Singapore Government Assistance Schemes & Funding For Start-Ups
Singapore’s continuing success as a start-up friendly national can be largely attributed to efforts undertaken by the government and associated agencies to address common stumbling blocks facing young and developing companies. Those wishing to start a business in Singapore already benefit from high-quality infrastructure, a low headline corporate tax rate, minimal bureaucracy, a strong legal environment, a highly-skilled and readily available workforce and a highly-optimised business environment, but this does not wholly address the challenges facing start-up owners.
Chief amongst these is a lack of adequate capital for the purchase of essential plant and equipment, running the business and purchasing inventory. To address this – and to further develop Singapore as a pro-business environment supportive of new endeavours – the government has worked to make the city conducive to all entrepreneurs wishing to start a business here, rolling out several initiatives to connect businesses with necessary funding. These initiatives include everything from cash grants, business incubator and debt financing schemes, government backed equity financing and readily-available tax concessions and incentives.
Ottavia has prepared this guide as a brief for new business owners looking to take advantage of the various support programs initiated by the government and other agencies that could potentially provide them with the funding necessary to get their business started. Overall, entrepreneurs looking to incorporate in Singapore have much to look forward to, as the government puts enterprise development at the top of its agenda. A number of government agencies offer a diverse range of funding initiatives for start-ups at various stages of development, including:
- Government-aided equity financing schemes
- Cash grants
- Business incubator schemes
- Debt financing schemes
- Tax incentive schemes
Equity Financing Schemes
Equity financing refers to capital provided by investors to a business in exchange for partial ownership of the company, represented by the issuance of a share. Highly scalable and with longer timelines than debt financing, equity financing is ideal for start-ups requiring additional capital, especially in the seed or early stage, or in capital-intensive or cutting-edge industries.
In addition to private sources of equity capital such as angel investors, venture capitalists and private funds, the Singapore government has been responsible for the launch of several co-investment equity financing schemes. These schemes have been launched to increase investor confidence and make Singaporean start-ups more attractive in a globalised investment market. In short, the government co-invests in a start-up alongside the third-party investor. The Singapore government has embarked on a number of equity financing schemes. Some of the most popular include:
- SPRING Startup Enterprise Development Scheme (SPRING SEEDS): Under SPRING SEEDS, start-ups can apply to have SPRING SEEDS Capital – a subsidiary of the government agency SPRING Singapore – co-invest in their business in conjunction with independent third-party investors. Businesses must be deemed commercially-viable to qualify for under the scheme, but accepted businesses will be able to enjoy dollar-for-dollar matching of any private investment they receive up to a value of S$1 million by SPRING SEEDS Capital. With the majority of first-round investments being limited to S$300,000, most companies will be able to double every dollar they receive in the first round. In return, SPRING SEEDS Capital and the third-party investors will receive equity shares in your company to the value of their investment. Please refer to the SPRING website for further information.
- Business Angels Scheme (BAS): Also administered by SPRING SEEDS Capital, the Business Angels Scheme co-invests in Singapore start-ups determined to be innovative and growth-oriented, alongside pre-approved business angels. Under BAS, start-ups can enjoy as much as an additional S$1.5 million in funding from SPRING SEEDS Capital through dollar-for-dollar matching with the business angel group. The business angel group and SPRING SEEDS Capital will receive equity stakes in the company proportional to the value of the investment made. Please refer to the SPRING website for further information.
- Early-Stage Venture Funding Scheme (EVFS): An initiative of the National Research Foundation (NRF), the Early-Stage Venture Funding Scheme (EVFS) is a co-funding scheme connecting selected venture capital firms looking to invest in early-stage technology-focused start-ups with funds provided by the NRF. Successful venture capital firms must have raised a minimum of S$10 million from third-party investors, and will receive dollar-for-dollar matching on their investment to the value of S$10 million. Start-ups in qualifying industries and markets can approach the venture capital firms directly and can seek up to S$3 million in funding. Please refer to the website of the NRF for further information.
