Enterprise Drive: How Singapore Fuels Its Startups through M&A scheme

Emerging firms in the wealthy Southeast Asian island-state will turn competitive with Singapore’s newly enhanced Mergers and Acquisitions (M&A) scheme. Introduced in 2010, Singapore’s original 5-year M&A scheme gets a second extension till  December 31, 2025, to ensure corporate resilience and competitiveness.

As one of the leading economies across the globe, Singapore constantly seeks opportunities to sustain its growth and status in the business landscape. As such, the M&A scheme was launched to help companies, especially Small and Medium Enterprises (SMEs), find solid footing along the path of commercial expansion.

With a strategy in play, this scheme not only allows manageability with regard to corporate finances, but it will also provide business groups with the flexibility to make necessary adjustments within their respective operational and structural approaches.

What are the benefits of Singapore’s Mergers and Acquisitions (M&A) scheme?

The M&A scheme is made up of several tax benefits schemes. With the enhanced M&A scheme, Singapore’s SMEs are in for a treat in terms of opportunities and monetary rewards. Firstly, the newly extended timeline for the scheme allows critical players in the finance industry more opportunities to institute sustainable long-term plans.

Moreover, the M&A initiative also encourages more firms to pursue investment ventures with the assurance of monetary latitude and rewards. Some of these benefits are as follows:

  • Allowance incentive
  • Stamp duty provision
  • Double tax deduction (DTD)
Desfran- Benefits of Singapore's M&A scheme

Allowance Incentive

Under the M&A scheme, all qualifying companies will be granted a tax allowance based on the share cost of acquisition in the target company. For each assessed year, an acquiring enterprise will be able to obtain 25% of the total acquisition value, with the implemented cap limit amounting to $40 million, an increase from $20 million in 2016. As a result, the maximum claimable amount is now doubled from $5 million in 2016 to $10 million. Such enhancements smoothen the viability of business growth as SMEs would potentially participate in more ambitious acquisitions.

Stamp Duty Provisions

Besides the M&A allowance incentive, SMEs will also be provided with stamp duty reliefs annually under the M&A scheme. The amount of relief provided is capped at $80,000, an increase from $40,000 in 2016. Any actual transaction, agreements and contracts will be considered provided they are associated with the acquisition of the target company.

With the provision, the probability of benefitted firms becoming more driven and determined to turn modest objectives into more significant initiatives will be higher. This course of action will also empower business groups to set their investment levels at greater heights.

Double Tax Deduction (DTD)

Understanding that taxes may have become a hindrance for business expansion. The M&A scheme thus offers DTD as a form of relief for the SMEs. According to the scheme, all qualifying SMEs will be granted a DTD on transaction costs during the acquisition process. Professional and legal fees, among others, are covered with a cap of $100,000. With the financial coffers getting a break, venturing into other industries or expanding business assets will become more appealing to SMEs.

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How to qualify for the M&A incentive scheme?

Unfortunately, SMEs need to fulfill specific qualifications to enjoy the benefits under Singapore’s M&A scheme. The qualifying conditions for the scheme can be categorised into the following:

  • Local context
  • Business global presence
  • Affiliation with the acquiring firm
  • No multiple joint ventures
  • Resulted shareholding in the target company
Desfran - Qualifying conditions for Singapore's M&A scheme

Local context

In order to qualify for the M&A scheme, the acquiring parties must be a tax resident of Singapore where businesses are operated on the island-state during the acquisition period. Additionally, the company must employ at least three local citizens for 12 months before the accession process. The number, however, does not include the directors of a company. Lastly, no connections between the acquiring company and the target company should be established over the last two years before the acquisition time frame.

Business global presence

As for a qualifying target company under Singapore’s M&A scheme, the entity needs to operate businesses in Singapore and across the globe on the acquisition date. Moreover, just like the acquiring company, at least 3 local employees should be employed by the company for 12 months before the acquisition time frame.

Affiliation with the acquiring firm

Besides the acquiring and target companies, acquisitions done through intermediaries are also taken into consideration. Yet, for this to take effect, the intermediary must be fully-owned by the acquiring and the target companies. The hundred per cent ownership of shares manifests the evidence of such.

No multiple joint ventures

Besides the affiliation, these intermediaries are not beneficiaries under the M&A scheme. These intermediaries should also not be involved in any business ventures in Singapore or anywhere across the globe.

Resulted shareholding in the target company

Lastly, in order to enjoy these incentives, SMEs will have to fulfil the qualifying share acquisition. Depending on the original percentage of the ordinary shares in the target company, the resulting shareholding of an acquiring company must be at least 20% to 50%, or more than 50% of the ordinary shares.

An intermediary to make things happen

The considerable incentives, coupled with conditions favourable in the Singapore context, there is no doubt that the M&A scheme would be able to propel local commercial growth for SMEs. This has thus made Singapore a more attractive place to set up a business.

To understand more about Singapore’s business landscape and how your company can enjoy the benefits of the M&A scheme, it is best to engage business consultancy experts like Desfran. Spearheaded by one of the world’s leading management teams, we stay on top of trends and movements in various markets to help our partners know and pursue their options for growth.

Contact us today to bolster business opportunities in Singapore.

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References

The Mergers and Acquisitions (M&A) Scheme, Startupdecisions.com.sg

Singapore Budget 2020: Tax measures to ensure resilience, competitiveness, Straitstimes.com

The Mergers and Acquisitions Incentive Scheme for Singapore companies, https://dentons.rodyk.com/

Mergers and Acquisitions Allowance, Iras.gov.sg

Income Tax and Stamp Duty: Mergers and Acquisitions Scheme (Fourth edition) [PDF], Iras.gov.sg

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