When a Singapore company borrows from an overseas lender to buy productive equipment, the interest it pays out is normally caught by Singapore withholding tax. At the standard rate of 15% on gross interest, that is a real cost that can make foreign financing meaningfully more expensive. The Approved Foreign Loan (AFL) scheme is a long-standing incentive that reduces or removes that withholding tax on interest paid to a non-resident lender, where the loan funds substantive investment in Singapore. This 2026 guide explains what the AFL scheme is, who it suits, the conditions, and how it fits alongside Singapore’s other tax incentives.
It is written for finance directors, CFOs and business owners of capital-intensive companies, manufacturers, industrial operators and infrastructure businesses, that fund large equipment purchases with foreign loans. If your interest bill to an overseas bank or parent is being eroded by withholding tax, the AFL scheme may be worth a serious look.
The withholding tax problem the AFL scheme solves
Under Singapore’s withholding tax rules, interest paid to a non-resident is generally subject to withholding tax at 15% of the gross amount (or a lower rate under an applicable tax treaty). The paying company must deduct the tax and remit it to IRAS. Economically, the cost often lands on the borrower, because foreign lenders frequently insist on being paid interest “free and clear” through a gross-up clause. That turns a headline interest rate into a materially higher effective cost.
The AFL scheme addresses this directly. Where a loan is approved as an “approved foreign loan”, the interest paid to the non-resident lender enjoys either a full exemption from withholding tax or a concessionary reduced rate, depending on the terms of the approval. That lowers the cost of foreign capital and encourages companies to invest in productive equipment in Singapore.
What is the Approved Foreign Loan scheme?
The AFL scheme is a tax incentive administered by the Singapore Economic Development Board (EDB) under the Economic Expansion Incentives (Relief from Income Tax) Act 1967. It grants relief from withholding tax on interest payable to a non-resident lender on a loan used to buy productive equipment for the company’s trade or business in Singapore.
The core idea is to reward genuine, substantial capital investment. The scheme is not for general working-capital borrowing or property purchases; it is aimed at loans that finance plant, machinery and equipment that expand Singapore’s productive capacity. The AFL scheme has been extended through to 31 December 2028, so it remains available to qualifying companies planning equipment investment in the near term.
Key conditions
Minimum loan size
The scheme is aimed at substantial investment. A company that has taken, or proposes to take, a foreign loan of not less than S$200,000 for the purchase of productive equipment may apply for AFL status, but in practice the EDB reserves the incentive for economically significant projects, and larger loans (frequently in the tens of millions) are typical of successful applications. The threshold in the Act is a floor, not a guarantee of approval.
Non-resident lender
The interest must be payable to a non-resident lender, since the scheme relieves Singapore withholding tax that would otherwise apply to cross-border interest. Loans from a foreign parent, an overseas bank or a foreign financial institution are the usual candidates.
Productive equipment
The loan proceeds must be applied to acquire productive equipment for the applicant’s trade or business, such as plant and machinery used in manufacturing or industrial operations. Loans for other purposes do not qualify.
Approval before the liability arises
AFL status must be obtained through an application to the EDB, and the relief flows from the terms of the approval. Companies should engage with the EDB early, ideally before finalising the financing, so that the incentive can be structured into the loan documentation and any gross-up clause.
How the AFL scheme compares with other incentives
The AFL scheme is one tool in a broader Singapore incentive toolkit, and it is often used alongside others rather than in isolation.
Companies undertaking large capability-building projects may separately qualify for the Pioneer Certificate Incentive or Development and Expansion Incentive, which give concessionary corporate tax rates on qualifying income. Groups running regional operations from Singapore may look at the Regional and International Headquarters incentives. Where interest is nonetheless taxed abroad, the Foreign Tax Credit rules may relieve double taxation. The AFL scheme is narrower and more specific than these: it targets one cost, the withholding tax on interest on an equipment loan, and removes or reduces it.
Interaction with tax treaties
Even without the AFL scheme, a tax treaty between Singapore and the lender’s country of residence may already reduce the 15% domestic rate to a lower treaty rate on interest. Companies should compare the treaty position with the AFL outcome. Where a treaty already delivers a nil or very low rate, the AFL scheme may add little; where no treaty applies, or the treaty rate is still meaningful, the AFL scheme can be decisive. A proper analysis looks at both routes together.
Frequently asked questions
Does the AFL scheme reduce the interest rate on my loan?
No. It reduces or removes the Singapore withholding tax on the interest. The commercial interest rate is set by the lender. The benefit is a lower effective financing cost, especially where the lender requires a gross-up.
Can I use an AFL loan to buy property or fund working capital?
No. The scheme is specifically for loans to purchase productive equipment for the trade or business. Property acquisition and general working capital are outside its scope.
Who administers the scheme?
The Economic Development Board administers the AFL scheme under the Economic Expansion Incentives (Relief from Income Tax) Act 1967, while IRAS administers the underlying withholding tax rules.
Is approval guaranteed if I meet the minimum loan size?
No. The statutory minimum is a floor, not an entitlement. The EDB exercises discretion and looks for genuine, economically significant investment in Singapore.
How we can help
The AFL scheme can materially lower the cost of foreign equipment financing, but the relief has to be structured in before the loan is signed and the incentive secured with the EDB. Raffles Corporate Services helps companies assess whether an equipment loan qualifies, compare the AFL outcome with the available treaty rate, coordinate the EDB application, and align the loan documentation, gross-up clauses and withholding tax filings so the benefit is actually captured. If you are planning a major equipment investment funded from overseas, talk to us early.
This article is for general information only and does not constitute tax advice. Incentive conditions and rates change; confirm the current position with the EDB, IRAS or a qualified adviser before acting. See the Economic Expansion Incentives (Relief from Income Tax) Act 1967 and the IRAS withholding tax guidance.
— The Editorial Team, Raffles Corporate Services