“Fintech” – financial technologies – is the latest buzzword in the financial services sector. Recognising the importance of fintech startups in driving innovation for a successful fintech eco system, countries have introduced private-sector and government initiatives to propel the growth of fintech startups. Accelerator and incubator programmes have been launched to help fintech startups grow, and governments have made available various funding schemes and tax incentives.


This article highlights the key government funding schemes available for fintech startups in Singapore. It also reviews existing Singapore tax concessions that fintech startups enjoy, and the Singapore tax concessions which impact the availability of non-government funding for fintech startups.



One attribute of a successful fintech hub is the availability of funding from the local government, venture capitalists and other private investors.


Some of the key Singapore government funding schemes available for fintech startups are administered by the following agencies:


SPRING Singapore


SPRING Singapore administers the ACE Startups Grant and Technology Enterprise Commercialisation Scheme (TECS). The ACE Startups Grant provides co-matching funding support in a predetermined ratio for entrepreneurs who wish to start a differentiated business. TECS provides funding to successful applicants to fund the development of a technology intellectual property towards its commercialisation.


SPRING Singapore also administers equity investment schemes for startups where SPRING SEEDS CAPITAL (a subsidiary of SPRING Singapore) makes co-investments in eligible startups with private third-party investors under the SPRING Startup Enterprise Development Scheme (SPRING SEEDS) and Business Angels Scheme (BAS).


National Research Foundation


Under the Early Stage Venture Fund (ESVF) initiative, the National Research Foundation invests funds in Singapore-based technology startups on a matching basis with designated venture capital firms.


Monetary Authority of Singapore


Under the Financial Sector Technology and Innovation–Proof of Concept Scheme, Monetary Authority of Singapore (MAS) provides funding support of up to 50–70% of the qualifying costs, up to a cap of $200,000 for projects involving the development of novel solutions to financial industry problems, conducted by technology or solution providers working with Singapore-based financial institutions.



Startup Tax Exemption


Currently, a startup may enjoy full tax exemption1 on the first $100,000 of its chargeable income in each of the first three years of assessment, subject to meeting conditions.


The startup tax exemption does not serve as a targeted tax concession for fintech startups as it aims at encouraging entrepreneurship regardless of industry. Furthermore, the tax concession does not

benefit fintech startups when losses are incurred in the initial years, and profits are reaped only in later years from the commercialisation of their innovative financial solutions.


The introduction of bolder, targeted measures such as tax exemption for a higher quantum of profits (or even all profits) with a longer tax relief period of say, 10 years, and allowing loss-making fintech startups to cash out their tax losses in the initial years to aid their cash flow, is more likely to incentivise the growth of fintech startups.


Research and Development Tax Incentive


Fintech startups carry out research and development (R&D) projects in the area of application software for innovative solutions to new financial products or services.


Currently, qualifying expenses on qualifying R&D projects conducted in Singapore are granted 400% tax deduction.2 A qualifying R&D project has to meet the three requirements as follows:


1) Clear objective for undertaking the project;

2) Novelty or technical risk, and

3) Systematic, investigative and experimental study in the field of science or technology.


The novelty or technical risk requirement is elaborated below.


a) Novelty


This requirement will not be met if the application software in the R&D project performs similar functions as those already found in the Singapore market. For example, a Singapore fintech startup conducts a software development project on a virtual assistant to answer customer loan queries with the use of artificial intelligence (AI) technology; the project may not be able to meet the novelty requirement if there are existing virtual assistants in Singapore for answering similar queries using AI technology.


b) Technical risk


Technical risk refers to specific scientific or technological uncertainty that exists in projects which cannot be readily resolved by competent IT professionals. Contemporaneous documentation must be maintained to show that the R&D project involves technical risk before its commencement. Referring to the earlier example, the Singapore fintech startup may be able to substantiate that the technical risk requirement is met if the virtual assistant from the software development project processes more parameters in a shorter time as compared to what is enabled by existing technology, and that it yields faster, more accurate answers.


