How to Save Money While Investing in New Markets
3 governments that stand out in offering incentives to foreign investors
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If you’re like many others in international business, you want to save money for your business while taking advantage of opportunities in new markets. We’ve uncovered three key markets that make it especially attractive and cost-effective for you to invest there: Singapore, the U.S., and India.
In this blog, we’ll highlight the opportunities and strategic advantages of each market, providing you with a few insights into how you can invest with confidence while saving money and minimizing risk.
Let’s begin with Singapore…
1. Singapore 🇸🇬
2. United States 🇺🇸
3. India 🇮🇳
1. Singapore
Singapore’s strengths in international business stem from its strategic location in Asia, extremely business-friendly environment, political and economic stability, highly skilled workforce, and robust infrastructure. If you’re thinking of expanding your operations to Asia, Singapore should not be overlooked. (Did you know that Enterprise Singapore may provide you with expansion assistance?)
As a leading financial hub and global center of innovation, Singapore provides ample opportunities for growth and investment and we want to help. Here are a few of the top incentives, including tax credits, offered by the Singaporean government to foreigners:
- Pioneer Tax Incentive:
Manufacturers of high-tech products and other services may seek a total tax exemption for 5 to 15 years for each approved project or activity. Following this period, companies may be eligible for a reduced tax rate under the Development and Expansion Incentive.
- Development and Expansion Incentive:
Businesses have the opportunity to qualify for the Development and Expansion Incentive (DEI). This initiative rewards companies transitioning to activities that generate greater value, such as investing in projects that enhance crucial industries like manufacturing, with a tax reduction ranging from five to 10 percent. The duration of the tax relief period is capped at a maximum of 40 years.
- Double tax deduction for M&A and internationalization:
The enterprise funding initiative, specifically focused on merger and acquisitions (EFS-M&A), has been expanded for a duration of four years, commencing from April 1, 2022, until March 31, 2026, encompassing domestic M&A endeavors.
Within this framework, borrowers or borrower groups can access a maximum loan amount of S$50 million (US$36.9 million), with a repayment period of up to five years. The government assumes 50 percent of the risk, although this percentage rises to 70 percent for young enterprises.
- The 100 percent investment allowance:
The investment allowance incentive, overseen by the Singapore Economic Development Board (EDB), allows businesses to benefit from a tax exemption of up to 100% of the fixed capital expenditure they incur.
Fixed capital expenditure, as defined by the EDB, encompasses spending on qualifying projects over a five-year period, extendable up to eight years.
The government has extended the 100% Investment Allowance (IA) until 2023. Under this allowance, approved IA support is limited to S$10 million (US$7.4 million) and is included in the Automation Support Package (ASP), which consists of various grants, loans and tax support.
2. United States
The United States continues to be attractive for international businesses due to its robust and stable economy, innovation prowess, and vast access to capital. With a skilled workforce, strong legal framework, and modern infrastructure, the U.S. offers an ideal environment for companies seeking global expansion.
Additionally, its cultural diversity and extensive trade agreements with several nations around the world further enhance its appeal for new international business ventures.
Here are some of the top U.S. tax credits and incentives:
- Foreign Tax Credit (FTC):
Taxpayers in the U.S. can offset their income tax by the amount of foreign income and excess profit taxes paid or accrued to a foreign country. The FTC directly reduces U.S. taxes dollar for dollar, unlike deductions that decrease taxes based on the taxpayer’s marginal rate.
The FTC may not benefit those with net operating losses (NOLs) in the current year but can be applied for refunds or future tax reductions within a 10-year period from when the foreign taxes were paid or accrued, with a carryback option of one year and carryforward of 10 years.
The FTC also applies to indirect taxes and taxes paid ‘in lieu of’ traditional income taxes but has limitations and disqualifications, especially regarding the 100% Dividends Received Deduction (DRD).
This means that U.S. taxpayers can use the Foreign Tax Credit (FTC) to offset their U.S. income tax liability by the amount of foreign income and excess profit taxes paid to another country, providing a direct reduction of U.S. taxes.
- Employment Credits:
The Work Opportunity Tax Credit (WOTC) is available until 2025 for companies hiring most types of employees, offering a credit of 25-40% on the first $6,000 of wages, with a maximum of $2,400 per eligible employee. This credit also extends to tax-exempt organizations for hiring qualified veterans. However, employers who rehire a former employee, a family member or dependent, or someone who will be a majority owner in the business may not be able to claim the tax credit for that individual (even if the individual is otherwise a member of an eligible target group).
