4 Hidden Tax Incentives Singapore SME Owners Don't Know About (2025)
Quick Summary
Singapore SMEs often miss out on significant tax savings by focusing only on popular schemes like EDG and PSG. This guide reveals four lesser-known tax incentives that can provide substantial relief: the Enterprise Innovation Scheme (EIS) offering up to 400% tax deductions, the 100% Investment Allowance for capital expenditure, the PACT scheme for strategic partnerships, and the SkillsFuture Enterprise Credit providing S$10,000 for workforce development. These hidden opportunities can dramatically reduce tax burdens when applied strategically with proper guidance.
Essential Points
Enterprise Innovation Scheme (EIS): Claim up to 400% tax deduction on R&D, IP licensing, staff training, and automation upgrades, with an optional 20% cash payout capped at S$20,000 annually
100% Investment Allowance: Get complete tax exemption on qualifying capital expenditure up to S$10 million for productivity and automation projects approved by EDB
SkillsFuture Enterprise Credit: Receive a one-off S$10,000 credit that covers 90% of transformation and training costs, automatically allocated to eligible SMEs with no application required
Most small and medium enterprises (SMEs) in Singapore are familiar with popular tax support schemes like the Enterprise Development Grant (EDG), Productivity Solutions Grant (PSG), or the Start-Up Tax Exemption (SUTE). These programmes provide useful support, but they are also highly competitive, broadly targeted, and often not tailored to specific business needs.
Here’s what most businesses overlook: beyond standard tax obligations, there are hidden tax incentives Singapore SME owners can tap into. These lesser-known schemes offer significant tax relief and long-term value, especially when applied strategically and with a clear understanding of their tax implications. However, these schemes tend to receive less public attention, making them easy to miss, even for well-established companies.
This article introduces four startup tax schemes that 2025 offers to SMEs. Each scheme supports a different area of business development (whether it’s investing in innovation, upgrading equipment, or collaborating with larger industry players) and can significantly encourage business growth.
Tax Incentive #1: Enterprise Innovation Scheme (EIS)
The Enterprise Innovation Scheme (EIS) was introduced in Budget 2023 and enhanced in YA 2024 to encourage businesses, especially SMEs, to invest in innovation and capability building. This R&D tax incentive Singapore offers goes far beyond what’s typically covered by a partial tax exemption:
Similar to the now-defunct Productivity and Innovation Credit (PIC) scheme, businesses can claim up to 400% tax deduction on qualifying innovation expenditure (effectively a double tax deduction and more for eligible expenses)
Optional 20% non-taxable cash payout, capped at $20,000 per Year of Assessment (YA)
The EIS covers the following categories:
Qualifying R&D undertaken in Singapore
Registration, acquisition, and licensing of intellectual property (IP) rights
Innovation projects with polytechnics, ITE, or approved partners
Staff training aligned with SkillsFuture Singapore
Software and automation upgrades related to innovation
Businesses can convert up to $100,000 of total qualifying expenditure per YA into a cash payout, but only if the costs are exclusively incurred for qualifying innovation activities.
Why It’s Often Overlooked
Despite being one of the most generous SME tax rebate Singapore schemes introduced in recent years, the EIS remains underutilized. Many small business owners are hesitant to engage with unfamiliar tax regulations, assuming the scheme only applies to tech firms or those doing R&D. Others mistakenly categorize such investments as private expenses or general admin costs, thereby missing out on significant tax savings.
Another reason it flies under the radar is its overlap with older schemes like the Productivity and Innovation Credit (PIC), which ended in YA 2018. The EIS functions as a modern successor with broader eligibility, enhanced incentives, and tax treatment aligned with today’s innovation landscape.
Who’s Eligible?
To qualify for enhanced tax deductions under the EIS:
The business must be carrying on active operations in Singapore
The company must have incurred qualifying expenditure during the basis period of the YA
All Singapore-registered entities (companies, partnerships, sole proprietorships, and private limited companies) are eligible
For the cash payout option, businesses must also:
Employ at least 3 full-time local employees (Singapore Citizens or PRs earning at least $1,400/month) for 6 months in the basis period
Complete their tax filing obligations by the statutory due date
Businesses under judicial management, in liquidation, or classified as investment holding companies are not eligible for the cash payout.
How to Claim It
For enhanced tax deductions:
Include EIS claims in Form C-S or C (corporate income tax return)
Submit supporting documents via the Inland Revenue Authority of Singapore (IRAS) digital services
For sole proprietorships and partnerships, submit by 18 April; for companies, 30 November
For the optional cash payout:
Apply via the “Apply for EIS Cash Payout” digital service after tax return submission
Election to convert expenses to cash is irrevocable
Only one application per YA is allowed
Businesses should consult a tax advisor for assistance with tax computation and to understand how EIS deductions may affect their normal chargeable income and Estimated Chargeable Income (ECI) submissions. All records, including invoices, contracts, expenses incurred, and templates, must be kept for seven years to ensure compliance.
