Determining the end of a financial year is very important for a start-up business in Singapore as it will directly affect the tax period of this business. Let’s find out with JNT what factors to consider when you choose a financial year end date and how to change it when necessary.
How to determine the financial year-end date?
You can choose any date as your company’s financial year-end (FYE) date. To maximize tax exemption for startups, for the first three consecutive audit years, most companies fix their first financial period to end on the last day of the 11th month from the date of establishment.
A general rule of thumb to setting your company’s FYE in Singapore is?
- Add one year to the incorporation date
- Subtract one month
- Select the last day for that month
For example: If a company is incorporated on November 16, 2019
- Add one year = November 16, 2020
- Subtract one month = October 16, 2020
- Select the last day = October 31, 2020
Your company’s financial year end date is October 31, 2020 and subsequent financial years will be October 31 of each year thereafter
|Private companies (PTE LTD) after determining the financial year end date (FYE) should noticeice|
|Hold Annual General Meeting of Shareholders – AGM within 6 months from FYE|
|Submit Annual Profit Statement (AR) due within 7 months after FYE|
Considerations when Choosing Your Company’s FYE?
If your company is a start-up, there are 3 factors to consider when choosing a financial year end date.
Tax Exemption Scheme for New Start-Up Companies
The first thing you need to pay attention to is the Tax Exemption Scheme for Start-ups in Singapore. From YA 2020 onwards, newly established businesses will be given the following tax exemption:
- 75% exemption on the first 100,000 SGD of normal changeable income
- 50% exemption on the next 100,000 SGD of normal chargeable income.
The above tax exemption will be applied for the first 3 Years of Assessments (YA) of the company. Therefore, you need to consider adjusting the financial year end date to be able to optimize the above tax exemption.
Many retail businesses have a strong seasonal component. For example, travel agencies may make a significant portion of their revenue during school breaks.
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.
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.
How to Change Your Company’s FYE
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.
Coming to JNT, you will be advised by experts on how to choose the right time to end the financial year so that you can reduce the tax burden for your business. If you want to learn more about the procedure of setting up a business in Singapore, please refer to this article!
Auth. Alice Mac