Updated November 2026. Originally published July 2014.
Stock options and share awards are a standard part of pay at venture-funded startups and at the Singapore subsidiaries of international tech groups. They’re also where employees most often get caught out on tax, because the tax bill can arrive before they have sold anything. Here’s how Singapore taxes them, and what employers need to do.
The two types of plan
Employee stock options (ESOPs) give an employee the right to buy shares at a fixed price, usually after a vesting period.
Share awards, including restricted stock units, give the employee shares outright, often after a vesting period. IRAS groups these, together with employee share purchase plans, as Employee Share Ownership (ESOW) plans.
Both count as employment income in Singapore. That applies whether the shares are in the Singapore company itself or in an overseas parent.
When the tax arises
The tax doesn’t arise when the option or award is granted.
- Stock options are taxed when the employee exercises them.
- Share awards with a vesting period are taxed when they vest.
- Share awards with no vesting period are taxed when they are granted.
How the gain is worked out
The taxable gain is the open market value of the shares on the taxable date, less what the employee paid for them.
Example: Peter holds options over 1,000 shares at an exercise price of S$1. He exercises them when the shares are worth S$5. His taxable gain is (S$5 − S$1) × 1,000 = S$4,000, added to his employment income for that year.
Any rise in value after that point is generally a capital gain, and Singapore doesn’t tax capital gains.
For a startup, the hard part is the “open market value”. Unlisted shares have no quoted price, so the company needs a defensible valuation at each exercise or vesting date. A recent funding round price is often the starting point.
The cash problem, and the deferral scheme
Exercising options in a private company can leave an employee owing tax on a gain they can’t yet sell. The Qualified Employee Equity-based Remuneration (QEEBR) scheme lets eligible employees defer paying that tax for up to five years, with interest charged on the deferred amount.
Foreign employees leaving Singapore: the “deemed exercise” rule
This is the rule that causes the most problems for growing teams.
When a foreign employee stops working in Singapore, IRAS treats their unexercised options and unvested awards as if they were exercised or vested at that point, and taxes the gain as part of their tax clearance. The same applies to permanent residents leaving Singapore permanently. The gain is generally valued one month before employment ends.
Example: Tom, a foreign engineer, has 500 unvested share awards when he relocates back to London. Under the deemed exercise rule, the gain on those 500 shares is taxed in his Singapore tax clearance, even though they haven’t vested yet.
If the actual gain turns out to be lower when the options are later exercised or the shares vest, the employee can ask IRAS to reassess it within the time limit.
Instead of applying the deemed exercise rule, an employer can apply to IRAS for the tracking option, which lets it report the actual gain when it happens. It has strict conditions and needs IRAS approval in advance.
What about grants made before moving to Singapore?
Options and awards granted for work done outside Singapore, before the Singapore employment started, are generally not taxed here, even if they’re exercised or vest while the employee lives here. Grants made for the Singapore employment are taxable wherever the employee is when they exercise or vest. Where a grant spans both, get advice on how the gain is split.
What employers must do
- Annual reporting: report ESOP and ESOW gains to IRAS each year on Appendix 8B, alongside the employee’s Form IR8A.
- Departing foreign employees: file Form IR21 tax clearance, including any deemed exercise gains, before they leave.
- Records: keep share valuations and plan records for every exercise and vesting date.
How Futurebooks can help
We set up ESOP plans for startups and Singapore subsidiaries: the plan rules, board and shareholder resolutions, share allotments and ACRA filings. We also handle the payroll side, including Appendix 8B reporting and IR21 tax clearance for departing employees. Talk to us about your ESOP.
This article is general information, not tax advice. Tax treatment depends on the facts of each case.