February 14th may not traditionally be associated with fiscal policy, but nonetheless, Deputy Prime Minister and Minister for Finance, Mr Lawrence Wong, presented a budget that promised to sweeten the blow of rising inflation and GST for most Singaporeans.
For businesses, the budget focuses on growth and resilience through innovation and productivity.
Let us take a closer look at four major business-related announcements from Budget 2023, and how they will affect businesses in Singapore.
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Singapore Global Enterprise Initiative
The Singapore Global Enterprise Initiative showed promise in 2022, so it was encouraging to see it receive a S$1 billion top-up for 2023.
The initiative aims to help large local enterprises (LLEs) expand globally through funding, resources, and networks that can help them overcome the barriers to international expansion.
The initiative is not just for large enterprises – SMEs can also benefit, with the government setting aside S$150 million to help SMEs in their digital transformation journey.
This SME Co-Investment Fund will help small to medium businesses access capital to scale up and be globally competitive.
Expanding globally can be a daunting task, especially for SMEs. However, the Global Enterprises initiative’s funding, resources, and networks can help these companies overcome some of the barriers to international expansion.
By taking advantage of the initiative, companies can gain access to new markets, develop innovative products and services, and establish relationships with potential partners and customers.
Overall, the initiative is a smart investment for Singapore’s future. Supporting our companies in their global expansion efforts can strengthen the Singapore economy and secure our country’s place as a key player in the global market.
Related Read: Overseas Expansion for Singapore SMEs: The MRA Grant »
National Productivity Fund
The National Productivity Fund (NPF) is a financial support initiative for companies in Singapore aimed at improving productivity and competitiveness.
The fund was established to help firms overcome the challenges of digital transformation and adapt to the rapidly evolving business landscape.
I believe the S$4 billion boost to the NPF announced in Singapore’s Budget 2023 is a much-needed initiative for businesses in the country.
The fund aims to improve productivity and competitiveness through a “wide range of measures”, including education and upskilling workers, with the aim of adding value to the domestic economy.
With good planning, this funding should enable businesses to streamline their operations, reduce costs, and expand their offerings to reach new markets.
It should also attract multinational enterprises (MNEs) that are looking for the most cost-efficient supply chains.
In my opinion, this fund is a step in the right direction towards creating a more productive and competitive business landscape in Singapore.
By taking advantage of the funding opportunities available, businesses can thrive in the ever-changing global landscape and stay ahead of the competition.
Enterprise Innovation Scheme (EIS)
The world economy is evolving at an almost alarming pace, so the Enterprise Innovation Scheme (EIS) is aimed at helping innovative Singaporean companies with generous tax breaks.
At present, businesses performing qualifying innovative practices can be allowed up to 250% in tax deductions. However, the new scheme will raise this to 400% for the following activities:
- Training through Skillsfuture-approved courses aligned to the Skills Framework
- Registration of intellectual property (IP), such as trademarks and patents
- Innovation with local polytechnics and Institutes of Technical Education (ITEs)
- Research and development projects carried out in Singapore
- Acquiring and licensing of IP rights
I am pleased to see this new scheme in Singapore’s 2023 Budget. Participating in R&D and innovation activities provides a competitive advantage, creates new job opportunities, and drives economic growth.
I encourage companies to take advantage of the scheme and invest in R&D and innovation to stay competitive in a rapidly evolving global landscape.
Overall, the EIS is a positive step towards encouraging innovation and supporting businesses that invest in R&D. It is a win-win situation for both businesses and the economy.
Corporate Income Tax – BEPS 2.0 and DTT
The Organisation for Economic Co-operation and Development (OECD) has spearheaded a monumental overhaul of global tax standards with the Framework on Base Erosion and Profit Shifting (BEPS 2.0).
This innovative initiative aims to lessen tax avoidance through international corporate structures.
To ensure a consistent and coordinated implementation of the BEPS recommendations and to make the project more inclusive, OECD/G20 included more than 140 jurisdictions through a platform called the Inclusive Framework (IF) on BEPS.
