Singapore has no capital gains tax, so an individual founder who sells shares held as a long-term investment in their own company usually pays no Singapore income tax on the gain. That is the starting point, not the whole answer. Part of the price can still be taxable if you are treated as trading in shares, if the shares came from an employee share plan, or if some of the money is really pay for work, such as an earn-out tied to staying on. The buyer normally pays stamp duty, and overseas founders may owe tax at home. The way the deal is documented matters.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
This guide is for founders, co-founders and employee-shareholders of Singapore private companies who are selling some or all of their shares in a trade sale, a buy-out by the other founders, or a secondary sale to an investor. It explains the questions to raise before you sign a share purchase agreement. It is general information, not tax advice on your transaction.
Why is a founder’s share gain usually not taxed?
IRAS’s position is that gains from selling shares are generally viewed as personal investments and are generally not taxable for individuals. A founder who subscribed for shares when the company was formed, built the business for several years, and sells once is, on ordinary facts, realising a capital investment.
IRAS can still treat a gain as income where the facts show trading. It weighs the badges of trade, such as your intention when you acquired the shares, how often you buy and sell, how long you held them, how the purchase was financed, and the circumstances of the sale. A serial founder who sets up companies to sell them quickly, or an individual who frequently buys and sells unlisted shares, faces a harder question than a one-off exit. Our guide to badges of trade explains each factor.
Which parts of the deal can be taxed as income?
| Element of the deal | Usual starting point | Why it can become taxable |
|---|---|---|
| Price for founder shares held as an investment | Capital, not taxed | Facts that point to trading, such as frequent buying and selling or acquiring the shares to resell |
| Shares acquired through an ESOP or share award | The gain at exercise or vesting is employment income | Section 10(6) of the Income Tax Act 1947 treats these gains as employment income, even if you have left the company |
| Earn-out or deferred price | Part of the share price if it depends on the business’s performance and is paid for the shares | If it depends on you continuing to work, it can look like pay for services |
| Consultancy or employment fees after completion | Taxable income | Payment for work is income, however the agreement labels it |
| Payment for agreeing not to compete | Depends on the facts | IRAS looks at what the payment is really for, not its label |
What if my shares came from an ESOP or share award?
Many co-founders who joined after incorporation, and most early employees, hold shares through options or share awards. For these, the tax point usually arrives before the sale. IRAS taxes the gain when an option is exercised or when shares vest, measured as the open market value at that time less the price you paid. If the plan restricts you from selling, the tax point moves to when the restriction ends. Our guide to ESOP tax treatment for startups covers how plans are set up.
Three practical points for a sale:
- Acceleration on exit. Many plans accelerate vesting or allow exercise when the company is sold. That can create an employment income gain in the same year as the sale, valued close to the deal price.
- Foreigners leaving Singapore. When a non-Singapore Citizen’s employment in Singapore ends, IRAS generally treats unexercised or unvested options and awards as exercised or vested at that point, typically at tax clearance. If the sale also ends your Singapore role, plan for this.
- Deferral. IRAS’s Qualified Employee Equity-based Remuneration scheme lets eligible employees defer tax on these gains for up to five years, with an interest charge. The older ERIS schemes, which partly exempted such gains, no longer apply after YA 2024.
Any further increase in value after the exercise or vesting date is not part of the employment gain. It is then assessed under the general capital or trading principles above.
How should earn-outs and staying-on arrangements be structured?
Buyers often pay part of the price later, either as a fixed deferred sum or as an earn-out that depends on revenue or profit after completion. A deferred or performance-linked price paid for the shares generally keeps the character of the share sale. The risk arises when payment depends on the founder continuing to work, for example a sum forfeited if the founder resigns within two years. That looks more like reward for services, which is taxable employment or consultancy income.
If you will stay on, keep the two things separate in the documents:
- A share purchase agreement setting out the price for the shares, including any earn-out tied to business performance.
- A separate employment or consultancy agreement with a market-rate salary or fee for the work you will do.
- Leaver provisions that, if needed, adjust remuneration or incentives rather than the share price, and that are consistent with how the price is described.
IRAS decides the nature of a payment on the facts, not on the label, so the substance must match the drafting.
Who pays stamp duty on the sale?
