How To Manage Tax For A Dormant Company

A  company in Singapore has to follow filing requirements even when it is dormant for a certain period of time. In this article, we discuss the definition of a ‘dormant company’ in the Singaporean context as well as its obligations, how a company can obtain a waiver for certain processes and what it should do if it were to become active again.

What is a Dormant Company?

The definition for a dormant company according to the Inland Revenue Authority of Singapore (IRAS) is one which no longer has business activity and has no income for the whole of the basis period (financial year).

In other words, if a company did not carry on a business and had no income for the previous year, it will be regarded as dormant for the next year or Year of Assessment (YA).

How to apply for dormant company status

There is no need to submit any applications for a company to be deemed dormant. As long as a company fulfills the definition of one as mentioned earlier, it will automatically be considered dormant.

Read the following sections on income tax obligations, Form C/C-S submissions and financial statement submissions.

Is a dormant company exempt from preparing financial statements?

No, it is not. Financial statements must be submitted regardless of a company’s status. 

Income tax return obligations for a dormant company

Unless a dormant company has been granted a waiver to file its Income Tax Return, it must still e-File the return. To obtain this waiver, the company must apply for it via the Apply for Waiver to Submit Tax Return (Dormant Company) e-Service on the myTax Portal. 

If the dormant company does not have a waiver, it must file its Income Tax Return using the File Form C-S/ C for Dormant Company e-Service on the myTax Portal. In this case, there is no need to submit financial statements to IRAS. 

The procedures for income tax return obligations for dormant companies vary from year to year.

For YA2020, i.e. for the company’s income tax to be charged for the basis period of 2019, a dormant company is not required to complete the Form for Reporting Related Party Transactions even though the value of its related party transactions disclosed in the financial statements for the financial period exceeds S$15 million.

This means that, if it qualifies to file Form C-S or Form C for Dormant Company, it can continue to use the respective form. However, it may still need to submit its financial statements to the Accounting and Corporate Regulatory Authority (ACRA) for its annual return filing.

Here is an example to illustrate this:

A dormant company has assets in the form of real properties, fixed deposits and foreign shares during its financial year ending 30 Jun 2019. Its basis period is therefore 2019. During this basis period, it did not have any business activities or income from its assets. 

It is therefore considered a dormant company for YA2020. It must e-File its YA 2020 Income Tax Return (Form C-S/ C) using File Form C-S/ C for Dormant Company e-Service provided by IRAS.

Conditions for a waiver to submit tax return

A dormant company that satisfies all of these qualifying conditions can apply to IRAS to be released from its obligation to file its Income Tax Return:

• Must be dormant;
• Has submitted its Form C-S/ C, financial statements and tax computations up to the date of cessation of business; 
• Does not own any investments (e.g. shares, real properties, fixed deposits) – if it does, it must not derive any income from these investments; 
• De-registered for Goods and Services Tax (GST) purposes prior to this application if it had previously been a GST-registered company; and 
• Must not have the intention to recommence business within the next 2 years. 

How to apply for waiver to submit Tax Return

Dormant companies are encouraged to apply via the e-Service provided by IRAS. The service offers companies the convenience of e-Filing their Form C-S or Form C for advance Years of Assessment (up to the date of business cessation).

Financial statements and tax computations (where applicable) must be e-Filed at the same time with the Tax Return Form within 21 days from the date of application for the waiver. Failure to do so will cause the waiver application to be rejected.

Hard copy application can be done by filling in the Application for Waiver of Income Tax Return (Form C-S/ C) Submission by a Dormant Company. 

Waiver application processing time

Applications done digitally will take 2 months while hard copy applications will take 3 months. If the case for an application is complex, the processing and response time may be longer.

The applying company will be notified in writing on the outcome of the application. The notification will be sent to the company’s registered address and a copy will be made available on the myTax Portal.

Successful application will ensure that the company no longer be issued Form C-S or Form C.

Dormant company recommencing business

The moment a dormant company starts to receive any income or have any business activity, it is no longer considered a dormant company.

It must then send a notification in writing to IRAS within one month from the date of commencement of business and/or earning income to ctmail@iras.gov.sg. 

The company must request for an Income Tax Return with all the following details:

• Subject header: “Recommencement of business and request for Income Tax Return”
• Name and Unique Entity Number (UEN) of the company;
• Date of recommencement of business in dd/mm/yyyy format;
• Date of receipt of other source(s) of income (e.g. interest, dividend, rent, etc.) in dd/mm/yyyy format; and
• New principal activity and the effective date of change in dd/mm/yyyy format together with a copy of BizFile extracted from ACRA showing the principal activity of the company.

If there are any details for the above that are not applicable, the answer for should be indicated as ‘N/A’.

Wrap Up

A dormant company is expected to file its Income Tax Return (Form C/C-S), financial statements and annual return. A waiver can be applied for the filing of Income Tax Return, but once the company starts to receive income or it starts business activities, it must inform IRAS within a month from the said commencement.

There may be instances where a dormant company no longer has any employees. In this case, a corporate service provider can offer accounting services to prepare the financial statement and annual return as well as corporate tax services to handle the income tax calculations and Tax Return submission.

More related articles on corporate tax:

• 6 Reasons Companies Should Use Corporate Tax Services
• 2020 Guide on How to Reduce Corporate Tax in Singapore
• Tips for Corporate Tax Filing for YA2020
• Types of Taxes to be Aware of in Singapore
• What is Withholding Tax in Singapore? 
• About Tax Residency of a Company in Singapore
• Tax Residency Certificate in Singapore – Why Apply and How
• Stamp Duty for Variable Capital Companies in Singapore
• What is a Tax Reclaim Form?