A Singapore company that makes a qualifying acquisition of the ordinary shares of another company may enjoy an M&A allowance on the purchase consideration.

What Qualifies for M&A Allowance

Under the M&A scheme, an M&A allowance is 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 Dec 2025 (both dates inclusive). The M&A allowance is allowed on a straight-line basis over 5 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 5-year writing-down period.

Amount of M&A Allowance & Qualifying Conditions

M&A allowance is granted for qualifying share acquisitions completed during the periods:

Qualifying share acquisitions completed during the period 1 Apr 2016 to 31 Dec 2025

Amount of M&A Allowance

For qualifying share acquisitions made from 1 Apr 2016, the cap on the value of acquisition has been increased from $20 million to $40 million. The M&A allowance rate is 25% of the value of acquisition and the 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
    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 need to meet the additional eligibility conditions; 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 of Singapore*. Where the acquiring company belongs to a corporate group, its ultimate holding company must also be incorporated and be a tax resident of Singapore;
    2. Carry on a trade or business in Singapore on the date of share acquisition;
    3. Have at least 3 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 2 years before the date of share acquisition. 

    * For companies under the Headquarters Tax Incentive Programme (HQ Programme) and Maritime Sector Incentive-Shipping-related Supporting Services Scheme (MSI-SSS Scheme), the Singapore 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 a tax resident of Singapore on a case-by-case basis for share acquisitions completed during the period 17 Feb 2012 to 31 Mar 2020.

    The waiver is no longer available for share acquisitions made on or after 1 Apr 2020.

  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 Dec 2025, 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 [(3a) and (3b)], 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 3 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 Dec 2025, 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

For qualifying share acquisitions made on or after 1 Apr 2015, the M&A allowance rate has been increased from 5% to 25% of the value of acquisition. The cap on the value of acquisition is $20 million and the M&A allowance is capped at $5 million for all qualifying share acquisitions in the basis period for each YA.

Qualifying Conditions
  1. Shareholding in the Target Company
    Refer to the segment above on ‘Qualifying Conditions for Shareholding in the Target Company’.

  2. Acquiring Companies
    Refer to the segment above on ‘Qualifying Conditions for Acquiring Companies’.

  3. Acquiring Subsidiaries
    Refer to the segment above on ‘Qualifying Conditions for Acquiring Subsidiaries’.

  4. Target Companies
    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 rate is 5% of the value of acquisition. The cap on the value of acquisition is $100 million and the M&A allowance is capped at $5 million for all qualifying share acquisitions in the basis period for each YA.

Qualifying Conditions
  1. Shareholding in the Target Company
    Before 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.

  2. Acquiring Companies
    Refer to the segment above on ‘Qualifying Conditions for Acquiring Companies’.

  3. Acquiring Subsidiaries
    Refer to the segment above on ‘Qualifying Conditions for Acquiring Subsidiaries’.

  4. Target Companies
    Refer to the segment above on ‘Qualifying Conditions for Target Companies’.

Eligibility Conditions During the 5-Year Writing-Down Period

To remain eligible for M&A allowance for each YA during the 5-year writing-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 qualifying conditions for acquiring companies; and
  2. If the acquisition is made through an acquiring subsidiary, the acquiring subsidiary and each intermediate company above it must meet the qualifying conditions for acquiring subsidiaries. The allowance is granted to the acquiring company.

Acquiring companies claiming M&A allowance based on the 20% shareholding threshold for acquisitions made on or after 1 Apr 2015 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 Financial Reporting Standard (FRS) 28 or Singapore FRS for Small Companies. 
Note When any of the above eligibility conditions is not met for any YA during the 5-year writing-down period, the M&A allowance ceases to apply from that YA.

Double Tax Deduction on Transaction Costs

Under the M&A scheme, double tax deduction is granted on transaction costs incurred on qualifying share acquisitions completed during the period 17 Feb 2012 to 31 Dec 2025 (both dates inclusive). For the purpose of allowing a double tax deduction, the amount of transaction costs is taken net of grants or subsidies from the Government or any statutory board and is 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 Year of Assessment (YA). This is regardless of when the transaction costs are incurred.

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. They do not include professional and incidental fees in respect of a loan arrangement.

The deduction of the transaction costs is allowed in:

  • The YA in which the M&A allowance on the qualifying share acquisition for which the transaction costs are incurred is first claimed; or
  • The YA relating to the basis period in which the transaction costs are incurred, whichever is the later.

Example
A qualifying share acquisition took place on 1 Mar 2019 and the acquiring company claims M&A allowance in YA 2020 (for the year ending on 31 Dec 2019). The company incurred transaction costs relating to the share acquisition on 1 Mar 2019 as follows:

YA in which Transaction Costs Were Incurred Amount Incurred
YA 2019  $10,000
YA 2020  $60,000
YA 2021  $50,000
Total  $120,000

 The following double tax deduction is granted to the company:

YA 2020: ($10,000 + $60,000) x 2 = $140,000

YA 2021: $30,000* x 2 = $60,000

* The transaction cost of $50,000 incurred in YA 2020 is restricted to $30,000 (i.e. $100,000 - $10,000 - $60,000). The excess $20,000 (i.e. $120,000 - $100,000) is disregarded.

Transaction costs incurred in relation to a share acquisition completed during the period 1 Apr 2010 to 16 Feb 2012 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 & Double Tax Deduction on Transaction Costs

The M&A allowance and double tax deduction on transaction costs cannot be transferred under the Group Relief system.

Likewise, any unutilised M&A allowance and double tax deduction on transaction costs cannot be carried back to set-off the acquiring company's assessable income for the preceding year.

However, the unutilised M&A allowance and double tax deduction on transaction costs may be carried forward for 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 allowances. Learn more about the shareholding test.