The classification of a dormant company varies between the Inland Revenue Authority of Singapore (IRAS) and the Accounting and Corporate Regulatory Authority of Singapore (ACRA):

According to the IRAS, a company is considered dormant if it generates no revenue or income during a financial period, even if it incurs expenses.

On the other hand, the ACRA defines a company as dormant only if it has no accounting transactions throughout the financial period. Unlike IRAS, ACRA does not classify a company with only expenses as dormant.

However, ACRA allows for certain expenses to be considered when determining dormancy. These specified expenses, if incurred, can still qualify the company as dormant:

• Appointment of a company secretary
• Appointment of an auditor
• Maintenance of a registered office
• Maintenance of registers and books
• Payment of fees to ACRA or any fines or penalties to ACRA
• Issuance of shares to a subscriber to the constitution as per an undertaking.

Note: Due to the different definitions used by IRAS and ACRA, a company considered dormant by IRAS may be classified as active by ACRA.

A company should be filed as dormant in situations where it is not carrying out any significant business activities or operations. Here are some common scenarios where filing as dormant might be appropriate:

• No Trading Activity: The company is not engaged in any buying or selling of goods or services.
• No Income Generation: The company is not generating any income or revenue from its activities.
• No Financial Transactions: There are no financial transactions such as payments, receipts, or banking activities.
• No Employees or Payroll: The company does not have any employees on its payroll.
• No Business Operations: The company has ceased all business operations and is not actively conducting any business activities.
• Minimal Administrative Functions: The company may only be performing minimal administrative tasks required to maintain its legal status, such as filing annual returns or paying necessary fees.

The purpose of declaring a company as dormant instead of terminating it entirely lies in the flexibility it offers for potential future activities. Here are some key reasons why a company might choose to become dormant instead of terminating:

• Preservation of Company Name: By declaring a company as dormant, its name is preserved and protected from being registered by another entity. This can be advantageous if the company plans to resume business activities in the future or wants to maintain its brand identity.
• Maintaining Legal Existence: A dormant company maintains its legal existence, which can be beneficial for various reasons such as retaining ownership of assets, intellectual property rights, or contractual agreements. It also allows the company to resume operations without the need for re-incorporation.
• Cost Savings: Maintaining a dormant company often incurs lower costs compared to terminating and later re-incorporating a new company. It eliminates the need for re-registering trademarks, transferring assets, or re-establishing business relationships.
• Compliance Flexibility: Dormant companies are generally subject to fewer regulatory and compliance obligations compared to active companies. This reduces the administrative burden and costs associated with ongoing compliance requirements.
• Future Business Opportunities: Keeping a company dormant provides flexibility to explore future business opportunities or ventures without the need to establish a new legal entity. It allows for a seamless transition back to active status when the business environment is favorable.

Overall, declaring a company as dormant offers a strategic approach for businesses that wish to pause operations temporarily while preserving their legal rights, assets, and brand identity for potential future use.

Dormant companies are exempt from filing income tax returns with IRAS if they meet the criteria for dormancy and have no taxable income. However, they must still declare their dormant status annually to IRAS and remain compliant with tax regulations to avoid penalties.