A dormant company in Singapore is a company that has been registered but has not received any income or transactions. A dormant company can be beneficial if you have plans or intentions to set up a company now to use it in the future; or if you want to take a break from your business. In addition, a dormant company reduces your statutory obligations.
Why Choose A Dormant Company?
There are a few reasons why business owners choose to go dormant now and then.
The most common cause is that the company requires regular maintenance. In Singapore, an inactive firm must follow a simplified set of compliance standards. As a result, it may potentially be eligible for waivers from some regulations. This saves you a lot of money and time, allowing you to focus on developing a solid business plan for the future.
Furthermore, rather than closing a business, putting it in a dormant state can assist you in protecting your company’s brand name, reputation, and other valuable assets and intellectual rights.
What Is The Distinction Between A Dormant And A Closed Company?
You can divest your Singapore firm if you want to close it down. A dormant corporation may be a viable option if you have no plans for the company and want to save on the expenditures of running it.
A dormant company is a company that is “dormant” or lacks business activity, which means it does not engage in any trading operations such as;
- Any kind of transaction.
- Payments or receipts totalling more than S$5,000
- Personnel hiring.
- Buying and selling of products and services.
- Property purchase or leasing.
- Dividend payment to shareholders.
- Paying the salary of the directors.
- Managing investments or receiving dividends.
- Subsidiary investments.
Consider keeping the company dormant if you don’t rule out the prospect of using it again. To preserve it, you’ll have to pay a small annual fee and follow the government’s procedures for seeking to become a dormant company.
Maintaining a dormant company makes sense, especially if it has a brand name, license, or patent attached to it. You can also utilise it to hold your Singapore investments strategically.
What Are The Differences Between ACRA And IRAS Definitions Of A Dormant Company?
The Accounting and Corporate Regulatory Authority of Singapore (ACRA) and the Inland Revenue Authority of Singapore (IRAS) have slightly different definitions of dormant firms in Singapore. The differences and summaries of these two bodies’ definitions of dormant companies are listed below.
What Is A Dormant Company? (ACRA Standard)
A corporation can only be labelled a “dormant company” in Singapore if it has been idle for some time. However, the following activities do not affect your business’s inactive status if they are carried out to keep your company compliant with ACRA and IRAS rules (for example, paying company secretary’s fees). These are some of them:
- The appointment of the statutory secretary to the company.
- The appointment of the company’s auditor.
- Preserving of the company’s registered address.
- Maintaining registers and books of the company’s account.
- Making payment of fees or charges that are payable under any Singaporean law (including penalties, interest on late payment).
- Making payment of any settlement (penalty) amount.
- Making payment or receipt of nominal sums not exceeding S$5,000.
What Is A Dormant Company? (IRAS Standard)
Even if a firm has booked or incurred expenses, IRAS considers it dormant in Singapore if it has not generated any income or revenue for a set length of time. The existence of statutory expenses has no bearing on your company’s dormant status.
How Can I Go About Becoming A Dormant Company?
Notifying the authorities (ACRA and IRAS) that your business is dormant is essentially the same as preparing your annual inspection documentation. The most critical component is to make sure your business complies with ACRA and IRAS standards for dormancy.
Essentially, a dormant company isn’t registered right away, but rather after it hasn’t engaged in any significant operations for a certain length of time.
What Are The Financial And Tax Reporting Obligations For Dormant Companies?
A defunct corporation in Singapore must nonetheless comply with several filing requirements for administrative purposes:
Submission Of Annual Results With The ACRA
Even if your business has gone into dormancy, ACRA will still need you to file an annual return. This form must be electronically filed and created by a director, company secretary, or registered filing agent of the inactive company, according to their specifications.
However, your dormant firm is permitted and encouraged to use the BizFile+ Portal or the ACRA-On-The-Go mobile application to file a simplified annual return. If you don’t have access to either, you should sign up for one right now.
Your company must meet the following criteria to be eligible for the streamlined version:
- Since the previous annual return, your company must have been deemed a “private dormant relevant company” – one that is neither a listed company nor a subsidiary of a listed company.
- Your business isn’t submitting audited financial accounts.
- Your business is not required to file financial statements with ACRA.
- The financial year-end (FYE) of your company is on or after August 31, 2018.
- The information about your firm that has been registered with ACRA has not been changed.
If your dormant firm is not publicly traded, you must file yearly returns within 7 months of the end of the fiscal year. On the contrary, if your inactive firm is listed, you must file yearly returns within 5 months of the end of the fiscal year.
Submission Of Tax Returns To IRAS
A tax return is, for the most part, a requirement because it serves as the foundation for calculating taxes. You can, however, apply to IRAS for a waiver under specific circumstances.
There are usually two options for fulfilling this obligation: e-filing through the myTax portal or providing a copy of Form C-S/C.
It’s worth noting that IRAS plans to phase out the paper-based option in YA 2020. So, if you don’t already have a CorpPass or SingPass, you should get one today.
What Are The Financial And Tax Reporting Exemption For Dormant Companies?
A dormant company has the following financial and tax obligations;
1. Filing Of The Annual Return With The ACRA
An inactive company in Singapore is excused from preparing financial statements under section 201A of the Companies Act if;
- It is neither a publicly traded corporation nor a subsidiary of a publicly-traded company.
- At any point during the relevant financial year, the value of its total assets (whether separate or consolidated) does not exceed S$500,000.
- Since the end of the previous fiscal year, your firm has been dormant.
Dormant firms are exempt from preparing financial statements and convening genuine general meetings under the ACRA. Please keep in mind that even if a defunct company is excluded from filing financial statements, it should nonetheless file a set of management accounts for approval at the AGM.
2. Submission Of A Company’s Tax Return With IRAS
You can petition IRAS for an exemption from the duty to file a tax return once your company has been determined to be dormant. You can use form C or C-S to fulfil this obligation. You must meet the following requirements to be eligible for this exemption:
- No investments should be owned by your company (e.g. property, shares, etc.). You must not use such an investment to create any income or revenue for the firm if you have one.
- Within the next two years, you do not intend to engage in any type of business transaction.
- Until the company stops trading, you must have provided all financial statements and tax calculations.
- You must have cancelled your Goods and Services Tax (GST) registration (if you have done so previously)
What Should I Do For A Dormant Company That Is Just Getting Started?
You must email IRAS (ctmail@iras.gov.sg) within one month of the date the revenue was earned/received to request an income tax return once the inactive company reopens for business or starts receiving any income.
- “Resumption of business and request for Income Tax Return” is the subject header.
- The company’s name and Unique Entity Number (UEN)
- Date of resumption of operations and new primary activity (if applicable)
- Date of receipt of any additional sources of income, such as interest, dividends, rent, and so on (if applicable)
How Do You Close A Dormant Company In Singapore?
You may change your mind and desire to close the dormant corporation at some point for several reasons.
Applying for striking off would be the most appropriate option to close down your dormant business if you decide to do so.
You can simply apply with ACRA requesting that your company’s name be removed from the register of businesses.
Your company secretary, director, or registered filing agent must apply. It can also be e-submitted through the Biz File Portal.
Your dormant corporation would be legally dissolved upon approval.
Need help with striking off? Check out our company strike off services.
Conclusion
The principle of establishing dormant companies is not uncommon in Singapore. You can put your company into a dormant status after its company incorporation in Singapore to avoid certain compliance requirements.
