On 14 February, Singapore’s Deputy Prime Minister and Finance Minister Lawrence Wong gave a speech outlining the Singapore Budget 2023. This year’s budget aims to tamp down cost increases and boost the island nation’s economic viability.
After a difficult 2022 characterised by record high inflation, social alienation policies, and border closures, Singapore is now out of the woods, with demand for tourism, F&B, and retail picking up.
Singapore is recovering from the worst of the pandemic, but it still faces fresh difficulties. According to Mr Wong, the picture of the international economy would be “mixed and uneven,” with problems in various regions of the globe.
The Ukraine conflict has had the greatest impact on Europe, while the US’s sluggish growth and rising interest rates could lead to a recession this year. The improving Covid-19 situation in China has, however, improved the prospects for Asia.
2023 appears to see continued high inflation. Notwithstanding the difficulties, Mr Wong pointed out that the IMF does not predict a global recession in 2023.
In addition, several new subsidies, programs, and tax breaks for both companies and employees have been included in the Singapore Budget 2023. Businesses incorporated in Singapore will benefit from these new policies during these uncertain times.
Here are some new measures from this year’s budget which might affect your business in Singapore.
Impact of Singapore Budget 2023 on Businesses
Extension of Current Business Grants and Financing
- In Budget 2023, the Enterprise Financing Plan will be extended for an additional year through 31 March 2024. This program aims to finance growth and innovation for Singapore companies. It comprises an increased maximum quantum for trade and capital loans, a 70% government risk-share for trade loans, and capital loan support for domestic development projects.
- The Energy Efficient Grant will be made available until 31 March 2024, meaning for one additional year. This grant offers assistance to the food and beverage and retail industries so they may make investments in energy efficiency and lessen the effects of rising electricity prices.
Increased Funding for Enterprises
Due to Singapore’s tiny size, the government has historically backed local businesses in their expansion abroad. The Singapore Global Businesses Initiative will receive S$1 billion in funding from the government for Budget 2023.
The program supports globalisation, innovation, and the development of business alliances for start-ups in locations including Australia, Singapore, Hong Kong, and the UK.
The present improvements provided by Enterprise Singapore under its Enterprise Financing Scheme (EFS) will be extended by the government.
A statutory board within the Ministry of Trade and Industry of Singapore, Enterprise Singapore is in charge of assisting the regional development and internationalisation of SMEs.
1. Extending the Trade Loan Component of the Enterprise Financing Program
From 1 April 2023 through 31 March 2024, the Enterprise Financing Scheme – trade loan (EFS-TL) will be in effect.
Enterprises can receive trade finance from the EFS-TL for up to S$10 million (US$7.3 million) per borrower. The maximum loan repayment term is one year, with the government bearing 70% of the risk.
2. Extension of Project Loans Under the Enterprise Financing Program
Project loans under the Enterprise Financing Scheme (EFS-PL) will now be available until 31 March 2024. This program finances specific international projects.
Under the scheme, loans for the following can be given consideration:
- Land, buildings, and factories, including acquisitions, renovations, and construction
- Loans for working capital.
- Equipment, machinery, and other fixed assets.
For international projects, up to S$50 million (US$36.9 million) and S$30 million (US$22.1 million) are available per borrower, respectively.
Additionally, each borrower group may access up to S$50 million (US$36.9 million) for international projects and S$30 million (US$22.1 million) for domestic projects.
The government’s risk share is 50% and will go up to 70% for young businesses, which are those that have been formed within the last five years and have more than 50% privately held equity.
For fixed asset loans, the maximum payback term is 15 years, while for working capital loans and guarantees, the maximum repayment term is five years.
3. Expansion of the Working Capital Loan Component of the Enterprise Financing Program
The working capital loan under the Enterprise Financing Scheme has been extended from 1 April 2023 to 31 March 2024 and will offer loans for operating capital of up to S$500,000 (US$373,000).
