Liquidation of company in Singapore: Guide to Compliance and Tax

The two main methods of closing a company in Singapore are striking off and liquidation (also referred to as winding-up):

• Striking off – Private companies that are not actively in business and do not have any assets or liabilities may apply to the Accounting and Corporate Regulatory Authority (ACRA) to be struck off the register. Striking off is a relatively easy, fast, and inexpensive process.
• Liquidation – This formal closure process involves an appointed liquidator who takes control of the company’s assets, business operations, and financial affairs. All bank accounts and assets are under the liquidator’s custody, and the liquidator has the power to sell off (realise) the company’s assets, with the net proceeds used to pay off debts and liabilities. Any surplus cash is distributed to shareholders according to their rights and interests under the company’s constitution and Companies Act 1967.

The winding of a company may be either by Order of the Court or voluntary.

There are two types of voluntary winding up which are:

• a member’s voluntary winding up; or
• a creditors’ voluntary winding up.

A company’s solvency (its ability to pay its debts and liabilities within 12 months from winding up) will qualify for a member’s voluntary winding up.

Below is a breakdown of the types of company closure in Singapore:

• Strike-off: Best for companies with no outstanding liabilities or business operations.
• MVL: Suitable for solvent companies with assets to distribute among shareholders.
• Compulsory Liquidation: Necessary for insolvent companies with unpaid debts.

Companies should consult a licensed liquidator or accountant to determine the suitable closure method, as eligibility varies based on the company’s financial, legal and operational circumstances.

1. Confirm eligibility – Ensure that the company has ceased business activities, settled all debts, has no outstanding liabilities, no pending litigation, and no unresolved tax matters.
2. Prepare documentation – Submit the Application for Striking Off to ACRA via BizFile+.
3. Obtain Tax clearance – File final tax returns, settle outstanding taxes, and obtain a notice of Tax Clearance from the Inland Revenue Authority of Singapore (IRAS).
4. Await ACRA processing – ACRA will assess the application and publish a notice in the Government Gazette.
5. Final closure – If no objections arise within 60 days, ACRA will publish a final notice and remove the company from the register.

To comply with local regulations, Singapore businesses entering members’ voluntary liquidation will generally need to:

1. Prepare a Declaration of Solvency – A majority of the directors must make a statutory Declaration of Solvency.
2. Hold an extraordinary general meeting (EGM) – Shareholders need to pass a special resolution to wind up the company and approve a liquidator.
3. Realise assets and distribute cash – The liquidator will take over the winding–up process, using proceeds from the sale of assets to repay creditors in order of priority. Any excess money may be paid to shareholders and employees.
4. Hold a final EGM – The EGM must be called by giving at least 30 days’ notice, and the notice of the EGM published in one English local newspaper and in the eGazette.

For businesses looking at how to close a company in Singapore through members’ voluntary liquidation, please refer to the infographic “The process of voluntary liquidation in Singapore” below for more details.

Understanding the tax issues involved in company liquidation can help ensure a smooth winding up process that optimises financial outcomes and reduces compliance risk.

• Final corporate tax filing: Companies must file all outstanding corporate tax returns (Form C-S/C) with IRAS before closure.
• GST deregistration: Companies registered for GST must cancel their registration within 30 days of ceasing business operations. Then file a final GST return to settle any liabilities or claim refunds.
• Tax clearance certificate: Required from IRAS to confirm no outstanding taxes before liquidation.
• Shareholder distributions: Distributions made during liquidation are generally treated as capital repayments and not subject to tax if properly classified. However, distributions of retained earnings or profits may be considered taxable dividends depending on the nature of the funds.

In the case of voluntary liquidation, key tax considerations include:

• Goods and services tax (GST) – Companies must fulfil all GST obligations, including settling any outstanding liabilities, claiming refunds, filing a final return, and cancelling their GST registration.
• Corporate income tax – Companies must ensure all outstanding tax obligations are filed up to the date of liquidation and there are no outstanding tax liabilities. Any outstanding tax matters must be settled before the liquidation process is completed.
• Tax losses and carry-forward – To utilise any unabsorbed tax losses brought forward, the company’s ultimate shareholders must remain substantially (50% or more) the same as at the relevant dates. Any remaining unabsorbed tax losses carried forward in the year of liquidation will be disregarded.

To avoid unnecessary tax liabilities during closure, businesses should work with tax professionals who understand how to close a company in Singapore efficiently.

The Inland Revenue Authority of Singapore (IRAS) has recently updated its guidelines for financial reporting during the winding up of a company.

The Insolvency, Restructuring and Dissolution Act 2018 requires liquidators to prepare a declaration detailing the company’s receipts and payments for a period of 12 months after the date of the liquidator’s appointment and every subsequent period of 12 months.

With effect from 1 May 2021, liquidators can use the same 12-month period as their reporting period when preparing this declaration of receipts and payments. This means liquidators no longer need to split receipts and payments based on the calendar year when filing declarations with the IRAS, making for easier reporting.

For businesses exploring how to close a company in Singapore, staying informed about such regulatory changes can ensure a more seamless liquidation process.

Meanwhile, tax professionals can help you navigate financial complexities and obtain any tax benefits you’re entitled to.

“It is very important to engage a liquidator who has a wealth of knowledge and knows what steps need to be taken at what point in time,” adds Eunice, who has been appointed as liquidator to support the clients’ members voluntary liquidations.

The support of a skilled, experienced corporate services team is especially important for liquidating a parent company where multiple entities are involved.