Budget 2026 for SMEs: Tax Rebates & Costs
If you run a business in Singapore, Budget 2026 is giving with one hand and taking with the other. You get a 40% tax rebate and expanded grants. But you're also paying more for foreign workers, higher carbon tax, and increased local salary minimums. Here's the honest breakdown—no spin.
Budget 2026 Guide Series
This article is part of our comprehensive Budget 2026 analysis. Explore guides tailored to your demographic or sector:
Overview
Demographics
Property
The Business P&L Impact
| Measure | Impact | Your Bottom Line |
|---|---|---|
| 40% corporate tax rebate | Min $1,500, max $30,000 | ✅ Saves money |
| 400% tax deduction for AI spending | Up to $50k/year qualifying expenditure | ✅ Saves money |
| Internationalization grants | Up to 70% support for SMEs going overseas | ✅ Saves money |
| Double tax deduction cap | Raised from $150k to $400k for overseas | ✅ Saves money |
| EP minimum raised to $6,000 | Financial sector: $6,600 | ❌ Costs more |
| S Pass minimum to $3,600 | From Jan 2027 | ❌ Costs more |
| Work permit levy increases | Marine +$100, process +$150 | ❌ Costs more |
| LQS raised to $1,800 | Minimum local employee salary for quota | ❌ Costs more |
| Carbon tax to $45/ton | Heading to $50-80 by 2030 | ❌ Costs more |
The 40% Corporate Tax Rebate: Real Numbers
Every company gets a 40% rebate on corporate income tax for Year of Assessment 2026 (i.e., FY2025 income). The minimum is $1,500 (so even sole proprietors with small profits benefit) and the maximum is $30,000.
Let's do the math:
| Chargeable Income | Normal Tax (17%) | After 40% Rebate | You Save |
|---|---|---|---|
| $100,000 | $8,425 | $5,055 | $3,370 |
| $300,000 | $42,425 | $25,455 | $16,970 |
| $500,000 | $76,425 | $46,425 | $30,000 (cap) |
| $1,000,000 | $161,425 | $131,425 | $30,000 (cap) |
What this actually means: SMEs with $200k–$500k chargeable income benefit most proportionally. Larger companies hit the $30,000 cap quickly. It's cash flow relief, not a structural change.
Enterprise Innovation Scheme: 400% AI Tax Deduction
The Enterprise Innovation Scheme (EIS) now explicitly includes AI-related expenditure in its 400% tax deduction. That means for every $1 you spend on qualifying AI tools, training, or development, you get $4 in tax deductions. The cap is $50,000 per year in qualifying expenditure.
The Productivity Solutions Grant (PSG) is also expanding to cover more AI and digital solutions. If you've been thinking about implementing AI chatbots, process automation, or analytics tools, the government will co-fund a chunk of it.
Going Regional: Internationalization Support
If you're looking to expand overseas, the grants just got better:
- Internationalization grants: Up to 70% support for qualifying SMEs (up from 50%)
- Double tax deduction cap: Raised from $150,000 to $400,000 for overseas business development
- Enterprise Financing Scheme: Higher limits for trade loans and fixed asset financing
What this actually means: The government wants SMEs to expand into ASEAN, India, and the Middle East. They're making it significantly cheaper to set up overseas. If you've been eyeing a regional expansion, the economics just improved.
Foreign Worker Costs: The Other Side
While one hand gives, the other takes. Foreign worker costs are going up across the board:
- EP minimum: $6,000 (financial sector $6,600)
- S Pass minimum: $3,600 from January 2027
- Work permit levies: Marine shipyard +$100, process sector +$150
- Manufacturing & services levies: Restructured from 2028
- Local Qualifying Salary: $1,800 (from $1,600)—the minimum you must pay locals to count for foreign worker quota
The government's message is consistent: hire local, invest in automation, or pay more. The Progressive Wage Credit Scheme (30% co-funding, extended to 2028) softens the blow for raising local wages, but the direction is clear.
Carbon Tax: Plan Ahead
Carbon tax is now $45/ton and heading to $50–80/ton by 2030. The government signalled it may stay at the "lower end" of that range, which is some relief. But if your business is energy-intensive, this is a growing line item.
Companies can offset some carbon costs through International Carbon Credits, but the frameworks for that are still developing. For most SMEs, the practical impact is higher electricity costs feeding through from power generators paying the carbon tax.
The Net Position: Who Wins?
Winners: Companies investing in AI and digital transformation (400% deduction + PSG grants), SMEs expanding regionally (70% internationalization support), and businesses raising local worker wages (30% PWM co-funding).
Losers: Labour-intensive businesses reliant on foreign workers (higher levies + salary minimums), energy-intensive industries (carbon tax), and companies that aren't adapting to automation.
What this actually means: The government is picking winners—AI-adopting, internationally-expanding, locally-hiring companies. If that's you, Budget 2026 is generous. If you're running a traditional model dependent on cheap foreign labour, the squeeze continues.
Protecting Business Wealth
As a business owner, you're exposed to both operational risks and macro risks. Budget 2026's "uncertain world" narrative isn't just rhetoric—trade wars, supply chain shifts, and currency volatility are real threats to Singapore businesses.
Many business owners hold 5–15% of personal wealth in gold as a hedge against exactly this kind of environment. Gold is GST-exempt as Investment Precious Metals in Singapore, making it tax-efficient alongside your corporate and personal holdings.
Read More Budget 2026 Guides
- Budget 2026: Top 10 Things You Need to Know
- Budget 2026 for Salaried Employees
- Budget 2026 for Fresh Graduates & Job Seekers
- Budget 2026 for Seniors & Retirees
- Budget 2026 for Investors
Frequently Asked Questions
How much will my company save from the Budget 2026 tax rebate?
The 40% corporate tax rebate saves between $1,500 (minimum) and $30,000 (cap). An SME with $300,000 chargeable income saves about $17,000. Companies hit the cap at roughly $500,000+ in chargeable income. This applies to Year of Assessment 2026.
What AI spending qualifies for the 400% tax deduction?
The Enterprise Innovation Scheme covers AI-related expenditure including software, training, and development up to $50,000/year in qualifying costs. The IRAS website will have detailed qualifying criteria. Additionally, the Productivity Solutions Grant covers AI/digital adoption costs.
How much will EP and S Pass costs increase?
EP minimum rises to $6,000 ($6,600 for financial sector) for new applications and renewals. S Pass minimum goes to $3,600 from January 2027. Work permit levies increase by $100–$150 for marine and process sectors. Factor these into your 2027 manpower budget.
What internationalization grants are available for SMEs?
SMEs can access up to 70% support for qualifying overseas expansion activities, up from 50%. The double tax deduction cap for international activities rose from $150,000 to $400,000. Enterprise Singapore and EnterpriseSG manage the applications.
How does the carbon tax affect my business?
Carbon tax is $45/ton in 2026, heading to $50–80/ton by 2030 (likely the lower end). Most SMEs feel this indirectly through higher electricity costs rather than direct carbon tax bills. Energy-intensive businesses should explore International Carbon Credits and energy efficiency measures.