Singapore offers developing start-ups and aspiring entrepreneurs a variety of generous business grants disbursed by a number of different government agencies, making it extremely advantageous to consider establishment in Singapore. Business grants may be targeted at certain industries or at companies with certain goals, and each will have its own set of terms and conditions specifying the intended recipient, the qualifying criteria and the method of disbursement. It is important to note that the majority of grants will only cover a portion of the capital needed by a company in order to fully develop, and business owners will have to source funding from elsewhere – either from their own personal wealth or through debt financing or private investment.
Grants are designed to encourage entrepreneurs to invest in innovation or the research and development of new technologies, as well as social causes. Entrepreneurs should closely scrutinise the terms of the grant prior to submitting an application to the appropriate government agency. Below are details on a few of the most popular grants made available to Singaporean start-ups:
- ACE (Action Community for Entrepreneurship) Start-ups Scheme: A financial assistance scheme matching every S$3 raised by an entrepreneur with S$& from the scheme. The maximum value of the grant is S$50,000. To qualify for the full amount of the grant, the entrepreneur will be required to raise S$21,429. Selected ventures will qualify for additional funding of a further S$50,000 at the same rate, capping the grant total at S$100,000. It is important to note that ACE does not take equity from successful companies in exchange for the financial grant. For more details, please click here.
- Technology Enterprise Commercialization Scheme (TECS): TECS was established to encourage the development of new technology start-ups in Singapore, helping to address the crippling high establishment costs of early-stage ventures in this field. Jointly administered by the Infocomm Development Authority (IDA) and SPRING Singapore, TECS helps address the early-stage funding needs of tech start-ups, helping them toward the commercialisation of proprietary technology ideas. Two grants are issued under TECS to address two disparate needs:
- Applicants wishing to develop proprietary ideas that are currently at the conceptualisation stage, the technical/scientific viability of which remains to be proven: Up to 100 per cent of the qualifying costs of each individual project, to a maximum cap of S$250,000.
- Applicants carrying out further research and development on a project whose technical or scientific viability has already been proven, up to the development of a working prototype: Up to 85 per cent of the qualifying costs, to a maximum of S$500,000. Applicants are required to provide proof of interest from potential third-party investors or customers. Click here to find out more.
- iSTART:ACE (Accelerate & Catalyse Entrepreneurship) Scheme: iSTART:ACE was established to help start-ups based in Singapore accelerate the rate of technology commercialisation and catalyse go-to-market activities through the leveraging of internationally proven technologies. Administered by the Infocomm Development Authority (IDA), it is a grant scheme providing up to S$250,000 to cover 50% of the salaries of five technical staff for a period not to exceed one year to assist qualifying start-ups prepare proprietary technology for market. For more information, please click here.
- iSPRINT (Increase SME Productivity with Infocomm Adoption & Transformation): iSPRINT provides packaged solutions for businesses at all stages of development looking to embark on automation or upgrade of key business functions. It covers improvements through packaged solutions, covering both core functions such as accounting and payroll, as well as more complex, bespoke operations such as supply chain management and customer relationship management. Customised solutions will only be provided to companies undertaking first-time automation, not for those wishing to upgrade or modernise existing systems and functionality. Automation is required to be carried out in Singapore and is not to have started prior to the approval of the grant. All SMEs registered or incorporated in Singapore are eligible for iSPRINT. For more information, see iSprint Scheme Details.
- VentureForGood: VentureForGood provides seed funding for social enterprise start-ups and entrepreneurs engaged in the training and employment of disadvantaged Singaporeans. Qualifying companies are strictly required to be operating in the social services sector, and must use the funds disbursed for establishment expenses. Provided by the Singapore Centre for Social Enterprise, the fund offers up to S$20,000 in grants to social entrepreneurs, and up to S$100,000 in seed grants to social enterprise start-ups, subject to a maximum of S$300,000. More details can be found here.
