Mergers and Acquisitions Scheme

About the Mergers and Acquisitions Scheme

First introduced by the Government in 2010, the Mergers and Acquisitions (“M&A”) Scheme aims to encourage Singapore companies, especially the small and medium-sized enterprises (“SMEs”), to grow through strategic acquisitions, expand their market presence, enhance capabilities and gain a competitive edge in a global market. 

Oftentimes, buyers overlook or are unaware that their acquisition deal may qualify for tax benefits under the M&A Scheme, which could help alleviate the financial burden associated with an M&A transaction.

Benefits under the Scheme

A Singapore company (“acquiring company”) that makes a qualifying acquisition of the ordinary shares of a target company (“target”) during the period 1 April 2010 to 31 December 2025 may enjoy the following tax benefits subject to meeting the requisite conditions:

• M&A allowance on the purchase consideration
• Double tax deduction on transaction costs incurred for a qualifying transaction 

Qualifying Share Acquisitions 

Qualifying share acquisitions are acquisitions that result in the acquiring company owning:

• 20% to 50% of ordinary shares of the target (if less than 20% owned prior to acquisition event); or
• More than 50% of ordinary shares of the target (if owned 50% or less prior to acquisition event).

Additional conditions apply to acquisitions within the 20% to 50% shareholding threshold, depending on the specific facts of the case.

The relevant threshold must be maintained at the end of the financial year in which the qualifying share acquisition is made. 

Qualifying Conditions 

Tax benefits under the M&A Scheme are granted to an acquiring company in respect of a qualifying share acquisition subject to the acquiring company and the target meeting the following conditions respectively:

The acquiring company must: 

• be incorporated and tax resident in Singapore and its ultimate holding company must also be a Singapore company if it belongs to a corporate group;
• carry on a trade or business in Singapore at the date of share acquisition;
• employ at least 3 local employees throughout the 12-month period immediately before the  share acquisition; and    
• not be connected to the target for at least 2 years prior to the date of share acquisition. 

A separate set of conditions applies if the acquisition is carried out by a wholly owned subsidiary of the  acquiring company.

The target or a subsidiary wholly owned (whether directly or indirectly) by the target must:

• carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and
• employ at least 3 employees throughout the 12-month period immediately before the share acquisition.

M&A Allowance

The M&A allowance rate is 25% of the purchase consideration or acquisition value, capped at SGD40 million.  The total M&A allowance to be granted to an acquiring company for each year of assessment, for all qualifying share acquisitions executed in the same basis period, is subject to an overall cap of SGD10 million. 

The acquiring company may acquire the ordinary shares of the target either directly or through a wholly owned subsidiary that is incorporated for the primary purpose of acquiring and holding shares in other companies. In either situation, the M&A allowance is granted only to the acquiring company. 

The M&A allowance granted is allowed by way of a deduction against taxable income over 5 years on a straight-line basis. The claim for any year cannot be deferred. The acquiring company must continue to meet all the qualifying conditions mentioned above to remain fully eligible for the M&A allowance for each of the five years. The allowance will cease from the year of assessment in which the acquiring company fails to meet any of the requisite conditions.   

Double Tax Deduction

A double tax deduction may be claimed for transaction costs necessarily incurred for qualifying share acquisitions subject to an expenditure cap of SGD100,000.

Transaction costs include legal fees, tax advisor’s fees, valuation fees and such other professional fees that are necessarily incurred for a qualifying share transaction. Fees or incidental costs in respect of loan agreements, borrowing costs and stamp duty are excluded. 

Application Process

The acquiring company must ensure it meets all relevant qualifying conditions before claiming the benefits under the M&A Scheme in the filing of its income tax return for the year of assessment relating to the basis period in which the qualifying share acquisition took place. There is no requirement to submit any documents/information with the income tax return submission to support the claim. However, the acquiring company must still prepare and retain the relevant documents and information as these may be requested by Inland Revenue Authority of Singapore at a subsequent date.

Conclusion

In conclusion, M&A allowance plays a pivotal role in facilitating strategic acquisitions and fostering sustainable economic growth. As Singapore continues to position itself as a leading business hub in the Asia-Pacific region, the M&A allowance remains instrumental in supporting corporate expansion and driving long-term growth.

The M&A allowance coupled with the double tax deduction for qualifying transaction costs will help ease cashflow and financial burdens associated with an M&A transaction, as there will be an overall reduction in the corporate tax payable by the acquiring company for the ensuing five years following the  acquisition.

The Scheme is set to expire by the end of this year. It remains to be seen whether the Minister for Finance will announce a further extension of the Scheme for another five years in the upcoming Budget, as was done on two previous occasions, to continue their efforts in supporting SMEs in their expansion and internationalisation plans. 

After a rather subdued M&A market last year, sentiment suggests that 2025 is poised for robust deal-making activity. Feel free to reach out to us to discuss your eligibility for the M&A Scheme for any of your upcoming deals before the Scheme expires on 31 December 2025, if it is not further extended by the Government.