If you choose to merge your Singapore company with another one registered within the city-state, you’ll be pleased that the government of Singapore offers a bit more than just basic facilitation.
When it comes to paying corporate taxes, for instance, your new merger should give you the privilege of capitalizing on what the Inland Revenue Authority of Singapore (IRAS) calls “M&A Allowance”.
Read along to find out what it’s all about, how you can qualify for the tax benefits, plus the principles that apply to various merger and acquisition instances.
M&A Allowance, to begin with, is just short for Mergers and Acquisitions Allowance. This is a tax benefit scheme that was first implemented by the 2010 Budget, as a means of motivating Singapore companies to expand their profitability through acquisitions and mergers.
Basically, once a share acquisition occurs between two companies, the company that takes up another company’s ordinary shares can go ahead and take advantage of Singapore’s M&A allowance.
In this case, the company that gives out its shares is known as the “the target company”, while the recipient is technically called “the acquiring company”.
So, make no mistake about it. Under the M&A allowance scheme, only the acquiring company ends up being the primary beneficiary. The allowance itself is usually applied for five years straight without any deferrals.
It’s worth noting, though, that the rules haven’t remained constant since 2010. The government of Singapore enhanced them slightly in 2015 and 2016. Then in Budget 2020, it proceeded to extend the scheme benefits to the 31st of December 2025.
At the moment, therefore, mergers and acquisitions tax allowances are offered under varying conditions to qualifying share acquisitions that were completed during the following periods:
Let’s look into them separately, as well as explore the accompanying qualification conditions...
Thankfully, the government of Singapore has pushed the cap on the value of share acquisitions completed during this period from S$20 million to S$40 million. That means that with Singapore’s M&A allowance of 25% on the share acquisition value, you can qualify for an allowance of up to S$10 million for each YA.
Here are the accompanying conditions that all parties are required to satisfy:
If the share acquisition is conducted indirectly through an acquiring subsidiary:
As for share acquisitions completed between the 1st of April 2015 and the 31st of March 2016, it turns out the government of Singapore pushed the M&A allowance from 5% to 25% on the total share acquisition value.
The maximum allowance amount, on the other hand, is set at S$5 million for each YA. So, in short, it only takes an acquisition worth S$20 million to reach the allowance limit.
The qualifying conditions for share acquisitions completed between the 1st of April 2015 and the 31st of March 2016 happen to be the same as the qualifying conditions for share acquisitions completed during the period of 1st April 2016 to 31st December 2025.
And yes, that applies to pretty much everything - including the qualifying conditions for target companies, acquiring companies, and acquiring subsidiaries.
M&A Allowance Amount
If you completed your share acquisition between the 1st of April 2010 and the 31st of March 2015, you’ll be entitled to an M&A allowance of 5% on the share acquisition value. The only thing is, you won’t be able to stretch each YA’s allowance beyond S$5 million.
All in all, therefore, it takes a share acquisition worth S$100 million to hit the maximum allowance amount.
Apart from that, the rest of the conditions remain constant. Target companies, acquiring companies, and acquiring subsidiaries are required to meet the same standards as their counterparts who complete their share acquisitions between 2016 and 2025.
If you intend to keep your company in the M&A allowance scheme throughout the five-year write-down period, you’ll be required to satisfy the following eligibility conditions while claiming the tax benefits for each year of assessment (YA):
However, if you’re seeking to make claims against the 20% shareholding threshold for share acquisitions completed on or after the 1st of April 2015, the acquiring company is further required to:
In the end, your company is expected to adhere to all these directives throughout the write-down period. That means that if you fail to fully satisfy the eligibility conditions in any YA, the M&A allowances will be immediately withdrawn from that year going forward.
In all share acquisition procedures, you can expect to incur transaction costs such as valuation fees, tax advisory fees, accounting charges, legal fees, and any other form of professional fees.
But, get this - that only applies to regular transactions. If you choose to proceed with a loan arrangement, on the other hand, the IRAS won’t consider the professional and incidental fees as part of the transaction costs.
But then again, what’s the relevance of the transaction costs here?
Well, you see, Singapore also tends to offer a double tax deduction (DTD) on the transaction costs that you incur through share acquisitions completed between the 17th of February 2012 and the 31st of December 2025.
However, please note that the transaction costs come with an expenditure limit of S$100,000. As such, you won’t be able to claim tax deductions worth more than $100,000 on the transaction costs that you end up incurring.
What’s more, the deductions are typically applied to the YA in which you first claim your M&A allowance on the qualifying share acquisition.
For companies that happen to accumulate unutilised M&A allowance and double tax deduction (DTD) on transactions, we have both good and bad news for you.
The bad news is - unfortunately, you won’t be able to carry back the unutilised tax benefits to set them off against your company’s assessable income over the preceding years.
And that’s not all. As it turns out, you also can’t transfer the benefits to other companies via Singapore’s Group Relief scheme.
On the flip side, though, at least you get the privilege to carry forward unutilised M&A allowance and transaction costs DTD, then subsequently, use them to minimize your tax bills in the future. You just need to make sure that your company meets the shareholding test.
While we’ve tried our best to simplify everything for you, we understand that all these tax regulations might still seem a bit overwhelming, and quite cumbersome to follow through to the end.
But, don’t let that stress you out. You can save yourself all the technicalities by leaving us to handle all the tax processes on your behalf. Start by booking a free consultation, and we’ll tell you more about our corporate tax filing services.