If your company isn’t actively doing business, it might be what’s called a “dormant” company. But what does that officially mean in Singapore? It’s simple, but there are two key definitions to know:
- The definition from the business regulator, Accounting and Corporate Regulatory Authority (ACRA).
- The definition from the tax authority, Inland Revenue Authority of Singapore (IRAS).
1. A Dormant Singapore By ACRA’s Definition
ACRA’s definition of dormancy is rooted in the Singapore Companies Act, which stipulates that a company is dormant during a period in which “no accounting transaction occurs”.
This means the company has not engaged in any transactions that would normally be recorded in its financial statements, such as sales, purchases, or investments.
Exempted Transactions
However, the law explicitly disregards certain transactions, allowing them to occur without breaking the company’s dormant status. Permitted transactions under ACRA’s rules include:
- The appointment of a company secretary or an auditor.
- The maintenance of a registered office address.
- The keeping of statutory registers and books.
- The payment of any fees, penalties, or charges required under any written law.
- The taking of shares by a subscriber to the company’s constitution upon incorporation.
- The payment or receipt of a nominal sum not exceeding S$5,000.
Disqualifying Transactions
Any typical business activity will immediately disqualify a company from being considered dormant by ACRA for that financial period. These disqualifying transactions include
- Selling goods or providing services
- Purchasing assets, whether for operational use or as inventory
- Issuing dividends to shareholders
- Borrowing funds from lenders
- Employing staff
2. A Dormant Singapore By IRAS’s Definition
IRAS has an even simpler definition. For tax purposes, a company is dormant if it has no income or revenue for the entire financial period. It doesn’t matter if it has incurred expenses. No income = dormant.
The term “no income” is all-encompassing and includes not only revenue from active trading but also all forms of passive income, such as interest from bank deposits, dividends from investments, or rental income from properties.
Unlike ACRA, IRAS is not concerned with expenses or accounting transactions. A company can incur expenses, such as paying its annual secretarial fees or bank charges, and still be considered dormant by IRAS, provided it generates zero revenue.
Conclusion
The main benefit of a dormant company is reduced compliance. A dormant company can be exempted from the requirement to prepare and audit its financial statements.
Furthermore, you can apply to IRAS for a waiver from filing annual tax returns (Form C-S/C). This saves you time and potential accounting costs.
However, while certain compliance burdens are reduced, many statutory obligations remain. Read our article on what a dormant company in Singapore needs to do.
