Key Tax Updates for YA 2025: Changes to Form IR8A

As Singapore continues to refine its tax policies to align with global standards and enhance compliance, several key updates to Form IR8A will take effect for the Year of Assessment (YA) 2025. This includes the removal of tax concessions for mandatory overseas pension contributions, reporting encashment of unutilised leave, and amendments to Appendix 8B. These changes will reshape the tax landscape in Singapore, impacting employers, expatriates, and businesses.

Understanding Form IR8A

Form IR8A is used by employers in Singapore to report employee’s income to the Inland Revenue Authority of Singapore (IRAS), including details such as salary, bonuses, and other taxable benefits earned during the year. Employers are required to submit Form IR8A to IRAS by 1 March each year.

Key Changes to Form IR8A

Removal of Tax Concessions for Mandatory Overseas Pension Contributions

Singapore has revised the tax treatment of mandatory overseas pension contributions for YA 2025, impacting expatriates and employers contributing to pension funds outside Singapore. From YA 2025, tax concessions for mandatory overseas pension contributions will be removed, meaning employer contributions to overseas pension funds will be taxable to employees at the time of contribution. This applies to income earned from 1 January 2024 onwards.

Implications For Employers:  Employers will need to update their payroll systems to ensure compliance. This will require businesses to review and restructure their payroll processes to accurately report and tax these contributions.  

Implications For Expatriates: Expatriates will now face taxation on employer contributions to overseas pension funds, leading to higher overall tax liabilities and lower net income.

Implications for Singapore’s Tax Landscape: This change aligns with Singapore’s broader efforts to remove administrative concessions, such as those for home leave passage and housing benefits for foreign employees. It reflects a shift towards a more standardised and transparent tax system. 

Changes to Reporting of Encashment of Unutilised Leave 

Currently, "Encashment of unutilised leave" is reported under “Gross Salary, Fees, Leave Pay, Wages, and Overtime pay.” Starting from YA 2026, for the amounts earned in 2025, "Encashment of unutilised leave" should now be reported under Section D (iii) “Other Allowances”

Understanding Appendix 8B

Appendix 8B is used by employers to report gains or profits derived from Employee Stock Option (ESOP) and Employee Share Ownership (ESOW) Plans. As an employer, here are the key points you should note:

For employers participating in the Auto-Inclusion Scheme (AIS): 

• Submit employee income information electronically to IRAS by 1 March 2025.
• No need to issue Appendix 8B to employees, although you may provide them with a separate statement for their records.

For employers (with less than 5 employees) NOT participating in AIS: 

• Employers must give completed forms (IR8A and if applicable, Appendix 8A, Appendix 8B and IR8S) to employees by 1 March for them to include in their income tax returns.
• For employees who are no longer employed or are posted overseas, employers should submit the relevant applicable forms to IRAS.

Taxation of Gains from ESOP and ESOW Plans 

• ESOP Gains : The gains are taxed when the employee exercises their stock options (i.e., when they buy the shares.) The date of exercise marks when the taxable benefit should be reported.
• ESOW Gains: For ESOW, the gains are taxed when the shares are granted. If there is a vesting period, the tax applies when the shares vest. (i.e., the employee officially becomes entitled to them).

Valuation of Shares:  

• For publicly listed shares on the open market, use the last transaction price.  
• For unlisted shares, use the net asset value if the open market value is difficult to determine.  

Key Changes in Appendix 8B

Starting from YA 2025, tax exemptions previously available under the Equity Remuneration Incentive Scheme (ERIS) will cease. This applies to all categories of ERIS including SMEs, all corporations, and start-ups. As a result, any gains that employees receive under ESOP or ESOW will no longer be exempt from tax. Employees will now be required to pay taxes on any gains they receive as part of these plans.

Adapting to Tax Changes: Strategies for Businesses

To ensure compliance and minimise operational disruptions, businesses should adopt these strategies:  

1. Review Payroll Structures: Evaluate existing payroll policies to align with the new regulations.
2. Implement Compliance Frameworks: Establish robust systems to accurately monitor and report taxable contributions.  
3. Inform Employees: Communicate the changes clearly to employees, highlighting the potential impact on take-home pay.  
4. Upgrade Payroll Systems: Invest in updated payroll software or collaborate with payroll service providers for seamless implementation.  

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How can PayrollServe help?

At PayrollServe, we understand the challenges businesses face in navigating complex tax changes, such as the recent regulatory updates. With extensive expertise in regulatory compliance and HR solutions, we help companies manage these transitions smoothly. We offer strategic advice, compliance support, and streamlined processes, enabling businesses to focus on their core operations while ensuring full tax compliance.  

Contact us for more information.