For a full overview of corporate taxation rules, check out our definitive guide to Singapore Corporate Tax.
Case Example
A Singapore-based retail SME invests $20,000 in employee training and $15,000 in inventory management software. Both are considered qualifying business expenses under the EIS and are treated as deductible for tax purposes, making them valuable tools in year-end tax planning. Instead of claiming the default 100% tax-deductible expense under standard rules, the SME opts for the 400% enhanced deduction.
Total deductible amount = ($20,000 + $15,000) × 400% = $140,000
Assuming a 17% corporate tax rate, the business could save up to $23,800 in taxes
Alternatively, the SME may convert up to $35,000 of this spending into a $7,000 cash payout, useful for immediate cash flow
By claiming deductions through the EIS rather than taking standard write-offs, the business maximized its tax savings while improving cash flow.
Tax Incentive #2: 100% Investment Allowance (IA)
The Investment Allowance (IA) scheme allows businesses to enjoy up to 100% tax exemption on qualifying capital expenditure. It functions as an additional tax deduction on top of utilizing capital allowances, making it especially beneficial for asset-heavy projects. The scheme offers substantial tax benefits to businesses making large capital investments in productivity and automation.
The scheme is administered by Singapore’s Economic Development Board (EDB) and targets companies investing in projects that enhance productivity, automation, or innovation. Qualifying expenditure must be incurred within a five-year window, though extensions up to eight years may be granted for long-term projects.
This IA scheme is one of several tax exemption schemes designed to support productivity, innovation, and long-term economic growth.
Why It’s Often Overlooked
Compared to headline grants like the EDG or PSG, the IA scheme receives far less attention. Many SMEs wrongly assume it is only accessible to foreign companies or large multinationals. The additional requirement of EDB pre-approval further discourages participation.
Yet, the IA is available to any profit-generating business undertaking qualifying for automation, including projects assessed at fair market value.
Who’s Eligible?
To qualify for the 100% IA, companies must:
Be registered in Singapore and carrying on business locally
Invest in a project approved by the EDB
Submit an application before incurring the expenditure
Incur capital expenses on fixed assets such as productive equipment, factory construction, factory construction, or acquisition of IP or technical know-how
Typical eligible projects include:
Manufacturing upgrades or expansion
Energy efficiency improvements
Water-saving systems
R&D initiatives
Technical services or repairs (e.g., aerospace, precision engineering)
Tourism-related developments
The scheme is particularly useful for businesses undertaking automation projects approved under the former Automation Support Package (ASP), even though the ASP itself ended in 2021. The 100% IA benefit remains in effect.
The IA support is capped at S$10 million in qualifying expenditure and cannot be combined with other claims (such as capital allowances) on the same expense.
How to Apply
Interested businesses must submit an application to the EDB before spending on the project. The proposal should include:
Project objectives and timeline
Equipment specifications and vendor details
Expected outcomes, such as productivity gains
Total cost projections
Once approved, companies can claim the IA when filing their corporate tax returns. The deduction will improve their tax position and reduce chargeable income for tax purposes.
Case Example
A mid-sized food processing company invests S$500,000 in a new automated bottling line. After EDB approval, the company qualifies for the 100% IA. This results in a S$500,000 tax deduction in the relevant Year of Assessment, potentially lowering the company’s tax bill by S$85,000 (based on a 17% corporate tax rate).
Tax Incentive #3: PACT Scheme
The Partnerships for Capability Transformation (PACT) scheme supports strategic collaborations between large enterprises (such as multinational corporations (MNCs) or large local companies) and Small and Medium-sized Enterprises (SMEs). Its goal is to build a stronger, more resilient local ecosystem by encouraging joint innovation, supplier development, and shared capabilities.
Launched in 2010 and last enhanced in 2020, PACT helps defray costs related to equipment, materials, testing, and professional services. It also provides manpower support for managerial or technical staff involved in the collaboration. Projects commonly supported include co-development of new products, process improvements, technology transfer, and supplier qualification for integration into MNC supply chains.
If you’re exploring government grants to co-fund these efforts, here’s a guide on how to get a business grant in Singapore.
Why It’s Often Overlooked
Unlike more visible government programs, PACT receives little marketing and is often misunderstood. Many SMEs assume it is only for large corporations. In reality, it is designed to uplift SMEs by enabling them to tap into the resources and expertise of larger partners.
Its low profile is partly due to its administration under Enterprise Singapore and the Singapore Economic Development Board (EDB), which manages the scheme through direct engagement with businesses rather than open calls.
Who’s Eligible?
PACT is open to Singapore-based companies across various sectors, including electronics, food manufacturing, logistics, healthcare, aerospace, and advanced manufacturing. Eligible projects must involve:
A formal collaboration between at least one large company and one SME
Defined outcomes such as innovation, capability development, or productivity gains
Local or overseas manufacturing-related activities
The scheme also supports consortium partnerships, where multiple SMEs and large firms pursue shared goals, such as entering new markets or piloting new technologies.
