Singapore Government Funding & Assistance Schemes
Recognizing that lack of adequate funding is often the most common stumbling block for start-ups in general. In this regard, the role of the Singapore government and its associated agencies cannot be overemphasized in contributing to Singapore’s success as a start-up friendly nation. Enterprise development is on the top of the government’s agenda. It has consciously crafted a pro-business, and supportive environment conducive to entrepreneurs who want to start a business here. Singapore-based start-ups can benefit from an optimal business environment, excellent infrastructure, low-tax system, lack of bureaucracy, strong legal environment, a readily available workforce.
The Singapore government has rolled out several initiatives to enable start-ups to gain access to funding. These funding initiatives include cash grants, government backed equity financing schemes, business incubator schemes, debt financing schemes, and tax incentives.
This guide sheds light on the various support programs that have been instituted to help Singapore start-ups gain access to funding to turn their business ideas into reality. Start-ups in Singapore have a lot to look forward to in terms of government aided financial assistance schemes. The funding initiatives instituted by various government agencies for start-ups include the following:
- Government-aided equity financing schemes
- Cash grants
- Business incubator schemes
- Debt financing schemes
- Tax incentive schemes
Equity Financing Schemes
Equity financing is capital that is lent by investors to a business in exchange for a share of ownership in the company. This form of financing is ideal for start-ups that need additional capital, especially in their early-stage of development. In addition to private sources of equity capital, there are certain co-investment equity financing schemes that have been launched by the Singapore government in order to catalyze the supply of private capital. In other words, the government co-invests in start-ups along with a third-party investor. The popular government-backed equity financing schemes include the following:
- SPRING Startup Enterprise Development Scheme (SPRING SEEDS): SPRING SEEDS is an equity investment scheme where SPRING SEEDS Capital, a subsidiary of government agency SPRING Singapore, co-invests in commercially viable Singapore-based start-ups along with independent third-party investor(s), matching dollar-for-dollar up to a maximum of S$1 million; the first round of investment is usually limited to S$300,000. SPRING SEEDS Capital and the third-party investor(s) will take equity stakes in the company in proportion to their investments. For more details, please visit here.
- Business Angels Scheme (BAS): The Business Angels Scheme is an equity investment scheme where SPRING SEEDS Capital, a subsidiary of government agency SPRING Singapore, co-invests in growth-oriented, innovative Singapore-based start-ups along with pre-approved business angels matching dollar-for-dollar up to a maximum of S$1.5 million. SPRING SEEDS Capital and the business angel group will take equity stakes in the company in proportion to their investments. For further information, please click here.
- Early-Stage Venture Funding Scheme (EVFS): The Early-Stage Venture Funding Scheme (EVFS), that is administered by the National Research Foundation (NRF), is a co-funding scheme where selected venture capital firms who raise at least S$10 million from third-party investors will receive dollar-for-dollar matching from the NRF up-to a maximum of S$10 million in order to invest in early-stage technology start-ups. Certain qualifying technology start-ups can approach the venture capital firms directly in order to seek funding of up-to S$3 million. Click here to find out more.
One of the advantages of starting-up in a country like Singapore is that aspiring entrepreneurs can gain access to business grants disbursed by different government agencies to fund start-ups across various industries. Each grant has its set of terms and conditions including qualifying criteria and disbursement method. Typically, grants only cover a percentage of the finance needed. The business owner will have to pitch in for the remaining capital. Most grants for start-ups are designed to encourage investment in innovation, research and development, and social causes. You are advised to review the terms of the grant prior to making an application with the appropriate government agency. Some of the popular grants that are made available to start-ups in Singapore include:
- ACE Start-ups Scheme: ACE Start-ups Scheme is a financial assistance scheme where ACE (Action Community for Entrepreneurship) will match S$7 to every S$3 raised by an entrepreneur for up to S$50,000. In other words, the entrepreneur will need to raise S$21,429 if (s)he wishes to receive a grant of S$50,000. For selected ventures, ACE will match S$3 to every S$7 raised by the entrepreneur for an additional S$50,000. For these ventures, the total grant is capped at S$100,000. ACE does not take equity in exchange for the financial grant. For more details, please click here.
- Technology Enterprise Commercialization Scheme (TECS): The TECS that is jointly administered by the Infocomm Development Authority (IDA) and SPRING Singapore spurs the formation of new technology start-ups in Singapore by addressing their early-stage funding needs towards the commercialization of proprietary technology ideas. The following grants are offered under the TECS:
- For applicants who wish to develop proprietary ideas at conceptualization stage: Up-to 100% of qualifying costs for each project up to maximum of S$250,000.
