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Corporate Tax Guide: Claiming Mergers and Acquisitions Allowance (M&A)

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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. 

Mergers and Acquisitions Allowance

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: 

  • 1st of April 2016 - 31st of December 2025
  • 1st of April 2015 - 31st of March 2016. 
  • 1st of April 2010 to 31st of March 2015.

Let’s look into them separately, as well as explore the accompanying qualification conditions...

Qualifying Share Acquisitions Completed From 1 Apr 2016 - 31 Dec 2025

M&A Allowance Amount

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: 

Qualifying Conditions

Shareholding and Acquisition

  • Share acquisition can occur directly between a target company and an acquiring company, or indirectly through an acquiring subsidiary. 
  • In case the acquiring company held less than 20% of the target company’s ordinary shares before the share acquisition date, the acquiring company should end up taking over at least 20% of the target company's ordinary shares. 
  • If the acquiring company held more than 20% of the target company’s ordinary shares (but equal to or less than 50%) before the share acquisition date, the acquiring company should end up taking over at least 50% of the target company's ordinary shares. 

Target Company

  • The target company must have a minimum of three employees contracted to work for the business throughout the 1-year period before the share acquisition date. 
  • The company itself must be involved in a business or trade within Singapore or anywhere else by the share acquisition date. 

Acquiring Company

  • The acquiring company has to be fully registered and incorporated in Singapore.
  • The acquiring company should also be a Singapore tax resident.
  • If the acquiring company happens to be a member of a corporate group, the accompanying holding company should be a Singapore tax resident that has been registered and incorporated in the city-state. 
  • The acquiring company should not be directly linked to the target company for at least 24 months before the share acquisition date. 
  • The company itself must be involved in a business or trade within Singapore by the share acquisition date.
  • The acquiring company should have a minimum of three local employees (excluding the directors) contracted to work for the business throughout the one-year period before the share acquisition date.

Acquiring Subsidiaries

If the share acquisition is conducted indirectly through an acquiring subsidiary: 

  • The acquiring subsidiary should be directly and entirely-owned by the acquiring company by the time the share acquisition is completed. 
  • The acquiring subsidiary should not be performing any business or trade activities within Singapore or anywhere else by the share acquisition date. 
  • The acquiring subsidiary cannot apply for M&A tax allowances.  

Qualifying Share Acquisitions Completed From 1 Apr 2015 To 31 Mar 2016

M&A Allowance Amount

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. 

Qualifying Conditions

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. 

Qualifying Share Acquisitions Completed From 1 Apr 2010 To 31 Mar 2015

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. 

Qualifying Conditions

Shareholding and Acquisition

  • Share acquisition can occur directly between a target company and an acquiring company, or indirectly through an acquiring subsidiary. 
  • In case the acquiring company held 50% of the target company’s ordinary shares or less before the share acquisition date, the acquiring company should end up taking over at least 50% of the target company's ordinary shares. 
  • If the acquiring company held more than 50% of the target company’s ordinary shares (but equal to or less than 75%) before the share acquisition date, the acquiring company should end up taking over at least 75% of the target company's ordinary shares. 

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. 

Eligibility Conditions for M&A Allowance

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): 

  • The acquiring company ought to consistently abide by the standard qualifying conditions for acquiring companies. That means it should be incorporated and conducting business in Singapore, enjoying tax residency status, and employing three local workers for at least one year before the share acquisition. 
  • In case the share acquisition is performed through an acquiring subsidiary, the subsidiary and the corresponding intermediate companies above it should fulfill the standard acquiring subsidiary requirements. That means they won’t be able to claim M&A allowances. Instead, the tax benefits will eventually be granted directly to the principal acquiring company. 

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: 

  • Own a minimum of 20% of the target company’s shares. What’s more, the target company should have been officially recognized as an associate of the acquiring company. 
  • Have placed at least one director in the target company’s Board of Directors. 

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. 

Deductibility of Transaction Costs

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. 

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

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. 

Save Yourself All The Technicalities 

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. 

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