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. The scheme was enhanced in Budgets 2015 and 2016.

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. The M&A allowance will be allowed on a straight line basis over five years and the allowance cannot be deferred. Companies must meet certain conditions to remain eligible for M&A allowance for each Year of Assessment (YA) during the five-year write-down period.

Qualifying share acquisitions completed during the period:

Qualifying share acquisitions completed during the period 1 Apr 2016 to 31 Mar 2020

Amount of M&A Allowance

To provide added impetus for small and medium-sized enterprises to actively seek opportunity to grow through acquisitions, Minister for Finance has announced in Budget 2016 that the cap on value of acquisition will be increased from $20 million to $40 million for qualifying share acquisitions made from 1 April 2016.  With the M&A allowance at 25% of the value of acquisition, the maximum allowance is capped at $10 million for all qualifying share acquisitions in the basis period for each YA.

 Qualifying Conditions

  1. 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 April 2015, the share acquisition must result in the acquiring company's* ownership of:
    1. at least 20% of the ordinary shares of the target company ("20% shareholding threshold") if it owned less than 20% before the date of share acquisition. 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 "Eligibility Conditions for M&A Allowance"); or
    2. 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").
    *Acquisition can be direct or through an acquiring subsidiary.
  2. Acquiring Companies

    To qualify, the acquiring company must:
    1. Be incorporated and 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;

    2. Carry on a trade or business in Singapore on the date of share acquisition;
    3. Have at least three local employees (excluding company's directors) throughout the 12-month period before the date of share acquisition; and
    4. Not be 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
  3. Acquiring Subsidiaries

    When the acquisition is made through an acquiring subsidiary, the acquiring subsidiary must:

    1. Not claim any tax benefits under the M&A scheme;
    2. Not carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and
    3. 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 [(C)(1) and (C)(2)], the acquiring subsidiary and each intermediate company above it must also be set up primarily to hold shares in other companies.

  4. Target Companies

    The target company must:

    1. Carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and
    2. Have 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.

 

Qualifying share acquisitions completed during the period 1 Apr 2015 to 31 Mar 2016

Amount of M&A Allowance

To provide more meaningful support for companies, especially Small and Medium Enterprises (SMEs) which typically conduct smaller deals, the M&A allowance was increased from 5% to 25% of the value of acquisition in Budget 2015. The M&A allowance is capped at $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 $20 million in that YA.

Qualifying Conditions

 A. Shareholding in the Target Company

Please refer to the segment above on "Qualifying Conditions for Shareholding in the Target Company".

B. Acquiring Companies

Please refer to the segment above on "Qualifying Conditions for Acquiring Companies".

C. Acquiring Subsidiaries

Please refer to the segment above on "Qualifying Conditions for Acquiring Subsidiaries".

D. Target Companies

Please refer to the segment above on "Qualifying Conditions for Target Companies".

 

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

Amount of M&A Allowance

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.

Qualifying Conditions

A. Shareholding in the Target Company

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

  1. 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
  2. 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 75% threshold was removed with effect from 1 Apr 2015.
*Acquisition can be direct or through an acquiring subsidiary.

B. Acquiring Companies

Please refer to the segment above on "Qualifying Conditions for Acquiring Companies".

C. Acquiring Subsidiaries

Please refer to the segment above on "Qualifying Conditions for Acquiring Subsidiaries".

D. Target Companies

Please refer to the segment above on "Qualifying Conditions for Target Companies".

 

Eligibility Conditions for M&A Allowance

To remain eligible for M&A allowance for each YA during the five-year write-down period, companies must meet the following conditions throughout the basis period relating to the YA in which the allowance is claimed:

  1. The acquiring company and its ultimate holding company (where applicable) must meet the conditions in (B); and
  2. If the acquisition is made through an acquiring subsidiary, the acquiring subsidiary and each intermediate company above it must meet the conditions in (C). 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 (B), the acquiring company must also have:

  1. at least 1 director represented on the Board of Directors of the target company; and
  2. 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.

When any of the above eligibility conditions is not met for any YA during the five-year write-down period, the M&A allowance ceases to apply from that YA onwards.

Deductibility of Transaction Costs

Transaction costs include legal fees, accounting or tax advisory 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.

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. The cap of $100,000 applies to all transaction costs incurred in relation to qualifying acquisitions of ordinary shares in all target companies, for which the claims for M&A allowance are first made in the same YA. This is regardless of when the transaction costs are incurred.

The deduction of the transaction costs will be allowed in:

(a)   the YA in which the M&A allowance on the qualifying share acquisition for which the transaction costs are incurred is first claimed; or

(b)   the YA relating to the basis period in which the transaction costs are incurred, whichever is the later.

A qualifying share acquisition took place on 1 Mar 2017 and the acquiring company makes a claim for M&A allowance in YA 2018 (for the year ending on 31 Dec 2017). The company incurred transaction costs relating to the share acquisition on 1 Mar 2017 as follows:

Transaction costs incurred in YA Amount incurred 
 YA 2017 $10,000
 YA 2018 $60,000
 YA 2019 $50,000 
 Total $120,000

The following double tax deduction will be granted to the company:

 YA 2018: ($10,000 + $60,000) x 2 = $140,000

 YA 2019: $30,000* x 2 = $60,000

* The transaction cost of $50,000 incurred in YA 2019 is restricted to $30,000 (i.e. $100,000 - $10,000 - $60,000). 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.

Unutilised M&A Allowance and Double Tax Deduction (DTD) on Transaction Costs

The M&A allowance and DTD on transaction cost are not available for transfer under the group relief system.

Any unutilised M&A allowance and DTD on transaction costs are also not available for carry-back to set-off the acquiring company's assessable income for the preceding year.

The unutilised M&A allowance and DTD on transaction costs, however, may be carried forward to be set-off against 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. The shareholding test for these items works the same as that for unutilised capital allowance. For more information on the shareholding test, please refer to Unutilised losses, capital allowances and donations.

 

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