In Singapore’s fast-paced business environment, there are times when companies may halt their operations without dissolving the business entity. When a business ceases activity but remains officially registered, it is known as a dormant company. Grasping the concept, compliance obligations, and potential benefits of dormancy is crucial for business owners who wish to preserve their corporate structure while keeping overheads low. This article will walk you through what defines a dormant company in Singapore, why businesses choose dormancy, and the key regulatory requirements.
What is a Dormant Company?
A dormant company refers to a company that has had no financial transactions during a particular financial period or one that does not earn any income. However, it is important to differentiate between the definitions used by two main authorities:
- ACRA (Accounting and Corporate Regulatory Authority) defines a dormant company as one with no accounting transactions throughout the financial year.
- IRAS (Inland Revenue Authority of Singapore) considers a company dormant if it earns no income, regardless of minor transactions like bank fees or regulatory filing fees.
Recognising the difference is important because each definition affects how a company fulfills its statutory and tax obligations.
Why Business Owners Opt for Dormancy
Several strategic reasons explain why company directors might opt to keep a company dormant:
- Future Business Plans: They may wish to retain the corporate entity for future use without incurring operational costs.
- Protecting Intellectual Property: A dormant company can still hold rights to brands, trademarks, and patents.
- Simplified Reactivation: Reactivating a dormant company is faster and less costly compared to registering a new entity.
- Holding Investments or Assets: Companies may be kept dormant to securely hold investments, properties, or intellectual assets.
Obligations of a Dormant Company
Despite not being active, a dormant company still must meet several compliance responsibilities in Singapore:
- Filing of Annual Returns
- All companies, including dormant ones, are required to file annual returns with ACRA.
- Some dormant companies may qualify for exemptions from filing full sets of financial statements.
- Corporate Tax Filing
- Dormant companies must still file corporate income tax returns unless IRAS grants a waiver.
- To obtain a waiver, companies need to formally apply and satisfy IRAS’s dormancy conditions.
- Maintenance of Proper Records
- Even without active business, companies must maintain basic accounting records that reflect the lack of activity.
- Declaring Dormancy
- Companies must inform IRAS about their dormant status to minimize unnecessary tax obligations.
- Compliance with Statutory Requirements
- Dormant companies must still comply with basic requirements such as having a local resident director, a company secretary, and a registered office address.
Advantages of Keeping a Company Dormant
Opting for dormancy instead of immediate closure can offer several benefits:
- Operational Flexibility: Businesses can quickly restart operations whenever opportunities arise.
- Protection of Business Interests: Keeping a company dormant ensures trademarks, patents, and brand identities are protected.
- Lower Operating Costs: Dormant companies enjoy significantly reduced compliance costs compared to active companies.
- Strategic Readiness: It allows business owners to bide their time and restructure or plan their next moves without the pressure of active operations.
Audit Exemptions for Dormant Companies
One notable advantage for dormant companies is the potential to enjoy audit exemptions.
Under Singapore’s Companies Act, a dormant private company is exempted from audit requirements if:
- It has been dormant from the time of its formation or since the end of the last financial year.
- It is a private company.
- It qualifies as a “small company” or belongs to a “small group” (i.e., revenue and total assets each do not exceed S$10 million and have no more than 50 employees).
Even when exempted from audits, companies must still prepare unaudited financial statements, unless they meet specific criteria that allow a further waiver.
How to Reactivate a Dormant Company
If a business is ready to resume operations, reactivating a dormant company involves a few simple steps:
- Notify ACRA and IRAS: Inform the relevant authorities that the company has resumed business activities.
- Resume Record-Keeping: Start recording transactions and maintain updated accounting books.
- Fulfill Full Compliance Requirements: Once active, all standard compliance obligations, including tax filings and submission of financial statements, must be resumed.
- Tax Submission: Companies will need to submit their Estimated Chargeable Income (ECI) and tax returns as per normal requirements.
Striking Off a Dormant Company
If there are no plans to revive the business, the company directors may apply to strike off the company with ACRA. To successfully strike off a company, it must:
- Have no outstanding debts.
- Have no ongoing or pending legal proceedings.
- Submit a formal strike-off application.
- Wait for the final approval after the public objection period (usually about 4 months).
Striking off a company is a permanent action and once removed, the company ceases to exist legally.
Dormant Company vs Struck-Off Company
Here’s a simple comparison:
| Category | Dormant Company | Struck-Off Company |
|---|---|---|
| Legal Status | Exists legally but not operating | No longer exists legally |
| Costs | Minimal ongoing costs | No costs after strike-off |
| Ability to Resume | Can resume business anytime | Must incorporate a new company |
| Asset Holding | Can continue holding assets | Cannot hold assets once dissolved |
Final Thoughts
Maintaining a dormant company in Singapore offers business owners flexibility and cost savings while keeping future opportunities open. However, dormancy still comes with regulatory duties such as filing annual returns, maintaining accounting records, and staying compliant with local laws.
For business owners, understanding when and why to opt for dormancy can be a smart strategic move, especially in volatile or uncertain market conditions. Whether you’re pausing operations, holding assets, or waiting for the right time to reactivate your business, staying compliant is crucial to avoid penalties. If needed, engage professional corporate service providers to ensure smooth management of your dormant company and peace of mind.