Singapore’s Investment Incentives: Opportunities in 2023
Singapore’s government is actively dedicated to industrial growth, providing a host of investment incentives such as tax holidays, concessions, accelerated depreciation schemes, preferable loan conditions, equity participation, and high-quality industrial estates. This reflects Singapore’s commitment to attract international businesses to set up operations. As it primarily operates as a free port, companies cannot rely on tariff or quota protections for industrial pursuits. The Singapore government retains some flexibility in administering these incentives, keeping a part of them undisclosed to the public.
At the beginning of 2020, the government started implementing measures to mitigate the negative impacts of the coronavirus pandemic and the resulting economic slowdown on businesses. While most of these interventions have ceased, a number were extended as part of the 2022 budget. The Enterprise Financing Scheme (Trade Loan) will persist, with the government bearing 70% of loan-associated risks until September 2022, and 50% thereafter, barring new enterprises and those operating in higher-risk countries.
The Temporary Bridging Loan Program will also be extended until September 2022. However, the maximum loan limit will be reduced to S$1m, with the government retaining 70% of the risk. Simultaneously, the Enterprise Financing Scheme (Project Loan) was amplified from 2021 through March 2022, to accommodate domestic construction loans up to S$30m, with a government risk share of 70%, and has been further extended for another year until March 2023.
Further, the Enterprise Financing Scheme (Merger and Acquisition Loan) has been extended till March 2026, providing loans of up to S$50m per borrower or borrowing group, with a 50% government risk share, or 70% for young enterprises and those operating in riskier countries. This scheme now encompasses both domestic and international merger and acquisition activities, making Singapore an attractive hub for businesses seeking expansion through M&A activities.
The Singapore Income Tax Act and the Economic Expansion Incentives (Relief from Income Tax) Act outline the range of tax incentives available to registered companies in Singapore. The latter law specifically focuses on the incentives for establishing pioneer industries and for general economic expansion. Companies can also apply for tax incentives via Enterprise Singapore, the Economic Development Board (EDB), and the Monetary Authority of Singapore (the central bank).
One such incentive is the “pioneer status,” which exempts companies from corporate tax on profits generated from pioneering activity. This is typically granted when a multinational company makes a substantial initial investment in the country. The conditions for eligibility include the amount of investment and the technology involved. This tax relief period lasts initially for 5 years, extendable twice by 5 years each, provided the company pledges to expand its activities in Singapore further. However, the grant of pioneer status will cease from 2024.
The Development and Expansion Incentive under the Economic Expansion Incentives Act confers a concessionary tax rate of 10% or lower for an initial period of 10 years, with two possible 5-year extensions, to companies intending to increase their investments. This is targeted towards companies whose pioneer status has expired and are engaged in capital investment to modernize or upgrade production. Regrettably, this incentive will no longer be available after 2024.
The Income Tax Act also allows double-tax deductions. Approved companies can deduct twice the eligible expenses incurred in specific activities from their taxable income. Active resident companies or those with a permanent establishment in Singapore, primarily engaged in promoting the trade of goods or provision of services, are eligible for this deduction. In addition to these, the EDB, through EDB Investments (EDBI), participates in selected projects to develop the EDB’s industry clusters and promote emerging technologies and innovations. As of mid-2022, the EDBI had investments in 92 companies, spanning healthcare, information and communication technology, emerging technology, and other areas. The EDBI typically considers equity stakes of up to 30% in any one project.
In the 2019 budget, it unveiled the third phase of its Co-Investment Program, committing an additional S$100m. The first phase of the program, launched in 2010, had set aside S$250m for investment in Singapore-based private equity funds and Small and Medium-sized Enterprises (SMEs) by a subsidiary of Temasek Holdings. The second phase, initiated in 2014, added an extra S$150m to the investment pool. These successive initiatives reflect the government’s consistent push towards fostering a robust and flourishing business ecosystem.
