What Is an RSU? Meaning, Tax and How Restricted Stock Units Work

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Restricted Stock Units (RSUs) are a common part of employee compensation packages in Singapore, especially in tech companies and multinational organisations.

But if you’ve ever wondered what an RSU is, you’re not alone. RSUs can be confusing because they involve company shares, vesting schedules, and tax rules.

In simple terms, restricted stock units are company shares granted to employees that vest over time. You don’t receive the shares immediately. Instead, they become yours only after certain conditions are met.

This guide covers the basics of the RSU meaning in salary statements, RSU tax in Singapore and how RSU compares to other possible benefits like employee share options.

We'll also introduce the Wise account, a handy companion to make your money go further with low, transparent fees.

What is an RSU? (RSU meaning)

RSU stands for Restricted Stock Units. RSUs are a form of equity compensation, where companies grant employees shares that vest over time.

When you receive RSUs, you do not own the shares immediately. Instead, ownership only transfers to you once the shares vest according to the company’s vesting schedule.

RSUs typically follow a lifecycle:

Grant → Vest → Settlement → Taxation

RSUs are often used to retain employees and as such, vesting schedules may span several years. So for example you might be given a fixed sum of 1,000 RSUs with a 4-year vesting schedule, meaning that you receive 250 shares each year for the next four years, as long as you’re still employed by the business.

What does RSU mean in your salary?

RSUs are part of your total employee compensation - a separate element to your base salary and any other agreed payments such as your bonus.

For example, your total benefits package structure may look like this:

Bear in mind that an RSU grant doesn't mean you own the shares immediately. You only take ownership of your shares upon vesting, and companies often impose waiting times until vesting occurs. The value of the shares upon vesting may be different to the value at the time the RSU grant is made.

Employee benefits packages vary a lot and can include a broad range of reward types - read your contract carefully and ask for support from your employer or an independent advisor if you’re not sure about the terms which apply to your own employee benefits statement.

How do RSUs work?

RSUs are a relatively complicated form of employee benefit, but they’re commonly used to incentivise employees to remain with a particular employer for a longer period of time. Here’s a quick run through the lifecycle of a typical RSU grant:

Grant date

Employees are granted RSUs on a fixed date - they may be granted alongside an annual bonus or at the end of the company’s financial year for example. RSU grants should be confirmed in writing to the employee.

Grants can have conditions and may be a discretionary part of your total compensation package, which means you’ll need to read the fine print carefully to ensure you understand the terms of the grant.

Vesting schedule

Your RSU grant statement should also set out a vesting schedule. Until your RSUs vest, you don’t own them and you do not have the voting rights which would be associated with stock ownership.

Vesting schedules can vary a lot, and may include a ‘cliff’ - a point at which a large proportion of your RSUs vest, with nothing vesting up to that stage, or milestone vesting which means shares only vest at set times or with specific achievements.

Vesting schedules are often over months or years to encourage retention. For example, a new recruit may be issued 100 RSUs on joining, with the following four year vesting schedule:

Settlement

Settlement of an RSU describes the point at which ownership fully passes to the employee - and any taxes which are owed are also due.

RSU vs stock options vs ESOP

Companies use several types of equity compensation to attract and retain employees. The most common are RSUs, stock options, and ESOPs (Employee Share Ownership Plans).

The typical aim of these plans can be different.

RSUs are often issued as a retention tool, as employees may be more inclined to remain with an employer if they know that they have shares set to vest in future, increasing their effective earnings in future years. This mechanic works well for steady and established businesses, and for higher level employees who are likely to have a longer tenure.

Stock options grant the employee an option to buy shares at a future date at an agreed price. So for example, an employee may be offered the opportunity to buy shares in 5 years time at their current fair market value. If share prices rise in the next 5 years they can exercise their options, sell, and make a profit - if prices fall, there would be no benefit in buying the shares. These tools can be a good choice for growing businesses and startups, and when recruiting.

