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Newly incorporated company : Tax benefit on choosing your company accounting period

Newly incorporated company : Tax benefit on choosing your company accounting period
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Choosing an appropriate accounting period is one of the important aspect that impact your company’s compliance requirements, reporting deadline and improve cashflow.

Newly incorporated companies in Singapore enjoy significant tax exemptions during the first three Yas (Year of Assesment), making it attractive location for new startups. By carefully planning the first accounting period and understanding the eligibility criteria, business can maximise tax savings and support their growth. In this article, we will walk you through how to choose the right accounting period for your specific industry or seasonal business cycle to maximize operational efficiency.

Table of Contents

What is an accounting period?

An accounting period is a specific timeframe for which a business or organization prepares and reports its financial performance and position. It is used to measure, record and summarize financial transactions and it forms the basis for financial statements such as the income statement.

The accounting period is 12 months long, but it can vary depending on the business’s needs or regulatory requirements. It can be a calendar year (1st January to 31st December) or fiscal year (any 12-month period chosen by the company, such as 1st April to 31st March). The accounting period is essential for consistent financial reporting, compliance and decision making.

Accounting period in Singapore

In Singapore, companies are required to determine their financial year-end (FYE) when incorporating the business. The FYE is the date on which accounting period ends.As per ACRA requirement, accounting periods can be12 months or 52 weeks.If you decide on a 12-month accounting period starting 1 January 2020, your company’s FYE will be 31 December 2020. However, if you choose to have a 52-week accounting period starting Wednesday, 1 January 2020, your company’s FYE will be Wednesday, 30 December 2020. Companies can choose an accounting period which need not align with calendar year and suit to your business operations.

For example, if you choose to have accounting period starting from 1st July 2025, your FYE date will be 30th June 2026. If you choose an accounting period of 52 weeks starting 1st July 2025, then your FYE date will be 29th June 2026.

Deciding on the FYE is crucial as it determines when your corporate filings and taxes are due each year. Private companies are required to:

  • Hold their Annual General Meeting (AGM) within 6 months after the FYE
  • File their annual returns within 7 months after the FYE

You can choose any date as your company’s Financial Year End (FYE). Common choices include 31 March, 30 June, 30 September, or 31 December.

Statutory compliance corresponding to the FYE

1. ACRA Compliance
For company incorporated in Singapore required to file annual return and hold AGM depends on the FYE as per following tables below:

The tables below illustrate the due dates for holding the annual general meeting (AGM) and filing the annual return (AR) with ACRA based on different financial year-ends (FYEs).

For private companies:

  • AGM is due 6 months after FYE
  • AR is due 7 months after FYE
Financial Year End AGM Due Date
(FYE + 6 months)		 AR Due Date
(FYE + 7 Months)
31 Dec 20 30 Jun 21 31 Jul 21
30 Jun 21 31 Dec 21 31 Jan 22
30 Sep 21 31 Mar 22 30 Apr 22

For private and public non-listed companies with share capital that maintain a branch register outside Singapore:

  • AGM is due 6 months after FYE
  • AR is due 8 months after FYE
Financial Year End AGM Due Date
(FYE + 6 months)		 AR Due Date
(FYE + 8 Months)
31 Dec 20 30 Jun 21 31 Aug 21
30 Jun 21 31 Dec 21 28 Feb 22
30 Sep 21 31 Mar 22 31 May 22

2. IRAS Compliance
Singapore companies are required to file their Estimate Chargeable Income (ECI) 3 months from the end of the financial year and Corporate Income Tax Returns on November 30th.

Setting up your accounting period is crucial, please take into consideration of your business cycle and not to conflict with the compliance due dates to reduce your administrative burden.

First Accounting Year and Tax Exemption

In Singapore, newly incorporated companies can benefit from specific tax exemptions and incentive designed to support startups and small business.

The first accounting period can be shorter or longer than 12 months, but it cannot exceed 18 months. Subsequent accounting periods are typically 12 months long.

There is tax exmeption scheme for new startups, these exemption apply to the first three consecutive Years of Assessment (YA).

  • 75% exemption on the first S$100,000 of normal chargeable income
  • 50% exemption on the next S$100,000 of normal chargeable income

How to maximize tax exemption benefit for new startups?

Newly incorporated company to have their 1st Financial year end as close to 12 months as possible in order to take advantage of the tax break for first three consecutives YAs to maximise the coverage of the tax exemption for new startup company.

As IRAS will count financial periods longer than 12 months as two YAs for tax exmption reason.