Stamp duty on a transfer of shares in a Singapore company is 0.2% of the price or the value of the shares, whichever is higher, rounded down to the nearest dollar. For a private company, value is usually based on net asset value from accounts dated within 24 months before the transfer, with property taken at market value where book value does not reflect it. The agreement can say who pays. If it is silent, the Stamp Duties Act 1929 places the duty on the buyer. A transfer signed in Singapore should be stamped within 14 days to avoid penalties. Different rules apply where the company holds Singapore residential property.
Example of the duty: if co-founders buy shares for S$1.2 million and the net asset value of those shares is S$1.5 million, duty is 0.2% of S$1.5 million, or S$3,000. Our guide to stamp duty on share transfers explains the valuation and e-stamping steps.
Does section 13W help an individual founder?
No. Section 13W of the Income Tax Act 1947 gives certainty that a gain is not taxed when a divesting company disposes of shares after holding at least 20% for at least 24 months. It applies to companies, not individuals. If you hold your shares through a personal holding company, the holding company’s sale is assessed under section 13W or the general principles. Reorganising your holding shortly before a sale changes who the seller is and how long the holding period has run, so it needs advice well in advance. See our guide to section 13W.
I live overseas or plan to leave. What changes?
Singapore not taxing your gain does not mean no country does. If you are tax resident elsewhere, or are a citizen of a country that taxes on citizenship, your home country may tax the gain, and the timing of your move can matter. Some countries also tax people who leave on unrealised gains. Get advice in each relevant country before you sign, because moving after the sale is often too late.
Example: a co-founder sells to the other founders
Example: Three hypothetical co-founders own a Singapore software company. One of them, Arjun, holds 30%, subscribed at incorporation five years ago, plus vested options over a further 3% that he has not exercised. He is leaving, and the other two will buy his shares for S$600,000. The draft agreement pays S$400,000 at completion and S$200,000 after 12 months, but only if Arjun is still working as a consultant.
- The S$400,000 for founder shares held for five years, sold once, points to a capital gain.
- Exercising his options before the sale creates an employment gain under section 10(6), based on market value at exercise less the exercise price.
- The S$200,000 depends on his continued service, so it risks being treated as income. Restructuring it as a performance-based deferred price, with a separate consultancy fee for his work, would reflect the substance better.
- The buyers stamp the transfer within 14 days on the higher of price and net asset value, unless the agreement allocates duty differently.
The legal steps to remove a co-founder who will not agree terms are different. See our guide on negotiating a co-founder’s exit.
Checklist before you sign the share purchase agreement
- How and when you acquired each block of shares, and what you paid
- Any option, award or vesting documents, and whether the sale triggers acceleration
- Whether any part of the price depends on your continued work
- Separate employment or consultancy terms if you are staying on
- Who pays stamp duty, and the latest accounts for the net asset value
- Whether the company owns Singapore residential property
- Your tax residency now and after the sale, and any home-country tax
- Board approvals, pre-emption rights and the ACRA filing for the transfer
Frequently asked questions
Do I declare a capital gain from selling my shares in my tax return?
A gain that is capital is not taxable, so it is not declared as income. A gain from exercising options or vesting shares is employment income and should be reported, often through your employer’s records. If you are unsure which applies, get advice before filing.
Is it better to sell shares or have the company sell its business?
They are different deals. In an asset sale the company sells its business and receives the money, so any gain arises in the company and must then be paid out to you, for example as dividends. In a share sale you receive the price directly. Liabilities, contracts and stamp duty also differ, so compare both routes before agreeing heads of terms.
Can I ask IRAS for certainty before the sale?
IRAS operates an advance ruling system for income tax. For a significant or unusual transaction, an adviser can consider whether a ruling application is worthwhile, bearing in mind the time and fee involved.
Does the company pay any tax when I sell my shares?
Generally no. The company’s shares change hands, but the company itself does not make a disposal. Its tax position, including losses and unused allowances, can be affected by a change in shareholders, which matters to the buyer.
Who files the share transfer with ACRA?
The company updates its electronic register of members through ACRA once the transfer is stamped and approved. This is usually handled by the company secretary.
Need help with selling your shares?
If you are a founder or shareholder preparing to sell shares in a Singapore company, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133. We can prepare the net asset value figures for stamp duty, handle stamping and the ACRA share transfer filing, update the registers, and work with your tax adviser on how the price and any staying-on arrangements are documented.
Kevin Yeo, Raffles Corporate Services