What is a Dormant Company in Singapore?

In Singapore’s dynamic business environment, companies may sometimes choose to temporarily pause their operations without closing the business entirely. When a company ceases active trading but remains registered, it is referred to as a dormant company. Understanding the concept, requirements, compliance obligations, and implications of dormancy is essential for business owners who wish to keep their options open without incurring the full costs of running an active company. In this article, we will explore what constitutes a dormant company in Singapore, the benefits and responsibilities associated with dormancy, and what steps are needed to maintain or reactivate a dormant status.

Definition of a Dormant Company in Singapore

A dormant company in Singapore is typically defined as a company that has had no accounting transactions during a financial year or does not generate any form of income. However, it is important to note that the definition of dormancy varies slightly depending on whether you are referring to the Accounting and Corporate Regulatory Authority (ACRA) or the Inland Revenue Authority of Singapore (IRAS):

• ACRA’s Definition: ACRA considers a company dormant if there are no accounting transactions recorded in its accounting records during a financial year.

• IRAS’s Definition: IRAS deems a company dormant if it does not generate any income, even if accounting transactions like filing fees or bank charges are incurred.

Understanding the difference is critical because it affects compliance requirements under the Companies Act and tax obligations under the Income Tax Act.

Common Reasons for Keeping a Company Dormant

There are several strategic reasons why business owners choose to keep their companies dormant:

• Preservation of Business Structure: Owners may want to keep the company structure intact for future business ventures without incurring the costs of full operations.

• Protection of Brand Name: Dormant companies can retain exclusive rights to a brand or name, preventing competitors from using it.

• Ease of Reactivation: A dormant company can be reactivated easily when business opportunities arise, saving time and costs compared to setting up a new company.

• Asset Holding: Some companies are kept dormant to hold valuable assets such as intellectual property or investments.

Requirements for a Dormant Company

Maintaining dormant status in Singapore involves several compliance requirements, even if the company is not operational:

1. Annual Return Filing with ACRA

   • Even if a company is dormant, it must file an Annual Return with ACRA.

   • Companies that are dormant and satisfy certain conditions may be exempted from filing full financial statements.

2. Income Tax Filing with IRAS

   • Dormant companies must still submit their Corporate Income Tax Returns unless they have been granted a waiver from IRAS.

   • To seek a waiver, the company must apply through IRAS and satisfy the dormancy criteria.

3. Accounting Records Maintenance

   • Although there are no transactions, companies must maintain basic accounting records to show that they are dormant.

4. Notification of Dormant Status

   • Companies must notify IRAS of their dormant status to avoid unnecessary tax filing obligations.

5. Compliance with Company Law

   • Dormant companies must comply with the Companies Act, including having at least one director who is ordinarily resident in Singapore, a company secretary, and a registered office address.

Benefits of Keeping a Company Dormant

Keeping a company dormant instead of striking it off can offer several advantages:

• Flexibility: The company can quickly resume operations when needed without undergoing the incorporation process again.

• Brand and Intellectual Property Protection: Dormant companies can hold onto trademarks, patents, and branding rights.

• Cost Savings: While there are still some minimal compliance costs, they are significantly lower than maintaining a full-fledged business.

• Strategic Planning: Dormancy allows time for restructuring, sourcing investors, or waiting for market conditions to improve.

Dormant Company Audit Exemption

One important benefit for dormant companies in Singapore is the potential audit exemption.

According to the Companies Act, a dormant company may be exempted from having its financial statements audited if:

• It has been dormant from the time of formation, or since the end of the previous financial year.

• It is a private company.

• It satisfies the requirements for a small company or a small group (revenue and total assets not exceeding S$10 million and employees not exceeding 50).

Even though an audit exemption applies, the company must still prepare unaudited financial statements unless it qualifies for further exemptions based on its specific situation.

Reactivating a Dormant Company

If a business decides to restart operations, reactivating a dormant company is straightforward. Here are the steps involved:

1. Notify ACRA and IRAS: Inform both authorities that the company is no longer dormant.

2. Update Financial Records: Resume recording accounting transactions and ensure that bookkeeping is properly managed.

3. Resume Compliance Requirements: Full compliance with tax filings, financial statement submissions, and other legal obligations will apply once the company is active.

4. Corporate Tax Filing: The company will have to file Estimated Chargeable Income (ECI) and Corporate Tax Returns once operations restart.

Striking Off a Dormant Company

If there is no intention to revive the business, the owners may choose to strike off the dormant company from the ACRA register. The process involves:

• Ensuring no outstanding debts or liabilities.

• Ensuring no pending legal proceedings.

• Filing an application to ACRA.

• Waiting for the approval and public notification period (about 4 months).

Striking off a company is a more permanent solution and involves dissolving the entity completely.

Key Differences Between Dormant and Struck-Off Companies

Conclusion

A dormant company in Singapore offers a flexible and cost-effective way for business owners to pause their business activities without losing the benefits of an established corporate structure. However, even dormant companies have compliance requirements to fulfill, including annual returns and basic record-keeping. By understanding the responsibilities and strategic advantages of dormancy, business owners can make informed decisions about the future of their companies.

Whether you are planning to hold a company dormant for future opportunities, protect valuable assets, or simply weather a challenging economic period, staying compliant with ACRA and IRAS requirements is essential. Always consider consulting with professional corporate service providers or accountants to ensure that you manage your dormant company’s obligations properly and avoid unexpected penalties.