Beyond incorporation: Part 3
What’s next after incorporation?So, you have incorporated your business and are ready to get started. However, a company is not automatically ready to start doing business once its formed. Most businesses will have to address operational matters like work passes, staffing, office space and accommodation as well as business licensing.
There are also a number of tasks that a new company must complete before it can start operating effectively. Some of the tasks relate to statutory regulations, such as setting up statutory books, and registering for taxes and licenses. Subsequently a business entity must also stay “in good standing” with the Accounting and Corporate Regulatory Authority to maintain its legal status.
Annual requirements to keep the company in good standingThe following annual statutory compliance requirements apply to Singapore private limited companies.
1. Preparation of Financial Accounts
Accounting standards in Singapore are now prescribed in the Companies Act and are known as Financial Reporting Standards (FRS).
Financial accounts of the company must be prepared in accordance with the Singapore FRS and must consist of the following:
- Directors’ Statement
- Statement of Comprehensive Income
- Statement of Financial Position;
- Statement of Changes in Equity;
- Statement of Cash Flows and;
- Notes to the Financial Statements.
A company, unless exempt, is required to submit its audited financial statements, in XBRL, within one month of its Annual General Meeting (AGM).
An audit exemption is available for small private companies which are defined as those that meet two out of the three criteria detailed below:
- Total annual revenue less than SG$10M;
- Total assets less thank SG$10M;
- Less than 50 employees.
2. First Annual General Meeting (AGM)
Every company must hold an AGM within 6 months from the financial year end date. The following general rules apply to AGMs:
- The first AGM must be held within 18 months of its incorporation;
- Private companies are allowed to dispense with AGMs if at a general meeting of the company a resolution to that effect is passed by all members with voting rights;
- Private companies can be exempted from holding AGMs if it is a relevant dormant company or financial statements are sent to persons entitled to attend such meetings no later than 5 months after the financial year end.
Notwithstanding the above, the reference to any act that ought to be transacted at an AGM shall still be transacted by way of a resolution by written means.
3. Annual Return Filing
Every company must lodge an Annual Return (AR) with ACRA within 7 months from the financial year end. Particulars of the company officers, registered address, and auditors (if applicable) must be included in the AR. A full set of accounts in XBRL format, according to a minimum requirement list within the new ACRA Taxonomy 2013 must also be attached with the AR.
Certain companies are exempt from attaching their accounts to the annual return being:
- Exempt private companies (EPC) (i.e. no corporate shareholders and total shareholders < 20) that are solvent;
- Relevant dormant companies.
4. Filing annual tax annual returns
All Singapore companies are required to file annual tax returns with the Inland Revenue Authority of Singapore (IRAS).
There are two separate filings required as part of the annual tax returns:
- Estimated Chargeable Income (ECI) which is filed within 3 months of the company’s financial year end (unless certain exemptions are achieved);
- The income tax return which is filed by 30 November (for hard copy forms) and 15 December (for e-filing).
a) ECI FilingA company is required to declare its revenue and estimated chargeable income to the tax authorities by filing an ECI form within 3 months of the end of accounting period for the company.
The revenue to be declared in the ECI form refers to a company’s main source of income and excludes items like capital gains on disposal of fixed assets. Even if the company estimates its chargeable income as zero, it still has to file a "Nil" ECI.
A company may be exempt from filing an ECI form and therefore management should review the ECI waiver criteria to determine if they are applicable.
b) Income Tax Return FilingThe Singapore income tax system is annual in its structure and organization. The statutory tax year in which income tax is calculated and charged is commonly known as the Year of Assessment. Singapore adopts the preceding year basis for taxation. In other words, the profits of the accounting year ending in the preceding year will form the basis for assessment for the current Year of Assessment.
The statutory deadline for filing corporate income tax return is 30 November of Year of Assessment. As an example, if the accounting period of your company is April 1, 2015 – March 31, 2016, the income tax return filing deadline for the company will be 30 November 2017.
c) Income tax returnThe company has to file a complete set of returns including Form C, audited/unaudited accounts, and tax computation. The Form C is a declaration form for a company to declare its income whereas tax computation is a statement showing the adjustments to the net profit/loss as per the accounts of a company to arrive at the amount of income that is chargeable to tax. If certain conditions are met a dormant company may apply for a waiver to submit the tax returns.
d) Consequences of not filing an annual return
If a company fails to submit its ECI return they will receive a Notice of Assessment (NOA) detailing an estimation of the company’s income. Even if the company disagrees and intends to file a Notice of Objection is, they must settle the estimated charge within one month.
If a company fails to submit its tax return and / or Form C there are many levels available to the tax authorities:
- An estimated Notice of Assessment (NOA) may be issued;
- Outstanding Tax Return Notice and a composition fee of up to SG$1,000;
- A Section 65B (3) Notice to the director under the Income Tax Act and a composition fee of up to SG$1,000;
- A court summons to the director of the Company;
If filing has not been done within 2 years, the company will receive penalties and a fine of up to SG$1,000.
5. Good and Services Tax (GST)
A company must also ensure it registers for GST and submits quarterly returns if its taxable turnover is expected to exceed $1 million unless otherwise exempt. The expectation should be based on agreed contracts, accepted orders, or agreed quotations. It should not be based on market assessment or business plans.
A company is exempt from registering for GST if taxable turnover is wholly or mainly from zero-rated supplies and therefore may apply for an exemption from registration.
A company must register within 30 days from when the liability, or projection, arose. Late registration will result in one of the following:
- Registration will be backdated to the date when the company became liable for registration;
- Requirement to account for and pay GST on past sales starting from the effective date of registration even if no GST was collected from customers;
- A potential fine of up to $10,000 and a penalty equal to 10% of the GST due.
If such a situation arises it is always best to provide full disclosure to mitigate any potential penalties.
Ensuring you undertake all necessary post-formation and ongoing requirements, such as annual report and franchise tax filings, for your business is important. Doing so, helps protect the personal assets of owners (protects the corporate veil) and keeps your company in good standing with its state of incorporation, which means your company has met all state requirements in a correct and timely manner.
After incorporation, establish a business calendar for yourself that notes all the important steps and deadlines for your company. In Singapore, these tasks can be straightforward however, given the advanced nature of the tasks, it may be best to seek professional help.
This article is produced by Hawksford and does not constitute legal advice. It is intended to provide general information only.
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