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Singapore Budget 2016: Financing and tax incentives to enable SMEs to scale and internationalise
The Singapore Budget 2016 included a host of initiatives that would benefit the country’s small and medium enterprises (SMEs) sector. We look at the key initiatives aimed at enabling SMEs to scale and internationalise.
SMEs make up 99 percent of the enterprises in Singapore and contribute nearly half of the country’s GDP while employing 70 percent of the workforce.
In keeping with the huge contribution of SMEs to the economy, the Singapore Budget 2016 announced a number of initiatives to support this segment. Here’s a snapshot of the measures targeted specifically to support their advancement in both the domestic and international markets.
SME Mezzanine Growth Fund strengthened to aid expansion
SMEs looking for funds to expand their business can make use of the SME Mezzanine Growth Fund, which has been increased from S$100 million to S$150 million. The Government will match up to S$25 million of new private sector investment on a 1:1 basis.
“This will provide more capital to support our SMEs to scale up and internationalise,” said Finance Minister Heng Swee Keat in his Budget speech.
Supporting mergers and acquisitions (M&A) with increased allowance
The government has increased the M&A allowance on up to S$40 million of the value of the deal, an increase from up to S$20 million currently. With an enhanced 25 percent rate announced in Budget 2015, companies can now enjoy up to S$10 million of M&A tax allowance for every year of assessment.
Extension of Double Tax Deduction for Internationalisation scheme
To encourage more SMEs to explore international avenues, the government has extended this scheme until March 31, 2020. This covers qualifying expenses incurred for activities such as participation in overseas business development and investment study trips.
International Enterprise (IE) Singapore to spur more overseas growth
SMEs planning to expand in overseas markets can also turn to IE, which facilitates the overseas expansion of local firms. The government agency expects to help even more companies this year (35,000-40,000), an increase from 34,000 companies in 2015. This targeted assistance is provided through the Global Company Partnership and Market Readiness Assistance.
Automation Support Package for rolling out automation projects
The government has taken measures to support firms in automation, which will help them to enhance productivity and scale up in a timely manner. Under SPRING Singapore’s Capability Development Grant programme, companies can secure funding for their automation projects for up to 50 percent of project cost, with a maximum grant of S$1 million.
The package includes an Investment Allowance (IA) of 100 percent on approved capital expenditure, capped at S$10 million per project. This IA is in addition to the existing capital allowance for plant and machinery.
To improve access to loans, the government will also increase its risk share with participating financial institutions from 50 percent to 70 percent for qualifying projects undertaken by SMEs.
Further, for relevant large-scale automation projects, IE Singapore will work with SPRING Singapore to enable businesses to access overseas markets.
New SME Working Capital Loan for growing companies who face cash flow concerns
To address nearer-term concerns, also included in the Singapore Budget 2016 is this new scheme, which offers loans of up to S$300,000 per SME. Available for three years, the funds can be used for daily operations, automation or upgrades of factory and equipment. The government will co-share 50 percent of the default risk with participating financial institutions. This initiative is expected to catalyse more than S$2 billion of loans.
The Singapore Budget 2016 provides focused support to equip SMEs to face both immediate challenges and look ahead to transform and maximise their gains from both international and domestic markets.
SMEs can grow and expand by leveraging the:
- Financial incentives such as the expansion of the SME Mezzanine Growth Fund and the launch of the SME Working Capital Loan.
- Other funding assistance and tax benefits such as the increase in the Mergers and Acquisitions Allowance and the extension of the Double Tax Deduction for Internationalisation scheme.