By strategically planning your FYE which can help to maximize the tax exemption benefit for new startups. Please see the illustration as below:

Ilustration Period of first accounting yearBasis PeriodFYEYear of Assessment (YA)Tax Exemption Benefit
Case 16 months (1st Apr 2025 - 30th Nov 2025)6 months (1st Apr 2025 - 30th Nov 2025)30th Nov every year2026Maximum tax exemption benefit utilized for 30 months
12 months (1st Dec 2026 - 30th Nov 2026)2027
12 months (1st Dec 2026 - 30th Nov 2027)2028
Case 212 months (1st Apr 2025 - 31st Mar 2026)12 months (1st Apr 2025 - 31st Mar 2026)31st Mar every year2027Maximum tax exemption benefit utilized for 36 months
12 months (1st Apr 2026 - 31st Mar 2027)2028
12 months (1st Apr 2027 - 31st Mar 2028)2029
Case 318 months (1st Apr 2025 - 30th Nov 2026)6 months (1st Apr 2025 - 30th Nov 2025)30th Nov every year2026Maximum tax exemption benefit utilized for 30 months as IRAS break the 18 months as two YAs
12 months (1st Dec 2026 - 30th Nov 2026)2027
12 months (1st Dec 2027 - 30th Nov 2027)2028

We can clearly see that the maximum tax benefit fall under the 12 months period for first accounting year. Thus, please try to setup the first accounting period closer to 12 months as possible to maximize the tax exemption benefit.

Changing the FYE

Companies must notify the Registrar of any change in their FYE. They may change the FYE for the current or immediate previous financial year.

However, companies cannot change their FYE if statutory deadlines for the following have passed:

  • Holding of Annual General Meeting (AGM)
  • Filing of Annual Return (AR)
  • Sending of financial statements

The Registrar’s approval to change the FYE will be required if:
1. The change in FYE will result in a financial year of more than 18 months; or
2. The FYE was previously changed on or after 31 August 2018 for a financial year ending on or after 31 August 2018, and it is within 5 years from the end of that previously changed FYE.

Key Consideration for deciding appropriate accounting period in Singapore

Choosing the appropriate accounting period (also known as the Financial Year-End (FYE)) for your company is a critical decision that can impact financial reporting, tax planning and compliance. Here are the key considerations to help you decide on the most suitable accounting period:

1. Business Cycle and Seasonlity

  • Align with revenue peaks: Choose an FYE that aligns with your business cycl, especially if your business is seasonal. For example, if your peak sales occure om December, an FYE of Dec 31st may help you accurately capture annual performance
  • Cashflow Management: Ensure the FYE allows you to manage cashflow effectively, especially for tax payment and financial obligations.

2. Tax planning and exmptions

  • Startup Tax Exemption: Newly incorporated companies enjoy tax exmptions for first three years of assessment (YAs). Align your FYE to maximize these benefits.
  • Deferring tax liability: If you expect higher profits in the future, consider setting an FYE that defers income recognition to the next accounting period.

3. Industry Standards

  • Sector-specific practices: Some industries have standard FYEs (e.g., December 31st for retail business). Aligning with industry norms can simplify benchmarking and financial analysis

4. Group Reporting (if applicable)

  • Parent-subsidiary alignment: If your company is part of a group, align the FYE with parent company or other subsidiaries to simplify consolidated financial reporting
  • Intercompany transactions: Consistent FYEs across group entities can streamline intercompany reconciliation and reporting

5. International Operations (if applicable)

  • Foreign Subsidiaries: If your company has overseas operations, align the FYE with foreign subsidiaries to simplify consolidated reporting and compliance.
  • Tax Treaties: Consider the impact of tax treaties and foreign tax credits when choosing your FYE.

6. Administrative Convenience

  • Ease of Reporting: Choose an FYE that minimize administrative burden. For example, an FYE of December 31 aligns with the calendar yaer, simplifying financial reporting and tax filing.
  • Audit Timing: Consider the availability of auditirs and accountants during your chosen FYE period

Practical Steps to Decide Your FYE

1. Analyze your business cycle:
Identify peak revenue and expenses periods.

2. Consult a Professional:
Engage a tax consultant or accountant to evalute the tax implications of different FYEs. Connect with B6 to help you on this matter.

3. Review Industry Practices:
Research standards FYEs in your industry.

4. Plan for compliance:
Ensure your FYE aligns with ACRA and IRAS requirements.

5. Communicate with Stakeholders:
Discuss the FYE decision with key stakeholders (e.g. investors, auditors)

Example Scenarios:
1. Retail Business:
FYE: December 31st (aligns with holiday sales peak and calendar year)

2. Manufacturing Business:
FYE: June 30th (aligns with production cycles and inventory management)

Conclusion

Singapore Companies Act and tax obligations can be complex especially for new business owner. Seeking professional advise is crucial to ensure smooth and successful journey for startups.

B6 helps you to simplify the compliance process, we are one-stop service provider from incorporation to operational accounting and tax services. Connect with us to find out more.

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