Singapore Budget 2023: Impact for Businesses

On February 14, 2023, the government of Singapore unveiled the 2023 national budget with the theme focused on building the capabilities of Singaporeans and seizing new opportunities amid heightened global uncertainty.

Government spending is expected to reach S$104.2 billion (US$78.1 billion) with the overall budget deficit for 2023 at S$400 million (US$299 million) or 0.1 percent of GDP. The economy is expected to see positive but slower growth, ranging between 0.5 and 2.5 percent. However, external factors, such as the prolonged Russia-Ukraine conflict and the decline of the US and European economies, will greatly impact global trade. As such, inflation in Singapore is expected to remain high at least for the first half of 2023.

The budget also provides a wide range of support for Singapore employees, such as co-funding worker wages and encouraging reskilling and upskilling of employees.

Budget 2023 issues support for Singapore businesses as they transition to a post-COVID-19 world and combat elevated inflation and growth slowdown. These include tax deductions for research and development (R&D) as well as for innovation, among others.

BEPS 2.0

Budget 2023 announced that Singapore will introduce a 15 percent minimum effective tax rate for large multinational enterprises (MNEs) based in Singapore from January 1, 2025.

These changes are part of the Base Erosion and Profit Shifting initiative, or BEPS 2.0, a global framework that aims to ensure a fairer distribution of tax rights on large MNEs through a set global minimum tax rate. Base erosion is a practice where companies use tax strategies to exploit gaps in tax rules and shift profits to artificial locations where the tax rates are low or non-existent.

BEPS 2.0 is the outcome of cooperation Organization for Economic Co-operation and Development (OECD) to tackle tax evasion. Singapore was among 130 jurisdictions to join this agreement in October 2021. 

From 2025, MNEs with consolidated annual revenues of EUR 750 million (US$797 million) or more, must pay a tax rate of 15 percent on profits earned in the jurisdiction in which they operate.

Enterprise Innovation Scheme

To encourage businesses to engage in innovation and R&D, the government introduced the Enterprise Innovation Scheme (EIS) in Budget 2023. EIS enhances as well as introduces new tax measures for qualifying companies.

There are five qualifying activities as stated below.

Qualifying R&D undertaken in Singapore

Currently, businesses undertaking R&D activities in Singapore enjoy a 100 percent tax deduction for all qualifying expenditures incurred on R&D projects. There is also an additional 150 percent tax deduction for staff costs and consumables for such projects.

Under Budget 2023, the government now offers a 400 percent tax deduction for the first S$400,000 (US$298,000) of the costs of consumables and staff incurred on qualifying R&D projects conducted in Singapore. The incentive is applicable from the year of assessment (YA) 2024 to the year of assessment (YA) 2028.

Enhanced tax deductions for qualifying intellectual property registration costs

Businesses currently enjoy a 200 percent tax deduction on the first S$100,000 (US$74,600) of qualifying IP registration costs (patents, designs, trademarks, etc.).

Budget 2023 has enhanced this incentive to a 400 percent tax deduction for the first S$400,000 (US$298,000) of qualifying IP registration costs, for each YA 2024 to YA 2028.

Acquisition and licensing of IP rights

Under the existing tax measures for IP rights, companies can enjoy a 100 percent write-down allowance on capital expenditure on qualifying IP rights. Further, there was a 200 percent tax deduction on the first S$100,000 (US$74,600) of qualifying expenditure on licensing of IP rights.

Budget 2023 has also enhanced this incentive to 400 percent tax allowances/deductions for the first S$400,000 (US$298,000) of qualifying expenditure on the acquisition and licensing of qualifying IP rights. This is applicable for YA 2024 to YA 2028.

Tax deductions for training expenditure

Courses approved by SkillsFuture Singapore can enjoy a tax deduction of 400 percent for the first S$400,000 (US$298,000) qualifying training expenditure. This has been enhanced from a 100 percent tax deduction.

Tax deductions for innovation projects carried out by polytechnics and other qualified partners

To encourage businesses to carry out innovation projects with local polytechnics, the Institute of Technical Innovation, or other qualified partners, Budget 2023 has introduced a 400 percent tax deduction scheme for up to S$50,000 (US$37,300) of qualifying expenditure of qualifying innovation projects. This is applicable for YA 2024 to YA 2028.

Enhanced support for businesses

The government will extend the current enhancements afforded by Enterprise Singapore under its Enterprise Financing Scheme. Enterprise Singapore is a statutory board under Singapore’s Ministry of Trade and Industry responsible for supporting local SME development, updating their capabilities, innovation, and internationalization.

Extension of the enterprise financing scheme – trade loan

The enterprise financing scheme – trade loan (EFS-TL) has been put in place from April 1, 2023, to March 31, 2024.

The EFS-TL provides enterprises with trade financing of up to S$10 million (US$7.3 million) per borrower. The government’s risk share on the loan is 70 percent and the maximum repayment period is one year.

Extension of the enterprise financing scheme project loans

The enterprise financing scheme project loans (EFS-PL) will be further extended until March 31, 2024. The program provides financing for certain overseas projects.

The supportable loan types include:

• Land/building/factory (including purchases/renovation/construction);
• Working capital loans;
• Machinery, equipment, other fixed assets; and
• Guarantees.

There is up to S$50 million (US$36.9 million) available per borrower, for overseas projects, and S$30 million (US$22.1 million) per borrower, for domestic projects.

Further, there is also up to S$50 million (US$36.9 million) available per borrower group, for overseas projects, and S$30 million (US$22.1 million) for domestic projects.

The government’s risk share is 50 percent, and 70 percent for young companies — defined as companies incorporated within the past five years and is more than 50 percent equity owned by individuals. The maximum repayment period is up to 15 years for fixed asset loans and up to five years for working capital loans and guarantees.

Extension of the enterprise financing scheme – working capital loan

The enterprise financing scheme – working capital loan has been enhanced from April 1, 2023, to March 31, 2024, providing S$500,000 (US$373,000) as a loan for operating capital.

Top-up to Singapore global enterprises initiative

Budget 2023 announced a S$1 billion (US$746 million) top-up to the Singapore Global Enterprises initiative, which provides customized capability building programs for local companies, such as for internationalization, innovation, and fostering of new partnerships.

Top-up for National Productivity Fund

The National Productivity Fund (NPF) was established in 2010 to improve business productivity and training of workers. Under Budget 2023, the NPF will receive another S$4 billion (US$2.9 million) in funding. Further, the NPF’s mandate has been expanded to support businesses in building new capacities, upskill their workers, and adding greater value to the domestic economy.

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