Tax Deduction for Employee Share Plans Settled with Newly Issued Shares (YA2026): What Changed for Singapore Companies

If your group settles employee share awards by having an overseas holding company issue brand new shares, rather than recycling treasury shares, you may have been sitting on a permanent tax leakage without realising it. Until Year of Assessment (“YA”) 2026, the Singapore subsidiary bearing the cost of those awards, often through an intercompany recharge, simply could not claim a tax deduction for it. Only treasury shares qualified.

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That changed from YA2026. The Inland Revenue Authority of Singapore (“IRAS”) has extended the deduction under the Income Tax Act 1947 to cover newly issued shares of a holding company used to fulfil obligations under an Employee Equity-Based Remuneration (“EEBR”) scheme, provided the Singapore company pays the holding company or a Special Purpose Vehicle (“SPV”) for the issuance. For finance directors running a share plan through an offshore holding company, this closes a long-standing gap and, done correctly, can turn a previously non-deductible recharge into a real tax saving.

This article looks only at that narrow funding-mechanism change: what qualifies, how the deduction is computed, when it can be claimed, and the related transfer pricing point that groups now need to manage alongside it. It does not cover general employee share option plan design or treasury share mechanics, which we have addressed elsewhere.

The Old Rule: Only Treasury Shares Ever Qualified

Since YA2007, section 14L of the Income Tax Act 1947 has allowed a company a tax deduction for the cost of its own treasury shares transferred to employees under an EEBR scheme, based on the actual cost of acquiring those treasury shares, less any amount paid by the employee. From YA2012, section 14M extended this to arrangements where an SPV, acting as trustee of an EEBR trust, acquires and holds shares of the company or its holding company on behalf of the scheme, with the deduction based on the lower of the amount recharged and the actual cost incurred in acquiring those shares.

Crucially, both provisions were built around shares that already existed, either treasury shares bought back by a company, or shares acquired from the open market by an SPV. Where a company or its holding company instead issued brand new shares to satisfy an EEBR obligation, IRAS’s long-standing position was that no cost had been “wholly and exclusively” incurred in the production of income. Issuing new shares is a movement in the share capital account, not an expense, so no deduction was available, however the group structured the recharge.

This mattered most for groups whose ultimate holding company is listed overseas or is a private holding vehicle that prefers to issue fresh shares rather than run a treasury shares buyback programme. Many such groups settle Singapore employees’ vested restricted share units or exercised options with newly issued holding company shares, then recharge the Singapore operating entity through an EEBR-type arrangement. Before YA2026, that recharge, often a genuine and substantial cash cost, produced no corresponding tax deduction at all.

What Changed From YA2026: Newly Issued Shares of the Holding Company

Following the Budget 2025 announcement, IRAS has introduced a new section 14MA of the Income Tax Act 1947, with a consequential amendment to section 15(1)(q), to allow a tax deduction on payments made by a Singapore company to its holding company or an SPV for the issuance of new shares of the holding company under an EEBR scheme. IRAS set out the mechanics in the fourth edition of its e-Tax Guide on tax deduction for shares used to fulfil obligations under an EEBR scheme, published on 30 September 2025.

Two boundaries are worth flagging immediately, because they are easy to miss when reading the headline change.

Only the holding company’s newly issued shares qualify

If a Singapore company issues its own new shares to satisfy an EEBR obligation, whether directly or through an SPV, there is still no deduction. That position is unchanged. The new relief applies only where the shares issued are shares of the company’s holding company, defined by reference to section 5 of the Companies Act 1967, and the Singapore company pays the holding company or an SPV for that issuance.

The recharge must genuinely flow through an EEBR structure

The holding company or SPV must be recharging the Singapore entity specifically for shares applied to fulfil obligations under an EEBR scheme, in the same way treasury share recharges already had to. Where an SPV is used, it must be a legal person capable of acting as trustee of an EEBR trust set up solely to hold shares for the scheme, and it can be an existing group entity repurposed for that role rather than a newly formed vehicle.

Before vs After YA2026: A Quick Comparison

The table below summarises how the deduction position has shifted for the four common scenarios a Singapore finance director is likely to encounter.

How to Compute the Deduction

For payments to a holding company or an SPV for the issuance of new shares, the amount of tax deduction available to the Singapore company is the lower of:

• the amount paid by the company for the shares issued or transferred to its employees; and
• the price of the shares in the open market at the time of issue or transfer to the employees, or, if that price cannot be determined, the net asset value of the shares at that time.

In every case, the resulting figure is reduced by any amount the employee pays for the shares. If the amount payable by the employee happens to exceed the figure computed above, no deduction is available at all, and the subsidiary does not get to carry the shortfall forward against future share issuances.

