Exempt Private Company is one of the pull factors that draw entrepreneurs to Singapore. At first glance, it offers tax incentives and strategic advantages that are only meant for businesses at their embryonic stages, making Singapore an incubator for start-ups and SMEs.
This article is our attempt to present a comprehensive overview of Exempt Private Company in Singapore. We hope this will help you make a better choice for your company.
1. Definition of Exempt Private Company in Singapore
For the definition, an Exempt Private Company (EPC for short) in Singapore is a private limited company that is owned by a maximum of 20 shareholders, all of whom must be individuals. EPC is one of the most favored types of businesses in Singapore as it provides a wide range of benefits and tax incentives.
As its name may suggest, an EPC can be entitled to some exemptions from certain tax liabilities and audit requirements. Furthermore, like a private limited company, an EPC also brings you similar benefits such as separate legal status and members’ limited liabilities by shares.
Generally speaking, an Exempt Private Company in Singapore is divided into 2 types, depended on the ability to pay debts. Pursuant to ACRA, the filing requirements each type is subject to significantly diverse:
- An insolvent EPC (unable to pay debts) is obliged to file either a full set of financial statements in XBRL format or salient data of financial statements in XBRL format, accompanying a PDF copy of your financial statements.
- A solvent EPC (able to pay debts) enjoys the exemption from filing financial statements. That being said, it is well-advised for you to fulfill the requirement for filing as it is with insolvent EPC.
2. Benefits of an Exempt Private Company in Singapore
To build Singapore’s image as the best place for startups and alleviate the compliance burden for small companies, the government announced the ratification of the amendment in 2003 to the Company Act, marking the dawn of EPC.
Here are some of the advantages of EPC that you can make use to drive more profits, including:
- Distinct Legal Entity
- Fewer compliance requirements
- Higher tax exemption
- Flexibility in Business Loans
- Foreign-owned policy
Distinct legal entity
Like a private company limited by shares, an EPC is considered a legal entity separate from its owners/shareholders.
This means that an Exempt Private Company in Singapore is liable for its own debts and losses. Its shareholders’ liabilities would not go beyond the share capital they own. Moreover, your EPC in Singapore can be ensured a continuity with easy transfer of ownership by transferring shares.
Fewer compliance requirements
An EPC can enjoy an exemption of filing annual accounts as long as it is solvent at the time of registering.
An EPC can also be exempted for conducting an annual audit if it meets at least 2 out of the 3 following criteria for the first or second financial year after incorporation:
- Its total annual turnover is equal to or less than $10m
- Total assets are equal to or less than $10m
- Its total employees are equal to or less than 50
All directors and the company secretary have to sign a solvency declaration, the prescribed form of which is available online, and then submit it to the Registrar of Companies in Singapore (ACRA).
However, you are still duty-bound to properly update accounting records and prepare financial statements as per the Companies Act and the Singapore Financial Reporting Standards (FRS).
In any other case in which your company falls short of the aforementioned criteria, the obligation to submit audited accounts and to file annual financial statements applies as per usual.
Higher tax exemption
An Exempt Private Company in Singapore is likely to be qualified for the Tax Exemption Scheme for Startups, which can lead to a significant tax-cut for your company.
Under the scheme, your newly-formed EPC is entitled to tax exemption on the first $200,000 of its taxable income every year for the first 3 consecutive years from Year of Assessment (YA) 2020 onwards. To be more specific:
- 75% of the first $100,000 of chargeable income will be exempted from Singapore income tax.
- Additionally, 50% of the next $100,000 will also be exempted from being taxed.
In sum, you can get a maximum exempted amount of $125,000 for each year of the first 3 years of incorporation.
Side note, this scheme does not apply to every company. Companies that specialize in investing, such as investment holding ones, or in property development as it is with real estate companies are unable to apply for this tax exemption.
Flexibility in Business Loans
Other types of business entities, in most cases, are subject to tough restrictions upon making business loans to other related entities and their own directors. In particular, a private company is prohibited from lending or providing guarantee or security to loans of other companies, in which its director has interests or ownership of 20% or more. A private company is also not allowed to extend loans to any of its directors.
In contrast, an EPC enjoys much more independence and flexibility in how they act on their capital as it is totally exempted from this regulation. As EPCs are not curbed by this restriction, you are allowed to grant loans to other companies to leverage your assets into profit.
As per the Companies Act, a foreigner is allowed to act as the sole shareholder that owns all the shares of an EPC, which suggests that an EPC is eligible for 100% foreign ownership.
Following the same pattern as other incorporated entities, EPCs manifest signs of burgeoning capabilities and financial integrity, which helps you shape the perception that investors and the public have of your business.
3. How to Register an Exempt Private Company in Singapore
Firstly, you need to know the general requirements to set up an EPC in Singapore, it is quite alike to those of a limited company:
3.1. Key Requirements
Director(s): You are required to appoint at least one director to assume the managerial responsibility and fiduciary duty toward the EPC. This key individual must be a local resident, that is, a Singaporean citizen, a permanent resident, an Employment Pass, EntrePass or Dependant’s Pass holder. Other directors could be of any nationality as deemed appropriate under the legislation of Singapore.
Shareholder(s): The number of shareholders must not fall below the minimum required of 1 and are capped at a maximum of 20. A corporate body is barred from holding any bit of shares in an EPC. Pursuant to the Company Act, a shareholder could act as the director, simultaneously.
Initial Paid-up capital: You are obliged to pay a minimum share capital of S$1 to get the green-light for your incorporation.
Company Address: It’s a must to have a registered office address in Singapore, a P.O Box is not accepted.
Company Secretary: You are given a period of 6 months since the date of incorporation to fill the position of the company secretary, who, among others, also holds the key to the registration of the EPC. This individual must be ordinarily resident in Singapore, well-qualified and have relevant expertise in administration to ensure consistency in the company’s compliance with regulatory requirements.
3.2. Exempt Private Company Registration in Singapore
The procedure for registering for PC appears to be fairly straightforward with a company incorporation service in Singapore.
You first need to register a business name. As EPC is classified as private limited, it needs to have a unique name, which must be tailed along by “Private Limited”, “Pte. Ltd” – the abbreviation for private limited, or “EPC” for Exempt Private Company.
Then you should declare the incorporation by filing a memorandum and articles of association and submit them to the Registrar of Companies for review and approval.
Whether or not the incorporation is given the nod of approval will be informed via the email address that you have specified.
If it works out, you will be given (1) a Unique Entity Number acting as your EPC’s identity number and (2) a Certificate of Incorporating as proof of its incorporation.
Thereafter, you should delegate the secretary to issue share certificates to the shareholders reaffirming the number of shares they hold. The secretary will also take charge of circulating the First Board of Directors Resolution and preparing the Bank Account Opening Resolution when needed to apply for a bank account.
Should you have any questions regarding Exempt Private Company in Singapore, feel free to talk to our consultants by leaving a chat message or sending us an email via firstname.lastname@example.org