Following the first steps of incorporating a company in Singapore, business owners should begin to familiarize themselves with the annual regulatory compliance requirements. Rather than view these requirements as a hassle, business owners should recognize that the purpose of these annual regulatory compliance requirements is to maintain a business-friendly climate that is transparent for investors and business owners alike.
Moreover, given that most of these annual regulatory compliance requirements have stipulated timelines within which each company has to comply, it is not difficult for a company to plan in advance to meet these deadlines. In addition, if the company has had the good foresight to engage a good corporate secretarial service provider and accounting firm, the company secretary and account manager will be able to disseminate timely reminders to the company to meet these requirements. This article provides all business owners with important information on how they can ensure that their companies stay compliant with the annual regulatory requirements in Singapore.
What are the annual regulatory compliance requirements in Singapore?
There are several government bodies that oversee annual regulatory compliance requirements. Generally, all companies would need to comply with the requirements governed by the Accounting and Corporate Regulatory Authority (“ACRA”) and Inland Revenue Authority of Singapore (“IRAS”).
(1) Preparation of Financial Statements
A company’s financial statements should be prepared after its financial year end; and is one of the annual compliance requirements that can be anticipated well in advance.
However, the Companies’ Act acknowledges that not all companies have had sufficient activity during the financial period or financial year to warrant engaging auditors to perform a full statutory audit. These companies are known as small or dormant exempt private companies (“EPCs”) and their exemption is subject to their fulfilment of the following criteria:
|Annual turnover of less than S$5 million|
|None of its shareholders are corporate entities|
|Has 20 or fewer individual shareholders|
Ideally, a company will have maintained its accounting and bookkeeping records properly throughout the year, thus ensuring a smooth audit. That said, there may be companies that find themselves unprepared for the statutory audit, particularly small and medium enterprises (“SMEs”) or newly incorporated companies that have fewer employees. In such cases, it may be advisable to outsource the company’s accounting function, to benefit from the experience from a team of qualified and accredited professionals, rather than overworking the company’s own employees.
The deadline for a company to complete preparation of its financial statements is contingent and dependent on when it decides to hold its Annual General Meeting (“AGM”), as one of the agendas of the AGM is to approve the accounts of the company.
(2) Holding of AGM
Once a company is incorporated, it should hold its first Annual General Meeting (“AGM”) within 18 months from the date of its incorporation. Thereafter, a company should hold its AGM either once every calendar year, or 15 months from the date of its last AGM, whichever is earliest.
As a general rule of thumb, a company will prepare the following documentation to hold its AGM. Unless the Memorandum and Articles of Association (“M&AA”) of the company explicitly states, there is currently no restriction against holding a company’s AGM outside Singapore. This caters to the foreign investors and foreign entities that chose to incorporate companies in Singapore due to the many attractive tax benefits.
|Directors’ Resolutions in Writing|
|Notice to convene AGM|
|Minutes of AGM|
In the case where a shareholder of a company is a corporate entity, the corporate entity will be required to execute the necessary documentation to appoint a corporate representative to sign on behalf of the corporate entity.
As mentioned earlier, the approval of the company’s financial statements is one of the agendas to be approved by shareholders at a company’s AGM. In addition, the following agendas may be discussed and approved, subject to the company’s M&AA.
|Payment of expenses to the directors|
|Re-election of retiring directors|
|Re-appointment of auditors|
A professional corporate services firm will be able to assist you in preparing all of the abovementioned documentation in relation to the AGM and will also be able to advise you on any restrictions within the company’s M&AA that may affect the timeline of the entire process.
In the event that your company is unable to meet the deadline to hold its AGM, it is possible to apply for an extension of time with ACRA. Do note that there are two separate extensions to apply for, under Section 175 and Section 201 of the Companies’ Act, respectively. Depending on the circumstances, your company may only need to make an application under one Section.