Research and Development (R&D) has been a major area of focus, with the government offering a range of incentives. These are principally through the Research Incentive Scheme for Companies (RISC), administered by the Economic Development Board. The RISC aims to co-fund the establishment of R&D centres and the development of in-house R&D capabilities. Supportable costs under this scheme range from manpower, equipment, and materials to professional services and Intellectual Property Rights (IPR).
In 2020, the government further emphasized its commitment to R&D through the announcement of the Research, Innovation and Enterprise 2025 Plan. This ambitious project committed S$25bn for 2021-2025, marking a significant 32% increase from the S$19bn allotted for 2016-2020. The plan is strategically designed to focus on four pivotal areas, namely health, sustainability, the digital economy, and manufacturing.
The government’s strategic incentives extend to tax benefits as well. As per the 2018 budget announcement, companies can claim a tax deduction of 250% on qualifying R&D expenses performed in Singapore for the 2019-2025 assessment years. Additionally, a tax deduction of 200% can be claimed on costs related to the registration of IPR up to S$100,000 during this period. Such measures provide a significant fiscal impetus to companies investing in R&D and intellectual property.
Lastly, Singapore is actively encouraging the adoption of digital technology and automation. Enterprise Singapore offers an enterprise development grant to companies with a minimum of 30% local shareholding to aid their automation efforts. The grant will cover up to 80% of qualified costs for SMEs and up to 60% of qualified costs for other companies between April 2020 and March 2023. On the digital front, various programs such as the Digital Leaders Program, the Emerging Technology Program, the Productivity Solutions Grant, and the SMEs Go Digital Program are in place to support businesses keen on integrating digital enhancements and innovations into their operations.
Incentives by Sectors
The Singapore government offers concessionary tax rates on income generated from various financial-sector activities under the Financial Sector Incentive (FSI) Scheme, managed by the Monetary Authority of Singapore (MAS). Depending on the type of activity, the income can be taxed at rates varying from 5% to 13.5%, which are significantly lower than the standard corporate income tax rate of 17%. This scheme, effective until 2023, includes categories like standard tier, fund management, headquarters services, capital markets, credit-facilities syndication, trustee companies, and derivatives market. Although the Islamic finance category expired in 2013, qualifying Islamic finance activities continue to benefit from concessionary tax rates under the standard-tier category.
Banks in Singapore can enjoy tax exemptions on income earned from offshore syndicated facilities, provided they meet certain defined criteria. Moreover, approved fund managers and boutique-fund managers can qualify for a 10% tax rate on fee-based income earned from managing nonresident funds in designated investments. A similar 10% tax rate is applicable to some income types of offshore businesses of insurance companies.
In the trustee market, approved trustee companies have a 10% concessionary tax rate on their income derived from providing trustee and custodian services to nonresidents related to designated investments. To stimulate the growth of the trustee market, the income tax exemption was expanded in the 2003 assessment year to include foreign trusts administered by all trust companies in Singapore.
There is a list of designated activities that are eligible for tax exemption for foreign investors or fund managers, including qualifying loans, commodity derivatives (both over-the-counter and exchange-traded), and physical commodities. The government has also broadened tax-exemption schemes to encompass collateralized debts and loan obligations.
Singapore’s 1998 and 1999 budgets introduced numerous tax incentives aimed at boosting the country’s bond market. These included tax exemptions on the income earned by financial intermediaries as fees for arranging debt issues and a 10% concessionary tax rate for corporate investors in Singapore on their interest income under the Qualifying Debt Securities (QDS) Scheme. The 10% concessionary tax rate on interest income was further extended to include “bodies of persons” such as management corporations, town councils, trade/industry associations, and clubs. This meant that companies could gain tax exemption on interest income received from nonresident investors. Financial institutions could also qualify for a 10% tax rate on their trading income.
To broaden the investor base outside of Singapore, the government granted a withholding-tax exemption for interest earned by nonresident investors. In order to further stimulate the development of the short-term debt market, which typically includes discount debt instruments, the QDS Scheme was expanded to cover discount income arising from QDS with a tenure of one year or less. Trading of QDS and Qualifying Project Debt Securities was deemed a qualifying activity under the FSI-Bond Market enhanced-tier award. The QDS Scheme has been extended thrice, with the most recent extension for the 2019-2023 period.