Tax Increases for MNEs
The Organization for Economic Co-operation and Development (OECD BEP 2.0 effort might have a net fiscal impact that “may not be favourable” to Singapore, according to the Occasional Paper on Medium-Term Fiscal Projections published by the Ministry of Finance.
BEPS 2.0 will make it more challenging to employ tax incentives to entice new investments to Singapore, which may affect the country’s competitiveness. For example, under Pillar 2, major multinational enterprises (MNEs) may see other jurisdictions take the difference of up to 15% if their effective tax rate (ETR) in Singapore is less than the 15% worldwide minimum corporation tax rate.
To maintain Singapore’s tax integrity after adopting BEPS 2.0 and to increase MNEs’ Singapore ETR to 15%, it was announced that the implementation of the DTT in Singapore will be scheduled for 2025, subject to further alignment with broader international developments.
Singapore MNEs should be aware that while the introduction of the GloBE standards and DTT is expected in 2025, several jurisdictions, including Switzerland, South Korea, and the European Union, have already stated their desire to begin implementing the rules as of 2024. Hence, if they have a presence in such jurisdictions in 2024, they might still be affected by the GloBE laws.
Additionally, although foreign MNEs with Singapore operations are exempt from the Singapore DTT requirements as of 2024, this also depends on their particular profiles. Some of them may eventually be liable for a top-up tax outside of Singapore for their Singapore operations.
The Brand-New Business Innovation Scheme
The new Enterprise Innovation Plan, which enhances tax deductions for Singapore enterprises in their innovation activities, is included in Budget 2023. The program aids small and medium-sized businesses to strengthen their financial position to handle upcoming challenges.
- Companies are currently permitted to deduct up to 250 per cent of their qualifying costs for innovation activities. These tax deductions would increase to 400 per cent for five innovation-related activities under Budget 2023. These are:
- Singapore-based research and development.
- Intellectual property (IP) registration, such as for patents, trademarks, and designs.
- IP rights acquisition and licensing.
- Polytechnic- and Institute of Technical (ITE) Education-based innovation.
- Training through programs that are linked with the Skills Framework and approved by SkillsFuture Singapore
- The initiative will cap the amount that can be spent on each innovation activity at S$400,000, except for projects involving ITEs and polytechnics. The maximum cost for these activities will be S$50,000.
- The program enables businesses to choose a non-taxable cash payout at a cash conversion ratio of 20% or up to S$100,000 of qualified expenditure in place of tax deductions or allowances. Even while smaller businesses may pay little or no taxes, the payment will assist them in covering the costs of their innovation activities, according to Mr Wong.
The following list contains five qualifying activities.
1. Qualifying R&D Carried Out in Singapore
Businesses engaged in R&D in Singapore currently receive a 100 per cent tax deduction for all allowable costs related to R&D initiatives. In addition, for such initiatives, there is an additional 150 per cent tax deduction for employee expenditures and consumables.
The government currently provides a 400 per cent tax exemption for the first S$400,000 (US$298,000) of consumables and staff expenses incurred on eligible R&D projects carried out in Singapore under Budget 2023.
The incentive is valid from the Year of Assessment (YA) 2024 through the assessment Year of Assessment (YA) 2028.
2. Increased Tax Deductions for Eligible Intellectual Property Registration Expenses
If you incorporate a company in Singapore, the IP laws are quite favourable and lucrative. Currently, businesses can deduct 200 per cent of the first S$100,000 (US$74,600) of eligible IP registration (for patents, designs, trademarks, etc.) expenses from their taxes.
This incentive has been increased by Budget 2023 to a 400 per cent tax discount for the first S$400,000 (US$298,000) of eligible IP registration fees for each of the YAs from 2024 to 2028.
3. IP Rights Acquisition and Licensing
Companies can benefit from a 100 per cent write-down allowance on capital expenditures on qualifying IP rights under the current tax policies for IP rights.
Also, the first S$100,000 (US$74,600) of eligible expenditures for IP rights licensing qualified for a 200 per cent tax benefit.
