M&A Allowance in Singapore: The Tax Relief SME Buyers Keep Missing on Share Acquisitions (2026 Guide)

When a Singapore company buys the shares of another business, the legal fees, due diligence costs and the purchase price itself do not simply vanish from the books. Yet many SME directors never claim the one piece of tax relief built specifically for this: the Mergers and Acquisitions (M&A) Allowance under section 37L of the Income Tax Act 1947. Extended in Budget 2025 all the way to 31 December 2030, the scheme lets a qualifying acquiring company write down up to 25% of its purchase consideration against tax, subject to generous annual caps.

This guide sets out exactly how the M&A Allowance works in 2026, who qualifies, what has changed since the scheme was first introduced, and where SME buyers commonly go wrong. It also clarifies a point that trips up many advisers: the companion stamp duty relief that used to travel alongside the allowance has actually lapsed, and claiming it today would be an error.

What the M&A Allowance Actually Is

The M&A Allowance is a tax deduction available to a Singapore-incorporated acquiring company that acquires the ordinary shares of a target company (Singapore or foreign incorporated) during the qualifying period, currently running from 17 February 2012 to 31 December 2030. It was first introduced in Budget 2010 for share acquisitions between 1 April 2010 and 31 March 2015, and has since been extended three times, in Budget 2015, Budget 2020 and most recently Budget 2025.

The relief is granted on the purchase consideration for the shares (not on the underlying assets of the target), and is written down evenly over five years on a straight-line basis. It applies only to share deals; acquisitions of a business or its assets, including as a going concern, fall outside the scheme entirely.

Current Allowance Rate and Caps (Acquisitions From 1 April 2016)

For share acquisitions made on or after 1 April 2016, and continuing through the extended window to 31 December 2030, the M&A allowance rate is 25% of the purchase consideration, applied against a cap on qualifying acquisition value of S$40 million per year of assessment. Separately, the total M&A allowance an acquiring company can claim for a single YA, across all qualifying acquisitions made in that basis period, is subject to an overall cap of S$10 million.

In practical terms, a company that pays S$4 million for a qualifying shareholding could claim an M&A allowance of S$1 million (25% x S$4 million), spread over five years at S$200,000 a year. A company that structures a much larger deal will still be capped at S$10 million of allowance for that YA, regardless of how large the purchase consideration is.

These figures replaced the original 2010 to 2015 settings, when the allowance rate was 5% and the annual cap on qualifying acquisition value was lower. Advisers relying on older guidance, blog posts or outdated templates should treat any reference to a 5% rate or a S$20 million cap as historical, not current law.

Who Qualifies: The 20% Shareholding Threshold

Budget 2015 simplified the eligibility test. For acquisitions from 1 April 2015 onwards, a qualifying acquisition is generally one where the acquiring company (or its acquiring subsidiary) ends up owning at least 20% of the ordinary shares of the target, having previously owned less than 20%, or crosses the 50% threshold having previously owned 50% or less. The older 75% threshold, which applied to the very first phase of the scheme, was removed from 1 April 2015 (subject to a one-year transitional window to 31 March 2016 for deals already in motion).

The 20% threshold was deliberately set low to support SMEs making a first, modest move into M&A, rather than only rewarding large-scale consolidation. A company that already owns 25% of a target and tops up to 30%, for example, does not requalify under the 20% test; only a genuine crossing of the 20% or 50% threshold triggers a fresh claim.

Where an acquisition happens in stages (a “step-acquisition”), the applicable allowance rate, purchase consideration cap and any surviving relief are determined by the period in which each tranche of shares is actually acquired, which means a deal that straddles 1 April 2016 may need to be split into pre- and post-2016 tranches for computation purposes.

Transaction Costs: A Separate S$100,000 Deduction

Beyond the allowance on purchase consideration itself, the M&A scheme also allows a deduction for qualifying transaction costs incurred directly in executing the acquisition, such as legal fees, valuation fees and due diligence costs, for acquisitions made from 17 February 2012 to 31 December 2030. This deduction is capped at S$100,000 of transaction costs for all qualifying acquisitions in a basis period, and generally excludes costs already reimbursed or subsidised by a government agency or statutory board.

This is a distinct, additional benefit from the M&A allowance on the purchase price, and it is the piece SME finance teams most often overlook, because the legal and advisory invoices are booked as ordinary professional fees rather than flagged for the M&A claim when Form C-S or Form C is prepared.