Presently, for large and complex R&D projects[1], the Inland Revenue Authority of Singapore (IRAS) has introduced a pre-claim evaluation scheme which allows taxpayers to submit details of their projects for evaluation if they fulfill the abovementioned requirements, before the commencement or during the conduct of the projects. However, for smaller R&D projects, taxpayers are required to self-assess if their R&D projects fulfill the said requirements and if so, make R&D tax deduction claims (R&D claims) in their tax returns. This self-assessment process poses great uncertainty on R&D claims as IRAS, after its review of tax returns and consultations with taxpayers and technical experts, may opine that the said requirements are not met and reject the R&D claims.


Taking into account the requirement of maintaining detailed documentation for an R&D project and onerous tracking of qualifying R&D expenses for the said claims, this uncertainty deems the R&D tax incentive unattractive for smaller R&D projects conducted by fintech startups.


In view of the above, the extension of the pre-claim evaluation scheme to smaller R&D projects or an upfront approval process for fintech startups’ qualifying R&D projects (before the commencement of R&D project) administered by a central agency that is familiar with the technical subject matter, for example, MAS’ Fintech office, could be introduced to provide upfront certainty for R&D claims. A review should also be conducted to increase the rates of R&D tax deduction after the expiry of the Productivity and Innovation Credit (PIC) scheme in Year of Assessment 2018 to enhance the attractiveness of the R&D tax incentive.


These suggested measures will also complement the new Intellectual Property (IP) regime announced in the recent 2017 Budget that incentivises IP income with the use of IP arising from R&D activities.



Given the difficulties for fintech startups to obtain funding from conventional channels such as bank loans, especially in the early stages, funding for fintech startups from non-government sources are likely to be from angel investors as well as venture capital firms.


At present, under the Angel Investor Tax Deduction (AITD)4 scheme, approved angel investors enjoy a tax deduction5 at 50% of the cost of a qualifying investment (capped at $500,000 of investment) in a startup if the investment is at least $100,000 and the qualifying investment is held for a continuous period of two years. Any unutilised tax deduction will be forfeited.


Currently, approved venture capital funds also enjoy tax exemption6 on gains or profits derived from Singapore through the disposal7 of approved investment and dividends received from a tax resident investee company are tax exempt.8


The abovementioned tax concessions could be made more favourable to improve the availability of funding from non-government sources.


Allowing the carry-forward of unutilised tax deductions for approved angel investors could be considered to enhance the attractiveness of the AITD Scheme. It may be worthwhile to afford high net-worth individuals who could not qualify as approved angel investors, a tax deduction computed based on a percentage of their investment in approved venture capital funds. Liberalisation of criteria to qualify as an approved venture capital fund, coupled with finetuning of criteria for approved investment, could also be carried out to increase and steer venture capital funds towards early-stage funding of Singapore fintech startups instead of funding for late-stage expanding startups.



Startups serve an important role in the Singapore fintech eco system as Singapore positions itself as a leading fintech hub. A review of the existing tax policies is imperative to catalyse the growth of fintech startups and bolster non-government funding for these startups to plug current funding gaps.



Accredited Tax Advisor (Income Tax) Tommy Yee is Senior Lecturer, School of Business, SIM University.



1 S43(6A) of the Singapore Income Tax Act


2 Includes 250% enhanced deduction under the Productivity and Innovation Credit (PIC) Scheme


3 Projects with estimated R&D costs exceeding $20 million


4 The AITD Scheme is administered by SPRING Singapore


5 Section 37K of the Singapore Income Tax Act


6 Section 13H of the Singapore Income Tax Act


7 At present, tax exemption of gains arising from disposal of equity investments by companies is also provided under Section 13Z of the Singapore Income Tax Act, subject to meeting conditions. However, this exemption applies only to gains arising from disposal of ordinary shares (note that investments in startups by venture capital funds usually take the form of preference shares).


8 Section 13(1)(za) of the Singapore Income Tax Act