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How to Decide Accounting Year-end for Your Singapore-Registered Company?

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How to decide accounting year-end for your Singapore Registered Company?

Company owners must fully grasp what are the requirements of company incorporation in Singapore first before getting ahead with the procedure. Moreover, they must also know what strategies work best when complying with the corresponding requirements.

One vital facet of a company is the financial year-end. Every company must determine its financial year-end at the time of company incorporation. Find out what things should be kept in mind when doing so by reading this guide.

What Is the Financial Year-end For?

The financial year-end determines the taxation period of a company. It is necessary to choose a financial year-end as it would be of great help in corporate tax exemptions and impact tax obligations.

What Factors Should Be Taken Into Account When Deciding for the Financial Year-end?

How to decide accounting - Factors

When deciding for your company’s financial year-end, consider the following factors:

  • If your company conducts seasonal business activities or not
  • If your company is a subsidiary
  • Eligibility for tax exemption

It is always best to set the financial year-end on the last day of the 11th month of company incorporation. The benefits of this strategy are:

  • A 2020, S$100,000 tax exemption at 75% for eligible companies
  • A financial year longer than 12 months is considered two years of assessment by the IRAS and will affect a company’s tax exemption eligibility.

How Do The Accounting Year-end Policies of Other Countries Differ From Each Other?

Every country has its own accounting year-end policy. During this period, a company is obliged to file tax return, carry out annual general meeting (AGM), and file annual return.

The accounting year period of India is April to March, while the accounting year period of Switzerland is January to December.

However, there is no fixed accounting year-end for a Singapore Company. Each company in Singapore can determine their own accounting year in Singapore.

How to decide accounting - Policies

What Are the Laws of Singapore Companies Act When It Comes to the Accounting Year?

In compliance with the Singapore Companies Act:

  • The date of company incorporation is the start of a company’s accounting year. It will end depending on the date submitted to ACRA.
  • After the end of the previous year, the upcoming accounting year begins.
  • A company’s first accounting year must not last beyond 18 months without the approval of the Registrar.

The flexible accounting periods of Singapore is brought about by the noteworthy contribution of foreign businesses to the country. A foreign company operating in Singapore must be able to determine its accounting year and conform to that of its parent company, hence the need for a flexible accounting period.

Company owners must regularly abide by their company’s accounting year.

Examples of a Company Accounting Year?

How to decide accounting - Examples

Example 1

The first accounting year of a company incorporated on September 5, 2020 will be from September 5, 2020 to August 31, 2021. Then, it will be from September 1, 2021 to August 31, 2022 in the years to come. The company will continue to have this kind of accounting year.

Apparently, the first accounting year of this company is a bit shorter than 12 months and ending a month before its incorporation month. A corporate service provider (CSP) would usually adopt this custom if its client company has no preference on its accounting year.


How to decide accounting - Example 2

Example 2

The first accounting year of a company incorporated on March 25, 2020 will be from March 25, 2020 to February 28, 2021. Later on, the accounting year of this company will always end on February 28 or 29 on a given year.


How to decide accounting - Subsidiary Company

What Should a Subsidiary Company Do?

The accounting year of a subsidiary company should be in accordance with its parent company to avoid any conflicts or inconsistencies between them, during consolidation of results.

What Is the Reason Behind Singapore’s Accounting Year Policy?

How to decide accounting - Reason of policy

The reason behind Singapore’s accounting year policy is that the country’s tax exemptions are achievable for the first three accounting years only. If the first accounting year of your company lasts beyond 12 months, then the third accounting year will be excluded from the three-year period and it will not qualify for the exemption.

Summary

Plan your accounting year-end wisely. Think of how you can make the most of the first three years of tax exemption. Commonly, the first accounting year will be 11 months and probably some more days after that.

If you are a subsidiary of a foreign entity then obviously, you will follow the accounting year, which is that of your parent entity.

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