Special tax treatment for stock options in Singapore

Singapore, Feb 28 (Asia Pulse) - Singapore is putting together special tax concessions to encourage companies to issue stock options -- considered to be a main driver of the internet economy in the USA -- to employees.

Minister for Finance, Dr Richard Hu Tsu Tau, said options were a key to the development of the vibrant technopreneurial environment in Silicon Valley. The Singapore government will announce an enhanced scheme for high tech start-ups by the end of May this year.

"Talented people, including research scientists and engineers, high tech professionals, MBA holders, and even office staff, are nowadays prepared to accept low or even zero salaries in return for equity stakes in the companies they work in," Dr Hu said. "They hope that their companies will succeed spectacularly, and their equity stakes will increase tens or hundreds of times in value. "Their direct stakes in their firm's success motivates them to put their hearts and souls into building up the firms, and to slog long hours to outdo their competitors."

The evidence that stock options play a pivotal role in good corporate performance is well established, the finance minister said. "The usefulness of stock options lies in their ability to recruit, motivate and retain employees," he said.

"This is vital in the businesses of today. But it will be even more important in the businesses of tomorrow, which will place a growing premium on developing and applying knowledge, and committing the energies and creative juices of the people working for the company. "They may still be called employees, but they are actually partners in the enterprise. "We need to act quickly, to offer potential entrepreneurs that extra incentive to take the plunge, and to send a clear signal that we are strongly encouraging enterprise and wealth creation.

"Attractive tax treatment to encourage the use of ESOPs (Employee Stock Options) will also help our companies to compete for global talent, which is highly mobile not only across companies, but also across national boundaries. "Talent will be attracted to places where opportunities and post-tax rewards are the greatest.

Singapore improved the tax treatment of stock options in 1999 by allowing the tax payable to be deferred by up to 5 years, with interest chargeable for the deferment. "But this was only a modest first step," the finance minister said. "We need to improve the tax treatment of ESOPs further, particularly for the high tech start-ups."

The finance minister signaled the tax changes when unveiling his 2000 Budget. In June 1999, blue chip newspaper groups Singapore Press Holdings Ltd extended its stock option scheme to include all employees. Local internet startups, including newly listed MediaRing.com Ltd, have been issuing stock options to employees.