A slew of incentives unveiled by Singapore’s finance minister, Tharman Shanmugaratnam, will enable global companies relocating to the city-state to benefit from a series of R&D tax incentives and a new merger and acquisition (M&A) scheme. Recent proposals disclosed by Singapore’s finance minister in the 2012 budget, which could be introduced as early as  June 1, 2012, could mean that costs incurred under approved R&D cost-sharing agreements would be treated as R&D expenditure, qualifying for an enhanced deduction of 400%, and a 200% tax allowance would be granted on transaction costs incurred on qualifying M&A activities. Companies will also benefit from a new policy that seeks to provide assurances over the non-taxation of gains derived by from the trading of equity investments.

“These changes would certainly, in their own way, help to attract investments into Singapore,” said Simon Poh, tax director of Nexia TS Tax Services. “There are three changes, changes to R&D tax incentives, to the M&A scheme and offering a [company] an assurance that gains from the disposal of equity investments will not be subject to taxation. Yet to really understand the changes made to the new scheme, you have to [look] back to the old scheme.”

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Costs incurred under approved R&D cost-sharing agreements currently qualify for only 100% writing-down allowances. “There [exists] a 100% deduction if you currently have a cost-sharing agreement,” said Mr Poh. “You spend $1, and you get a $1 deduction. This is one of the changes in cost-sharing agreements that the government is now prepared to re-consider as part of the R&D tax incentives scheme.” The proposals that have been put forward will treat cost-sharing agreements as R&D expenditure, qualifying for an enhanced deduction of 400%, subject to the S$400,000 ($320,000) cap.

“If you look at M&A, in the previous scheme, [companies] would not receive any deductions from the transaction costs, as well as the fees [they] paid for legal or financial advisers,” said Mr Poh. “Now there is a tax break in the form of 200% deduction.”

As a way to promote M&A activities, the finance minister’s proposal maintains that a 200% tax allowance will now be granted on transaction costs incurred, subject to an expenditure cap of S$100,000 per year. This would thus extend the current definition of qualifying M&A to include transactions whereby the acquiring company acquires shares of the target company through multiple tiers of wholly owned subsidiaries.

“This is a positive change which makes it easier for overseas companies to structure their M&A scheme in Singapore rather than another country,” said Mr Poh. Moreover, global companies face the added advantage that they will no longer be taxed on gains derived from traded equity investments, if they own 20% of the shareholding in the investment, and have maintained the minimum 20% shareholding for at least two years before the disposal.