The mergers and acquisitions (M&A) scheme encourages 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"). 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
Amount of M&A Allowance
To provide added impetus for small and medium-sized enterprises to actively seek opportunity to grow through acquisitions, the cap on value of acquisition is $40 million for qualifying share acquisitions. 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
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, the share acquisition must result in the acquiring company's (Acquisition can be direct or through an acquiring subsidiary) ownership of:
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; or
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").
B. Acquiring Companies
To qualify, the acquiring company must:
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;
Carry on a trade or business in Singapore on the date of share acquisition;
Have at least three local employees (excluding company's directors) throughout the 12-month period before the date of share acquisition; and
Not be connected to the target company for at least two years before the date of share acquisition.
C. Acquiring Subsidiaries
When the acquisition is made through an acquiring subsidiary, the acquiring subsidiary must:
Not claim any tax benefits under the M&A scheme;
Not carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and
Be directly and wholly-owned by the acquiring company on the date of share acquisition.
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.
D. Target Companies
The target company must:
Carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and
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. The conditions may also be met by a wholly-owned subsidiary indirectly held by the target company.
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:
The acquiring company and its ultimate holding company (where applicable) must meet the conditions in (B); and
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:
at least 1 director represented on the Board of Directors of the target company; and
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
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.
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.
[IRAS]
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