Where a non-Singapore citizen employee ceases employment or leaves Singapore, the employer is required to file a tax clearance return (Form IR21) at least one month before the date of cessation of employment or departure from Singapore, whichever is earlier. In addition, the employer is required to withhold any payments due to the employee (such as salary, reimbursement of expenses, etc.) from the date the employer is aware of the employee’s departure until a tax clearance directive is received from IRAS.
Where the employee has unexercised stock options/unvested share awards then there is a deemed exercise/vest of the equity resulting in a dry tax charge (a tax charge arising where no cash/income is paid to the employee), which will generally need to be paid by the employee before leaving Singapore.
If the actual gain upon the subsequent exercise/vesting of stock options/shares is lower than the deemed gain reported on the Form IR21, the taxpayer can apply for a reassessment of the deemed gain within four years from the year of assessment following the year in which the deemed exercise rule is applied (ie if an individual left in April 2020, the deemed exercise rule will apply on departure and therefore is taxed in the Year of Assessment 2021. Therefore the reassessment must be made by 31 December 2025).
An alternative to the deemed exercise rule is the tracking option which allows an employer to track the income realisation event of the employee and report the gain to the IRAS at that point rather than applying the deemed exercise rule. An employer needs to meet stringent conditions to apply for the tracking option and the application is subject to the IRAS approval.