By Dezan Shira & Associates
Editor: Vasundhara Rastogi
On February 19, Singapore’s finance minister Mr. Heng Swee Kiat delivered the 2018 budget.
With an emphasis on Asia, emergence of new technologies, and an aging population, this year’s budget focused on helping businesses in Singapore prepare for future challenges and create new opportunities. As a result, much of the budget’s schemes and proposals are directed towards greater investment in and around the development of Singapore’s knowledge resources and the growth of domestic firms. At the same time, Singapore continues to strive to remain an attractive investment destination.
In this article, we present key highlights from the budget with important implications for businesses.
Measures to help businesses overcome near-term pressures
- Wage Credit Scheme
Rising wage costs remain a key concern for businesses in Singapore, and the 2018 budget will extend the Wage Credit Scheme (WCS) for three more years to 2020, to help business cope with near-term cost pressure and save big while hiring local talent.
The WCS, which co-funds wage increases for Singaporean employees, up to a gross monthly wage of S$4,000 (US$3,031), will provide 20 percent co-funding for 2018, 15 percent for 2019, and 10 percent for 2020. The gradual lowering of the WCS contribution to wages is to help employers adapt to the eventual withdrawal of the scheme.
The scheme aims to encourage employers to share productivity gains with staff.
- CIT rebate
Further, to help taxpaying companies, especially small ones, manage immediate cost challenges, the budget has announced the enhancement and extension of the corporate income tax (CIT) rebate.
The CIT rebate will be raised to 40 percent of the tax payable, capped at S$15,000 (US$11,368), for the year of assessment (YA) 2018 and will be extended to YA 2019 at a rate of 20 percent tax payable, capped at S$10,000 (US$7,579). Currently, companies can qualify for CIT rebate of 20 percent of tax payable, capped at S$10,000 (US$7,579) for YA 2018.
Changes to the Start-Up Tax Exemption (SUTE) scheme
Presently, a new company can qualify for the following exemptions in each of the first three YAs, subject to conditions:
- 100 percent exemption on the first S$100,000 (US$75,785) of normal chargeable income; and
- 50 percent exemption on the next S$200,000 (US$151,570) of normal chargeable income.
As per the 2018 budget, the tax exemption under the SUTE scheme will be adjusted to:
- 75 percent exemption on the first S$100,000 (US$75,785) of normal chargeable income; and
- 50 percent exemption on the next S$100,000 (US$75,785) of normal chargeable income.
All other conditions of the scheme will remain unchanged while the amendment will take effect on or after YA 2020 for all qualifying companies under the scheme.
Changes to the Partial Tax Exemption (PTE) scheme
Presently, except SUTE beneficiaries, all companies can qualify for the following, in each YA:
- 75 percent exemption on the first S$10,000 (US$7579) of normal chargeable income; and
- 50 percent exemption on the next S$290,000(US$219777) of normal chargeable income.
The tax exemption under the PTE scheme will be adjusted to:
- 75 percent exemption on the first S$10,000 (US$7,579) of normal chargeable income; and
- 50 percent exemption on the next S$190,000(US$143,992) of normal chargeable income.
This change will take effect on or after YA 2020 for all companies and bodies of persons, except those that qualify for the SUTE scheme. All other conditions of the scheme remain unchanged.
Measures to foster productivity, technology, and innovation
- Enhanced tax deductions for qualifying R&D, IP, and licensing costs
To encourage and support businesses to build their own innovations, the budget has raised tax deduction for qualifying expenses incurred on research & development (R&D) projects from 150 percent to 250 percent from YA 2019 to 2025.
Similarly, the budget has raised the tax deduction for intellectual property (IP) registration fees from 100 percent to 200 percent for the first S$100,000 (US$75,785) of qualifying IP registration and IP in-licensing costs incurred for each YA. The change will take effect from YA 2019 to 2025.
- Tech Skills Accelerator (TeSA) to encourage digital skills
With digital technologies gaining importance, the 2018 budget has set aside an additional S$145 million (US$109 million) for the TechSkills Accelerator (TeSA) program. TeSA aims to equip the Singapore workforce with digital skills and to enhance employability outcomes for individuals in the information and communications technology (ICT) sector.
- Productivity Solutions Grant
The 2018 budget will also streamline existing grants that support the adoption of pre-scoped, off-the-shelf technologies into a Productivity Solutions Grant (PSG). The grant will provide funding support for up to 70 percent of qualifying costs, starting from April 1, 2018. Businesses can apply for the grant through the business grant portal.
Besides the schemes discussed above, the budget also announced a National Robotics Program (NRP) to encourage the wider use of robotics in sectors like construction; a National Wide E-Invoicing Framework to improve productivity and enhance cash flow; and an Open Innovation Platform – a crowd-sourcing platform, that will help businesses find partners to co-create solutions.
Measures to help businesses scale up globally
- Double tax deduction for internationalization (DTDi)
The DTDi scheme incentivizes businesses and companies to internationalize. Presently, businesses under the scheme are allowed a tax deduction of 200 percent on qualifying market expansion and investment development expenses, subject to approval. The amount of expense that can qualify for the DTDi without approval will be raised from S$100,000 (US$75,786) to S$150,000 (US$113,678) per YA.
- Enterprise Singapore
A composite of two existing grants – SPRING Singapore’s Capability Development Grant (CDG) and IE Singapore’s Global Company Partnership Grant (GCP) – the Enterprise Singapore grant will provide integrated support to companies to help them compete at both domestic as well as international level.
- Enterprise Development Grant (EDG)
The EDG will provide funding support to the business for up to 70 percent of qualifying costs from YA 2018 to 2019 to help them build a range of capabilities.
- PACT scheme
An integration of various partnership support measures, the PACT scheme will allow companies to receive up to 70 percent of qualifying costs for collaborations between companies in areas, including capability upgrading, business development, and internationalization.
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