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Focus: Singapore budget benefits M&A activity

8 April 2010

In brief: Singapore's 2010 budget has been approved by Parliament and the Supply Act 2010 (which controls the Singapore government's spending in the financial year 2010) has come into force. Helpfully for participants in the mergers and acquisitions industry sector the 2010 budget includes tax allowances and various reliefs for qualifying mergers and acquisitions transactions. Partner Robert Clarke and Senior Associate Christopher Tan summarise the changes.

How does it affect you?

  • The changes offer companies undertaking mergers or acquisitions various tax allowances and reliefs that will help defray their transaction costs.

Tax allowances and relief

Tax allowances

The Singapore Government will introduce, for five years, a one-off tax allowance to help defray a portion of acquisition costs for qualifying merger and acquisition transactions. The allowance will have the following features:

  • it will equal five per cent of the value of the qualifying M&A deal;
  • will be capped at S$5 million in a single year; and
  • will be written down over five years.

The tax allowances will be granted to qualifying M&A transactions executed between 1 April 2010 to 31 March 2015.

The cap of S$5 million in a single year allows for M&A deals of up to S$100 million in any year. Companies will be able to deduct the tax allowance against their taxable income over five years. Based on the present corporate tax rate of 17 per cent, this translates to up to S$850,000 of tax benefit for all M&A deals by a company in one year.

Stamp duty relief

The Government will also grant stamp duty relief on the transfer of unlisted shares for qualifying M&A deals. The amount of stamp duty relief will be capped at S$200,000 per year.

Based on the stamp duty of 0.2 per cent imposed on transfers of unlisted shares, the cap of S$200,000 allows for transfers (free of stamp duty) of unlisted shares up to a value of S$100 million.

Qualifying M&A transactions

The definition of what constitutes a `qualifying M&A transaction' is yet to be finalised. More details on this and the allowances and stamp duty reliefs will be released by the Inland Revenue Authority of Singapore (IRAS) by June 2010.

Interim measures and refunds

Pending finalisation of the scheme, full stamp duty on relevant transfers of unlisted shares will continue to be payable. The IRAS will subsequently refund any stamp duty paid on a deal, executed on or after 1 April 2010 but before finalisation of the scheme, which satisfies the criteria of a qualifying M&A transaction.

Conclusion

These budget measures are a positive step by the Government to facilitate M&A activity in Singapore. Transaction costs for M&A deals can be significant and the tax allowances and reliefs in the 2010 budget will go some way in helping to defray these costs.

We will monitor the implementation of the scheme, including the introduction of the IRAS rules in connection with the scheme.

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