What are the Tax Incentives Available to Businesses in Singapore?

Whether you’re running a start-up, small business, or freelancing, understanding income tax incentives for businesses in Singapore can be game-changing.  Singapore is known as a regional startup hub because of its business-friendly environment and policies, and a government policy to promote the growth and expansion of businesses is the numerous tax incentive schemes that provide tax exemptions and/or deductions to eligible companies. Singapore offers a range of tax incentives designed to attract businesses, foster innovation, and support key sectors of the economy.

Here’s an overview of some key tax incentives available to entities in Singapore:

1.       Start-Up Tax Exemption (SUTE) scheme

The Tax Exemption Scheme for Startups (SUTE) is designed to support entrepreneurship and help startups grow in Singapore. While companies are typically taxed on their income at a rate of 17%, with this Scheme, newly incorporated companies are accorded generous tax relief during their first three years of operation. Within this period, the qualifying start-ups can enjoy a tax exemption of 75% on his or her first maximum S$100,000 of the chargeable average income and further exemption of 50% on the next S$100,000. After the initial three years, companies can apply for the Partial Tax Exemption (PTE) to continue receiving tax benefits.

2.      Partial Tax Exemption (PTE) scheme

The government realizes that small and medium enterprises contribute much to a future and functioning economy. To further encourage their development and incorporation, they are provided with the Partial Tax Exemption (PTE) scheme. This program is available to all companies, regardless of industry or size. For companies that are ineligible for the Start-Up Tax Exemption (SUTE), under the PTE they stand to enjoy a 75% tax exemption on the first S$10,000 of chargeable income and a 50% exemption on the next S$190,000.

3.      Progressive Wage Credit Scheme    

Singapore's Progressive Wage Credit Scheme (PWCS) was introduced in Budget 2022 to help employers adjust to mandatory wage increases for lower-wage workers. The scheme also encourages employers to voluntarily raise wages for their lower-wage workers. The scheme enables the Government to co-fund an increase in wages of Singaporean employees to support the employers with the transitional changes whose gross monthly wage is now up to S$3,000. The co-funding support varies from year to year with increased support in initial years and reduced subsequently.

4.      Investment Allowance Incentive       

This is a very valuable incentive for companies that can invest in new productive equipment and automation. The fixed capital expenditure being incurred for qualifying projects in these schemes ranges from 0 to 100% tax exemption rate. However, the projects in these schemes must be completed in no more than five years, even though an extension of the same term of up to eight years may be given. The IA includes several types of expenditure, including the acquisition of patents and know-how, the construction of factories in Singapore, and the purchase of new productive machinery. Allowance of 100% of the capital expenditure shall be granted to the businesses making significant investment in automation and development of innovative products. However, such allowance is subject to a cap of S$10 million for each project.

5.      Pioneer Certificate Incentive (PCI)   

The Pioneer Certificate Incentive gives a corporate tax rebate for all eligible profits involving 15 years to companies that introduce new and advanced economic operations into Singapore. Post incentive period, the corporations may apply for profits to be taxed at a concessional rate under DEI (discussed below). There are two main eligibility requirements: firstly, the ability to provide jobs for native Singaporeans, and secondly, practicing business activities that are innovative or have not been performed by other companies in Singapore. Finally, being able to bring in higher skills, knowledge, technology, and even know-how to offer an improvement in an industry landscape.  There are certain qualitative and quantitative conditions wherein the applicants need to prove how their business expenditures will eventually result in a huge economic benefit. This will make sure that the incentive is tilted to only those projects which are going to offer significant importance to the development and growth of the economy in the country of Singapore.

6.      Development and Expansion Incentive (DEI)

The DEI is intended for companies with long-term business and investment interests in the country. After the Pioneer Tax Incentive expires, a business can apply for the DEI, which establishes a reduced tax rate of 5% to 10% on profits for a period of up to 10 years. For qualifying projects, the overall tax relief period could add up to 40 years. The aim is to reduce the tax burden of eligible companies which in turn enables them to focus on strategic research and development which in turn will lead to economic growth in Singapore.

7.      Double Tax Deduction Scheme for Internationalization

The Double Tax Deduction for Internationalization (DTDI) scheme is a real gem. It allows a 200% tax deduction on ordinary qualifying market expansion and investment development expenses. In terms of internationalization, this double tax deduction scheme enables firms expanding overseas to claim a double deduction for eligible expenses on specified market expansion and investment development activities. DTDI oversees four major areas of overseas expansion: market preparation, market exploration, market promotion, and market presence. Most DTDI deductions require prior approval from Enterprise Singapore (ESG)or the Singapore Tourism Board (STB). However, for some activities, there is no prior approval for the first S$150,000 of qualifying expenses. The Scheme also considers the internationalization via e-commerce and offers deductions for qualifying expenses.

8.      Enterprises Innovation Scheme (EIS)

The Government's new Enterprise Innovation Scheme, which was announced in Budget 2023, aims to promote innovation and R&D. For every qualifying expenditure incurred on activities such as R&D carried out in Singapore, acquisition and licensing of intellectual property rights, training, and innovation projects with polytechnics or ITE, a 400% tax deduction or allowance will be granted for the basis year 2024 to 2028. Businesses eligible for such deductions may, instead, convert them to a non-taxable cash payout of 20% of the total qualifying expenditure, up to S$100,000.

The tax incentives provided in different aspects of business prove serious efforts by Singapore to make it an ever more vibrant business environment and, therefore, very tempting to any business looking to grow and innovate. The country provides a spectrum of incentives targeted at start-ups, SMEs, and various industries using the schemes under SUTE, PTE, and R&D Tax Deductions. These incentives help smooth operations and draw foreign investment. Get in touch with us for more information on tax incentives and benefits relevant to each industry and we shall help you out with the incentives applicable to your business and help you save significant taxes.