Oct 6, 2026  · Adriana Calderon - Cofounder and Lead Partner at Transfer Pricing Solutions Asia.

Good news for Singapore companies that provide services to their group. The 9th Edition of Singapore's Transfer Pricing Guidelines, published on 4 June 2026, brings welcome clarity on share-based compensation. It confirms how share-based compensation fits into a service fee charged at cost plus a mark-up, and from Year of Assessment 2026 it offers some relief on how much is taxed as service income. A September 2026 update adds a one-off opportunity to apply the same treatment to earlier years.

The question the guidance answers

The Inland Revenue Authority of Singapore uses a simple example in paragraph 5.120 of the guidelines. Company A, a Singapore taxpayer, provides services to a related party, Company B, and charges its full costs plus a mark-up. Its costs are $200,000. On top of that, there is share-based compensation of $10,000 for the Company A employees who performed the services.

Should the $10,000 be included in the cost on which the mark-up is applied?

The answer is yes. The tax authority treats share-based compensation as remuneration for the work the employees perform, so it is part of the cost of providing the services.

Three scenarios, and why the difference matters

The guidance separates share-based compensation into three scenarios.

In all three, the share-based compensation goes into the cost base, so in the example the mark-up is calculated on $210,000. The scenarios differ in what happens to service income.

The good news from Year of Assessment 2026

Until now, the full amount flowed into taxable service income in every scenario. With effect from Year of Assessment 2026, the tax authority is prepared to exclude uncharged and notional share-based compensation from service income. The mark-up on it stays. It is a practical, welcome change for many Singapore service providers.

In the example, service income was $210,000 plus the mark-up on $210,000 in every scenario. From Year of Assessment 2026, for uncharged and notional share-based compensation, it is $200,000 plus the mark-up on $210,000.

September 2026 update: a one-off opportunity for earlier years

In September 2026, the Inland Revenue Authority of Singapore went a step further. It confirmed that share-based compensation for employees performing the services belongs in the cost base whether or not it is charged by related parties or recorded as a notional cost. It also offered a helpful one-off measure for companies that have not applied the mark-up to share-based compensation for Year of Assessment 2025 and earlier.

If a company submits revised tax computations showing full details of the mark-up on uncharged or notional share-based compensation by the deadlines below, the tax authority is prepared to:

• apply the revised Year of Assessment 2026 treatment to Years of Assessment 2022 to 2025 as well, and
• waive the surcharge that normally applies to transfer pricing adjustments under section 34E of the Income Tax Act.

This is a welcome chance to put earlier years on the same favourable footing as Year of Assessment 2026, without the surcharge. The first deadline is close, so now is a good time to check whether it applies to you.

Questions to ask about your own arrangements

• Do your Singapore employees participate in a group share plan?
• Is the cost of that plan charged to the Singapore company, and does it appear in its accounts?
• Which of the three scenarios does that put you in?
• Does the cost base in your intercompany service agreement include share-based compensation today?
• Was the mark-up applied to share-based compensation in Years of Assessment 2022 to 2025?
• Has your tax computation for Year of Assessment 2026 picked up the change?

Not sure of an answer? We are happy to help.

Frequently asked questions

We would love to hear your questions

Transfer Pricing Solutions Asia is a specialist transfer pricing firm with offices in Singapore, Malaysia and Australia. If you would like to know how this guidance applies to your service fees, we would be glad to hear from you. Contact Adriana Calderon at adriana@transferpricingsolutions.asia or +65 6407 1126 , or visit www.transferpricingsolutions.asia .

This article is for general information and educational purposes only. The rules and their application may vary with the specific facts involved, and it is not a substitute for professional advice.

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