Navigating Tax Issues in M&A Transactions: Why Early Tax Advice Matters

Mergers and acquisitions (M&A) play a key role in Singapore’s business landscape — whether it’s for growth, consolidation, or succession planning. But while most deals focus heavily on legal, financial, and commercial terms, the tax dimension often receives attention only at the final stage — when it’s usually too late to optimise.

In reality, tax can make or break a deal. The way a transaction is structured has a direct impact on valuation, cash flow, and post-acquisition profitability. Engaging a tax advisor early in the process can help you identify potential exposures, unlock savings, and ensure the deal stands up to scrutiny by the Inland Revenue Authority of Singapore (IRAS).

1. Structuring the Deal Right: Share Sale vs Asset Sale

One of the first tax questions in any M&A deal is whether to structure it as a share sale or an asset sale.

• A share sale is often more tax-efficient for the seller, as gains may be capital in nature and thus non-taxable. However, the buyer takes over all existing assets, liabilities, and potential tax exposures of the target company. If there are any outstanding tax issues that are not uncovered during the due diligence process, the buyer may potentially be liable for any penalties imposed by the IRAS.

  
  

• An asset sale, on the other hand, allows the buyer to select the specific assets that he wants and “step up” the tax base of those assets — but may attract stamp duty and GST, and the seller could face income tax on gains.

Depending on the objectives that one has, a tax advisor can model both scenarios and highlight the true after-tax cost and benefit of each structure — before you sign on the dotted line.

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2. Stamp Duty and GST Pitfalls

Stamp duty applies on share or property transfers and can materially affect deal value if not budgeted for. Meanwhile, GST may apply to asset sales unless the transfer qualifies as a Transfer of a Going Concern (TOGC).

The conditions for TOGC relief are technical and must be satisfied precisely. A well-advised transaction ensures you avoid unnecessary GST or stamp duty exposure, which could otherwise eat into deal proceeds.

3. Income Tax Considerations for Expenses and Financing the Deal

Not all transaction costs are deductible. Legal, professional, and financing costs are often capital in nature unless there is a direct nexus to the potential revenue that could be earned.

A tax advisor helps you determine which expenses can be capitalised, deducted, or optimised. Financing the deal is also a key consideration in M&A transactions. Depending on the profile of the investors and mode of financing, the repatriation of profits may carry with them different tax implications.  

4. Employer Obligations and Workforce Compliance

One area that is overlooked in M&A transactions is transfer or retention of existing employees. It’s crucial to ensure that ongoing employer-related tax and statutory obligations — such as the reporting of employment income, CPF contributions, foreign employee quotas and tax clearance for foreign employees — are properly managed.

Failure to meet these obligations may not only attract additional tax liabilities or penalties from IRAS but could also draw attention from the Ministry of Manpower (MOM).

It is hence very important to ensure that the investee companies have good HR support to handle the employer obligations and ensure that the company is well compliant with MOM regulations.

5. Preserving Group Relief, Losses, and Incentives

When the shareholding of a company changes hands, existing unutilised losses, capital allowances, and tax incentives may be forfeited if certain continuity conditions are not met.

Proper pre-deal tax analysis ensures that valuable tax attributes are preserved and transferred efficiently post-acquisition.

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6. Cross-Border and Intra-Group Issues

Where international parties are involved, withholding tax and double tax agreement (DTA) implications must be reviewed early. For example, interest, royalties, or service fees paid to overseas entities (and vice versa) may trigger Singapore withholding tax unless treaty relief applies.

A tax advisor can guide you through the DTA benefits, relevant tax incentives, residency requirements, and substance expectations to minimise cross-border tax leakage.

7. Post-Deal is Just as Important as the Pre-Deal

After closing, the focus shifts to integration — aligning accounting policies, transfer pricing, and tax reporting. These areas are increasingly scrutinised by IRAS, especially when intra-group transactions change post-acquisition. Where intellectual properties (IPs) are involved, one should also assess whether its current location offers good IP protection laws and/or any special tax deductions. Where a group of entities are involved, a tax advisor can also help identify tax inefficiencies and propose mitigating recommendations.

Having well-documented tax positions and advisory memos strengthens your defensibility in the event of an IRAS audit or review. Should any queries arise, your advisor can help represent and defend your position with supporting analysis and documentation.

8. Why Tax Advice Should Start Early

Tax should never be an afterthought. Engaging a tax advisor at the due diligence stage enables you to:

• Identify potential tax exposures before committing to the deal;

• Design a structure that maximises after-tax value;

• Ensure compliance with Singapore’s evolving tax regulations; and

• Smoothly integrate tax functions after acquisition.

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While due diligence is usually conducted by the buyer, a seller can also conduct a vendor due diligence to rectify any material issues before the buyer’s advisor comes in or prepare explanations during the negotiation process. This way, the seller can be in control of the sale process and prevents the buyer from “pushing down” on your ask.

The earlier you involve your tax advisor, the more strategic flexibility and savings you gain.

9. Final Words

Every M&A transaction is unique — and so are its tax implications. A well-structured deal, guided by sound tax advice, can mean the difference between a good deal and a great one.

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This article is contributed by Michelle Chiang from CSquare Corporate Services

Michelle is a seasoned tax professional with over 16 years of experience advising corporations and individuals on Singapore tax matters. Her expertise spans corporate restructuring, cross-border transactions, and fund taxation. She helps clients optimise tax positions, secure incentives, and maintain compliance with Singapore’s evolving tax landscape.