Legal Update: Changes to Stamp Duty Act Affecting M&A Transactions in Singapore
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With effect from 11 March 2017, any sale and purchase agreement involving the transfer of shares in Singapore companies ("SPA") has to be stamped within 14 days of the execution of the SPA (if the SPA is executed in Singapore).
Previous system
Prior to the above changes, Section 22(1)(b) of the Stamp Duties Act (Cap 312 of Singapore) used to read:
"22(1) Every contract or agreement for the sale of —
(b) any estate or interest in any property except property situated outside Singapore, and stocks or shares, shall be charged with the same ad valorem duty, payable by the purchaser, as if it were an actual conveyance on sale of the estate, interest or property contracted or agreed to be sold."
(emphasis added)
Consequently, SPAs were not required to be stamped, only the instruments of share transfer.
New system
Moving forward, Section 22(1)(b) of the Stamp Duties Act (Cap 312 of Singapore), reads:
"22(1) Every contract or agreement for the sale of —
(b) any estate or interest in any property except property situated outside Singapore, and stocks or shares, shall be charged with the same ad valorem duty, payable by the purchaser, as if it were an actual conveyance on sale of the estate, interest or property contracted or agreed to be sold."
(emphasis added)
The catch all effect of this amendment means that SPAs will now need to be stamped within the prescribed period once executed.
Practical Implications
It is common for SPAs to be executed with completion of the sale and purchase via the transfer of shares ("Completion") to follow later upon fulfilment of particular conditions. As such, the executed instruments of share transfer are only stamped on or after Completion. This works well as the stamp fee is based on purchase consideration or net asset value ("NAV") and these could sometimes only be determined on Completion—for example, due to agreed variations or abatement of the purchase price based on SPA assumptions, or due to changes in cash or debt to meet SPA conditions which in turn impact on the NAV.
Under the new system, since the SPA has to be stamped within the prescribed period once executed, it will be the case that the SPA has to be stamped before Completion of the transaction if Completion is scheduled to occur on a date longer than the prescribed stamping period i.e. 14 days from the execution date of the SPA if executed in Singapore.
Parties to M&A transactions should therefore set out in the SPA the following for certainty:
- The seller of shares should deliver the stamp duty working sheet to the purchaser (in order for the NAV to be calculated) at execution of the SPA, not as a document to be provided at Completion.
- The party responsible to pay stamp duty and clarity on which party is responsible to apply for a refund or other revisions to stamp duty amount should Completion not occur or if there are changes to the amount of stamp duty to be paid.
- Consideration for the shares at the time of signing an SPA (in order for stamp duty to be calculated) i.e. if a formula is provided to calculate the consideration, there should be some attempt to devise a clear consideration amount at the time of signing the SPA with provision for refunds or additional payment at Completion to reflect changes to the consideration amount in accordance with the formula over time.
Additionally, board resolutions and other corporate governance documents that typically state approval for share transfers are given "subject to stamping" should be amended moving forward now that stamping occurs at the earlier SPA stage.
Parties to M&A transactions for shares in Singapore should therefore be aware of this change and make preparations to stamp SPAs once they are signed.
This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.
