Angel Investors Tax Deduction Scheme (AITD)
This is an incentive scheme to encourage individuals to invest in start-up companies and help the companies grow through their management expertise/business networks etc.
The scheme is available from 1 Mar 2010 to 31 Mar 2020. Investments made on or after 24 Feb 2015 and that are supported by SEEDS Capital under Startup SG Equity will also qualify for the scheme.
This scheme will lapse after 31 Mar 2020, i.e. investors can no longer obtain new approvals or renewal of the "angel investor" status for any period commencing after 31 Mar 2020. However, angel investors will continue to enjoy tax deduction in respect of qualifying investments made during the period of the approved status, subject to existing conditions of the scheme.
Qualifying for AITD
There are different qualifying criteria for the various parties to an angel investment deal. Individuals who are interested must first apply to
Enterprise Singapore, which administers the scheme, to be approved as an angel investor.
The tax incentive is for approved angel investors who invest in qualifying start-up companies between 1 Mar 2010 to 31 Mar 2020.
Deductions for Individual Angel Investors
To enjoy a tax deduction, an approved angel investor must:
- Invest at least $100,000 of qualifying investment in a qualifying start-up company within 12 months from the date of his/her first investment in that company; and
- Hold such investment for a continuous period of 2 years from the date of last qualifying investment.
Applicable Years of Assessments (YAs)
The tax deduction is given for the YA relating to the basis period in which the last day of the 2-year period falls.
Amount of Tax Deduction
The amount of tax deduction for each YA is based on 50% of the cost of qualifying investment, subject to a cap of $500,000 of investment costs i.e. deduction cap of $250,000.
The qualifying deduction will be offset against the individual's total taxable income. Any unutilised deduction in any YA will be disregarded.
An approved angel investor, Mr A, invested $1,500,000 in a qualifying start-up company in May 2018. If he holds the investment until Jul 2020 (i.e. at least 2-year holding period), he can claim a tax deduction of $250,000 (50% of $500,000 cap) in his tax return for YA 2021.
In Sep 2019, Mr B (an approved angel investor) invests $400,000 in a qualifying start-up company and holds the investment until Jul 2021 (i.e. less than 2-year holding period). Mr B cannot claim any tax deduction.
Claiming Tax Deduction
Taxes on Gains on Disposal of Investment
Any gains on disposal of the qualifying investment may be subject to tax in the individual's name depending on his/her circumstances.
Factors such as the volume and frequency of transactions, the interval between the purchase and sales, the manner of financing the purchase and whether he/she is actively involved in trading in a systematic manner with a view of seeking profit would be taken into consideration.
Example 3: Computation of Taxable Gains
Mr A invested $1,500,000 in a qualifying start-up company in May 2018. He holds the investment until Jul 2020. He claimed a tax deduction of $250,000 (50% of $500,000 cap) in his tax return for YA 2021.
Mr A sells the investment on 31 Jan 2021.
Cost of investment in May 2018 | $1,500,000 |
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Amount of deduction allowed in YA 2021
(50% x $500,000) | $250,000 |
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Proceeds from sale of qualifying investment on 31 Jan 2021 | $2,500,000 |
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Gain on disposal of investment
[$2,500,000 - ($1,500,000 - $250,000)] | $1,250,000 |
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