How to Decide and Change Your Financial Year End (FYE) in Singapore
The Financial Year End (FYE) of a company refers to the end of the company’s accounting period, normally recurring every 12 months. A company’s FYE does not necessarily need to fall on 31 December and can actually fall on any day within the year.
A company’s FYE is significant because after the date has passed, a financial report for the determined financial year must be prepared for purposes such as filing Annual Returns with the Accounting and Corporate Regulatory Authority (ACRA) and filing corporate tax returns with the Inland Revenue Authority of Singapore (IRAS).
When you incorporate your company, you will be required to submit the last day of your proposed company’s first financial year to ACRA.
1. How to Determine a Company’s FYE
Generally speaking, according to section 198(1)(a) CA, the company’s first financial year starts on the company’s date of incorporation.
Depending on whether your company was incorporated before, on or after, 31 August 2018, different sets of rules on determining a company’s FYE will apply:
|Companies incorporated on or after 31 August 2018||Companies incorporated before 31 August 2018|
|First FYE||The company’s first financial year starts on the company’s date of incorporation, and ends on the date provided to ACRA during incorporation.
The first financial year must not be longer than 18 months from the date of incorporation.
|The last day of the company’s first financial year is the date provided to ACRA in the annual return or notification that the company had last filed with ACRA.
If the company has not filed such an annual return or notification, the company’s last day of the financial year will be the anniversary of the company’s date of incorporation.
|Subsequent FYE||FYE is deemed to be the anniversary of the FYE date previously notified to the Registrar.||FYE is deemed to be the anniversary of the FYE date as determined using the rules above.|
2. Considerations when Choosing Your Company’s FYE
When deciding the date of your company’s FYE, there are a few factors to take into account:
- Eligibility for tax exemptions
- Whether your company carries out seasonal business activities
- Whether your company is a subsidiary company
Eligibility for tax exemptions
Your determined financial period corresponds to your company’s taxation period. Therefore, one of the foremost considerations when choosing your FYE is whether and how it affects your tax obligations or eligibility for incentives.
One common concern for new companies when choosing their FYE is whether it qualifies them for the Tax Exemption Scheme for New Start-Up Companies.
Under this scheme, qualifying companies will be given the following tax exemption for the first 3 consecutive Years of Assessments (YA) where the YA falls in:
|YA 2020 onwards||
|YA 2019 and before||
The YA is the year in which your income is assessed for tax. It is the calendar year after your FYE. For example, if your company was incorporated on 1 January 2018 and your FYE is set on 31 December 2018, the first YA of your company will be in 2019.
In this case, your company could enjoy full tax exemption on the first $100,000 (as illustrated in the table above) for YA 2019.
Nevertheless, to maximise the tax incentives, newly-incorporated companies may consider setting their FYE on the last day of the 11th month from the date of incorporation. This is because, any financial period which is longer than 12 months will be considered as 2 YA by IRAS for tax exemption purposes.
To illustrate, if your first financial period is 13 months long, from 1 September 2018 to 31 October 2019, it will be regarded as 2 years of tax exemption. As a result, you will be left with only 1 more year’s worth of tax exempt status under the Scheme.
This is as compared to the 3 complete years of tax exemption you will receive, if your FYE is set on the 11th month and your financial period is 1 September 2018 to 31 August 2019, ending on 31 August yearly for 3 years.
Whether your company carries out seasonal business activities
Another factor to take into consideration is the type of business that you’re operating, especially if your company carries out seasonal business activities. This refers to businesses which experience fluctuations in particular months of the year.
Many retail businesses have a strong seasonal component. For example, travel agencies may make a significant portion of their revenue during school breaks. Another example would be florists, which generally experience spikes in their business cycles close to holidays like Valentine’s day.
If your business has a strong seasonal component, you might want to plan your FYE to be at the end of the business cycle. This is because, at the end of your company’s financial year, you would have to do your annual stock-taking to compile your company’s financial statements.
With good planning, at the end of your business cycle, your business activities and inventory will theoretically be at its lowest, and this would make it more convenient to do stock-taking.
Whether your company is a subsidiary company
Additionally, if you are setting up a subsidiary company, it would make more sense to align your FYE to that of the holding company. This is so that documentation for both companies, such as tax filing, can be done and processed at the same time.
3. How to Change Your Company’s FYE
If you wish to change your FYE after incorporation, you must notify ACRA of a change in FYE via the “Change of Financial Year End” transaction through the BizFile+ website. The transaction is free of charge.
As a general rule, you may only change the FYE for the current or immediate previous financial year. You also cannot change your company’s FYE if statutory deadlines for the holding of the Annual General Meeting (AGM), filing of Annual Returns or sending of financial statements have passed.
Furthermore, you will need to obtain ACRA’s approval to change the FYE if:
- The change in FYE will result in your company’s financial year being longer than 18 months; or
- You have previously changed your company’s FYE within the last 5 years.
4. Other Matters to Do With FYE
Apart from the considerations above, the date that you’ve decided will be your company’s FYE will also determine the dates for your other regulatory compliance requirements:
- Filing of Estimated Chargeable Income (ECI): All companies are required to file their ECI (i.e. an estimate of their taxable income for a YA) within 3 months from the end of their financial year. This is except for companies that qualify for the administrative concession and other exempted companies.
- Holding of AGM: AGMs must be held after the end of each financial year within 4 months (for publicly listed companies) or 6 months (for all other companies).
- Filing of Annual Returns: After holding its AGM, a company must file its Annual Returns after the end of its financial year within 5 months (for listed companies), or 7 months (for all other companies).
- Basis period for assessing corporate tax: As discussed above, the basis period for corporate tax calculation corresponds to your company’s financial year period.
Need help changing your company’s financial year end? Contact us for a quotation on corporate services.
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