Regulatory Compliance for Dormant Company

WLP Group

What is Dormant Company?

Starting a business is difficult. There’s the manufacturing of your product or service, satisfying customers and making sure that all your financials are in order. It’s no wonder than 90% of businesses fail in their first year and another 90% of businesses that do make it past the first year end up failing before five years. That’s a scary statistic. Entrepreneurs have to be risk takers and be confident and competent enough to build a successful business that is able to be profitable.

A dormant company is a business organization that that does do any business activity or operation. This means that the organization doesn’t purchase any inventory or sell any products or service. Usually, this is because the founder is burnt out or because the founder needs time to find more partners and raise capital. In any case, the process of filing annual reports with ACRA and legal obligations of a dormant company is different because they aren’t an active company. Naturally, a dormant company won’t have to pay any taxes since a dormant company doesn’t make any income.

The definition of dormant company differs between Accounting and Corporate Regulatory Authority (ACRA) and the Inland Revenue Authority of Singapore (IRAS). ACRA defines a company as dormant if it had no accounting transactions during a given period even if it does an appointment of company secretary, maintaining a registered office, keeping of books and registers, and paid fines or any fees to ACRA. Nevertheless, a company that does not have any income or revenue within a given financial period is considered as dormant by IRAS even though it may have incurred expenses. 

These distinctions are significant as they affect the company’s obligations to file its annual return with ACRA and its tax return with IRAS. Here are the breakdowns of three main regulatory obligations that a dormant company must comply with in order to claim the status. 

Filing annual return with ACRA

With effect from 3rd January 2016, a dormant company that fulfils these three requirements is exempted to prepare financial statement with ACRA: 

  • The company is not a listed company or subsidiary company of a listed company.
  • The company fulfils the substantial assets test and does not exceed S$500,000 in assets regardless of standalone or consolidated basis. 
  • The directors of the company have lodged a declaration with ACRA stating that the company has been dormant for the relevant period. 

Once IRAS grants the waiver, the dormant company does not require to file the Income Tax Return annually as long as the company remains dormant after it was incorporated.

Re-commencing business

Once a dormant company re-commence business or starts doing business again, the company has to notify ACRA of its change in status within one month from the date of commencement of business. This same applies to IRAS where you need to submit the Request for Income Tax Return (Form C-S/C) and a Notification of New Financial Year End forms within that one month period. 

Company service providers such as WLP group offers comprehensive services for companies to file their Annual filings (which include income tax returns) accurately and on time. We will also be able to assist dormant companies that wish to re-commence business to file all their necessary tax documents. Contact us today for more information on how we can help reincorporate your company.