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Deemed Exercise Rule in Singapore: Stock Options and RSUs When You Leave
Short answer: When a foreign employee stops working in Singapore, IRAS taxes unexercised stock options and unvested share awards as if they were exercised one month before cessation. This is the deemed exercise rule under section 10(7) of the Income Tax Act. Employers that qualify can instead use the Tracking Option, which defers tax until the real exercise or vesting.
Key facts at a glance
- The rule applies to foreigners, to PRs leaving Singapore permanently, and to PRs posted to work overseas, for plans granted on or after 1 January 2003 (IRAS e-Tax guide, 30 January 2026).
- Gains are deemed derived one month before the date of cessation of employment, or the date the right or benefit is granted, whichever is later.
- Deemed gain for options = open market price of the shares on that date less the exercise price; for share awards = open market price less the price paid or payable.
- The employer must furnish the deemed gains when it seeks tax clearance for the employee.
- If the actual gain turns out lower, or the right lapses or is forfeited, the employee can apply to revise the assessment within 5 years after the year of the deemed date.
- Under the Tracking Option, the employer reports the actual gain within 30 days of exercise or vesting using Form IR21 and files an annual return by 31 January.
This article is general information only and is not legal, tax or immigration advice. For matters needing legal advice, we work with a panel of experienced Singapore law firms.
What is the deemed exercise rule in Singapore?
The deemed exercise rule is an anti-leakage rule for employees who may leave before their equity rewards are taxed. When a foreigner ceases employment in Singapore, any unexercised options and unvested awards are treated as exercised, so that the gain is taxed in Singapore even if the employee never realises it here. The legal basis is section 10(7) of the Income Tax Act 1947, as explained in IRAS’s e-Tax guide on the tax treatment of ESOP and other forms of ESOW plans (30 January 2026).
The terms used are ESOP (employee share option plan) and ESOW (employee share ownership or award plan, which generally includes restricted share unit style awards). Under the guide, the rule covers four situations: unexercised ESOPs, restricted ESOPs where the moratorium has not lifted, ESOWs with vesting not yet reached, and restricted ESOWs where the moratorium has not lifted.
Who does the rule apply to?
The rule applies to employees who are not Singapore citizens, plus certain PRs. The IRAS guide lists three groups.
| Group | Covered? |
|---|---|
| Foreigners (non-citizens), such as Employment Pass and S Pass holders | Yes |
| Singapore PRs leaving Singapore permanently | Yes |
| Singapore PRs posted to work overseas | Yes |
| Singapore citizens | Not listed in the rule |
The rule applies to plans granted on or after 1 January 2003 to foreign employees while exercising employment in Singapore. Source: IRAS, as at 11 October 2026. If your equity was granted before you came to Singapore or while you worked overseas, the Singapore tax analysis can differ, so take advice on the grant history.
When is the gain deemed to arise, and how is it calculated?
The gain is deemed to be income derived one month before the date of cessation of employment, or the date the right or benefit was granted, whichever is later. The computation depends on the type of plan.
| Item | Unexercised or restricted ESOP | Unvested or restricted ESOW |
|---|---|---|
| Open market price of the shares as at the deemed date | Yes | Yes |
| Less | Exercise price | Price paid or payable by the employee |
| Equals | Deemed gain | Deemed gain |
The guide states that the net asset value of the shares may be used if the open market price is not readily available.
A worked example with illustrative numbers
The figures below are invented to show the mechanics and are not tax advice. Suppose an Employment Pass holder resigns and ceases employment on 15 March 2027. Options over 1,000 shares were granted on 1 January 2026 at an exercise price of S$6, and none have been exercised.
- One month before cessation is 15 February 2027. The grant date (1 January 2026) is earlier, so the later date is 15 February 2027.
- Assume the open market price of the shares on 15 February 2027 is S$10.
- Deemed gain = (S$10 less S$6) x 1,000 = S$4,000.
- The employer reports this amount when it seeks tax clearance, and the gain is assessed as employment income.