- For applicants who wish to carry out further research and development on a technology project, including the development of a working prototype: Up to 85% of qualifying costs for each project up to maximum of S$500,000. The applicant must demonstrate proof of interest from a potential customer or third-party investor. Click here to find out more.
- iSTART:ACE Scheme: The iSTART:ACE (Accelerate & Catalyse Entrepreneurship) grant scheme that is administered by the Infocomm Development Authority (IDA) aims to encourage and assist Singapore-based start-ups to accelerate technology commercialization and catalyze go-to-market activities by leveraging internationally proven technologies. Under the iStart:ACE scheme, the IDA will offer funding support to qualifying start-ups by way of a grant that covers up-to 50% of salaries of five technical staff for one year up-to a maximum cap of S$250,000. For more information, please click here.
- iSPRINT: Another project by the IDA, iSPRINT (Increase SME Productivity with Infocomm Adoption & Transformation) covers improvements through packaged solutions, such as for accounting and payroll, to more complex customized solutions for areas such as customer relationship management and supply chain management. Any customized solutions require that the development must be for the first-time automation of business functions. In addition, it should be carried out in Singapore, and must not have started before the grant is approved. iSPRINT is open to all locally registered or incorporated SMEs. For more information, see iSprint Scheme Details.
- ComCare Enterprise Fund (CEF): The ComCare Enterprise Fund that is administered by the Ministry of Social and Family Development (MSF; formerly Ministry of Community Development, Youth & Sports) provides seed funding for social enterprise start-ups (strictly from the social services sector) that train and employ disadvantaged Singaporeans of up-to 80% of the capital expenditure and first two years’ operating costs, subject to a maximum of S$300,000. More details can be found here.
Business Incubation Schemes
Business incubators are an invaluable resource for start-up entrepreneurs who are not only looking for funding but are also keen on getting guidance and know-how for their venture. In general, business incubators offer a physical space for the new business to operate along with access to cost-effective shared services, business guidance, and financial assistance during their early-stage of development. It is ideal for start-ups that are looking for regular support, mentoring, funding and networking along with low-start up costs. The current incubation schemes that are available to start-ups in Singapore include:
- NRF Technology Incubation Scheme: The National Research Foundation has selected fifteen technology incubators to nurture high-tech Singapore start-ups by way of mentorship as well as funding. The NRF will offer up-to 85% co-funding in each start-up company in the incubator, up to a maximum of S$500,000. The incubator will be required to invest the remaining amount of at least 15%. NRF and the incubator will take equity stakes in the company in proportion to their investments. Click here for more information.
- Incubator Development Program: The Incubator Development Program that is administered by SPRING Singapore provides up-to 70% grant support to incubators and venture accelerators who actively introduce programs that help nurture start-ups including cost of hiring mentors, expenses incurred to market services/events, hire incubator managers, train staff, provide shared services/equipment for start-ups, etc. Innovative startups can benefit from the programmes offered by the various incubators and venture accelerators supported under the Incubator Development Program. To find out more, please click here.
- Incubator for Disruptive Enterprises and Start-ups (IDEAS) Fund: The IDEAS Fund that was launched by Innosight Ventures Pte. Ltd. a Singapore-based venture capital firm and the National Research Foundation (NRF) is an incubator fund for early-stage start-up companies. Start-ups with disruptive innovation potential will be identified and offered guidance during their early-stages including funding investment to the tune of up-to S$500,000-S$600,000. The NRF supports the incubator with 85% co-funding. For additional information, please click here.
- Fast-Track Environmental and Water Technologies Incubator Scheme (Fast-Tech): The Fast-Tech scheme that is administered by the Economic Development Board offers start-ups in the environmental and water technology sector funding assistance of up-to S$300,000 or up to 85% support level, whichever is lower, over two years. In addition, the start-ups will be housed in water-technology incubators who will offer mentorship and guidance. The designated incubator will take an equity stake in the company. The grant will be disbursed to the start-up on a reimbursement basis. To know more, please click here.
Debt-financing is a viable start-up funding option for entrepreneurs who wish to raise capital without having to give up a share of their profits. The only downside is that loan repayments have to be made on time and that borrowers are indebted to lenders, irrespective of whether the start-up is generating profits or not. Traditional sources of debt financing are “friendship loans” from family and friends as well as private debt-financing schemes. However, there are a significant number of government debt-financing schemes that have been designed for SMEs in Singapore. Start-ups that meet the qualifying criteria can also avail of these schemes. The various government debt-financing schemes in Singapore include:
- Micro-Loan Program: Under the Micro-Loan Program, participating banks and financial institutions will lend eligible Singapore companies loans of up-to S$100,000 for their daily operations or for automating and upgrading factory and equipment. The SMEs will have to pay a minimum 5.75% interest rate for a less than four years loan tenure. For details, click here.
