A dormant company in Singapore refers to a registered business entity that isn’t generating any revenue or actively engaged in trade. Whether you are planning to establish a company for future use, temporarily pausing trading activities, or creating a Special Purpose Vehicle (SPV), dormancy status offers advantages due to its decreased statutory responsibilities.
From time to time, business owners choose to place their company in a dormant state for a few reasons. One significant reason is the simplified maintenance requirements. In Singapore, a dormant company faces fewer compliance obligations and may even qualify for exemptions from certain requirements. This saves both time and resources, allowing for more focus on developing future business plans. Additionally, maintaining a company in a dormant status instead of closing it entirely can help safeguard its brand name, reputation, and other valuable assets, such as intellectual property.
In this guide, we will cover:
- Definitions of a dormant company
- How to apply for the dormant status of the company
- Reduced filing requirements for a dormant company
- Re-commencing business
- Conclusion
Definitions of a dormant company
Business owners must be aware that the definition of ‘Dormant Company’ differs between Inland Revenue Authority of Singapore (IRAS) and the Accounting and Corporate Regulatory Authority of Singapore (ACRA). It is important to note the difference since it will determine the company’s obligation towards the two different authorities.
Dormant company (ACRA’s definition)
A company is considered dormant if there is no business activity. However, there are specific exemptions for activities solely related to maintaining compliance with authorities. Below is a list of transactions that do not impact the dormant status of a company in Singapore:
- Appointing a Secretary
- Appointing Auditors
- Maintaining a registered office
- Keeping registers and books
- Paying any fee or charge (including penalties or interest for late payment) required by law
- Paying any composition amount
- Paying or receiving a nominal sum not exceeding S$5,000
Dormant company (IRAS definition)
According to IRAS, a company is classified as dormant in Singapore if it hasn’t generated any income or revenue during a specific period, despite possibly incurring expenses that have been recorded.
How to apply for the dormant status of the company
A company must fulfill the above criteria of being a dormant company over a given financial period or year of assessment before it can be notified to the authorities and file the necessary Annual Return and Tax Return for the dormant company.
A company will cease dormancy status with ACRA for the financial period as soon as there is business activity in the year. Whereas it will cease dormancy status with IRAS if any revenue is generated for the basis period.
Reduced filing requirements for a dormant company
Although there will still be an annual maintenance fee for your corporate service provider to maintain the company statutorily, the dormant status of a company will reduce statutory obligations and costs.
Exemption from filing annual tax returns with ACRA
For a live company, financial statements must be prepared and filed with the Annual Returns. However, for dormant company, it can be exempted from the requirement to prepare financial statements if:
- Your company is neither listed nor a subsidiary of a listed company.
- Your company adheres to the substantial assets test, meaning it holds assets totaling no more than S$500,000, whether assessed on a standalone or consolidated basis.
- Your company has remained dormant since its formation or the end of its last financial year.
Filing of Tax return with IRAS
A dormant company must still file its Corporate Income Tax Return (Form C-S/ Form C-S (Lite)/ Form C) by 30 November every year unless the company has been granted a waiver to file Form C-S/ Form C-S (Lite)/ Form C. The qualifying conditions to apply for the waiver are as follow:
- All the tax returns have been filed up to the date of cessation of business
- The company must not own any investments, and even if it owns investments, it must not derive any income from these investments
- It must have been de-registered for GST purpose
- It must not have the intention to recommence business within the next 2 years. The reduced statutory obligations therefore reduce compliance costs such as the fee for accounting, preparation of financial statements, and tax returns until the business recommences.
Re-commencing business
A dormant company in Singapore could easily recommence its business anytime by just notifying IRAS by email via myTax Mail in the tax portal, within one month from the date of commencement of business. It is not required to inform ACRA immediately as company can just file the status of the company as ‘Active’ for the financial year during the Annual Return Filing, after the Annual General Meeting.
Conclusion
In summary, understanding dormant companies in Singapore is crucial for businesses considering this status. Dormancy offers strategic benefits by relieving companies of certain compliance obligations during inactive periods. Choosing dormancy allows businesses to focus resources on strategic planning and development without the burden of excessive regulatory requirements. This decision helps maintain financial stability while safeguarding brand integrity and valuable assets.
Staying informed about dormant status details enables businesses to make informed decisions aligned with long-term goals and regulatory needs. If you need assistance navigating accounting compliance for your dormant company, our team is here to help.
FAQ
1. Is it possible to utilize my dormant company in the future?
Certainly, all that’s required is for you to notify IRAS within one month of resuming business operations, and MBiA will handle the process on your behalf.
2. Why should I keep my company Dormant while I can close it?
If you’re contemplating closing your Singapore business, we can aid you in striking it off. However, if you’re uncertain about potentially using the company in the future, maintaining it as Dormant could be advantageous. This approach is particularly sensible if your company holds valuable assets like brand names, licenses, or patents. Additionally, you can strategically leverage it for holding investments in Singapore, although generating income from them would not be permissible.
3. My company is dormant but is GST-registered. Can I still apply for a waiver to file Form C-S/ Form C-S (Lite)/ Form C for my company?
As per IRAS regulations, your company must first cancel its GST registration before seeking exemption to submit Form C-S/ Form C-S (Lite)/ Form C.
4. When will the exemption for dormant companies from the preparation of financial statements take effect?
According to ACRA, the exemption applies to financial years concluding on or after January 3, 2016.