transferred shares.

However, if the shares are treasury shares acquired directly from the holding company, the amount deductible is the lowest of the amounts in (a) and (b), if any, and the cost incurred by the holding company in buying the treasury shares. In all instances, the amount deductible is reduced by any amount payable by employees for the shares.

The SPV must be a legal person that can act as trustee of a trust set up for the purpose of the EEBR Scheme (“EEBR trust”). If the SPV performs other functions, these functions should not create any conflict of interest with its duties as a trustee of the EEBR trust. The EEBR trust however must be set up solely for the purpose of the EEBR scheme of the corporate group.

The above tax deduction is allowed under section 14P of the Singapore Income Tax Act.

For further details, please see http://www.iras.gov.sg/irasHome/news.aspx?id=902 (Ref 2011/IT/4).

The two previous e-tax guides subsumed into this one were the IRAS Circular and Supplementary Circular on Use of Treasury Shares to Fulfill Obligations under an EEBR Scheme (published on 30 June 2006 and 22 February 2007 respectively) (Ref 2006/IT/6 and 2007/IT/1).

Source: IRAS