A company’s financial year end determines the end of the company’s accounting period, after which financial report for the period will be prepared for purposes such as filing annual returns with ACRA and filing corporate tax returns with IRAS.
By default, ACRA assigns a company’s financial year end to be exactly a year from its date of incorporation. So a company incorporated on 7 January 2018 will be assigned a financial year end of 7 January 2019 on ACRA BizFile+.
Companies have the discretion to change their financial year end anytime, as the Companies Act does not set a fixed date for commencement or end of a financial year. Even though dates like 31 March, 30 June, 31 October and 31 December are convenient dates to remember, it is not advisable for newly-incorporated companies to set their financial year end according to these dates, merely for a perceived convenience.
Instead, to maximise tax exemption incentives (companies enjoy zero tax for the first $100,000 chargeable income in the first 3 financial years), newly-incorporated companies are advised to set their financial year on the last day of the eleventh month from the date of incorporation.
Maximise leverage on tax exemption
For a company incorporated on 18 May 2018, its financial year end can be set to 30 April 2019 to fully leverage on tax exemption on the first year.
First year: 18 May 2018 – 30 April 2019
Second year: 1 May 2019 – 30 April 2020
Third year: 1 May 2020 – 30 April 2021
Compare this to a company incorporated on the same date, but with a financial year end on say 30 June 2019:
First year: 18 May 2018 – 31 December 2018
Second year: 1 January 2019 – 30 June 2019
Third year: 1 July 2019 – 31 December 2019
From the above example, we can learn that a company’s financial year can make provision for a longer period of tax exemption.
Others considerations when determining financial year end
There are a host of other reasons that can influence a company’s financial year.
- Seasonal business activities
If you have a seasonal business that experiences highs and lows in sales activities at different times of the year, you might want to plan your financial year end to be at the end of the business cycle, when activities wane, and inventory will be at its lowest, to facilitate stock-taking.
- Subsidiary company
It is also worth noting that a subsidiary company will tend to align its financial year end to that of the holding company.
Changes in Legislation
For companies with FYEs ending on and after 31 August 2018:
To prevent companies from arbitrarily changing their FYE, there are safeguards:
(a) Companies must notify the Registrar of their FYE upon incorporation and of any subsequent change;
(b) Unless otherwise approved by the Registrar, the duration of a company’s financial year must not be more than 18 months in the year of incorporation; and
(c) Companies must apply to the Registrar for approval to change their FYE if:
– the change in FYE results in a financial year longer than 18 months; or
– the FYE was changed within the last 5 years.
Companies incorporated before 31 August 2018 will have their FYE deemed by law to be the anniversary of the date previously notified (via an annual return/change of FYE transaction) to the Registrar as their FYE date. In the absence of such notification before 31 August 2018, the anniversary of the date of incorporation will be deemed by law to be their FYE.
Companies intending to change their FYE for the current or previous financial years may thus wish to change their FYE before 31 August 2018 by lodging a transaction via BizFile+.
Read more about the change in legislation here.
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