Founder shares and the original earnout
Published on 4 April 2025, the case concerns a founding shareholder granted founder equity in Singco A. An unrelated foreign Holdco acquired A in unspecified year X. The individual received an upfront price and could receive earnout consideration across four years according to their shareholding proportion if financial KPIs were met. Economic decline meant nil earnouts in the first two years and expected amounts in the last two below the minimum anticipated sum.
Why the arrangement was settled
In year Y, Holdco sold A to another foreign Company C to enhance shareholder value. Potential future earnouts were a significant liability on A’s balance sheet. Holdco settled future earnouts with the sellers for a substantially lower one-off amount, removing the future-payment liability and facilitating the divestment. The payment replaces shareholder sale consideration; the published facts do not describe a routine salary or bonus arrangement.
Ruling and deliberately limited explanation
IRAS rules the termination settlement capital and not taxable under section 10(1) of the Income Tax Act 1947 (2020 Revised Edition). Its stated reason is consideration of the specific facts and circumstances; it gives no longer legal test. Do not invent a rule that every KPI-linked payment is capital. The summary binds only the applicant/transaction, is general reference for others and will not be updated for later legal or interpretation changes.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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