Additionally, this incentive has been enhanced in Budget 2023 to 400 per cent tax exemptions or deductions for the first S$400,000 (US$298,000) of qualifying expenditures on the purchase and licensing of qualifying intellectual property rights. This is valid for the years 2024 to 2028.
4. Tax Deductions for Training Expenses
A 400 per cent tax benefit is available for the first S$400,000 (US$298,000) of qualifying training expenses for courses that SkillsFuture Singapore has authorised. The increase in this is due to a complete tax deduction.
5. Tax Deductions for Projects Involving Innovation That are Completed By Polytechnic Institutions and Other Qualifying Partners
A 400 per cent tax deduction program for up to S$50,000 (US$37,300) of qualifying expenditure of qualified innovation projects has been introduced in Budget 2023 to encourage businesses to work on innovative projects with local polytechnics, the Institute of Technical Education or other eligible partners. This is valid for the year 2024 up to 2028.
1. Raising the CPF Wage Cap
Singapore households will receive some much-needed financial assistance from Budget 2023 in the face of growing expenditures. Because of this, in 2026, the CPF Monthly Salary Ceiling will increase from S$6,000 to S$8,000.
To give employers and workers time to prepare for the changes, the hikes will be implemented gradually over four years. Singaporeans will benefit from these improvements as it helps them develop a strong retirement nest egg account.
2. Increasing the Fund for the Progressive Wage Credit Scheme (PWCS)
To provide transitional help for employers, the PWCS was included in the budget for 2022. It helps to co-fund mandated wage increases for low-income workers. To support the pay rise, it will provide an additional S$2.4 billion to the PWCS fund.
The Singapore Government would contribute up to 75 per cent of salary hikes for workers making up to S$2,500 per month under this year’s budget. For workers making between S$2,500 and S$3,000 per month, it will co-fund 45 per cent of salary hikes.
1. CPF Transition Support Program for Platform Employees
Platform workers under the age of 30 will have to contribute to CPF by 2024. Also, they will need to match the contributions provided by their employers. This alignment would result in higher CPF payments from platform workers, which will have an impact on their take-home pay.
As a result, the CPF Transition Assistance plan will be included in this year’s budget. For the first four years, the scheme will help lower-income platform workers who are having a difficult time adjusting to the increase in CPF contribution rates.
2. Government-Paid Paternity Leave and Unpaid Infant Care Leave Will Both Be Doubled
Fathers have a crucial role in creating stable, complete families. Therefore, two more weeks will be granted freely to qualified working fathers of Singaporean children born on or after 1 January 2024.
Employers will have time to react due to staffing and operational issues brought on by offering a lengthier leave, thanks to the optional conditions.
Throughout the first two years of a child’s life, unpaid infant care leave for each parent will increase from six to twelve days annually. In 2024, the extended leave policy will go into effect.
More Funding for the Singapore Global Enterprises Initiative
The Singapore Global Enterprises initiative, which offers specialised capacity-building initiatives for local businesses, such as for internationalisation, innovation, and the promotion of new alliances, will receive a S$1 billion (US$746 million) boost as part of Budget 2023.
More Funding for the National Productivity Fund
The National Productivity Fund (NPF) was set up to increase corporate productivity and employee training in 2010. The NPF will be given an additional S$4 billion (US$2.9 million) in funds under budget 2023.
The NPF’s mandate has also been widened to include helping companies develop new capabilities, train their workers, and help boost the home economy.
Mr Wong reiterated in his Budget speech the significance of protecting Singapore’s future through the country’s economy, workforce, and citizenry.
The measures in this year’s budget are also a part of the Future Singapore exercise, a comprehensive plan to develop Singapore’s future while taking Singaporeans’ perspectives into account.
As a business, if you want to take full advantage of all the grants and schemes the Singapore government offers, you should engage a knowledgeable corporate service provider to help you. They would ensure your business stays compliant with the rules and regulations as well as saves on cost by leveraging the different grants you are eligible for.