Exempt Private Companies (EPC)
Yesterday I was talking with a prospect client on company formation matters.
He was trying to understand if his intended new company needs to be audited, & he claimed his circle of business friends have informed that his intended company will be exempted from the need to be audited, & hence there is no need to appoint an Auditor within 3 months after his company incorporation. He was true to some extent.
Now let me try to recap the concept of Exempt Private Company or EPC, & share the recent development in this area of corporate secretarial matter :
Many business owners would like to incorporate an EPC due to these 7 key benefits of an EPC –
- Reduced burden of audits translates into saving of audit fees
- Tax exemptions for first three years on their first S$300,000 taxable income
- The directors of EPCs can take a loan from the company to leverage on their capital and earnings
- An EPC has a distinct legal entity
- Practices asset protection for shareholders
- Can undergo transfer of shares and hence perpetuity of business as an entity
- An EPC denotes credibility
However, 5 pointers you must know about EPC :
- exempted from statutory auditing requirements if their annual turnover < S$5 million ( Effective Date : The audit exemption is applicable for financial years beginning on or after the change in the law (1 Jul 2015 ) ) ( BUT see Note A below on new rule on audit exemption now ) ;
- can submit only a solvency declaration duly signed by the company’s secretary & directors instead of filing audited annual accounts ;
- can file its annual audited accounts with the Registrar of ACRA, if due to any reason it is unable to submit the declaration in the prescribed form ;
- should still prepare & present its accounting records and financial statements properly in compliance with the Singapore Financial Reporting Standards and Companies Act of Singapore.
Note A : New Rule on Audit Exemption
A1. Currently, a company is exempted from having its accounts audited if it is an exempt private company with annual revenue of $5 million or less.
A2. This approach is being replaced by a new small company concept ( SCC ) which will determine exemption from statutory audit.
A3. Notably, a company no longer needs to be an exempt private company to be exempted from audit.
A4. A company qualifies as a small company if:
(a) it is a private company in the financial year in question; &
(b) it meets minimum 2 of 3 following criteria for immediate past 2 consecutive financial years:
(i) total annual revenue ≤ $10m;
(ii) total assets ≤ $10m;
(iii) no. of employees ≤ 50.
A5. For a company which is part of a group:
(a) the company must qualify as a small company; &
(b) entire group must be a “small group”
to qualify to the audit exemption.
A6. For a group to be a small group, it must meet minimum 2 of the 3 quantitative criteria on a consolidated basis for the immediate past 2 consecutive financial years.
A7. Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified.
A small company is disqualified if:
(a) it ceases to be a private company at any time during a financial year; or
(b) it does not meet minimum 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
A8. Where a group has qualified as a small group, it continues to be a small group for subsequent financial years until it does not meet minimum 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
A9. Transitional Provisions for existing companies
* An existing company can qualify as a “small company” if it is a private company & meets the quantitative criteria in the 1st or 2nd FY commencing on or after the date of commencement of the “small company” criteria.
In conclusion, your company can be :
* an EPC ( sales < $5m ) but insolvent, hence needs to file Annual Financial Statements
* an EPC ( sales < $5m ) and solvent, hence just file Solvency Declaration
* sales > $5m but SCC and solvent, no need for audit but still need file Annual Financial Statements
* sales > $5m but not SCC, needs to be audited
Hope above helps to clarify.
Good Luck !
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