Singapore Launches Investor Tax Deduction

by Mary Swire, Tax-News.com, Hong Kong

02 July 2010

SPRING, a Singaporean development agency for growing innovative companies and fostering small and medium sized enterprises in the country, has launched the Angel Investors Tax Deduction (AITD) scheme, which was announced in the budget earlier this year.

The AITD is a tax incentive which aims to stimulate business angel investments into Singapore-based start-ups, and to encourage more angel investors to add value to these start-ups. It will be effective for qualifying investments made from March 1, 2010 to March 31, 2015, both dates inclusive.

Under the scheme, an approved angel investor who commits a minimum of SGD100,000 (USD71,500) of equity investment in a qualifying start-up within a given year shall enjoy a tax deduction, at the end of a two-year holding period, based on 50% of his investment costs, subject to a cap of SGD500,000 of investments in each year of assessment.

For angel investors to qualify for the tax incentive, the individual must make the investment as an individual. Investment made via corporations, trusts, institutionalized funds and other investment vehicles are not eligible.

The investor must also demonstrate an ability to nurture investee companies by possessing at least one of the following criteria: at least three years of experience in early-stage investments; at least five years of entrepreneurial track record; or at least eight years of corporate senior management experience. Suitable investors have been able to apply for eligibility under the AITD since July 1.

For an investee company to qualify for the tax incentive, it must, on the date of first investment, be a private limited company incorporated in Singapore for no more than three years and whose shares are not listed on any stock exchange in Singapore; and have at least 50% of its total issued share capital beneficially held by no more than 20 individual shareholders. The approved investor is required to take up a board seat/advisory role for the entire holding period of the investment (minimum 2 years).

The approved investor must commit at least SGD100,000 within 12 months from date of becoming an approved investor, into an eligible investee company. The cash investments may be made in newly-issued shares for raising fresh capital; in newly-issued preference shares, where there would be no fixed or guaranteed dividend payment on the preference shares for the two-year holding period; and in newly-issued convertible loans, where there would be no interest payment or right of redemption on loans for the two-year holding period.

The approved investor should possess no more than 50% shares of any investee company within the two-year holding period. This also takes into account the potential shareholding should a convertible loan be converted into shareholding.

"Many start-ups begin with lean operations and find it difficult to engage business talent to help them develop the right strategies or connect to the right markets,” said Tan Kai Hoe, Deputy Chief Executive, SPRING Singapore. “Angel investors play a critical role in bridging this gap by bringing along their business skills, industry expertise, and business contacts that are invaluable to help in the start-ups’ growth."

SPRING has disclosed that there are more than 100 angel investors in Singapore at present, and they typically invest some SGD30,000 to SGD500,000 in promising start-ups. SPRING aims to catalyze some SGD600m worth of angel investments in Singapore over the next five years through the means of the AITD.

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