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About Mergers and Acquisitions (M&A) Allowance 
About Qualifying Conditions
Deductibility of Transaction Costs
If there is an Unutilised M&A Allowance 

About Mergers and Acquisitions (M&A) Allowance

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.

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 2015.

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 Year of Assessment (YA).  The cap of $5 million will effectively allow for acquisitions of up to $100 million in any one YA.

The M&A allowance will be allowed in equal amounts over five years and the allowance cannot be deferred.  

About Qualifying Conditions

  • Shareholding in the target company

    The share acquisition must result in the acquiring company/acquiring subsidiary's ownership of:

    •  more than 50% of the ordinary shares of the target company if before the date of share acquisition, it owned less than or equal to 50%; or

    •  at least 75% of the ordinary shares of the target company if before the date of share acquisition, it owned more than 50% but less than 75%.

  • Conditions for the acquiring company/acquiring subsidiary and target company

    The following conditions must also be met:

    (A) The acquiring company -

    (i) is incorporated and is 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), the Economic Development Board (EDB) or the Monetary Authority of Singapore (MAS) 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 2015;

    (ii) is carrying on a trade or business in Singapore on the date of share acquisition;

    (iii) has at least three local employees (excluding company’s directors) throughout the 12-month period before the date of share acquisition; and

    (iv) is not connected to the target company for at least two years before the date of share acquisition.

    *The M&A scheme is now available as an added feature of the Headquarters Tax Incentive Programme (HQ Programme) administered by EDB and MAS.  Companies under the HQ Programme may contact EDB or MAS to apply for waiver of this requirement.

    (B) If the acquisition is made through an acquiring subsidiary, the acquiring subsidiary -

    (i) must not claim deduction of M&A allowance and stamp duty relief under the M&A scheme;

    (ii) must not carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and

    (iii) must 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 2015, 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 [(B)(i) and (ii)], the acquiring subsidiary and each intermediate company above it must also be set up primarily to hold shares in other companies. 

    (C) The target company -

    (i) carries on a trade or business in Singapore or elsewhere on the date of share acquisition; and

    (ii) has 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 2015, the conditions may also be met by a wholly-owned subsidiary indirectly held by the target company. 

  • Conditions for M&A allowance

    If you are claiming tax deduction of the M&A allowance, the following conditions must be met throughout the basis period relating to the YA in which deduction is claimed:

    •  the acquiring company and its ultimate holding company (where applicable) must meet the conditions in (A); or

    •  if the acquisition is made through an acquiring subsidiary, the acquiring subsidiary and each intermediate company above it must meet the conditions in (B).  The deduction will be granted to the acquiring company.

Deductibility of Transaction Costs

  • 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.

  • Qualifying share acquisitions completed during the period 17 Feb 2012 to 31 Mar 2015

    Double tax deduction will be granted on transaction costs incurred on qualifying share acquisitions, subject to an expenditure cap of $100,000 per YA. 

    Transaction costs include legal fees, accounting or tax advisor’s 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.  

    The deduction of the transaction costs will be allowed in the YA in which M&A allowance, in respect of the qualifying share acquisition, is claimed. 

    E.g. A qualifying share acquisition takes place on 1 Mar 2012 and the acquiring company makes a claim for M&A allowance in YA 2013 (for the year ended 31 Dec 2012), all the transaction costs relating to the share acquisition on 1 Mar 2012 will be allowed in YA 2013 subject to a cap of $100,000, regardless of when the transaction costs were incurred.

If there is an Unutilised M&A Allowance

The M&A allowance is not available for transfer under the group relief system. 

Any unutilised M&A allowance is also not available for carry-back to offset the acquiring company’s assessable income for the preceding year. 

Unutilised M&A allowance, however, may be carried forward to offset the acquiring company’s future income if the shareholding test is met.

 

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Last Updated on 9 July 2012


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