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Changes In Singapore’s Companies Act Exempts Private Limited Companies From Audit Requirement
Singapore’s Accounting and Regulatory Authority (ACRA) announced in April that the legislative changes to the Companies Act - Capther 50 (CA), passed in October 2014 - would be rolled out in two phases as it involves numerous technical amendments as well as the introduction or abolition of many sections within the CA.
In particular, phase 1 introduces a new “small company” concept where audit exemption is given to small companies and their group.
This first phase was implemented on 1 July 2015; the second phase will commence during the first quarter of 2016 (Q1, 2016).
The small company concept was introduced to reduce the regulatory burden, moving audit compliance towards a risk-based approach where a small company is exempt from statutory audits provided it certain critieria:
- it is a private company in the financial year in question; and
- it meets at least two of three following criteria for the immediate past two consecutive financial years:
(i) total annual revenue for each financial year ≤ S$10m
(ii) total assets at the end of each financial year ≤ S$10m
(iii) number of full-time employees ≤ 50 as at the end of each financial year.
A company which is part of a small company group (a parent or subsidiary) will be eligible for the audit exemption when:
- the company has first qualified as a small company; and
- the entire group has qualified as a “small group”.
For a group to be defined as “a small group”, it must (in total as a group) also meet at least two of the three quantitative criteria mentioned above on a consolidated basis for the immediate past two consecutive financial years.
Having satisfied these, the company (together with its group, in case the Singapore company is an investment holding company) is exempt from the compliance cost of auditing its financial statements. The audit exemption applies to any company with respect to financial statements for a financial year commencing on or after 1 July 2015.
Compliance costs less
With the introduction of this small company concept, new private limited companies in Singapore are given an opportunity to further lower annual compliance fees. The exemption complements existing audit exemptions given to dormant companies and private limited companies which are already in place within the definition of CA.
Owners of newly-incorporated companies should also take note that for wholly-owned newly incorporated subsidiary or individually owned private limited companies, they are also accorded various tax exemptions by the Inland Revenue Authority of Singapore (IRAS) when certain conditions of shareholdings have been fulfilled. Namely, the first S$100,000 of chargeable income earned may be exempted from corporate tax; thereafter, the next S$200,000 of chargeable income is given a 50% exemption from the prevailing 17% corporate tax rate effectively lowering the effective tax rate to 8.5%.
What else has changed in Singapore private companies regulation?
Clearer definition of the relationship between a subsidiary and its holding company
Introduction of “interest in shares” by way of having authority over those shares (whether formal, informal, express or implied)
Narrowing the condition where a person is considered as an “associate” of the person
Steamlined the use of statutory declaration, making it simpler for private limited company to provide financial assistance
Abolition of the transitional provision relating to share warrants within the next two years from 1 July 2015
Allows share capital to be used for expenses and is not be taken as “capital reduction”
Ability of company to issue “nil consideration” shares
Allow the total number of share or preference shares buyback to be 20% of the total and issued share capital or preference shares (as the case may be)
Specifically provides that financial statements can be dated less than 14 days prior to the annual general meeting if all the shareholders agree; previously, the CA required every financial statement of the company to be dated at least 14 days before the annual general meeting is sent to every shareholder
Removes the requirement of a “director’s report” to be attached to the financial statements, but provides a new requirement on “director’s statement” containing information as set out in the new Twelfth Schedule of the CA
Allows auditors to resign in writing before the end of the term of their office; but the incoming auditor will continue until the annual general meeting of the company where they have to be re-appointed by shareholders; for public listed company, the auditors will need to obtain ACRA’s consent before they can resign
Simplify the process of directors’ solvency statement in the case of amalgamation
Also taking effect in Q1 2016:
Requirement to update shares ownership with ACRA via electronic filing
Introduction of a “constituition document” to replace the current “memorandum and articles of association”; the constitution is a single purpose document used for incorporation, whereas the current memorandum and articles of association comprises two set documents requiring shareholders’ signatures
Whether or not you are a dormant company, exempt private limited company (whose shares are not owned by corporation directly or indirectly and which has not more than 20 individual shareholders), or “small company”, there is still a requirement to prepare financial statements even though you are exempted from audit.