How to choose your Financial Year End (FYE) for businesses in Singapore
7 minute read
When we think of the term ‘financial year end’, many of us perceive it to be 31st December. After all, in Singapore, the year of assessment for filing individual income tax is from 1st January to 31st December. However, did you know that you don’t have to follow the calendar year and choose this date as your company’s Financial Year End (FYE)? That’s right!
After incorporating your company in Singapore, you get to choose a FYE. This is so that you can determine when your company’s financial year ends and to know when you need to file the necessary documentation to the authorities before the statutory deadlines.
In this article, we discuss what important factors to consider when choosing your company’s FYE and how you can pick this date.
Overview:
What is a business FYE and why is it important?
To put it simply, the FYE is the last day of a company’s accounting period. This date comes around every 12 months and, as mentioned, doesn’t have to coincide with the calendar year end. In Singapore, the Companies Act doesn’t state the FYE date for companies. Instead, it is left to the discretion of individual businesses to choose this date.
The FYE is crucial for companies so they’ll know when to file the compulsory legal requirements such as their annual returns with the Accounting and Corporate Regulatory Authority (ACRA). It’s also when corporate tax returns with the Inland Revenue Authority of Singapore (IRAS) are filed.
In addition, this date determines the cut-off points for other important business activities such as:
- Estimated Chargeable Income (ECI) filings: An estimate of your company’s taxable profits (after deducting tax-allowable expenses) for a Year of Assessment.
- Annual General Meeting (AGM): Where the company’s financial statements are presented to shareholders and other business transactions are discussed.
- Annual Returns (AR) filing: Companies will need to prepare their financial accounts promptly after the FYE.
The FYE also determines what tax relief the company qualifies for.
How to choose your company’s FYE
The Companies Act sets out the conditions that businesses in Singapore must adhere to when choosing their FYE.
They are as follows
- The fiscal year must begin on the date of company incorporation and end on the date of your choice.
- The first financial period should be no longer than 18 months (unless explicitly allowed to).
- Each subsequent fiscal year must start immediately after the end of the previous financial year and endon the last day of a period of 12 months (unless otherwise allowed by the Registrar).
Companies may change FYE of current and immediate previous financial year if statutory deadlines have not passed. Some common dates used by businesses are 31st December, 31st March or 30th June. However, it’s not just about picking a date that you’ll easily remember.
While you do have the option of stretching your first financial year to 18 months, bear in mind that the IRAS operates within 12-month timelines with regards to taxation periods. It could get confusing if you go over this time frame as your financial period of assessment will then be split into two, since it can’t go over the 12-month mark.
Also, in order to get the best out of the company tax exemptions, Sleek advises not to simply choose a date that you can remember well. The best option is to make your first year of assessment as long as possible within the first 12-month period.
Here’s one way to do it – add a year to your company’s date of incorporation, then subtract one month, and choose the last day of that month as your FYE.
For example,
- Your company’s incorporation date: 10 August 2022
- Add one year to it: 10 August 2023
- Subtract a month: 10 July 2023
- Pick the last day of that month as your company’s FYE: 31 July 2023
Factors to consider
Before you select your company’s FYE date, you should address some key considerations.
Tax exemptions
Startups in Singapore enjoy certain tax exemptions as newly incorporated companies. These are what you should take advantage of in your first three years of assessment:
- 75% tax exemption applies on the first $100,000 of normal chargeable income (income which is taxed at the prevailing corporate tax rate), bringing down the effective tax rate to 4.25% on the first S$100,000 of chargeable income; and
- A further 50% tax exemption is applied on the next $100,000, bringing down the effective tax rate to 8.5% on the next S$100,000 of chargeable income
Note that this tax exemption is not applicable to certain types of businesses:
- A business primarily dealing with investment holdings and earning investment income
- A business undertaking new property development for sale and/or investment
Seasonal activities
What does your business cycle look like? Your business could have a strong seasonal component if you’re a travel agent, a retailer selling winter clothes, or even a florist. As a result, you’ll experience fluctuations at certain times of the year. If this is the case, planning your company’s FYE to coincide with the end of a business cycle could help in making your business life easier, in terms of stock-taking and working on financial statements.
Type of business
If your business has been set up as a subsidiary company, it might be helpful to use the same FYE as your holding company. This makes the process of tax filling a smoother one for both organizations.
How to change your FYE
A business that wishes to change its FYE has to notify ACRA. This can be done online through BizFile+ and there is no charge involved. You can only change the FYE for the current year or the one before it.
You cannot change your company’s FYE if the statutory deadlines for holding an AGM, filing Annual Returns or sending financial statements have passed. Also, you’ll need permission from ACRA if you have changed your FYE in the last five years or if changing your FYE will make your financial year more than 18 months.
Let Sleek help
Avoid the hassle and possible confusion of handling your FYE yourself and let Sleek’s accounting services do the work for you. Your business operations will be a breeze as you won’t have to spend time collating numerous documents, keeping up with legal requirements, and making decisions that will cost your business more. Contact us today.
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