The Stamp Duty Relief Has Lapsed: A Common Misconception

Older articles and templates still describe a companion stamp duty relief for share transfer instruments executed under a qualifying M&A deal. That relief was real, but it applied only to instruments executed between 1 April 2010 and 31 March 2020, with caps that changed over time (S$200,000 per financial year for the earliest deals, later reduced to S$40,000 and then S$80,000 following Budget 2015 and Budget 2016 revisions). Stamp duty relief under the M&A scheme has lapsed for any instrument executed on or after 1 April 2020, and was not revived by the Budget 2025 extension of the income tax allowance.

Practically, this means a share transfer document executed today attracts stamp duty in full under the ordinary rules; only the income tax allowance and the transaction cost deduction remain live for current acquisitions. Getting this wrong in a deal cash-flow model can materially understate the buyer’s actual transaction cost.

How to Claim: What SME Directors Need to Prepare

A company claiming the M&A allowance needs to be able to demonstrate, at the point of filing its Corporate Income Tax Return, that the acquisition crossed a qualifying threshold, that the shares acquired were ordinary shares of the target, and that the purchase consideration and transaction costs are properly documented and apportioned. In practice this means:

• Retaining the share sale and purchase agreement, showing the purchase consideration and the completion date;
• Tracking the acquiring company’s percentage shareholding in the target immediately before and immediately after the transaction, to establish which threshold was crossed;
• Separately itemising legal, due diligence and valuation invoices that relate directly to the acquisition, distinct from ongoing corporate advisory fees;
• Computing the annual allowance instalment (purchase consideration x 25%, divided over five years, subject to the S$40 million and S$10 million caps) as part of the tax computation filed with Form C-S or Form C.

Because the scheme interacts with a company’s wider tax position, including any other Budget-driven support schemes the acquiring group is using, and with how any unutilised M&A allowance carries forward, groups considering a share acquisition should model the tax outcome before signing, not after the return is due.

Where the M&A Allowance Fits Alongside Other Reliefs

SMEs weighing up a share acquisition are often simultaneously managing several other year-end tax positions. It is worth checking the M&A allowance calculation against the group’s broader position on corporate tax exemptions and the partial exemption scheme, since the allowance reduces chargeable income before exemptions are applied. Groups that have also been through legacy incentive claims should be careful not to confuse the M&A allowance with older reliefs; the Productivity and Innovation Credit legacy treatment is a separate, now-closed scheme with its own transitional rules.

Buyers structuring the acquisition through a new or existing holding entity should also review the general holding company structure and requirements before completion, since the choice of acquiring vehicle affects which entity actually claims the allowance. And where the acquired group has its own brought-forward losses or capital allowances, the interaction with group relief and loss carry-back relief should be checked before the return is finalised, since a change in shareholders can itself affect what the target group is allowed to carry forward. Every business expense associated with the deal that falls outside the M&A scheme’s specific cost cap should still be reviewed against the general rules on allowable business expenses under the Income Tax Act.

Common Mistakes SME Buyers Make

The most frequent error is simply not claiming the allowance at all, because the acquisition was treated purely as a corporate secretarial and legal exercise, with tax involved only at the point of preparing the annual return, by which time supporting documents on the threshold crossing are harder to reconstruct. The second most common mistake is applying outdated rates or caps from pre-2016 guidance. The third is assuming the stamp duty relief still applies to a 2026 transaction; it does not, having lapsed for instruments executed on or after 1 April 2020. A fourth, more technical error is failing to correctly apportion a step-acquisition that straddles 1 April 2016, since the allowance rate and cap actually applicable depend on exactly when each tranche of shares changed hands.

Businesses considering a share acquisition, or reviewing a completed one for a missed claim, are encouraged to work through the computation with their tax adviser before the filing deadline, and where the transaction structure itself raises questions, to seek legal advice on this process alongside the tax analysis. Directors weighing whether an acquisition fits into their company’s wider business investment planning should treat the M&A allowance as one input into that decision, not the reason for it.

Conclusion

The M&A Allowance under section 37L of the Income Tax Act 1947 remains one of the more generous, and more overlooked, reliefs available to a Singapore company making a genuine step into acquiring another business’s shares. With the scheme now extended to 31 December 2030, a 25% allowance rate, a S$40 million cap on qualifying acquisition value and a S$10 million overall cap per YA, plus a separate S$100,000 deduction for transaction costs, there is real value on the table for SMEs that document their acquisitions correctly from day one. Just remember that the stamp duty relief which used to accompany the scheme lapsed in 2020, and should not be assumed to apply to a current deal. Keeping up with Singapore business news on Budget-driven extensions is a useful habit for any company that expects to be on the buying side of a deal in the years ahead.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

The Editorial Team, Raffles Corporate Services