Foreign companies looking to invest in Singapore have a window of opportunity to take advantage of changes in the rules governing mergers and acquisitions (M&A).
M&A costs incurred by companies have traditionally been treated as capital in nature and not deductible for tax purposes in Singapore. Yet a new M&A scheme has changed this.
The scheme applies to qualifying acquisitions of ordinary shares in an active target company made between April 1, 2010 and March 31, 2015. The scheme does not apply to internal restructuring or reorganisations, the incorporation of new subsidiaries to carry on business activities, or trading transactions.
“Under the old M&A scheme, there were absolutely no deductions for a company’s acquisition price,” says Simon Poh, tax director of Nexia TS Public Accounting Corporation. “Now companies are granted an M&A allowance, equal to 5% of the value of the acquisition. Moreover, subject to conditions, companies are entitled to a stamp duty relief whenever there is a transfer of shares.”
The scheme is highly attractive to foreign companies since most countries’ tax jurisdictions do not grant deductions, yet companies in Singapore are rewarded by a 5% allowance, Mr Poh explained. “Foreigners establishing a company in Singapore face favourable factors and the new M&A regime offers added advantages. This makes Singapore even more competitive as a destination market, compared to other Asian countries,” he says.
The Singaporean government adopted a new M&A scheme in its 2010 budget, and after making further changes to its scheme this June, it is seeing some success. The volume of M&As in Singapore surged to $2.1bn in 2011, after experiencing an increased market share of 16.0% in inbound M&As in south-east Asia, according to research firm Dealogic. Coming third behind Indonesia and Malaysia, with market shares of 32.0% and 28.6%, respectively, Singapore Business Review reports Singapore’s domestic M&A transactions doubled to $8.6bn this year.
With outbound Singaporean acquisitions representing 70.8% of transactions, compared to just 29.2% inbound acquisitions, according to Asia Pacific online news provider, Today Online, the government is keen to help Singapore-based companies grow by acquisition. “Over the years there was heavy lobbying to introduce more incentives for companies to engage in M&A activities in Singapore, and the government listened,” says Mr Poh.