Tax exemption for income derived by primary dealers from trading in Singapore government securities was initially due to expire in 2008. However, the government has consistently extended this exemption, with the current expiration date set for 2023.
Real-estate investment trusts (REITs) listed in Singapore received a tax exemption on foreign-sourced interest and distributions, as declared in the 2006 budget. These exemptions applied to income or gains related to foreign property ownership. These REITs could also recover payments of the Goods and Services Tax (GST) on expenses incurred in structuring and setting up special-purpose companies for holding overseas nonresidential properties. Additionally, the government’s 2008 budget allowed listed REITs and registered business trusts in infrastructure, ship-leasing, and aircraft-leasing to recover input GST.
Finally, the Financial Sector Development Fund, established in 1999, was created to boost talent and infrastructure within Singapore’s financial sector. The fund promotes the acquisition of work skills to enter new or expanding business areas and fosters the development of more complex or specialist skill sets.
The Singapore government has consolidated several incentive schemes for insurance companies under the Insurance Business Development Scheme. This scheme, initially scheduled to end in early 2020, received an extension in the 2020 budget through 2025. Since 1999, insurance companies have been benefiting from a tax exemption on income derived from underwriting offshore marine hull and liability insurance business. In order to further stimulate the development of marine insurance expertise in Singapore, the government introduced the Approved Marine Hull and Liability Insurer Scheme. This scheme covers income derived from underwriting onshore marine hull and liability insurance business. As of 2016, this scheme was absorbed into the Insurance Business Development Scheme, and insurers began receiving a 10% concessionary tax rate instead of a tax exemption on new and renewal awards.
The 2006 budget introduced a ten-year tax exemption for approved captive insurance companies on several income types. These included income derived from accepting insurance covering offshore risks, dividends and interest derived from outside Singapore, gains or profits realized from the sale of offshore investments, and interest from Asian Currency Unit (ACU) deposits derived from the investment of its insurance fund for offshore insurance business and shareholders’ funds used to support this business.
However, since 2018, this arrangement has also been incorporated under the Insurance Business Development Scheme. Following this change, insurers have been receiving a concessionary 10% tax rate instead of a tax exemption on new and renewal awards. This demonstrates Singapore’s dynamic policy-making that consistently aims to bolster the growth and development of the insurance sector.
High-Tech & Startup
In 2000, the Singaporean government initiated a project to transform Singapore into a leading international biomedical sciences center. Since the inception of this initiative, over S$5bn has been invested in building industrial, human, and intellectual capital in the sector. This involved the development of Biopolis, a 2.8 million square feet complex dedicated to biomedical sciences research and industry, and the launch of the Translational and Clinical Research Program in 2006. The latter comprises five flagship program focusing on gastric cancer, eye diseases, schizophrenia, metabolic diseases, and infectious diseases. The government also established Bio*One Capital to facilitate venture-capital investments in biomedical-sciences start-ups. For the period 2016-2020, the government committed S$4bn to enhance existing biomedical research and development (R&D) infrastructure, integrate multidisciplinary research, and use science to produce marketable products.
The Agency for Science, Technology and Research (ASTAR) plays a crucial role in this sector by providing grants and funding to enhance local R&D capabilities. ASTAR encompasses various entities, including the Biomedical Research Council, the Science and Engineering Research Council, the Corporate Group, the A*STAR Graduate Academy, Accelerate Technologies, the Enterprise division, and 26 research entities. Biomedical manufacturing, a direct beneficiary of these initiatives, witnessed an increase in investment commitments to S$638m in 2020, up from S$234m in 2019.
Enterprise Singapore operates several schemes under the new Start-up SG branding umbrella, such as the Start-up SG Equity initiative. This initiative involves the government co-investing in start-ups alongside independent qualified third-party investors, with investment caps set at S$2m for general tech and S$8m for deep tech sectors like advanced manufacturing, pharmbio/medtech, and agri-food tech. A new Scale-up SG Program, announced in the 2019 budget, aims to cultivate future global champions by supporting high-potential companies to scale rapidly through expert partnerships and providing them with essential resources and networks.
