Singapore Tax Alert: One-off IRAS concession for share-based compensation

Eligible taxpayers may apply the revised transfer pricing treatment retrospectively to YAs 2022 to 2025 and obtain a waiver of the 5% surcharge on resulting transfer pricing adjustments.

At a glance

On 1 October 2026, the Inland Revenue Authority of Singapore (IRAS) announced a one-off concession concerning the transfer pricing treatment of share-based compensation. The concession provides eligible taxpayers with an opportunity to revisit their related-party service arrangements for earlier Years of Assessment (YAs).

Under the concession, eligible taxpayers may:

1. apply the revised YA 2026 treatment in paragraph 5.120 of the ninth edition of the Singapore Transfer Pricing Guidelines to YAs 2022 to 2025; and
2. obtain a waiver of the 5% surcharge under section 34E on the resulting transfer pricing adjustments.

What has changed?

The transfer pricing treatment applicable up to YA 2025 and from YA 2026 is summarised below:

For all YAs, incurred, uncharged and notional share-based compensation relating to employees who perform the relevant services should be included in the cost base when determining the appropriate cost-plus return, regardless of whether the compensation is recorded in the accounts of the Singapore entity or a related party.

For YA 2025 and before, all three categories of share-based compensation should also be included in service income. From YA 2026, incurred share-based compensation remains included in service income, while uncharged and notional share-based compensation are no longer required to be included.

Who may be affected?

The one-off concession may be relevant to a Singapore entity that:

• earns related-party service fee income under a cost-plus arrangement; and
• has employees who performed those services and received share-based compensation in any basis period from FY 2021 to FY 2024, regardless of whether the compensation was recorded in the accounts of the Singapore entity or a related party.

Action required and filing deadlines

To benefit from the concession, taxpayers must submit revised tax computations, together with full details of the relevant mark-up, by the following deadlines:

• YA 2022: 15 November 2026
• YAs 2023 to 2025: 28 February 2027

Given the earlier deadline for YA 2022, potentially affected taxpayers should assess their position promptly and determine whether revised tax computations are required.

GST implications

Taxpayers should also assess whether the corresponding transfer pricing adjustment would trigger the need for them to calibrate their GST reporting position as well based on the guidelines summarised under the IRAS e-Tax Guide GST: Transfer Pricing Adjustments. 

Where the initial intercompany service was a taxable supply, the proposed increase / decrease in price might require one to adjust its taxable supply position (including output tax, where applicable). Correspondingly, this action could contribute to a shift in the taxpayer’s input tax credit available and its GST net position should it be not a fully taxable business. 

Example: A GST registered Singapore service provider initially charged its related party S$1,090,000, comprising service income of S$1,000,000 and 9% GST of S$90,000 at 9%. If S$200,000 of uncharged or notional share-based compensation is no longer required to be included in the service income under the revised treatment, the adjusted consideration would reduce the supply value toS$800,000 and the corresponding output tax to S$72,000. 

For a fully taxable business that is entitled to full input tax credit, the downward adjustment may generally result in a favourable GST outcome, as both the value of standard-rated supplies and the corresponding output tax would be reduced. In this example, the service provider would adjust the standard-rated supply by S$200,000 and the output tax by S$18,000.

However, this favourable outcome may not arise in every case. The overall GST impact may differ where the original GST treatment or classification was incorrect, the business is partially exempt or not entitled to full input tax credit, or the adjustment affects the recoverability of input tax. A holistic review of the taxpayer’s supply and purchase transactions, input tax recovery position, and the GST classification of the original supply is therefore required before the net GST impact can be determined. Taxpayers should also retain sufficient records, including updated documentation on the substance of the services provided, to support the basis and allocation of the adjustment.
 

Looking ahead

The one-off concession gives eligible taxpayers an opportunity to apply IRAS’ revised treatment of share-based compensation to earlier YAs. Businesses with related-party service arrangements should review whether share-based compensation was included in their historical cost-plus calculations and assess both the income tax and potential GST implications.

With the YA 2022 submission deadline falling on 15 November 2026, affected taxpayers should undertake this review as soon as practicable.

How RSM can help

If the concession may apply to your company, early action is important given the submission deadlines. RSM’s Transfer Pricing team can assess the potential impact, assist with revised tax computations, and prepare the supporting analysis. Where relevant, our GST specialists can also evaluate the associated GST implications to provide a coordinated review.