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About Mergers and Acquisitions (M&A) Allowance 
Qualifying Conditions
Deductibility of Transaction Costs
If there is an Unutilised M&A Allowance

About Mergers and Acquisitions (M&A) Allowance

In Budget 2010, the mergers and acquisitions (M&A) scheme was introduced to encourage companies in Singapore to grow their businesses through mergers and acquisitions.

Under the scheme, an M&A allowance will be granted to a company (“the acquiring company”) that acquires the ordinary shares of another company (“the target company”) during the period 1 Apr 2010 to 31 Mar 2020 Revised!.

Qualifying share acquisitions completed during the period 1 Apr 2015 to 31 Mar 2020

To provide more meaningful support for companies, especially Small and Medium Enterprises (SMEs) which typically conduct smaller deals, the M&A allowance has been increased from 5% to 25% of the value of acquisition. The M&A allowance is capped at $5 million for all qualifying share acquisitions in the basis period for each Year of Assessment (YA). This means that the maximum M&A allowance for each YA will be reached with an acquisition of $20 million in that YA.

Qualifying share acquisitions completed during the period 1 Apr 2010 to 31 Mar 2015

The M&A allowance is at 5% of the value of acquisition, subject to a maximum amount of $5 million for all qualifying share acquisitions in the basis period for each YA. This means that the maximum M&A allowance for each YA will be reached with an acquisition of $100 million in that YA.

The M&A allowance will be allowed in equal amounts over five years and the allowance cannot be deferred.  

Qualifying Conditions

Shareholding in the target company

To support SMEs in taking their first steps in M&A and to provide more flexibility for Singapore companies to grow locally or offshore via strategic acquisitions, it was announced in Budget 2015 that the shareholding threshold in the target company will be revised. With effect from 1 Apr 2015, the share acquisition must result in the acquiring company's* ownership of:

  • at least 20% of the ordinary shares of the target company (“20% shareholding threshold”). Companies that wish to claim M&A allowance based on the 20% shareholding threshold will need to meet additional conditions (please refer to the segment below on “Conditions for M&A Allowance”).
  • more than 50% of the ordinary shares of the target company if it owned less than or equal to 50% before the date of share acquisition (“50% shareholding threshold”);

Prior to 1 Apr 2015, the share acquisition must result in the acquiring company's* ownership of:

  • more than 50% of the ordinary shares of the target company if it owned less than or equal to 50% before the date of share acquisition ("50% shareholding threshold"); or
  • at least 75% of the ordinary shares of the target company if it owned more than 50% but less than 75% before the date of share acquisition (“75% shareholding threshold”). This condition will be removed with effect from 1 Apr 2015.

* Acquisition can be direct or through an acquiring subsidiary.

Conditions for the acquiring company/ acquiring subsidiary and target company

The following conditions must also be met:

(A) The acquiring company -

(i) is incorporated and is a tax resident in Singapore.  Where the acquiring company belongs to a corporate group, its ultimate holding company must also be incorporated and be a tax resident in Singapore.  For companies under the Headquarters Tax Incentive Programme (HQ Programme) and Maritime Sector Incentive–Shipping-related Supporting Services Scheme (MSI-SSS Scheme), the Economic Development Board (EDB), the Monetary Authority of Singapore (MAS) or the Maritime and Port Authority of Singapore (MPA) may waive the requirement that the ultimate holding company must be incorporated and tax resident in Singapore on a case-by-case basis* for share acquisitions completed from 17 Feb 2012 to 31 Mar 2020;

(ii) is carrying on a trade or business in Singapore on the date of share acquisition;

(iii) has at least three local employees (excluding company’s directors) throughout the 12-month period before the date of share acquisition; and

(iv) is not connected to the target company for at least two years before the date of share acquisition.