Worked example

Assume a Singapore operating company, SG Opco, is part of a group whose holding company is listed overseas. Under the group’s EEBR scheme, 10,000 restricted share units held by SG Opco employees vest, and the holding company issues 10,000 new ordinary shares to satisfy the awards, at nil cost to the employees. SG Opco pays the holding company a recharge of SGD 150,000 for the new shares. At the date of vesting, the holding company’s shares trade at SGD 14 each on the open market, so the open market value of the shares transferred is SGD 140,000.

The deduction is the lower of the SGD 150,000 recharge paid and the SGD 140,000 open market value, which is SGD 140,000. Since employees paid nothing for the shares, the full SGD 140,000 is deductible to SG Opco in the relevant year of assessment.

Before YA2026, this same fact pattern would have produced a deduction of nil, because the shares were newly issued rather than treasury shares, even though SG Opco was genuinely out of pocket by SGD 150,000. From YA2026, the same recharge structure supports a SGD 140,000 deduction, provided the vesting and the administrative conditions below are satisfied.

Timing of the Deduction

The timing rules for newly issued shares of the holding company are aligned with the existing rules for treasury shares and SPV-administered schemes. A deduction is allowed at the later of:

• the date the shares are applied for the benefit of employees, which is generally the date the shares vest (for Employee Stock Option schemes, this is typically the date of exercise; for share award schemes, the date of vesting, or the date of grant if no vesting condition is imposed); and
• the date the Singapore company becomes liable to pay the recharge to the holding company or SPV for the shares transferred.

Because the new section 14MA takes effect from YA2026, the vesting event itself must fall within the basis period for YA2026 or a later year of assessment for the deduction to be available. The award can have been granted earlier, and the recharge invoice can be settled before or after the basis period for YA2026, so long as vesting occurs on or after that point.

IRAS also expects a company claiming this deduction to include, in its schedule of tax computations, a description of the EEBR structure and the SPV’s relationship to the group (if any), a confirmation that no claim is being made for newly issued shares of the company itself, confirmation that the claim is made under sections 14L, 14M or 14MA as applicable, the method used to track the cost of shares transferred, and the amount of any employee contribution.

The Related Transfer Pricing Point for Groups

Alongside the deduction change, IRAS’s ninth edition Transfer Pricing Guidelines, issued on 4 June 2026, address a related issue: how share-based compensation (“SBC”) costs should be treated when a Singapore entity prices intercompany services using the transactional net margin method. From YA2026, uncharged or notional SBC costs, that is, SBC given to Singapore employees where there is no recharge, or a recharge below the underlying SBC cost, are excluded from the Singapore entity’s service income for transfer pricing purposes, while the SBC amount remains in the cost base used to compute the arm’s length mark-up.

For groups now setting up or tightening a recharge structure to access the new section 14MA deduction, this matters in practice. A recharge put in place to claim the deduction also feeds into the group’s transfer pricing documentation and intercompany service agreements. The finance director introducing or resizing that recharge should make sure the transfer pricing workings for any related service fee are updated in the same cycle, rather than treated as unconnected.

Practical Steps for Singapore Finance Directors

1. Map out how your group’s EEBR scheme is funded. If a holding company issues new shares and recharges a Singapore entity, that recharge was very likely non-deductible before YA2026 and is now worth revisiting.
2. Confirm any SPV genuinely acts as trustee of an EEBR trust set up solely to hold shares for the scheme, since that status is a condition for the deduction, not a formality.
3. Rebuild the deduction computation using the lower-of-recharge-and-fair-market-value (or net asset value) test, and confirm vesting dates fall within the basis period for YA2026 or later.
4. Update the schedule of tax computations with the disclosures IRAS now expects, including confirmation that no claim is made for the company’s own newly issued shares.
5. Loop in whoever prepares the group’s transfer pricing documentation before finalising any recharge agreement, so the SBC cost-base treatment and the section 14MA deduction are aligned.

The extension of the deduction to newly issued holding company shares is a narrow but useful change for groups that fund employee share plans this way. It rewards groups that already have, or are prepared to put in place, a properly documented EEBR structure with a recharge agreement, consistent cost tracking, and transfer pricing documentation that speaks to the same numbers used in the tax computation.

How Raffles Corporate Services Can Help

Our tax and accounting teams work with Singapore SME groups and their overseas holding companies to review EEBR scheme funding structures, recompute available deductions under sections 14L, 14M and 14MA, and align the related transfer pricing documentation. If your group settles employee share awards through a holding company or SPV and you are unsure whether the YA2026 change applies to you, our team can help.

For related reading, see our articles on Employee Share Option Plans (ESOP) for Singapore Companies, Treasury Shares in Singapore, the IRAS Tax Governance Framework and CTRM, and Singapore Transfer Pricing Documentation requirements.

The Editorial Team, Raffles Corporate Services