BUSINESS ARTICLE

Liquidation of company in Singapore: Guide to Compliance and Tax

Liquidation of company in Singapore Guide to Compliance and Tax Banner

Liquidation of company in Singapore: Guide to Compliance and Tax

The cessation of a Singapore company can occur for a range of reasons, such as changes in strategic direction, lack of profitability, or legal issues. Factors like your company’s state of affairs, debt level, business goals, and tax status can determine the method of closure.

Especially in the case of voluntary liquidation, having a good understanding of the tax implications of company closure can help business leaders streamline the process, optimise the tax position of stakeholders, and minimise compliance risk.

This article sheds light on the compliance and tax issues surrounding the liquidation of a company and provides valuable insights on how to close a company in Singapore efficiently while safeguarding stakeholders’ interests.

What to know about closing a company in Singapore

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:

Closure MethodEligibility DurationKey Considerations
Striking OffNo debts, no assets, no ongoing business activities, No pending legal proceedings or tax liabilitiesAt least 4 monthsSuitable for dormant or inactive companies
Members’ Voluntary Liquidation (MVL)Solvent company, able to pay off debts within 12 monthsApproximately 12 monthsRequires a liquidator to distribute assets, a Declaration of Solvency must be filed by directors to initiate MVL
Compulsory LiquidationInsolvent company, initiated by creditors or court orderVariesTypically initiated by creditors or via legal proceedings

 

Winding of a company

Which Method Should You Choose?

  • 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.

Step-by-Step Guide to Closing a Company in Singapore

Striking Off a Company

  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.

    The process of voluntary liquidation in Singapore

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

    1. Prepare a Declaration of SolvencyA 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 windingup 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.

    A majority of the directors must make a statutory Declaration of Solvency.
    Hold an extraordinary general meeting (EGM)
    Shareholders need to pass a special resolution to wind up the company and approve a liquidator.
    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.
    Hold a final EGM
    The EGM must be called by giving at least 30 days’ notice and the notice of EGM published in one English local newspaper and in the eGazette.

    THE PROCESS OF VOLUNTARY LIQUIDATION IN SINGAPORE

    Prepare a Declaration of Solvency

    A majority of the directors must make a statutory Declaration of Solvency, which annexes a statement of the estimated assets and liabilities of the company. The declaration must also show that as at the latest practicable date, at a meeting of the directors, in their opinion, the company shall be able to pay its debts in full within 12 months from the commencement of the winding up. The declaration has to be made within 5 weeks preceding the resolution to wind up and the declaration is filed with ACRA before the notice of the meeting to pass the winding up resolution is sent out.

    Hold an extraordinary general meeting (EGM)

    Shareholders must pass a special resolution to wind up the company and approve a liquidator. A copy of the resolution to wind up must be filed with ACRA within 7 days after it is passed and advertised in a local English newspaper within 10 days. Within 14 days after his appointment, the liquidator must file a notice of appointment with ACRA and the Official Receiver. The fact that the company is being wound up must be stated on every invoice, business letter, or other correspondence of the Company. Then, the directors’ powers will cease upon the appointment of a liquidator, and the liquidator will take charge.

    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.

    Hold a final EGM

    The EGM must be called by giving at least 30 days’ notice, and the notice of the EGM must be published in one local English newspaper and in the eGazette. The liquidator will present to shareholders its final account of how the liquidation was conducted and how payments were made. It must also lodge the account of the liquidator’s receipts and payments, as well as a statement of the position in the winding up with the Official Receiver. Within 7 days after filing the account and statement with the Official Receiver, the liquidator must file the account and statement with ACRA.
    On the expiration of 3 months from lodgement of the accounts and the final return, the company is deemed dissolved. The books and documents of the company and the liquidator shall be retained for a period of 5 years after the date of dissolution and may be destroyed at the expiration of the period.

    On the expiration of 3 months from lodgement of the accounts and the final return, the company is deemed dissolved. The books and documents of the company and of the liquidator shall be retained for a period of 5 years after the date of dissolution and may be destroyed at the expiration of the period.

    The tax implications of the liquidation of a company

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

    Tax Obligations Before Closing a Company

    • 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.

    Updated rules for financial reporting during liquidation

    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.

    Common tax pitfalls during liquidation

    Some of the common tax pitfalls include:

    • Failure to clear outstanding corporate tax before striking off
    • Late filing penalties from IRAS
    • Overlooking GST deregistration 

    According to Ade Teo, Senior Manager of Regional Tax Services for BoardRoom Singapore, another common tax pitfall seen in company liquidation is inaccurate record keeping.

