Singapore will do more to support local businesses and encourage innovation amid uncertainties in the global economy, announced Deputy Prime Minister Lawrence Wong during the 2023 Budget Day speech on February 14.
The Government will top up the National Productivity Fund with S$4 billion to support long-term productivity and continuing education initiatives. The fund will be a catalyst to continue attracting high-quality investments, and its scope will be expanded to include investment promotion as a supportable activity. In addition, the Government will also focus on growth sectors where Singapore can be highly competitive such as manufacturing and finance.
We take a closer look at some of the key initiatives and schemes announced at the Budget that may impact businesses and companies:
1. Enterprise Innovation Scheme
Singapore needs to nurture and sustain pervasive innovation across the economy, which is why the Government has committed resources to research and development such as investing S$25 billion from 2021 to 2025, said Mr Wong.
To encourage businesses to take risks and conduct research and development in Singapore, the Government is introducing the Enterprise Innovation Scheme.
The scheme will provide tax allowances and deductions for five key activities in the innovation value chain:
- R&D conducted in Singapore,
- Registration of intellectual property,
- Acquisition and licensing of intellectual property rights (for taxpayers with less than S$500 million in revenue),
- Innovation with polytechnics and the Institute of Technical Education (ITE), and
- Training via courses approved by SkillsFuture Singapore and aligned to the Skills Framework.
Businesses can now get tax deductions of up to 250% of qualifying expenditure on some of these activities. This will be raised to 400% of qualifying expenditure incurred for every activity annually from Year of Assessment 2024 to 2028, capped at S$400,000 for each activity (except for innovation with polytechnics and ITE, which will be capped at S$50,000).
Businesses that make full use of the Enterprise Innovation Scheme can get tax savings of nearly 70% of their investment.
For businesses that have yet to become profitable, or do not have enough profits to maximize the benefits from the tax deductions, 20% of their total qualifying expenditure per Year of Assessment can be converted into a cash payout of up to S$20,000.
2. Support for Local Enterprises
To help promising local companies grow into globally leading enterprises, the Government is setting aside S$1 billion under the Singapore Global Enterprises initiative.
This will come in the form of dedicated and customized support, including working with experts to strengthen the companies’ core leadership teams and building a strong talent pipeline.
Additionally, S$150 million will be set aside via the SME Co-Investment Fund to be invested in promising small- and medium-size enterprises (SMEs). The Government has already committed S$1 billion to this fund, investing in about 60 Singapore-based companies.
3. Extension of Enterprise Financing Scheme, Energy Efficiency Grant
To help businesses with immediate challenges, the current enhancements to the Enterprise Financing Scheme will be extended till March 31, 2024. This scheme allows local enterprises to access financing more readily, with support for domestic construction projects via project loans, as well as a 70% Government risk-share for trade loans.
The Energy Efficiency Grant will also be extended till March 31, 2024. This grant provides continued support for businesses in the food services, food manufacturing and retail sectors to invest in energy efficiency, which will reduce the impact of higher electricity prices.
Besides the above schemes, Mr Wong also announced in his Budget speech that Singapore’s corporate tax system will reflect recommendations from the second pillar of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS 2.0) from 2025.
Pillar 2 of BEPS 2.0 introduces a minimum effective tax rate of 15% for multi-national enterprise (MNE) groups with annual group revenues of at least 750 million euros, which will be implemented in Singapore from January 1, 2025. This is part of a broader international move to align minimum global corporate tax rates for large MNE groups.