- Inbound Investment Incentives:
The U.S. offers federal incentives for foreign investment, including exemptions for portfolio debt, short-term debt, and bank deposits from U.S. income tax. These exceptions allow non-resident investments without the imposition of U.S. taxes under specific conditions (i.e., must meet certain statutory and regulatory requirements to qualify as ‘portfolio debt’). Additionally, trading safe harbors protect non-U.S. persons from being considered engaged in a U.S. business for certain trading activities.
- Qualified Private Activity Bonds:
Interest from these bonds is exempt from federal income tax, allowing lower interest rates for loans from state or local governments to businesses. These bonds lead to cheaper financing for development projects.
- Other Credits and Incentives:
Both federal and local governments offer various incentives to stimulate business investment and job creation, including cash grants, tax abatements, utility discounts, and other fiscal benefits designed to lower investment costs and support business expansion and new facility openings. Check out the link below to learn more.
3. India
India’s strength in international business stems from its large market size and consistent economic growth, offering a vast consumer base and attractive investment opportunities. With a skilled workforce and a thriving IT sector, India serves as a hub for technological innovation and talent. Its business-friendly policies, strategic location, and cultural diversity further enhance its appeal as a destination for global business expansion.
Here are a few of the top tax credits and incentives offered by the Indian government:
- Tax Incentives for Start-ups in India:
To spur the growth of start-ups and bolster their development in their early stages, India offers a program where eligible start-ups engaging in innovative business activities, such as the development or enhancement of products, services, or processes, or those with scalable business models that have significant potential for employment or wealth creation.
These are allowed to deduct 100% of their profits and gains. This deduction is applicable for three consecutive years within a 10-year period starting from the year of the start-up’s incorporation.
Start-ups may also carry forward and offset losses against income in a given year if they meet one of two conditions: (1) a minimum of 51% of the beneficial shareholders at the time the loss was incurred remain the same in the year of offset, or (2) the exact shareholders from the loss year maintain their shares in the offset year, regardless of their share percentage. Only losses incurred within the first 10 years after incorporation are eligible for this set-off.
An “eligible start-up” is defined as a company or LLP engaged in the aforementioned business activities and meets specific criteria, including incorporation between April 1, 2016, and April 1, 2024, annual turnover not exceeding INR 1 billion before the deduction claim, and possessing a certificate from the Inter-Ministerial Board of Certification.
- Tax incentives for development of affordable housing projects:
A developer is entitled to claim a full deduction of the capital expenses incurred solely for the development of projects meeting the criteria for affordable housing projects.
However, this deduction is subject to specific conditions. Some key conditions include:
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- The development company must not be established through the division or reconstruction of an existing business.
- The developer must invest solely in new plant and machinery, although up to 20% of the total plant and machinery can be previously used
- Deductions are permitted for all capital expenditures except for land, goodwill, and financial instruments.
- Deductions for specified capital expenditures are not allowed if they are incurred for acquiring assets with payments (individual or aggregate) exceeding INR 10,000 per day, unless such payments are made via an account payee cheque/draft or through an electronic clearing system via a bank account.
- Depreciation will not be permitted if deductions are claimed for specified business expenses.
- Specified deductions and lower tax rates as per the Income-tax Act will not be permitted.
- Tax incentives for offshore banking units in an SEZ:
A bank operating under a scheduled status, or any bank established according to the legal frameworks of a foreign country, which has an offshore banking unit situated within a Special Economic Zone (SEZ) with a designated income meeting specified conditions, qualifies for a complete exemption from taxes on that income for five consecutive years. This exemption period begins from the year in which the bank obtained permission under the Indian Banking Regulation Act, 1949, or approval or registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), or any other relevant legislation. Additionally, the bank is eligible for a further 100% exemption on the specified income for five consecutive years thereafter, applicable to the tax year starting from April 1, 2023, and onwards.
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By leveraging these incentives, foreign investors have the opportunity to not only expand their global footprint but to contribute to and benefit from the dynamic economic environments within these markets. Whether through tax holidays, deductions, or credits, the tailored incentives across these nations underscore a global commitment to fostering innovation, development, and economic prosperity on an international scale.
