Key Personal Tax Updates for YA2025: Changes to Form IR8A

Key Personal Tax Updates for YA2025: Changes to Form IR8A

As Singapore continues to refine its tax policies to align with global standards and enhance compliance, several significant updates to Form IR8A will take effect for the Year of Assessment (YA) 2025. These include the removal of tax concessions for mandatory overseas pension contributions, the introduction of new reporting requirements for encashment of unutilized leave, and amendments to Appendix 8B. These changes are expected to reshape the tax landscape in Singapore, affecting employers, expatriates, and businesses.

Overview of Form IR8A

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

Key Changes to Form IR8A

1. Removal of Tax Concessions for Mandatory Overseas Pension Contributions Singapore has updated the tax treatment for mandatory overseas pension contributions starting from YA 2025, impacting expatriates and employers making contributions to pension funds outside Singapore. As of YA 2025, tax concessions for such contributions will be eliminated, meaning that employer contributions to overseas pension funds will be taxable for employees when the contribution is made. This change applies to income earned from 1 January 2024 onward.
   • Implications for Employers: Employers will need to update their payroll systems to comply with these changes, requiring a review and restructuring of payroll processes to accurately report and tax these contributions.
   • Implications for Expatriates: Expatriates will now face taxation on employer contributions to overseas pension funds, which will result in higher overall tax liabilities and reduced net income.
   • Impact on Singapore’s Tax Landscape: This move aligns with Singapore’s broader efforts to streamline tax administration and remove administrative concessions, such as those related to home leave passage and housing benefits for foreign employees, fostering a more standardized and transparent tax system.

2. Changes in Reporting 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 amounts earned in 2025, encashment of unutilised leave will be reported under Section D (iii) “Other Allowances.”

Understanding Appendix 8B

Appendix 8B is used by employers to report gains or profits from Employee Stock Option (ESOP) and Employee Share Ownership (ESOW) Plans. Employers should note the following key points:

• For Employers Participating in the Auto-Inclusion Scheme (AIS): • Employee income information must be submitted electronically to IRAS by 1 March 2025. • There is no need to issue Appendix 8B to employees, but employers may provide a separate statement for employees’ records.
• For Employers Not Participating in AIS (with fewer than 5 employees): • Employers must provide completed forms (IR8A, and if applicable, Appendix 8A, Appendix 8B, and IR8S) to employees by 1 March, so they can include them in their income tax returns. • For employees who are no longer employed or posted overseas, employers must submit the relevant forms to IRAS.

Taxation of Gains from ESOP and ESOW Plans

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

Valuation of Shares:

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

Key Changes in Appendix 8B

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

Adapting to Tax Changes: Strategies for Businesses

To ensure compliance and minimize operational disruptions, businesses should consider the following strategies:

1. Review Payroll Structures: Assess current payroll policies to ensure alignment with the new regulations.
2. Implement Compliance Frameworks: Develop systems to accurately track and report taxable contributions.
3. Inform Employees: Communicate the changes clearly to employees, outlining the potential impact on their take-home pay.
4. Upgrade Payroll Systems: Invest in updated payroll software or partner with payroll service providers to ensure smooth implementation.

How WLP Can Help

At WLP, we understand the challenges businesses face in adapting to complex tax changes, such as the recent updates. With deep expertise in regulatory compliance and HR solutions, we assist companies in managing these transitions efficiently. We offer strategic advice, compliance support, and streamlined processes to help businesses maintain focus on their core operations while ensuring full tax compliance. Contact us today to learn more about the full range of corporate services we offer.