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1. What is the objective of the M&A incentive?

Many SMEs are currently fragmented and dominated by small business entities wherein about 80% of those business entities are microenterprises. These business entities need to build up capacity in view of the ongoing liberalisation of the services and manufacturing sectors in order to avoid hollowing out of companies and to be globally competitive.
 
Mergers and rationalisation with the industry will help in building the domestic capacity, among others: -
•     Obtaining quality staff or additional skills, knowledge of industry or sector and other business intelligence.
•     Accessing funds or valuable assets for new development. 
•     Accessing a wider customer base and increasing market share. 
•     Diversification of the products, services and long-term prospects of business.
•     Reducing costs and overheads through shared marketing budgets, increased purchasing power and lower costs.

In view of encouraging merger and acquisition exercise among SMEs, the Goverment advocates that the merged entities be given appropriate incentives by allowing exemption for the duty stamp imposed for the eligible instruments related to the M&A exercise.

2. What is Merger & Acquisition (M&A)?

Merger refers to two existing entities combining to become a bigger entity. In this case, two SMEs merging to become a Private Limited Company registered with the Companies Commission of Malaysia (SSM). This would entail the original two SMEs to deregister with SSM (liquidate), meaning that they would no longer be able to operate their businesses under their existing entities. Instead they would form a new company and operate under this new entity. All assets and liabilities will be transferred to the new firm by way of legal instruments and contracts.

Meanwhile, acquisition refers to a situation where a smaller entity will transfer all its assets, liabilities and personnel to a bigger entity by way of legal instrument and contract. The smaller entity will be deregistered with SSM (liquidate) and cease to exist after the acquisition. In this case, it refers to one SME buying over another SME and maintaining its name and legal structure. It may become a bigger SME or a large entity.

3. Are all firms eligible for the incentive?

Yes, all firms that fulfill the criteria under the definition of small and medium enterprises (SME) in Malaysia are eligible for the incentive. The eligibility criteria are as follows:

- 100% Malaysian owned; and
- Have annual sales turnover of less than RM50 million or full-time employees of less than 200, as per the definition of SMEs in the manufacturing sector; or
- Have annual sales turnover of less than RM20 million or full-time employees of less than 75, as per the definition of SMEs in the services sector.

In order to verity the SME status, applicants must obtain the certification of SME Status and 100% Malaysian ownership status. To register and validate as an SME, please visit smereg.smecorp.gov.my. Applicants may call the Info Line at 1300-30-6000 (Monday to Friday from 9:00 am-5:00 pm) or by email to This email address is being protected from spambots. You need JavaScript enabled to view it.

4. Are all sectors eligible for the incentive?

Yes, the incentive is for all sectors such as manufacturing, services, agriculture as well as mining and quarrying. 

5. Can other forms of entity beside a company be eligible for the incentive? 

Only business entities that are registered with SSM, such as sole proprietor, partnership, limited liability partnership and private limited companies are eligible. 

6. Are public listed companies that meet the criteria of SME definition eligible to apply?

Any enterprise or firm that is registered with SSM and meets the SME definition criteria is eligible to apply for the incentive, including those listed but not under the main board of Bursa Malaysia. 

7. What is the eligible period for SMEs to undertake the M&A exercise that would entitle them to apply for the incentive?

Eligible applications are for merger and acquisition exercises undertaken from 1st July 2020 until 30th June 2021.

8. Are applicants allowed to apply for the incentive after the deadline?

SMEs are advised to submit their application latest by 31st July 2021. The 12-month window is sufficient for SMEs to seriously decide whether to merge or acquire another firm.

9. What are the chargeable instruments/documentation that are eligible for the incentive?

The instruments/documentation related to the M&A exercise are as follows: -

  • Contracts or Agreements for sale or lease of properties (including land, building, machinery and equipment);
  • Instrument of Transfer and Memorandum of Understanding;
  • Loans or Financing Agreement; and
  • First Tenancy Agreement;

 

10. If two business entities merged and their sales turnover is now more than RM20 million and total employees exceed 75 workers (for services sector) or their sales turnover is now more than RM50 million and total employees exceed 200 workers (for manufacturing sector), can the business entities be eligible for the incentive?

Yes, the combined new entity can be either an SME or a large business entity. 

11. When two sole proprietors merge and operate as a partnership, can the business entity be entitled for the incentive?

The two sole proprietors must deregister with the respective regulatory bodies and SSM and cease their business operations if they intend to merge. The new entity cannot be a sole proprietor but must be a private limited company and registered with the respective regulatory bodies and associations. Only if it meets these conditions, will the incentive be granted upon application.

In the case of an acquisition, the bigger entity (the acquirer) will remain as a registered entity with the respective regulatory body and association, but the acquired entity must cease operation under its name and transfer its assets and liabilities to the acquirer based on the contract document and legal instruments that they have agreed upon.

