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What is Employee Share Scheme(ESS), and How it is Taxed?

Employee Share Scheme

If you have been issued or offered shares in your employer company in the form of a benefit or remuneration, it would help to understand the rules around the Employee Share Scheme (ESS) benefits.

Purpose of ESS

Present, past or future employees may be offered shares in the employer company (or a related group company), mostly to retain or reward them over a longer period while offering them an incentive to be part of the value growth in the company. This motivates the employee further as the success of the company will translate to monetary and value growth benefit to the employee.

Valuation of shares issued

Shares will be valued at the market price of the shares on the valuation / taxation date, less any amount the employee may be required to pay to acquire them.

It is taxable on the earlier of –

  • Expiry of vesting date
  • Transfer of shares to another person.
  • Shares are cancelled

The ESS income will be reported as employment income, although no PAYE tax will be deducted on it. They may also opt to have PAYE deducted on it, which if not will lead to a provisional tax liability for the recipient.

 

Are your Employee Share Scheme ESS exempt from tax?

Exemptions on ESS

 In Accordance to Section CW26C ITA2007

You may be exempt from the tax if you meet the below eligibility criteria –

  • Price payable by the employee does not exceed the market value at date of purchase.
  • Maximum value of shares provided does not exceed $5,000 a year.
  • Discount on value provided by employer does not exceed $2,000 a year.
  • Minimum spend requirement cannot be more than $1,000 for any employee.
  • Atleast 90% of the employees are eligible for the scheme.
  • Minimum period to serve as an employee to be eligible cannot exceed 3 years.
  • Employer must offer an interest free or instalment repayment scheme for any amount payable.

 

Please note that the above does not constitute specific tax advice and only intends to be a general advice. If you require specific advice related to your situation, please reach out to our tax consultant using the ‘contact us’ option.

 

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