    “Some companies do not maintain proper records,” she says.

    “Companies without these documents may face challenges in substantiating deduction claims and revenue reporting during liquidation.”

    This is why good record-keeping is important in every phase of the business lifecycle, from company incorporation to the end.

    Companies with a history of non-compliance with tax filing obligations may face scrutiny from IRAS during liquidation. For companies that have failed to meet tax filing requirements, IRAS may issue chaser letters or impose late filing penalties.

    Taking proactive steps to settle outstanding tax obligations will help ensure a seamless liquidation process.

    Common tax pitfalls during liquidation

    Costs Involved in Closing a Company

    The costs of closing a company in Singapore vary depending on the method and complexity of the process. 

    Key expenses typically include:

    • Government Fees – These may include regulatory filing fees, such as those required by the Accounting and Corporate Regulatory Authority (ACRA) for company strike-offs and liquidations.
    • Professional Fees – Engaging corporate service providers, such as liquidators or corporate secretarial firms, incur professional fees for handling the administrative and compliance aspects of the liquidation.
    • Legal and Tax Advisory Fees – Businesses may need to engage legal and tax professionals to navigate compliance requirements and ensure proper tax clearance.

    Businesses should consult experienced professionals to get a clear understanding of the costs associated with their specific situation.

    Why Applications Fail & Common Pitfalls

    Many companies face rejection when applying for closure due to the following reasons:

    • Unpaid taxes or outstanding debts: Companies must settle all financial obligations before closure.
    • Pending legal matters: If a company is involved in lawsuits, it is not eligible for striking off.
    • Failure to deregister licenses – Any business licenses, permits or registrations must be cancelled before applying for closure.
    • Incomplete or inaccurate documentation – Applications with missing, incorrect or inconsistent information will be rejected.

    After Closing Your Company

    Even after closure, there are post-closure responsibilities to keep in mind:

    • Document Retention: Companies must keep business records for at least five years fromt eh date of closure, in accordance with the Companies Act and IRAS guidelines.
    • Reinstating a Struck-Off Company: If there is a valid reason to do so, a previously struck-off company can be restored within six years via a court application.
    • Managing Dormant Companies: If a business is not fully closed but inactive, it must still fulfil statutory obligations such as annual return filing and corporate tax submissions, unless it has been granted a waiver or exemption by ACRA and IRAS.

    How to optimise company liquidation in Singapore

    Given the complex, time-consuming nature of members’ voluntary liquidation in Singapore, engaging a qualified corporate services team to act as your liquidator can be immensely beneficial. If you are unsure how to close a company in Singapore, a reputable firm specialising in corporate secretarial and tax services can help ensure a smooth, compliant process.

    “At BoardRoom, our company secretarial and tax teams work closely together to ensure we obtain tax clearance in the shortest time frame,” says Eunice Hooi, Head of Corporate Secretarial for BoardRoom Singapore.

    The company secretary’s role in Singapore liquidation includes supporting you with the following activities:

    Navigating the entire process of liquidation
    Preparing for liquidation by ensuring your documents are in order and debts are paid
    Filing necessary returns to local authorities (e.g. ACRA, Official Receiver)
    Sending letters to directors regarding cessation of their power
    Correspondences with the statutory boards (e.g. IRAS, CPF Board) and banks on the commencement of the company’s liquidation and appointment of liquidator
    Informing stakeholders of the liquidation by placing notices in a local English newspaper and on the eGazette

    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.

    Streamline the liquidation of your company with BoardRoom

    In the event that your business needs to close down, understanding how to close a company in Singapore and navigating tax issues, as well as the liquidation process of a company, is of utmost importance.

    For more than 50 years, BoardRoom has been providing expert liquidation guidance for Asia-Pacific companies of all sizes and industries. We can advise you on the members’ voluntary winding up and help ensure a tax-efficient closure that fully complies with local regulations.

    To find out how our local business experts can assist with the liquidation of your company, please contact us.

    Frequently Asked Questions (FAQs)

    1. Can I reopen a struck-off company?

    Yes, a struck-off company can be restored within six years by submitting a court application and settling any outstanding obligations.

    2. How long does company liquidation take?

    • Striking off takes around 5 months, depending on ACRA approval.
    • Members’ Voluntary Liquidation (MVL) typically takes approximately 12 months, depending on asset distribution.

    3. What happens if I don’t clear my taxes before liquidation?

    IRAS will reject the closure application, and the company will remain liable for outstanding taxes. Late filing penalties may also apply.

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