Broader ESOPs can have very varied structures, and may be used for retention and reward, or for long term planning when aimed at employees at a later career stage.

Here’s a quick summary of the similarities and differences of RSU vs ESOP vs stock options:

Are RSUs taxable in Singapore?

So is RSU taxable in Singapore? In most cases, yes, RSUs are taxed as employment income when they vest¹. The tax you pay is based on the market value of the shares you’re acquiring at the time of vesting.

Once the share settlement date has passed you can choose to hold your shares or sell them, depending on your preference. Within Singapore, IRAS does not normally impose capital gains tax on share sales². If you have different tax residency, or if the shares are held overseas you may need to take independent advice to make sure you’re complying with all relevant tax law.

This guide is for information only. Get professional support from a tax advisor to understand your own obligations.

Example: How RSU tax works

To calculate your RSU tax you usually need to work out the income made through the grant vesting, and add this to your total annual income when reporting to IRAS:

In this scenario, SGD 5,000 is added to the employee’s taxable income for that year.

What to do when your RSUs vest

When your RSUs vest and settle, you can choose to hold them, or sell some or all of your holding. Selling some shares may mean you can offset any additional tax you owe with the sale, while other people may choose to sell some or all to reinvest in other businesses and ensure a diverse share portfolio.

When your RSUs vest, you’ll likely need to take the following steps:

1. Confirm the RSU vesting and settlement terms in your statement or with your employer
2. Decide whether you will hold your shares, sell some of them, or sell all
3. If you choose to sell, place the order with your share platform
4. Once you’ve received your share sale income you can hold it or convert it back to SGD as needed

If you’re receiving a payment from RSUs in a foreign currency - or if you want to convert your RSU gains to a different currency, check out Wise. Wise offers currency conversion which uses the mid-market rate with low fees, and easy ways to send and receive payments in a broad range of currencies.

Estimate how much your RSU proceeds could be worth after conversion

What happens to RSUs if you leave a company?

RSUs are often used to improve employee retention. If shares have already vested they're normally yours to keep - but if you leave with unvested RSUs these are typically forfeited.

Managing RSU proceeds across countries? Convert and send with Wise at the mid-market rate

If you receive RSUs from an international company, you may eventually sell the shares and receive the proceeds in a foreign currency. Managing those funds across borders can involve exchange rate markups and bank fees.

The Wise account is an easy way to hold and exchange 40+ currencies, including SGD, MYR, EUR, CNY, and more. All you need to do is create a free account to get started.

With Wise, you can exchange currencies at the mid-market rate each time, with low, transparent conversion fees from 0.26% and absolutely no markups. Plus, you can order a linked Wise card for convenient spending without any foreign transaction fees, and up to 2 free ATM withdrawals to the value of 350 SGD when you're overseas. You'll even get 8+ local account details to get paid conveniently to your Wise account in SGD and a selection of other major global currencies.

What's more, you can activate Wise Interest to earn returns* on your eligible balances while keeping your money available to spend.

*Growth is not guaranteed. Capital at risk.

Sending money or making payments abroad? Wise also offers fast, low cost transfers to 140+ countries - you can track your transfer in your account and your recipient will also be notified when a transfer reaches them.

🚀 Get Started with Wise

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Frequently asked questions (FAQs)

When do RSUs vest?
RSUs usually vest over several months or years, but exact schedules can vary a lot.

Should I sell my RSU shares when they vest?
You can choose to sell some or all of your settled RSU shares, or hold your shares if you prefer.

Can RSUs lose value?
The value of RSUs depends on the share price at the time of vesting and settlement - this can be different to the value of the shares at the time the RSUs were granted.

What is the difference between RSU and stock options?
RSUs give employees shares, often over a fixed number of months or years. Stock options require the employee to buy shares but may offer a beneficial price.

Can I transfer RSU proceeds overseas?
Once you sell your vested and settled RSUs, you can move your money abroad using a provider like Wise for low cost payments which use the mid-market rate.

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Sources:

1. IRAS - gains from stock options
2. IRAS - CGT