12. If Company A acquires Company B through purchase of all its shares, can Company A be eligible for the incentive?

No, Company A is not eligible if the acquisition is only through purchase of shares.

13. Can all the costs incurred for M&A be eligible for tax rebate?

Only the stamp duty will be exempted. All other expenses incurred will be borne by the business entity. 

14. What are the documents to be submitted for application?

Besides completed application form, applicants shall submit the following documents to the Secretariat:

  • Memorandum of Understanding (MOU) or legal contract between the interested parties to formalise the merger process
  • A copy of Form C - Notice of Termination of Business.
  • A copy of Company Resolution to Company Secretary (S. 550 Companies Act 1960)
  • A copy of Form A - Registration of New Business, MOA, AOA, Form 48A, Form 6 and Form 3A, letter for name approval
  • A copy of letter from related association on the formation of new company
  • A copy of audited accounts of related companies prior to M&A
  • A copy of the latest corporate information (business information / LLP information / company information) and organisation chart of the business entity.

 

15. How long does it take to get the approval for the incentive?

The verification and approval processes will take approximately ten (10) working days from the date of the submission with a complete set of documents. Upon approval/rejection by the Joint Verification Committee (JVC), the applicants shall be notified by the issuance of a letter notifying the approval/rejection of the application. In the event of rejection, the applicants may resubmit application.
 
The successful applicants shall proceed to submit the relevant chargeable and eligible instruments together with a copy of the approval letter to IRB for incentive approval. Upon approval from IRB, the applicants shall receive a stamp certificate endorsement. The process will take approximately one (1) working day upon submission of the relevant chargeable and eligible instruments together with a copy of the approval letter to IRB.

Please refer to Annexure I for Process Flow Chart.

16. Who is the responsible authority that will be in charge of processing and approving the applications?

The Ministry of Entrepreneur Development and Cooperatives (MEDAC), supported by SME Corp. Malaysia as the secretariat, is the authority in charge of processing and verifying the documents. The Joint Verification Committee (JVC) is will be the authority in charge for approval of applications.

17. Should applicants also contact IRB on the incentive?

For further enquiries, applicants are advised to call PSK MEDAC Hotline at 1-300-88-1020 or SME Corp. Malaysia’s Info line at 1-300-30-6000 (Monday to Friday from 9:00 am - 5:00 pm) or email to This email address is being protected from spambots. You need JavaScript enabled to view it.. For the purpose of submission of applications, all applications must be submitted to SME Corp. Malaysia which serves as the one-stop centre for processing, verification and endorsement of the incentive.


The Ministry of Entrepreneur Development and Cooperatives (MEDAC)
SME Corporation Malaysia
1st July 2020
-----------------------------------------------------------------------------------------------------------------------------------------------

ANNEXURE I : PROCESS FLOW CHART

flow FAQ

Many SMEs are currently fragmented and dominated by small business entities wherein about 80% of those business entities are microenterprises. These business entities need to build up capacity in view of the ongoing liberalisation of the services and manufacturing sectors in order to avoid hollowing out of companies and to be globally competitive.

 

Mergers and rationalisation with the industry will help building the domestic capacity, among others: -

  • Obtaining quality staff or additional skills, knowledge of industry or sector and other business intelligence.
  • Accessing funds or valuable assets for new development.
  • Accessing a wider customer base and increasing market share.
  • Diversification of the products, services and long-term prospects of your business.
  • Reducing costs and overheads through shared marketing budgets, increased purchasing power and lower costs.

To encourage mergers and acquisitions among SMEs, it is proposed that the merged entities be given appropriate incentives.

 

Objective

These guidelines are to draw a process flow on the steps taken to vet through the applications and to verify the authenticity of the merger and acquisition exercise.

 

  • Stamp duty exemption on the merger and acquisition related instruments, namely: 
    • Contracts or Agreements for sale or lease of properties (including land, building, machinery and equipment)
    • Instrument of Transfer and Memorandum of Understanding
    • Loans or Financing Agreements
    • First Tenancy Agreements
  • List of Services Eligible

    All economic sectors are eligible for the incentives, including but not limited to:

    • Manufacturing sector
    • Agriculture sector
    • Tourism sector
    • Mining and quarrying sector
    • Accounting services 
    • Taxation services
    • Legal services
    • Specialised medical practices
    • Specialised dental practices
    • Architectural services
    • Engineering services
    • Technical and vocational secondary education services
    • Skills training services
    • Courier services
  • Eligibility Criteria
    • The eligibility criteria are as follows:
      • 100% Malaysian owned; and
      • Have annual sales turnover of less than RM50 million or full-time employees of less than 200, as per the definition of SMEs in the manufacturing sector; or
      • Have annual sales turnover of less than RM20 million or full-time employees of less than 75, as per the definition of SMEs in the services sector.
    • All applications must be validated of its SME Status through the SME Registration Status System, a registration system platform developed by SME Corp. Malaysia.
    • Eligible applications are for merger and acquisition exercises undertaken from 1st July 2020 until 30th June 2021.
  •  The initiative is led by the Ministry of Entrepreneur Development and Cooperatives (MEDAC) and SME Corp. Malaysia is the Secretariat to the Joint Verification Committee (JVC) meeting. 


