How Businesses in Singapore can Reduce Overhead Costs During the Pandemic
Singapore’s government has provided an array of fiscal and non-fiscal incentives to help businesses reduce their overhead costs during the pandemic.
The government is expected to draw on S$53.7 billion (US$40 billion) from its reserves for this year and an additional S24 billion (US$17.8 billion) over the next three years to assist local companies transition into a post-pandemic business environment.As such, businesses can take advantage of the jobs support scheme (JSS) through which the government will partially subsidize wages. There are also several financing schemes for companies for working capital, the purchase of fixed assets, or renovation or construction.
Moreover, the government has decided to delay the increase in the goods and sales tax (GST) for 2021 in addition to developing programs to assist businesses to accelerate their digital transformation.
Wage subsidy support
The JSS program was launched in 2020 to offset local employees’ wages and protect jobs.
Under this scheme, the government co-funds a portion of the first S$4,600 (US$3,428) of an employee’s gross monthly wages. The co-funding varies between sectors.
Firms are classified into different tier groups (Tier 1, 2, 3, 3A, and 3B), which will determine the amount of eligible co-funding. Businesses in Tier 1 (tourism, aerospace, and aviation) received 30 percent support for wages between April to June 2021, but this will be reduced to 10 percent from July to September 2021.
With the recent lockdown of the city-state, businesses in the retail sector, museums, art galleries, and other entertainment centers (Tier 2) were eligible for 30 percent wage support. Firms in the food and beverage sectors, sports, and performing arts sectors were provided with 50 percent support.
The full list of tier businesses can be found here.
Financing schemes for companies
There are several financing schemes available for companies to be used as working capital, purchase of fixed assets, or renovation or contraction, among others.
The temporary bridging loan program
The temporary bridging loan program (TBLP) provides eligible businesses up to S$3 million (US$2.2 million) for working capital. The program has now been extended to September 30, 2021.
The government’s risk share is 70 percent and the maximum repayment period is five years. Further, the interest rate is capped at five percent per annum.
The enterprise financing scheme – project loan
The enterprise financing scheme – project loan (EFS-PL), provides financing for Singaporean businesses who have secured domestic and overseas projects.
The loan can be used for the following activities:
- Working capital;
- Purchase/renovation/construction of factories, land, or buildings; or
- Purchase of fixed assets such as machinery and vessels.
The maximum loan quantum is S$50 million (US$37.2 million) for overseas projects and S$30 million (US$22.3 million) for domestic projects. Moreover, the maximum repayment period is 15 years for fixed asset loans and five years for working capital loans.
Firms incorporated within the past five years will be eligible for a risk share of 50 percent with the government whereas much older firms are eligible for a risk share of up to 70 percent.
The enterprise financing scheme – trade loan
The enterprise financing scheme – trade loan (EFS-TL) supports trading companies in Singapore by providing financing for the following activities:
- Inventory/stock financing;
- Structured pre-delivery working capital (revolving working capital);
- Factoring (with recourse) / bill of invoice / AR discounting;
- Overseas working capital loan; or
- Bank Guarantee (capped at two years tenure).
The maximum loan available is S$10 million (US$7.4 million) with a maximum repayment period of one year. The government’s risk share is 70 percent.
No increase in GST for 2021
The government has decided to not increase the goods and services tax (GST) rate for 2021, which will remain at the seven percent rate. An increase to nine percent is expected between 2022 and 2023.
GST, also known as value-added tax (VAT), is a consumption tax imposed on goods and services in Singapore regardless of whether they are acquired from domestic or overseas suppliers. From January 1, 2023, GST will be applied to business-to-consumer imported non-digital services.
Assisting businesses to go digital
Many companies in the city-state are still adopting a hybrid online-offline business model, and the government is eager for them to leverage digital technologies to innovate and grow.
Among the initiatives include:
- The Chief Technology Officer (CTO)-as-a-Service scheme;
- The Digital Leaders Program (DLP);
- The Open Innovative Platform (OIP) initiative; and
- The 100 percent Investment Allowance scheme.
The CTO service scheme
The CTO service scheme enables small and medium-sized enterprises (SME) to receive professional IT consultancy based on the company’s profile.
These consultants are highly experienced in areas such as cybersecurity, data analytics, and artificial intelligence, among others. Through this service, SMEs are provided with end-to-end digital solutions.
The DLP aims to identify promising local companies to become digital leaders and capture new opportunities by equipping them with digital capabilities.
The DLP support companies to:
- Develop and implement digital transformation roadmaps; and
- Building expertise in the firm, such as identifying new talent.
Eligible companies can have up to 70 percent of their qualifying costs covered by the program.
The OIP was initially introduced in 2018 to accelerate digital innovation and drive more collaboration. The scheme has since been enhanced by the government to include:
- The Discovery Engine that facilitates search and matching of technology solutions through automated recommendations; and
- The Digital Bench provides quick proof-of-concept (POC) testing through a virtual POC platform.
The 100 percent Investment Allowance scheme
The 100 percent Investment Allowance (IA) scheme aims to support capital expenditure for automation projects approved by Enterprise Singapore (ESG) and the Enterprise Development Grant (EDG).
The approved 100 percent IA support is capped at S$10 million (US$7.4 million) and is part of the Automation Support Package (ASP), which comprises the following grants, loans, and tax support:
- Grant support through the EDG capped at S$1 million for up to 50 percent of qualified automation projects;
- Loan financing of up to S$15 million (US$11.1 million) for automation equipment; and
- The 100 percent IA scheme.
Double tax deductions for overseas expansion
Singaporean companies can access the Double Tax Deduction Scheme for Internationalization (DTDi) scheme, which offers a 200 percent deduction on expenses for international expansion.
DTDi is subject to approval from ESG as well as the Singapore Tourism Board.
The DTDi supports businesses in four categories and several sub-categories:
- Market preparation
- Product/service certification;
- Feasibility studies; and
- Design of packaging for the overseas market.
- Market exploration
- Overseas market development trips;
- Local trade fairs (must be approved by the ESG and the Singapore Tourism Board);
- Virtual trade fairs (must be approved by the ESG); and
- Overseas trade fairs.
- Market promotion
- Overseas advertising;
- Production of corporate brochures for overseas distribution;
- Overseas business development; and
- Advertising in approved trade publications.
- Market presence
- Overseas trade offices;
- Investment feasibility studies;
- Employee overseas posting;
- Master licensing and franchising; and
- Overseas investment trips.
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