An Employee Share Option Scheme (ESOS) gives employees the right to purchase shares in the company at a fixed exercise price, usually at or below the market price at the time of the grant. If the company grows, the shares become more valuable — and exercising the option at the original lower price lets the employee capture that gain. For start-ups and growing SMEs in Singapore, an ESOS (alongside Employee Share Ownership Plans and Share Award Schemes) is one of the most powerful tools for attracting, retaining and incentivising key talent.

This guide explains how an ESOS works in Singapore, what shareholders and directors need to approve, how ACRA filing interacts with the scheme, and how IRAS taxes the benefit in the hands of employees.

How an ESOS Works

The key features of a standard ESOS are:

  • Grant date: The company grants the employee an option to purchase a specified number of shares at a specified exercise price.
  • Vesting schedule: Options vest over a period, typically one to four years. Unvested options are forfeited if the employee leaves before the vesting date.
  • Exercise period: Once vested, the employee may exercise the option at any time within a defined window (for example, up to ten years from the grant date).
  • Exercise: The employee pays the exercise price and receives newly issued or existing shares.
  • Exit event: The employee realises the value of their shares when the company lists on a stock exchange, is acquired, or buys back the shares.

Legal and Corporate Requirements

Shareholders’ Approval

An ESOS in a Singapore private limited company typically requires shareholder approval before it is adopted. The scheme rules are approved by ordinary or special resolution at an EGM or under a written resolution in lieu of a meeting. The resolution should authorise the directors to issue shares upon the exercise of options, including a general mandate under Section 161 of the Companies Act if the shares to be issued upon exercise are new shares. For more on share issuances and Section 161 mandates, see our guide on How to Allot New Shares in a Singapore Company.

Constitution Checks

The company’s constitution must permit the issue of shares to employees. Most standard Singapore constitutions are broad enough to accommodate an ESOS, but you should review the constitution before adopting the scheme to confirm there are no restrictions on the type of persons to whom shares may be issued, or on the number of shares that may be issued under employee incentive schemes.

ACRA Filings on Exercise

When an employee exercises an option and new shares are issued, the company must notify ACRA within 14 days of the allotment. This is done through BizFile+ as a “Return of Allotment of Shares” (Form 11). The filing records the number of new shares issued, the consideration received (i.e., the exercise price paid), and the updated share capital. The share register must also be updated to reflect the new shareholder. If the shares are existing shares transferred by a selling shareholder (a “secondary ESOS”), stamp duty on the share transfer will be payable. See our guide on Annual Return Filing Singapore 2026 for the broader context of statutory filings.

How Employees Are Taxed on ESOS Benefits

IRAS taxes the ESOS benefit as employment income under the Income Tax Act 1947. The key rules are set out in IRAS’s e-Tax Guide on Employee Equity-Based Remuneration.

When Is the Benefit Taxed?

For a standard ESOS (without a “qualified employee equity-based remuneration” election), the benefit is taxed at the time the option is exercised. The taxable amount is:

Taxable benefit = (Market value of shares at exercise date) − (Exercise price paid)

This amount is added to the employee’s employment income for the year of assessment in which the option is exercised and taxed at the employee’s marginal income tax rate (up to 24% for individuals in 2026).

Qualified Employee Equity-Based Remuneration (QEEBR) Scheme

Under the QEEBR scheme (formerly known as the “Qualified ESOP” scheme), an employee may elect to spread the ESOS benefit over a period of up to ten years. This is useful where the taxable benefit in a single year would push the employee into a very high tax bracket. The election must be made before the option is exercised and is irrevocable. Employers must notify IRAS of the election and report the benefit correctly in the IR8A.

Employer Reporting Obligations

Employers must report all ESOS benefits exercised by employees in Form IR8S (for ESOS grants) as part of the annual employer return submitted to IRAS by 1 March each year. The form reports the grant date, exercise date, number of shares, exercise price and open market value, so IRAS can verify the employee’s taxable income. Failure to report correctly can result in penalties for the employer under the Income Tax Act.

Is CPF Payable on ESOS Benefits?

CPF contributions are generally not payable on ESOS benefits, because the benefit arises from the exercise of an option to acquire shares, not from wages or salary. The CPF Board’s guidance confirms that ESOS benefits are not wages for CPF purposes. However, if an employee receives cash in lieu of shares (a “cash-settled” ESOS), that cash payment may be treated as wages subject to CPF.

Setting Up an ESOS: Key Scheme Documents

A properly documented ESOS typically includes the following documents:

  • Scheme Rules: The governing document that sets out the eligibility criteria, grant process, vesting schedule, exercise conditions, treatment on termination of employment, and anti-dilution provisions.
  • Option Agreement: A letter or agreement sent to each participant at the time of the grant, confirming the number of options, exercise price, grant date and vesting schedule.
  • Board Resolution: A directors’ resolution approving each grant of options under the scheme.
  • Shareholders’ Resolution: A resolution (or written resolution) approving the adoption of the scheme and, if new shares are to be issued, granting a Section 161 mandate to the directors.

ESOS vs Other Employee Equity Schemes

An ESOS is not the only way to give employees a stake in the company. Other common structures in Singapore include:

  • Restricted Share Award (RSA) / Performance Share Plan (PSP): Shares are issued directly to the employee (often at nil or nominal consideration), subject to vesting conditions. Unlike an ESOS, the employee does not need to pay an exercise price. The taxable benefit arises when the shares vest.
  • Employee Share Purchase Plan (ESPP): Employees are given the right to purchase shares at a discount, typically through payroll deductions. The discount is the taxable benefit.
  • Phantom Share Plan (cash-settled): Employees receive a cash payment equal to the appreciation in share value over a period. No actual shares are issued, so there are no ACRA allotment filings, but CPF may be payable on the cash payment.

How Raffles Corporate Services Can Help

Setting up an ESOS involves company secretarial work (constitution review, shareholder and board resolutions, ACRA filings) and tax planning (IRAS reporting obligations, QEEBR elections). Raffles Corporate Services can assist with the full setup, from reviewing your constitution and preparing scheme documents to filing allotment returns with ACRA each time options are exercised.

For the latest Singapore business news and regulatory updates, there are useful resources for business owners planning equity incentive programmes. If you need legal advice on your ESOS scheme documentation, we can point you in the right direction. Beyond equity incentives, sound financial planning and investment decisions are important for business owners structuring long-term reward programmes.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

— The Editorial Team, Raffles Corporate Services