Companies under the HQ Programme or MSI-SSS Scheme may contact the following agencies to apply for waiver of this requirement:

          HQ Programme – EDB or MAS

          MSI-SSS Scheme – MPA

(B) If the acquisition is made through an acquiring subsidiary, the acquiring subsidiary -

(i) must not claim deduction of M&A allowance and stamp duty relief under the M&A scheme;

(ii) must not carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and

(iii) must be directly and wholly-owned by the acquiring company on the date of share acquisition. 

For qualifying share acquisitions completed during the period 17 Feb 2012 to 31 Mar 2020, the wholly-owned acquiring subsidiary may also be indirectly held by the acquiring company on the date of share acquisition.  Besides meeting the conditions in [(B)(i) and (ii)], the acquiring subsidiary and each intermediate company above it must also be set up primarily to hold shares in other companies.

(C) The target company -

(i) carries on a trade or business in Singapore or elsewhere on the date of share acquisition; and

(ii) has at least three employees working for the company throughout the 12-month period before the date of share acquisition.

The above conditions may be met by a subsidiary that is directly and wholly-owned by the target company.  For qualifying share acquisitions completed during the period 17 Feb 2012 to 31 Mar 2020, the conditions may also be met by a wholly-owned subsidiary indirectly held by the target company.

Conditions for M&A allowance

If you are claiming M&A allowance, the following conditions must be met throughout the basis period relating to the YA in which the allowance is claimed:

•  the acquiring company and its ultimate holding company (where applicable) must meet the conditions in (A); or

•  where an acquisition is made through an acquiring subsidiary, the acquiring subsidiary and each intermediate company above it must meet the conditions in (B).  The allowance will be granted to the acquiring company.

For companies claiming M&A allowance based on the 20% shareholding threshold for acquisitions made on or after 1 Apr 2015, besides meeting the conditions in (A), the acquiring company must also have:

(i) at least 1 director represented on the Board of Directors of the target company; and

(ii) acquired a shareholding of at least 20% in the target company and that the target company is considered an associate of the acquiring company under Singapore FRS 28 or Singapore FRS for Small Companies.

Deductibility of Transaction Costs

  • Qualifying share acquisitions completed during the period 17 Feb 2012 to 31 Mar 2020

    Double tax deduction will be granted on transaction costs incurred on qualifying share acquisitions, subject to an expenditure cap of $100,000 per YA. 

    Transaction costs include legal fees, accounting or tax advisor’s fees, valuation fees and such other professional fees that are necessarily incurred for a qualifying share acquisition.  However, they do not cover professional and incidental fees in respect of a loan arrangement.  

    The deduction of the transaction costs will be allowed in the YA in which M&A allowance, in respect of the qualifying share acquisition, is claimed. 

    E.g. A qualifying share acquisition took place on 1 Mar 2014 and the acquiring company makes a claim for M&A allowance in YA 2015 (for the year ending on 31 Dec 2014). The company incurred a total of $120,000 on transaction costs relating to the share acquisition on 1 Mar 2014. Regardless of when the transaction costs were incurred, $200,000 (i.e. $100,000 x 2) will be allowed in YA 2015 and the excess $20,000 (i.e. $120,000 - $100,000) will be disregarded.

  • Qualifying share acquisitions completed during the period 1 Apr 2010 to 16 Feb 2012

    Transaction costs incurred in relation to a share acquisition are not deductible.  They also do not form part of the cost of qualifying share acquisition for determining the amount of M&A allowance.

If there is an Unutilised M&A Allowance

The M&A allowance is not available for transfer under the group relief system. 

Any unutilised M&A allowance is also not available for carry-back to offset the acquiring company’s assessable income for the preceding year. 

Unutilised M&A allowance, however, may be carried forward to offset the acquiring company’s future income if the shareholding test is met, i.e. there must be no substantial change in the shareholders and their shareholdings as at the relevant dates. For more information on the shareholding test, please refer to Unutilised losses, capital allowances and donations.

The revised e-Tax Guide incorporating the changes arising from Budget 2015 and further details will be issued by May 2015.

 

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Last Updated on 10 March 2015


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