- Loan Insurance Scheme (LIS): The Loan Insurance Scheme insures loans against default risks. The government will co-share the insurance premium with the start-up enterprise. The LIS supports both domestic trade and overseas trade facilities. There is no maximum loan quantum for the LIS. The premium rate, interest rate, and loan tenure will be determined by the insurer based on the risk profile of borrower. The government provides premium support of 50%. The repayment structures and collateral requirements will be determined by the participating financial institutions. Further information can be found here.
- Local Enterprise Finance Scheme (LEFS): Under the LEFS, participating banks and financial institutions will lend eligible Singapore companies loans of up-to S$15 million for automating and upgrading factory and equipment/construction equipment/heavy vehicles, and/or purchasing factory and business premises. The SMEs will have to pay a minimum 4.75% interest rate for a less-than-four-years loan tenure and 5.25% interest rate for a loan tenure of more than 4 years. To know more, please click here.
Tax Incentive Schemes
One of the very prudent and noteworthy initiatives of the government has been the introduction of several tax benefits for start-ups. Tax breaks act an incentive for entrepreneurs to build more companies and generate more jobs for the economy. Listed below are the various tax incentives that are made available to start-ups and SMEs in Singapore.
- Tax Exemption for Start-ups: Singapore startups that meet certain qualifying criteria can avail of a full tax exemption on a certain amount of their taxable income for the each of their first three consecutive years. A newly incorporated Singapore company that satisfies the qualifying conditions (viz. be incorporated in Singapore, be a tax resident of Singapore and has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares) will be taxed as follows:
- For each of its first three consecutive tax years – corporate tax rate of 0% on the first S$100,000 of taxable income and 8.5% (partial exemption) tax rate on the next S$200,000 of taxable income. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.
- From the fourth tax year onwards – 8.5% tax rate on taxable income of upto S$300,000 per annum. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%. For more information, please refer to our Singapore Corporate Tax guide.
- Development and Expansion Incentive (DEI): The DEI encourages Singapore-based companies to move into high value-addition business activities, expand their operations in the country, and procure advanced machinery and equipment by offering a reduced tax in the range of 5%-10% on incremental income derived from qualifying activities.
- Investment Allowance: Companies may claim capital allowance on plant and equipment used in connection with their trade or business, subject to meeting certain conditions. Budget 2016 introduced a four-part Automation Support Package to help companies automate, drive productivity and scale up their business. Qualifying projects may be eligible for an IA of 100% on the amount of approved capital expenditure (capped at $10 million per project), net of grants. This is in addition to the existing capital allowance for plant and machinery.
- Pioneer Incentive Scheme: Companies from the manufacturing or services sector that engage in activities that raise overall industry standards may be eligible for full corporate tax exemption on qualifying profits for up to 15 years.
- Productivity and Innovation Credit (PIC) Scheme: The PIC scheme is a tax benefit scheme that was first introduced in 2010 to encourage companies to engage in innovative and productive activities. Under the scheme, businesses can enjoy up-to 400% deduction or allowances on up to $400,000 of expenditure incurred in each of the following qualifying innovative activities. The qualifying activities include Research & Development; Intellectual Property registration; Intellectual Property acquisition; Design activities, Automation through technology or software; and training of employees. The PIC Scheme after being extended in Budget 2014 for another three years (until YA2018), will expire and not be available from YA2019.
- Budget 2016: Qualifying expenditure incurred from 1 August 2016 will have a lower cash payout rate of 40% (from 60%). At the same time, to streamline and expedite the processing of PIC cash payout applications, it is mandatory to e-file the PIC cash payout applications. This will be effective from 1 August 2016.
- Industry-specific tax incentives: In addition to the above-mentioned tax incentives, there are various industry-specific tax incentives for Singapore-based SMEs, including start-ups. For a comprehensive overview of these incentives, please refer to our guide on Industry-specific Tax Incentives in Singapore.
On a final note
Today, Singapore has emerged as a premier destination to do business. The World Bank has consistently ranked Singapore as the best place to do business for the last six consecutive years. It has also been ranked as Asia’s most entrepreneurial economy and the best country to nurture start-ups for expats. Singapore has emerged as a hub for first-time entrepreneurs and the city has witnessed the mushrooming of several start-ups over the past few years. Start-ups, defined as companies employing at least one employee and less than 5 years old, have increased from 27,000 in 2002 to more than 36,000 in 2009 in Singapore. These start-ups have employed more than 300,000 workers and generating more than S$166 billion in turnover.
The Singapore government has taken cognizance of the key role played by new businesses in spurring economic growth and has consequently spent considerable amount of money, time and effort in devising a support ecosystem for start-ups in Singapore.