If the options later lapse unexercised, or the actual gain on exercise is less than S$4,000, the employee can apply to revise the assessment. The deadline is 5 years after the year in which the later date falls, so in this example the last day would be 31 December 2032, following the pattern in IRAS’s own example. Keep the employer’s letter on the exercise or forfeiture, because IRAS asks for documentation.
How does IR21 tax clearance fit in?
The employer has to furnish the deemed gains when it seeks tax clearance for a foreign employee, using Form IR21. MOM’s page on cancelling an S Pass tells employers to seek tax clearance from IRAS at least 1 month before the last day of employment; check MOM’s cancellation page for the pass type concerned.
Tax clearance is therefore the point at which equity has to be reported, so it should be planned before notice is served. See our guides on retrenching a foreign employee during probation and what happens when an S Pass is not renewed, which both involve IR21 timing.
What is the Tracking Option?
The Tracking Option is an alternative to deemed exercise, set out in sections 10(7A) to (7C) of the Income Tax Act. The employer tracks when the real income realisation event occurs, which is the exercise of options, the lifting of share restrictions, or the vesting of shares, and reports the actual gain then. IRAS states that the deemed exercise rule will not be applied if the employer has been approved to adopt the Tracking Option.
The conditions are demanding. IRAS requires the employer to be a Singapore-incorporated company or a registered branch of a foreign company, with a system to track stock plans, at least 2 years of tracking experience, capitalisation in the top 25% of market capitalisation in the relevant index (or a banker’s guarantee for each employee if the capital test is not met), and no late filing, late payment or tax offence in the past 3 years. Most SMEs will not qualify, so for them deemed exercise remains the default.
Once approved, the employer must give a Letter of Undertaking for each covered employee, report the actual gain within 30 days of the event through Form IR21, file an annual return by 31 January for the position at 31 December, and pay the tax on receiving IRAS’s notification. If the employer fails these duties, IRAS can raise an assessment under the deemed exercise rule.
What should employees do before they leave?
- List every option, RSU and share award with grant date, exercise or vesting date, exercise price and any restrictions.
- Ask HR whether the employer has Tracking Option approval, and get the answer in writing.
- Estimate the deemed gain using the share price one month before your last day.
- Check whether you can exercise before leaving, and compare the actual and deemed outcomes.
- Keep every document on exercise, lapse or forfeiture, as you may need them to ask IRAS to revise the assessment.
Leaving Singapore permanently does not remove the liability, because the gain is attributed to your Singapore employment. Our article on personal income tax for expats explains residence and filing basics.
What should employers do?
Employers should build equity data into the exit checklist for every foreign employee, not only senior hires. The checklist should record grants, vesting schedules, valuation source, and the date one month before the last day of employment. HR should pass the information to the person filing IR21 before the filing deadline.
If your group grants equity from an overseas parent, confirm who values the shares and how the data reaches the Singapore payroll team. Employers that need help with payroll, tax filings and corporate records can speak to Raffles Corporate Services.
Frequently asked questions
Does the deemed exercise rule apply if I never exercise the options?
Yes, the gain is deemed on cessation anyway. If the options later lapse or are forfeited, you can apply to revise the assessment, subject to IRAS’s time limit.
Which date is used for the share price?
The open market price at one month before the date of cessation of employment, or the date the right was granted, whichever is later.
Can I revise the assessment if the shares fall in value?
If the actual gain is lower than the deemed gain, you can apply to revise the assessment within 5 years after the year of the later date, with documents showing the actual outcome.
Does the rule affect PRs?
It affects PRs who leave Singapore permanently and PRs posted to work overseas.
Is the Tracking Option available to every employer?
No. IRAS applies capital, system and track record criteria, so many employers will not qualify.
Planning to hire foreign talent with equity packages, or to relocate out of Singapore? Contact Little Big Employment Agency for pass, PR and citizenship applications. Email [email protected] or Call/SMS/WhatsApp +65 8501 7133.
Last reviewed: 11 October 2026. The Editorial Team, Little Big Employment Agency.
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