Mergers & Acquisitions (M&A) Allowance - Singapore
The Mergers & Acquisitions (M&A) Allowance is a tax incentive offered by the Inland Revenue Authority of Singapore (IRAS) to encourage companies to grow through strategic acquisitions.
Here's a breakdown of the key points about M&A Allowance in Singapore:
Eligibility:
Applies to acquisitions of ordinary shares of another company by a Singapore company.
The acquisition must have taken place between April 1, 2010 and December 31, 2025 (inclusive).
Benefits:
Provides a tax deduction on the purchase consideration (acquisition cost).
The allowance is granted over five years on a straight-line basis.
There is a double tax deduction for transaction costs incurred during the acquisition (capped at S$100,000).
Allowance Calculation:
The allowance rate is 25% of the acquisition value.
There's a cap on the purchase consideration of S$40 million.
This means the maximum allowance per year is S$10 million (25% of S$40 million).
Additional Points:
The acquiring company must meet certain shareholding requirements to claim the allowance in each year of the five-year period.
Unutilized allowance can be carried forward for future income tax deductions if the shareholding test is met.
Double Tax Deduction for Transaction Costs in Singapore
The M&A scheme offers a double tax deduction for qualifying transaction costs incurred during a share acquisition. However, there are some key points to remember:
Eligibility: This benefit applies to qualifying share acquisitions completed between February 17, 2012, and December 31, 2025 (inclusive).
Deduction Rate: You can deduct 200% of the qualifying transaction costs.
Cap: There's a limit of S$100,000 per Year of Assessment (YA) on the total deduction for transaction costs across all qualifying acquisitions in that year.
Qualifying Costs: Transaction costs include legal fees, accounting or tax advisory fees, valuation fees, and other professional fees directly related to the acquisition. It excludes fees related to loan arrangements.
Net Calculation: The deduction is based on the net transaction cost after subtracting any grants or subsidies received from the government or statutory boards.
Important Notes:
This benefit cannot be carried back to previous tax years.
It also cannot be transferred to other companies under the Group Relief scheme.
Shareholding Requirements
The shareholding requirements for claiming the M&A Allowance in Singapore depend on the level of ownership achieved by the acquiring company after the acquisition. Here's a breakdown:
Shareholding Thresholds:
20% Shareholding Threshold: This applies if the acquiring company owned less than 20% of the target company's ordinary shares before the acquisition.
To claim the allowance, the acquiring company must hold at least 20% of the ordinary shares after the acquisition.
There are additional conditions for claiming the allowance based on the 20% threshold.
50% Shareholding Threshold: This applies if the acquiring company owned less than or equal to 50% of the target company's ordinary shares before the acquisition.
To claim the allowance, the acquiring company must hold more than 50% of the ordinary shares after the acquisition.
Additional Conditions for 20% Threshold:
Companies claiming the M&A allowance based on acquiring at least 20% of the target company's shares (but not exceeding 50% before the acquisition) need to meet two additional conditions for each year of the five-year claim period:
Associate Company Status: The target company must be considered an associate of the acquiring company or its acquiring subsidiary according to Singapore Financial Reporting Standard (FRS) 28 or Singapore FRS for Small Companies.
Board Representation: At least one director from the acquiring company must be represented on the Board of Directors of the target company.
Important Notes:
If the acquiring company's shareholding in the target company falls below the required threshold (either 20% or 50%) during the five-year claim period, the M&A allowance will be pro-rated to reflect the reduced ownership. This means you'll receive a lower deduction.
How Bestar can Help
Bestar can be a valuable asset when navigating the complexities of claiming the M&A Allowance in Singapore. Here are some key ways we can help:
Understanding Eligibility:
We can review your specific acquisition details and confirm if it qualifies for the M&A Allowance scheme.
We'll ensure you meet the shareholding thresholds (20% or 50%) and the additional conditions for the 20% threshold (associate company status and board representation).
Maximizing Deductions:
Bestar can advise on structuring the transaction to optimize the M&A Allowance benefit.
We can help identify and categorize all qualifying transaction costs to ensure you claim the full 200% deduction (capped at S$100,000 per YA).
Preparing Necessary Documentation:
We can assist in gathering and preparing the necessary documentation to support your M&A Allowance claim when filing your corporate income tax return.
Mitigating Risks:
Bestar can help you understand the potential risks associated with claiming the allowance, such as pro-rated deductions if shareholding falls below the threshold.
We can advise on strategies to minimize these risks and ensure compliance with IRAS regulations.
Ongoing Support:
Bestar can provide ongoing support throughout the five-year claim period, ensuring you meet the ongoing shareholding requirements and claim the allowance accurately each year.
Additional Considerations:
Beyond the M&A Allowance, Bestar can advise on other potential tax implications of your acquisition, such as stamp duty relief and tax treatment of intangible assets.
We can also help you navigate potential tax challenges that may arise during the post-acquisition integration process.
Overall, Bestar, with expertise in M&A transactions, can save you time, money, and ensure you take full advantage of the tax benefits available under the Singapore M&A Allowance scheme.
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