Top Stories

Singapore’s New Amendments to the Companies Act: the Annual Audit Exemptions for Small Firms Explained

By ASEAN Briefing
Posted: 18th August 2015 09:31
Qualifying small companies in Singapore can now benefit by foregoing a yearly financial burden – annual audits. The new regulations arise from the amendment of Singapore’s Companies Act in October, 2014 – the most sweeping change made since the law’s original promulgation in 1967.

The first set of alterations to the city-state’s corporate law arising from the new amendments to the Companies Act came into force July 1, 2015, with the rest set to be implemented later in 2016.

The most significant aspect of the amendment to foreign and domestic investors alike is the reclassification by the Accounting and Corporate Regulatory Authority (ACRA) of the criteria by which a corporation can be defined as a small company under Singaporean law. Such a regulatory distinction is important because qualifying small companies enjoy fewer regulatory burdens; namely exemption by ACRA from annual audit requirements, the costs of which can put a strain on the financial resources of small companies. Under the old regime, private limited companies qualified under Singaporean law as Exempt Private Companies (EPCs) if:

a.    Annual revenue is less than five million SGD (US$3.61 million)
b.    Have less than 20 shareholders
c.    Have no corporate shareholders
d.    Are not part of a larger business group

Established by an earlier 2003 amendment to the Companies Act, the EPC designation was envisaged to increase the ease of doing business in Singapore for entrepreneurs and small-and-medium enterprises (SMEs) by reducing regulatory hurdles – chiefly the annual audit requirement.

Instead of preparing and filing an annual audit with ACRA, EPCs may simply submit a declaration of solvency signed by relevant company directors and the company’s secretary. However, EPCs must still keep records of financial statements following Singapore’s Financial Reporting Standards (FRS) on file in case ACRA requests them. Considered in tandem with the other regulatory advantages granted to EPCs (such as the loosening of strict regulations on what types of loans directors of larger companies may accept), it is clear why investors in Singapore have made EPCs the city-state’s most popular corporate structure.

Under the framework laid down by last year’s amendment to the Companies Act, starting July 1, 2015, the criteria for a company to qualify as “small” has been both simplified and loosened to include over 25,000 new companies, according to the Singaporean Senior Minister for Finance and Transport. The new eligibility requirements are as follows:

  • Annual revenue is less than $10 million SGD ($7.22 million USD)
  • Total assets not exceeding $10 million SGD ($7.22 million USD)
  • Less than 50 employees

Therefore, not only does ACRA’s new regime streamline and simplify the eligibility criteria, but it moreover allows for a large expansion of firms qualifying for the statutory audit exemption.

Important to note is that the new regime’s guidelines no longer require that a company officially qualify as an EPC in order to enjoy the audit exemption. Therefore, companies with more than 20 shareholders which previously were required to file an annual audit with ACRA will now count as exempt as long as their revenue and employee totals do not exceed the amended Companies Act limits. However, to combat potential fraud risks and safeguard shareholder rights, companies in which outside shareholders control over five percent of voting rights will be mandated to perform the statutory audit, regardless of size.

Using the new small company standards, eligibility for audit exempt status is decided based upon whether a given firm meets the quantitative criteria for either the first or second fiscal year (FY) following commencement of the new regulations – namely FY 2015 or 2016. That company would then continue to be eligible for the small company audit exemption until it fails to meet the criteria for two consecutive fiscal years, or ceases being a private company. For companies incorporated after the promulgation of the new audit exemption criteria, eligibility for small company status is based upon its meeting the quantitative requirements in its first two fiscal years after establishment.

To illustrate, if a firm which qualified for the exemption in FY 2015 or FY 2016 no longer meets the quantitative criteria for FY 2017, but then once again met eligibility requirements in FY 2018, it would continue to be an audit exempt small company. However, if it failed to meet the quantitative requirements for both FY 2017 and FY 2018, it would no longer qualify as audit exempt.

Thus, by further reducing the regulatory burden for investors and expanding its audit exemption framework to accommodate larger firms, Singapore lives up to its annual high ranking in the World Bank’s Ease of Doing Business report. Not only does the new small company exemption regime allow more SMEs to cut costs by foregoing audit fees, but it simplifies the operational complexity of entering the Singaporean market, thereby helping ensure that the city-state continues to be an attractive destination for foreign direct investment.

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.

For inquiries, please email us at Further information about our firm can be found at:

Related articles