Enterprise Singapore also launched the Technology Enterprise Commercialization Scheme in 2008, now renamed Start-up SG Tech. This program offers grant funding to local technology start-ups in two phases: the proof-of-concept phase and the proof-of-value phase, supporting up to S$250,000 and S$500,000 per project respectively. It caters to individual research scientists, engineers, and local start-ups operating for fewer than five years. Furthermore, start-ups can benefit from a 75% tax exemption on the first S$100,000 of normal chargeable income and 50% on the subsequent S$100,000 for up to three years of assessment.
Energy & Infrastructure
In 2007, Singapore’s inter-agency working group, the Energy Innovation Programme Office, was established to facilitate the city-state’s development into a global hub for clean energy. In furtherance of this initiative, the Solar Energy Research Institute of Singapore was launched in 2008. The Research Innovation and Enterprise 2025 plan was subsequently outlined to focus on four primary areas: increasing the efficient use of natural gas in power generation, achieving 2-GW peak solar power deployment by 2030, leveraging regional power grids for cost-effective energy, and exploring the potential of emerging low-carbon fuel alternatives.
Singapore, with its limited domestic resources, has always considered water a crucial issue. Consequently, the city-state has emerged as a world leader in novel water technologies. To build on this accomplishment, Global Hydrohub was initiated. This initiative, jointly led by PUB (the national water agency) and the Economic Development Board, aims to bolster both domestic research and international R&D collaborations in the water sector.
In the 2018 budget, the government unveiled plans to launch an Aviation Transformation Program and a Maritime Transformation Program. These programs would enable companies to utilize Singapore’s airport and seaport as platforms to develop, test, and deploy new technologies. The government has committed up to S$500m to support these two programs and anticipates matching investments from industry partners. This move exemplifies Singapore’s commitment to transforming its critical transportation sectors through technology and innovation.
Special Economic Zones
Enterprise Singapore supervises the Global Trader Programme (GTP), which offers participating companies a concessionary tax rate of up to 10% on approved international trading activities in commodities and products. Companies approved under this programme can receive concessionary tax rates of 5% or 10% on qualifying offshore trade incomes, based on the company’s turnover and business expenditure. Initially set to end in March 2021, this programme received an extension through 2026 as part of the 2020 budget.
Before applying for the GTP, commodity-trading organisations must meet three requirements: substantial offshore physical trading on a principal basis, significant local business spending linked to trading activities in Singapore, and employment of professional traders in Singapore. These criteria ensure that the benefits of the programme are accessible to those who contribute significantly to Singapore’s trading ecosystem.
Companies registered in Singapore automatically qualify for double-tax deductions on certain expenses incurred in overseas marketing programmes. These expenses include overseas business development trips and missions, overseas investment study trips and missions, and participation in overseas and approved local trade fairs. The cap for this deduction is set at S$150,000 per year from the 2019 year of assessment, an increase from the previous limit of S$100,000. Companies seeking double-tax deductions on qualifying expenditure exceeding these limits require approval from Enterprise Singapore.
In 2012, the government launched Clifford Capital, a project-finance company focused on providing finance for extensive, long-term, cross-border projects. The shareholders of this company include renowned entities such as Temasek Holdings, DBS Bank, Manulife, Sumitomo Mitsui Banking Corporation, Standard Chartered, and Prudential. The government guarantees the debt instruments that are issued by this company, reinforcing the confidence of potential investors and partners.
Finally, the government launched the International Partnership Fund in 2017, aiming to co-invest up to S$600m with Singapore-based companies. The objective of this fund is to facilitate these companies’ expansion and international growth through acquisitions. The fund is managed by Heliconia Capital Management, a subsidiary of Temasek Holdings, and symbolizes the government’s commitment to supporting domestic companies in their global ambitions.