(3) Preparation of XBRL and Filing of Annual Returns
With effect from 3 March 2014, ACRA has mandated that private limited companies and public companies limited by shares should prepare and submit their financial statements in full XBRL (eXtensible business reporting language) format when they submit their Annual Returns. Small or dormant EPCs are allowed to submit their financial statements in partial XBRL format.
For those unfamiliar with accounts and the XBRL software, preparation of financial statements in full or even partial XBRL format will pose a huge challenge. Hence, it is advisable to seek the professional services of an accounting firm to assist you in doing so.
Given that the Annual Returns are required to be submitted to ACRA within one month from the date of AGM, companies can anticipate when their financial statements in full or partial XBRL format should be ready.
In addition to the XBRL, ACRA will require the company to confirm and verify the following information during the process of the Annual Return:
|Company’s full name and registration number|
|Company type (i.e. private company, public company, small exempt private company)|
|Summary of issued and paid-up share capital|
|Information of Directors, Company Secretary, Auditors and Shareholders|
|Date of AGM and the financial period that the audited accounts have been made up to|
The Annual Return is an electronic submission can either be submitted by an officer of the company, or an employee of a professional corporate services firm who has a professional number. The professional number is regulated by ACRA and only provided to a select group of qualified and accredited professionals.
(4) Estimated Chargeable Income
Otherwise known as ECI, this is an estimate of a company’s taxable income after deducting its tax-allowable expenses for the Year of Assessment (“YA”). This is an annual compliance requirement governed by IRAS. There are however, exemptions to the rule. To qualify for an exemption, a company would need to fulfil the following two conditions:
|Annual revenue is less than S$5 million for the financial year|
|ECI is NIL|
In addition, foreign ship owners, foreign universities, unit trusts, approved CPF unit trusts and real estate investment trusts that have been granted tax treatment under Section 43(2) of the Income Tax Act, will be exempted.
Similar to an AGM, the deadline for a company to file its ECI is dependent on the company’s financial year end. Companies are required to file within three months from the end of its financial year.
There is also a distinction made between companies that choose to file electronically, rather than those who choose to do so manually by using the paper forms. Those who file electronically would be able to enjoy more instalments, while those who file via the paper route will have to pay with fewer instalments (i.e. a higher amount per instalment).
(5) Income Tax Return
Subsequent to the filing of a company’s ECI, a company will be required to file its Income Tax Return by using a Form C or Form C-S to declare its actual income by 30 November in the year following the YA.
The table below provides a snapshot of the differences between the Form C and the Form C-S:
|Income Tax Return|
|Form C-S||Form C|
Why is it important to stay compliant?
It is important to note that some submissions made by companies, such as the Annual Returns, will be made available for purchase by the public. This allows potential investors and joint venture partners to gain a better understanding of a company’s financial standing before deciding to invest or work together. Hence, if a company does allow itself to lapse or default on these requirements, it has to be prepared that its stakeholders, potential investors and competitors may have this information at hand, which is potentially to the detriment of the company.
In addition, it will be the directors and officers of the company who will be held responsible for the lapses of a company and there may be legal consequences. For example, Section 175(4) provides that if default is made in the holding of an AGM, the company and every officer of the company (including its directors and company secretary) who are in default shall be liable on conviction to a fine not exceeding S$5,000.00 and also to a default penalty.
What are the repercussions if a company is remiss in its compliance duties?
Quite simply, in the event where a company defaults, its directors are held responsible by ACRA and IRAS; and the penalties are relatively steep. Moreover, the hassle and anxiety experienced on the part of the directors and employees to resolve the issue may take away the company’s focus on the business’ operations and in serious cases, directors can be disqualified from acting as a director for other companies for a period of time.
Certainly, it would be prudent for companies to hire a professional corporate services provider such as SingaporeCompanyIncorporation.sg to stay on top of your company’s compliance and annual filing requirements. With its team of experienced specialists, certified accountants and lawyers who have years of experience, companies can leverage off their combined expertise and will receive timely reminders and alerts on all compliance matters on a regular basis.
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