Support levels vary:
SMEs can receive up to 70% funding for manpower, software, materials, and professional services, and 50% for equipment
Non-SMEs may receive up to 50% for most costs and 70% for manpower-related expenses
How to Apply
The lead company (typically the MNC or large enterprise) submits a proposal to Enterprise Singapore or EDB. The proposal must outline the project scope, cost breakdown, partnership structure, and intended outcomes. Once approved, funds are disbursed based on milestone achievements.
If the collaboration involves overseas partners, SMEs should also be aware of potential withholding tax obligations on cross-border transactions for services or royalties.
Case Example
A local precision engineering SME partners with an MNC to co-develop tools using additive manufacturing and 3D printing. Through PACT, the SME receives 70% support for testing, equipment, and R&D personnel. The partnership allows the SME to qualify as an approved supplier and access new markets in the aerospace sector.
Tax Incentive #4: SkillsFuture Enterprise Credit (SFEC)
The SkillsFuture Enterprise Credit (SFEC) provides a one-off S$10,000 credit to help SMEs upgrade their workforce and operations. It applies on top of existing schemes and offsets 90% of eligible expenses tied to transformation and employee training.
Employers must have contributed at least S$750 in Skills Development Levy (SDL) and hired at least three local employees during the qualifying period. There’s no separate application required—qualified firms are notified by email or can check on the Business Grants Portal.
The SFEC can also be used to subsidize leadership courses, employee upskilling, or even training on how to file taxes or avoid late payment interest. For SMEs unfamiliar with tax strategy, professional advice is recommended before using the credit, especially in programs affecting tax purposes.
To avoid costly errors, check out the most common tax mistakes companies make in Singapore.
1. Enterprise Transformation (Capped at S$7,000)
This category supports initiatives that improve business productivity or market reach. Programs include:
Productivity Solutions Grant (PSG)
Enterprise Development Grant (EDG)
Market Readiness Assistance (MRA)
Scale-Up and Enterprise Leadership Transformation initiatives
2. Workforce Transformation (No Cap)
There is no maximum cap on the portion of the credit used for employee development. Supported programs include:
Courses aligned with the Skills Framework
Career Conversion Programmes
Job Redesign Initiatives
Training Industry Professionals in Tourism (TIP-iT)
National Workplace Learning Certifications
Employment Support for Persons with Disabilities
The SFEC offsets 90 percent of the company’s actual out-of-pocket cost for these programs, offering substantial cost savings.
Why It’s Often Overlooked
Despite its value, the SFEC remains underutilized among SMEs. Many are unaware that eligibility is automatically assessed and that the credit is pre-allocated without requiring an application.
As of Budget 2025, the government announced plans to revamp the system into a digital wallet-style model by the second half of 2026, allowing employers to apply the credit instantly at the point of transaction.
However, until that transition is complete, the reimbursement process remains in place and may deter some businesses from engaging with the scheme.
Who’s Eligible?
To be eligible, companies must:
Have contributed at least S$750 in Skills Development Levy (SDL) over the qualifying period;
Have employed at least three local employees (Singapore Citizens or Permanent Residents) consistently each month during that period; and
Not previously qualified for SFEC in earlier cycles.
Qualified employers would have been notified by email, and the credit will be visible via the Business Grants Portal or the SkillsFuture for Business platform. There is no application process required to receive this credit.
How to Apply
Companies must first apply and be approved for the individual-based program (such as PSG or EDG). Once the activity is completed, they must submit a final claim to the relevant agency before the second half of 2026.
Upon approval, the SFEC will be automatically disbursed to the employer’s registered GIRO or PayNow Corporate account by IRAS. Disbursements are made quarterly, and no separate application is needed to trigger the SFEC credit claim.
Case Example
A food manufacturing SME in Jurong used the Enterprise Development Grant (EDG) to digitize inventory tracking. While the EDG covered 50% of costs, the company used S$7,000 from its SFEC to reduce its remaining out-of-pocket expenses.
Later, it tapped another S$3,000 of SFEC credit to subsidize leadership training for its supervisors. The company upgraded both operations and workforce skills without applying for additional funding — the credit was automatically applied.
Looking to maximize training subsidies further? Learn how to make the most of dedicated ETS training support.
Conclusion
Most SMEs overlook various tax exemption schemes not because they lack value but because they’re buried in bureaucracy or misunderstood. These schemes offer more than short-term relief. They align with national goals like economic growth, innovation, and digital transformation.
Whether you’re a growing startup or a long-standing private limited company, engaging with these tax tools (backed by solid tax advisor guidance) can lower your tax burden, sharpen your tax treatment strategy, and pave the way for smarter decisions around business income and compliance.
If you're still new to tax reliefs and want to explore broader exemptions available to businesses and startups, here’s a guide to tax exemptions in Singapore.