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11.1. Direct and Indirect Tax Consequences of Re-Organizations

Business Transformation and Reorganization

Singapore's reorganization environment is quite open for both domestic and foreign companies and investors. However, Singapore does have legislation in place to counter M&A activity that would substantially lessen competition resulting in a negative economic impact.

Reorganization in Singapore can take place through an amalgamation (merger) or acquisition.

Amalgamation (Merger)

Singapore provides an elective tax framework that gives special tax treatment for the amalgamation of two or more solvent companies without seeking court approval. This can be done as either:

  • Two or more companies amalgamating with one continuing to exist; or
  • Two or more companies amalgamating into a newly formed company

Under the framework, all assets and liabilities of the amalgamating companies are transferred to the resulting amalgamated company to the effect that there is no cessation of business of the amalgamating companies. The election must be made within 90 days of the date of the amalgamation.

When companies are amalgamated, the tax treatment of the assets, liabilities, and tax items of the companies involved generally remains the same. Although, the transfer of tax incentives must first be approved by the relevant authorities before the amalgamation begins.

Acquisition

An acquisition in Singapore can take the form of a purchase or transfer of assets and business, including those of a partnership or sole proprietorship, or a purchase of shares of a company.

In the case of a share acquisition, Singapore provides an allowance of 25% of the value of a share acquisition subject to an acquisition consideration cap of SGD 40 million per year of assessment. (Covered in Sec. 10.)

M&A Tax Considerations

Transfer Taxes / Stamp Duty

The transfer or sale of assets is generally not subject to stamp duty, except for immovable property. The rate of stamp duty for non-residential immovable property is 1% for the first SGD 180,000, 2% for the next SGD 180,000, and 3% thereafter. In the case of an amalgamation, stamp duty may be exempt.

The transfer or sale of shares is subject to a stamp duty of 0.2% on the higher of the consideration or market value. An acquisition involving the cancelation of shares and issuance of new shares is treated as a transfer of shares for the purpose of stamp duty.

Goods and Services Tax (GST)

The transfer or sale of assets would normally be subject to GST at a rate of 7%. However, when assets are acquired in the acquisition of a business as a going concern, the transaction is considered out of the scope of GST, and therefore excluded. The exclusion will only apply if the acquiring company is taxable and uses the assets for a new or existing business that is of the same nature as the target company from which the assets were acquired.

The acquisition of shares is not subject to GST.

Depreciation

If capital allowances were claimed on acquired assets prior to the acquisition, the sale can result in a recapture charge, or allowance for the seller. A charge is incurred if the acquisition price is greater than the depreciated value of the asset, and an allowance is granted if the price is lower. Capital allowances are covered in Sec 6.3.

Capital allowance recapture is not relevant to share acquisitions.

In the case of an amalgamation, capital allowances for assets will continue as if no transfer was made.

Cost-basis

In general, under an asset acquisition, the acquirer is able to step-up the cost-basis of the assets for tax purposes. Under a share acquisition, step-up is not allowed.

Transfer of Tax Attributes

In the case of an asset acquisition, any unutilized capital allowances or losses of the target company will remain with the target company, unless the transfer qualifies under the amalgamation framework.

In the case of a share acquisition, any unutilized capital allowances or losses can be transferred to the acquirer. The acquirer can utilize the allowances or losses as long as the purpose of the acquisition is commercially justifiable and not solely for tax purposes. Losses can be carried forward and used to offset future taxable income if the acquirer continues the same type of business related to the original losses.

Tax attributes of amalgamating companies continue in an amalgamated company, subject to similar conditions as a share transfer.

Transfer of Tax Incentives

Tax incentives granted to the target company are retained in the case of acquisition of shares but are generally not transferable on acquisition of assets. However, in the case of asset acquisition, it may be possible to obtain approval to continue applicability of incentives to the transferred business.

Under the amalgamation framework, tax incentives can be transferred but must be approved prior to amalgamation.

Transfer of Liabilities and Business Risks

In the case of asset acquisitions, no liabilities or business risks of the target company will be transferred. In the case of share acquisitions, the liabilities and risks will be transferred.

Full liabilities and risks are transferred in an amalgamation.

Transaction Cost Deductibility

Transaction costs are generally treated as capital in nature and are not tax deductible. However, costs which can be apportioned to revenue items are allowed.

Thin Capitalization

There are no thin capitalization rules in Singapore. Note, however, that certain incentives or business licensing conditions may include debt/equity provisions.