    All applications shall be submitted to SME Corp. Malaysia for verification process. The applications shall be vetted through to verify whether the proper merger and acquisition process has taken place. 

    Qualified and eligible applications shall be tabled at the JVC for endorsement and approval.  

    JVC shall be chaired by the Secretary General of MEDAC. The members of JVC meeting are as follows: - 

    • Permanent Members
      • Ministry of Finance (MOF)
      • Ministry of Entrepreneur Development and Cooperatives (MEDAC)
      • Inland Revenue Board (IRB)
      • Companies Commission of Malaysia (CCM)
      • SME Corp. Malaysia


    • Representatives to be Called When Necessary
      • Representatives from relevant Ministries, Agencies, Associations and Professional Bodies, including but not limited to, as follows: 

      Sector / Area

      Representative/ Authority

      Accounting Services

      Malaysian Institute of Accountants (MIA)

      Taxation Services

      Malaysian Institute of Accountants (MIA)

      Specialised Medical Practices

      Malaysian Medical Council (MMC)

      Specialised Dental Practices

      Malaysian Dental Council (MDC)

      Advocates and Solicitors

      Malaysian Bar

      Architectural services

      Board of Architects Malaysia (LAM)

      Engineering Services

      Board of Engineers Malaysia (BEM) &
      Institution of Engineers Malaysia (IEM)

      Technical and Vocational Secondary Education Services

      Ministry of Education (MOE)

      Skills Training Services

      Ministry of Human Resource (MOHR), Human Resources Development Fund (HRDF) or Ministry of Education (MOE)

      Courier Services

      Malaysia Communications and Multimedia Commission (MCMC)

      Manufacturing

      Federation of Malaysian Manufacturers (FMM)

      Tourism

      Ministry of Tourism, Arts and Culture (MOTAC)

      Agriculture

      Ministry of Agriculture and Food Industry (MAFI)

      Others

      Any other members that JVC deems fit and suitable

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     









     

    • Business entities can merge from different sectors but related disciplinary.
    • In the JVC meeting, regulatory authorities are consulted to further verify the applications.
    • Upon approval/rejection from the JVC, MEDAC shall issue a letter notifying the approval/rejection of the application to the applicants. Upon rejection, applicants may resubmit application.
    • The successful applicants shall submit the relevant chargeable and eligible instruments together with a copy of the approval letter to IRB for incentive approval. Upon approval from IRB, the applicants shall receive a stamp certificate endorsement.
  • Types of Elibible Merger & Acquisition

    OPTION 1

    a. Two business entities merged to become a new business entity:

    option1
    Scenario:
    Business Entity A merged with Business Entity B to become a new Business Entity C. Both individual business entities A & B will be dissolved to form business entity C. In order to enjoy the incentive, the existing business entities A & B need to be dissolved to form business entity C. This applies to all existing sole proprietorships, partnerships, LLPs and private limited companies in the eligible service sub-sectors or areas.

    b. Documentation checklist for merger activity:

    • Memorandum of understanding (MOU) or legal contract between the interested parties to formalise the merger process;
    • Notice of termination for registered business for sole proprietor, partnership (Form C), LLP or private limited company;
    • Certificate of Incorporation of Private Company (Form 9);
    • Latest audited or management accounts of existing business entities;
    • New license / permit / approval from Ministries & Agencies, professional bodies, regulatory boards and associations under the new entity;
    • A copy of the latest corporate information (business information / LLP information / company information) and organisation chart of the business entity.

    OPTION 2

    a. Merger of two or more existing business entity

    option2
    Scenario:
    Business entity A acquires Business entity B to become a new bigger Business entity A. Business entity B need to be dissolved for business entity A to qualify for this incentive. This applies to all existing sole proprietorships, partnerships, LLPs and private limited companies in the eligible service sub-sectors or areas.

    b. Documentation checklist for acquisition activity

    • Memorandum of understanding (MOU) or legal contract between the interested parties to formalise the acquisition process
    • Notice of termination for registered business for sole proprietor, partnership (Form C), LLP or private limited company
    • Latest audited or management accounts of existing business entities
    • Valid license / permit / approval from Ministries & Agencies, professional bodies, regulatory boards and associations
    • A copy of the latest corporate information (business information / LLP information / company information) and organisation chart of the business entity.

     

     

  • Process Flow Chart

    process flow

CONTACT US

SME Corporation Malaysia
Level 6, SME 1, Block B 
Platinum Sentral
Jalan Stesen Sentral 2
Kuala Lumpur Sentral
50470 Kuala Lumpur

Info Line: 1300-30-6000
Fax Line: 03-2775 6001
Emel: info[at]smecorp[dot]gov[dot]my

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