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Business Incubation Schemes
Business incubators provide several invaluable resources for start-up entrepreneurs seeking funding and guidance on how to manage, grow and develop their venture. Apart from the capital bonus and the know-how provided, incubators offer a physical space in which the new business can operate, as well as access to cost-effective shared services during the earliest stage of development. Start-ups seeking financial assistance, business guidance, networking opportunities, low start-up costs and regular support can all benefit from business incubators. A range of incubation schemes operate in Singapore, including:
- NRF Technology Incubation Scheme: Established and managed by the National Research Foundation, this scheme connects Singaporean start-ups engaged in the development of proprietary technology with one of fifteen technology incubators, offering mentorship as well as generous funding. The NRF provides a maximum of S$500,000 in funding, covering up 85 per cent of the cost of incubating the company, with the incubator being required to provide at least the remaining 15 per cent. In return, the NRF and the incubator will receive shares in the company proportional to the value of their investment. Click here for more information.
- Incubator Development Program: Incubators and venture accelerators involved in the active introduction of programs helping to nurture start-ups can receive up to 70 per cent grant support provide by SPRING Singapore, helping to defray the cost of hiring mentors, train staff, provide shared services or equipment to start-ups and to minimise expenses incurred to market services and events. Innovative start-ups can benefit from the programmes offered by the various partnered incubators and venture accelerators working through the Incubator Development Program. To find out more, please click here.
- Incubator for Disruptive Enterprises and Start-ups (IDEAS) Fund: Launched by the partnership of Innosight Ventures Pte. Ltd. – a Singapore-based venture capital firm – and the National Research Foundation (NRF), IDEAS is an incubator fund providing up to 85 per cent co-funding to the incubator to the value S$500,000-S$600,000 in capital as well as guidance during to start-ups their early development stages. To qualify, start-ups must have disruptive innovation potential and be based in Singapore. For additional information, please click here.
- Fast-Track Environmental and Water Technologies Incubator Scheme (Fast-Tech): The Fast-Tech scheme offers start-ups operating in the environmental and water technology sector financial assistance to help them develop their ideas. Administered by the Economic Development Board, funding is offered to the value of S$300,000 or to the 85 per cent support level, whichever is less, over a period of two years. Qualifying start-ups will also be housed in water-technology incubators and will be provided with mentorship and guidance throughout the term of the incubation, and the designated incubator will receive an equity stake in the company proportional to their investment. For more information, please click here.
For business-owners reticent to give up partial ownership in their company and a share of their profits, debt-financing is an extremely viable funding option. It’s important to note that loan repayments are required to be made on time lest the borrower become delinquent, and that your business will remain indebted whether it has become profitable yet or not. Initial debt-financing is often provided in the form of ‘friendship loans’ from family and friends, with private debt-financing schemes stepping in to provide higher value funding as the business and its need for capital grows.
A number of government debt-financing schemes specifically designed to address the unique needs of SMEs in Singapore have been established, many of which are also available to start-ups in the seed or early stage of development. These schemes include:
- Micro-loan program: Eligible Singaporean companies can receive loans up to the value of S$100,000 from participating banks and financial institutions for the purposes of funding their daily operations, or for automating or upgrading the standard of their factory or equipment. Qualifying SMEs will be required to pay an interest rate equal to or greater than 5.75 per cent for a loan tenure under four years. For details, click here.
- Loan insurance scheme (LIS): The Loan Insurance Scheme provides insurance for loans against default risks, allowing qualifying start-up enterprises to share the cost of the insurance premium with government. No maximum loan quantum is prescribed in the LIS, and it is intended to support both domestic trade and overseas trade facilities. The risk profile of the borrower will be determine the premium rate, interest rate, and loan tenure, as set by the insurer. The government will cover up to 50 per cent of the cost of the premiums. Collateral requirements and repayment structures will be determined by relevant financial institutions. Further information can be found here.
- Local Enterprise Finance Scheme (LEFS): Under the LEFS, eligible Singapore companies can benefit from loans up to the value of S$15 million provided by participating banks and financial institutions. The loan must be used for the purposes of upgrading factory and equipment, including construction equipment and heavy vehicles, or for the purposes of purchasing factory and business premises. SMEs will be required to pay an interest rate of at least 4.75 per cent for loans taken out for a tenure of fewer than four years, and 5.25 per cent for loans of a tenure greater than four years. To know more, please click here.
