In Singapore, if your company hasn’t been engaging in trade, hiring people, or generating any form of income in recent years but you still plan on reviving its operations in the future, you have the option to keep it in dormant status. Besides protecting your patents and licenses, it also exempts your company from a number of statutory obligations such as submitting financial statements and filing taxes.
How can a company be classified as dormant?
There are a few conditions and procedures to follow for your business to be identified as a dormant entity. These conditions must be reflected on the annual filings you submit to the Accounting and Corporate Regulatory Authority (ACRA) and Inland Revenue Authority of Singapore (IRAS). It is important to note, however, that both authorities have their own definitions of dormancy and ask for different requirements to be granted such status.
ACRA’s standards of a dormant company
Basing its definition from the Companies Act (CA), ACRA tags a company as dormant during a specific period when it records no accounting transactions, i.e. when a company was not involved in any transaction that altered its financial position. This means that a company will be deemed dormant if it did not incur any revenue or expense from its business activities for a certain period, be it from sales of goods, outstanding debts, purchase of assets, or issued dividends.
With that said, business activities such as the appointment of an auditor or a company secretary, maintenance of a registered office, keeping of registers and books, taking of shares by a subscriber of the company’s constitution, and payment of penalty fees and other late payment charges does not in any way affect a company’s dormancy status. A more detailed and accurate testing of the dormancy status (based on Companies Amendment Act 2014) for your company can be done via the advisory provided by your company secretary, tax agent or general.
IRAS standards of a dormant company
IRAS, on the other hand, considers a company dormant when it has not operated any business nor received any income over a certain financial period despite having accrued expenses like bank charges or corporate secretary fees.
Exemptions for dormant companies
A dormant private limited company under ACRA’s standards is exempt from statutory audit requirements. Moreover, it may be excused from preparing financial statements if it further meets all of the following conditions:
- it is not a publicly listed company nor a subsidiary of a publicly listed company;
- its assets do not exceed S$500,000 (consolidated value if it is an ultimate parent company); and
- its directors have declared through writing that the company has been dormant for a certain period.
Expounding on the last point, the directors’ declaration of dormancy to ACRA must include the following statements:
- That the company has been dormant for the period from the time of its formation or since the end of the previous financial year, as the case may be;
- That no notice has been received under section 201A(3) of the Companies Act in relation to the financial year; and;
- The accounting and other records required by the Companies Act to be kept by the company have been kept in accordance with section 199 of the Companies Act.
Dormant exempted companies also have the option not to hold its annual general meeting unless called for by shareholders and auditors. However, they are not exempted from filing annual returns.
IRAS can clear a dormant company from filing a tax return provided that they qualify for the following requirements:
- It must be dormant and has submitted its Form C-S/ C, financial statements and tax computations up to the date of cessation of business;
- It must not own any investments (e.g. shares, real properties, fixed deposits). If the company owns investments, it must not derive any income from these investments;
- It must have been de-registered for Goods and Services Tax (GST) purposes prior to this application if it had previously been a GST-registered company; and
- It must not have the intention to recommence business within the next 2 years.
Results of the application are updated around 2-3 months after it has been received, depending on whether you submitted it through e-form or hardcopy. If successful, you will not be required by the IRAS to file Form C-S/C in the subsequent years.
What if I eventually decide to start another business with my dormant company?
Once you recommence business with your dormant company, someone from your staff must notify the IRAS about it and request for an income tax return within a month from the date it started earning income again.
The notification must be addressed to firstname.lastname@example.org and should include all of the following details:
- Subject header: “Recommencement of business and request for Income Tax Return”
- Name and Unique Entity Number (UEN) of the company
- Date of recommencement of business (dd/mm/yyyy)
- Date of receipt of other source/s of income (e.g. interest, dividend, rent, etc.) (dd/mm/yyyy)
- New principal activity and the effective date of change (dd/mm/yyyy)
A copy of the BizFile extracted from ACRA which shows the principal activity of the company must also be attached.
I may not have the time to fulfil these requirements.
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