Singapore is an early participant in the Inclusive Framework on Base Erosion and Profit Shifting, as one of the first non-G20 and non-OECD countries to join.
The Inclusive Framework on Base Erosion and Profit Shifting (IF) reached a milestone in October 2021 with its adoption of the Two-Pillar solution, also known as BEPS 2.0.
Singapore is among the 135+ members of the IF that have headed this agreement, paving the way to global taxation changes.
Pillar 1 focuses on allocating taxing rights to market jurisdictions (i.e., the customers) for certain digital services and consumer-facing businesses regardless of whether the organisation has a physical presence in the jurisdiction.
Pillar 2 introduces a minimum effective tax rate of at least 15% for large multinational enterprises that have global revenues of at least S$1.07 billion.
With the intention of curbing profit-shifting tactics, the IF has implemented a minimum effective tax rate of 15% to come into effect in Singapore on or after January 1, 2025. This will also mitigate competitive tax measures between countries.
In view of the Pillar 2 initiatives, the MOF will implement a Domestic Top-Up Tax (“DTT”) – previously known as the Minimum Effective Tax Rate (METR) for large Singapore multinational enterprise (MNE) groups falling within the scope of Pillar 2.
The DTT is designed to supplement any effective tax rate below the global minimum of 15% in Singapore, bringing it up to the agreed-upon figure. This applies to any MNE group operating in the country.
MNE groups with annual consolidated financial revenues of €750 million (or more) from the ultimate parent entity, operating in Singapore, will be subject to this 15% minimum effective tax rate.
It was announced that Singapore plans to implement the GIoBE rules and the DTT which will apply to businesses’ financial year commencing on or after 1 Jan 2025.
With the DTT, IRAS will collect the top-up tax on Singapore entities, instead of allowing the top-up tax to be collected by other jurisdictions (i.e. subsidiaries’ locations).
As a hub for regional and global business activities, Singapore needs to recognise the importance of maintaining a stable and fair tax environment that still encourages investment and innovation. This will be the global standard, and we cannot fall behind here.
While the details of the implementation plan are still being developed, it is expected to be in line with the OECD’s model rules. It is hence imperative for in-scope businesses to start assessing the impact as there is a 2-year lead time to prepare for the new regime.
Singapore has decided to implement the GloBE rules or DTT one year later than certain jurisdictions (such as the EU, the UK, and Switzerland).
This seems to indicate that the introduction of the DTT in Singapore is more of a response to the changing global tax landscape rather than a tax revenue-raising exercise.
MNE groups that presently enjoy tax incentives or plan to apply for tax incentives may be affected by the DTT as their effective tax rate across the group entities in Singapore may be less than 15% and therefore subject to the GIoBE rules when introduced.
The Ministry of Finance (MOF) has reassured affected MNE groups that it will review and update its suite of incentives and promotions. This will maintain Singapore’s competitive edge when it comes to attracting and retaining investments.
As responsible corporate citizens, we will need to stay informed about the changes and plan accordingly. This may require reviewing our compliance measures to ensure that we are aligned with the new rules.
Related Read: Budget 2023: How CPF Changes Will Affect Employers »
Budget 2023 – Bolstering Businesses Beyond the Present
Overall, the Singapore Budget 2023 is focused on supporting businesses and encouraging innovation.
It is promising to see that the government is using its famous foresight to see the uncertainty ahead and make the necessary investments in our businesses that will ensure Singapore’s long-term success.
The budget is an excellent example of how the government is looking out for businesses and citizens by introducing new ways to incentivise investment, innovation, productivity and enterprise.
With these initiatives in place, Singapore will remain a great destination for foreign direct investments and business growth in the years to come, no matter how uncertain the future.
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Frequently Asked Questions
- Singapore’s Budget 2023 aims to bolster innovation and competitiveness in the city-state to better capture new opportunities in a new global economy.
- Instead of focusing purely on handouts, the budget looks towards building innovation and growth to help companies navigate beyond 2023 with a range of supportive measures, such as the Enterprise Innovation Scheme.
- Singapore expects positive but slow economic growth supported by robust economic fundamentals.