Tax Incentive Schemes
One of the most successful initiatives of the government has bene the introduction of tax concessions and benefits for start-ups. These tax breaks incentivise entrepreneurs to build more companies, allowing them employ more jobs and employ more Singaporeans. Below are some of the tax incentives offered to SMEs and start-ups operating in Singapore.
- Tax Exemption for Start-ups: For each of the first three years of their operation, qualifying Singaporean start-ups can enjoy a full tax exemption on a portion of their taxable income. For a broad overview of corporate taxation, please refer to Ottavia’s guide on Corporate Tax. As an example, a newly established company with 20 shareholders or fewer – of with at least one is an individual holding a minimum of 10 per cent of all shares – that was incorporated in Singapore and is a tax resident of Singapore will be taxed as follows:
- For each of the company’s first three years of assessment:
- Corporate tax rate of 0 per cent (full exemption) on first S$100,000 of taxable income
- Corporate tax rate of 8.5 per cent (partial exemption) on the next S$200,000 of taxable income
- Corporate tax rate of 17 per cent (no exemption, headline tax rate) on taxable income above S$300,000
- From the fourth year onwards:
- Corporate tax rate of 8.5 per cent (partial exemption) on the first S$300,000 of taxable income
- Corporate tax rate of 17 per cent (no exemption, headline tax rate) on taxable income above S$300,000
- Development and Expansion Incentive (DEI): A reduced tax rate of between 5 and 10 per cent is offered to Singapore-based companies on incremental income derived from qualifying high value-addition business activities. This is to encourage more players in Singapore’s economy to expand their operations and procure advanced machinery and equipment, further developing their capabilities and global competitiveness.
- Investment Allowance: Introduced in 2016, the four-part Automation Support Package helps companies further automate their operations, resulting in an increase in productivity and opening up expansion opportunities. Subject to certain qualifying criteria, companies may claim a capital allowance on plant and equipment used in connection with their trade or business, and qualifying projects may be eligible to receive up to 100 per cent of the value of the approved capital expenditure to a cap of S$10 million, in addition to the existing capital allowance on plant and machinery.
- Pioneer Incentive Scheme: Companies engaged in manufacturing or the services sector responsible for raising the overall industry standards may be eligible to receive a full exemption on their corporate tax on qualifying profits for a period of up to 15 years.
- Productivity and Innovation Credit (PIC) Scheme: This tax benefit scheme rewards business engaged in a range of innovative and productive activities including Research & Development; Intellectual Property registration; Intellectual Property acquisition; Design activities, Automation through technology or software; and training of employees. First introduced in 2010, it offers deductions of up to 400 per cent or allowances of up to S$400,000 on expenses incurred in the pursuit of any qualifying activity. The scheme has been extended until YA 2018, and from YA 2019 will not be available.
- Budget 2016: The cash payout rate for any qualifying expenditure incurred from 1 August 2016 will be dropped from 60 per cent to 40 per cent, and payout applications will be required to be made electronically in order to expedite the payout process.
- Industry-specific tax incentives: The Singapore government also offers various industry specific tax incentives for local SMEs, including start-ups. Please refer to Ottavia’s guide on Industry Specific Tax Incentives for further information.
- For each of the company’s first three years of assessment:
Singapore’s pro-business environment has made it one of the most favourable places to do business in the world. Repeatedly recognised year on year throughout the last decade by the World Bank as the best place to do business in the world, the city-state has also been recognised as both the best country for expats looking to start a new business, as well as the most entrepreneurial-friendly economy in Asia. A hub for first-time business owners, many successful start-ups have been incubated and launched in Singapore, and the number of start-ups (as defined by businesses with at least one employee and less than five years old) have increased from 27,000 in 2002 to 36,000 in 2009, turning over more than 300,000 workers and generating more than S$166 billion in turnover.
The Singapore government is fully aware of the key role new business plays in the growth of the economy and has thus spent considerable money, time and effort ensuring businesses start in the most nurturing and supportive ecosystem possible.