What should I do if there are unexercised share options in Singapore?

Tax Clearance for Foreign & SPR Employees (IR21) In Singapore

What should I do if there are unexercised share options in Singapore?

Under the “deemed exercise” rule, a foreign employee is deemed to have derived gains from the unexercised/restricted Employee Share Option Plan (ESOP) and unvested/restricted Employee Share Ownership Plans (ESOW) which he has at the time he ceases to work in Singapore with the employer which granted him the ESOP or ESOW. This rule applies to ESOP and ESOW granted from 1 Jan 2003.

Employees affected

• Foreigners (non-Singapore Citizens).
• Singapore Permanent Residents leaving Singapore permanently.
• Singapore Permanent Residents posted to work overseas.

What types of ESOP and ESOW are affected?

They are:

• Unexercised ESOP granted to an employee while he is employed in Singapore.
• Restricted ESOP granted to an employee while he is employed in Singapore, where the moratorium has not been lifted when the employee ceases employment with the employer.
• Shares granted to an employee while he is employed in Singapore, under any ESOW with vesting imposed where the beneficial interest from the ownership of the shares has not yet been vested to the employee when he ceases employment with the employer.
• Restricted shares granted to an employee while he is employed in Singapore, under any ESOW where the moratorium has not been lifted when the employee ceases employment with the employer.

How do I compute taxable gain under the “deemed exercised” rule?

Taxable gain is A – B

A refers to the open market price of the shares as at:

• one month before the date the employee ceases employment; or
• the date of grant of the ESOP or ESOW,whichever is the later.

B refers to:

• the exercise price of the shares under the unexercised/restricted ESOP; or
• the price paid or payable for the shares acquired under the ESOW with vesting/moratorium imposed.

What if the actual gain upon subsequent exercise is less than the taxable gain?

The employee can apply for a reassessment of the deemed gain. He can submit supporting information to IRAS within:

• 6 years from the year of assessment following the year in which the “deemed exercise” rule is applied, if the year of assessment is 2007 or earlier. (For example, deemed gain for 2006 is taxable in the Year of Assessment 2007. The application for reassessment must be made by 31 Dec 2013.)
• 4 years from the year of assessment following the year in which the “deemed exercise” rule is applied, if the year of assessment is 2008 or later. (For example, deemed gain for 2018 is taxable in the Year of Assessment 2019. The application for reassessment must be made by 31 Dec 2023.)

How do I compute actual gain?

Actual gain is C – B

C refers to:

• the open market price of the shares on the date of exercise of the ESOP/date the moratorium is lifted for the restricted ESOP.
• the open market price of the shares on the date of vesting/the date moratorium is lifted for the shares acquired under the ESOW.

B refers to:

• the exercise price of the shares under the unexercised/restricted ESOP; or
• the price paid or payable for the shares acquired under the ESOW with vesting/moratorium imposed.

 What supporting information is needed?

For ESOP, submit:

• the date of exercise of the ESOP or the date the moratorium is lifted
• the open market price of the shares on the date of exercise of the ESOP or the date the moratorium is lifted
• the exercise price of the shares.

For ESOW, submit:

• the date of vesting or the date the moratorium is lifted
• the open market price of the shares on the date of vesting or the date the moratorium is lifted
• the price paid or payable for the shares.

Tracking Option for unexercised/restricted ESOP and unvested/restricted ESOW for employees seeking tax clearance

As an alternative to the “deemed exercise” rule, the Tracking Option allows an employer the option to track when the ESOP or ESOW is exercised/vested.  The employer can track and report the gains from the ESOP and ESOW based on actual realised gains. The employee will be assessed on such gains based on his tax residency status at the time that the gains arise.
The employer will need to meet the qualifying conditions and apply to IRAS for the Tracking Option. For more information, please refer to the following e-Tax Guide:

Tax Treatment of Employee Stock Options and other Forms of Employee Share Ownership Plan (Second Edition) (496KB).

Source of Information for Tax Clearance / Declaration & their related matters is from the Inland Revenue Authority of Singapore (IRAS).

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