How to choose my Financial Year End (FYE)?
There are 2 important factors you need to consider while choosing your Financial Year End (FYE):
- Whether the company is part of a group of companies
- How to maximise the tax exemptions in the New Start-up Tax Exemption Scheme
1 - Whether the company is a part of a group of companies
If your company is a subsidiary company or a holding company that is reporting to an ultimate holding company (i.e. part of a group of companies), it would be advisable to align your FYE for financial consolidation purposes.
2 - Tax Exemptions
If your company is not a subsidiary/holding company, the most important factor to consider is how to maximise the tax exemptions in the New Start-up Tax Exemption Scheme, which is available to qualifying newly-incorporated companies.
In order to fully maximise the tax exemptions, companies are advised to:
- Set the FYE on the last day of the 11th month from the date of incorporation, and
- Refrain from choosing an FYE that will result in your first financial period longer than 12 months
For corporate tax purposes, the basis period is a 12 months period and if the first financial period is more than 12 months, it will be broken down into 2 Years of Assessment (YA).
This will usually result in the 2nd Year of Assessment to be shorter than 12 months and the tax exemptions for the YA will not be fully maximised.
An example to help you understand the above explanation:
Company A was incorporated on 1st January 2019. Company A's first Financial Year End was set on 31st March 2020, and for subsequent years thereafter, the Financial Year End will be 31st March.
Financial period | Date | Length |
1st financial period | 1st Jan 2019 (date of incorporation) to 31st Mar 2020; | 15 months |
2nd financial period | 1st Apr 2020 to 31st Mar 2021 | 12 months |
The 2 financial periods above will be classified into 3 Years of Assessments for tax computation purposes, as indicated below:
Financial period | Date | Length | Year of Assessment |
1st financial period | 1 Jan 2019 to 31 Dec 2019 | 12 months | YA 2020 |
1st financial period | 1 Jan 2020 to 31 Mar 2020 | 3 months | YA 2021 |
2nd financial period | 1 Apr 2020 to 31 Mar 2021 | 12 months | YA 2022 |
From the above example, the new start-up tax exemptions have been fully utilised in the 1st and 3rd YAs, but only 3 months were utilised in the 2nd YA.
If the company had set its FYE to 31 December 2020 (i.e. the last day of the 11th month), an additional 9 months of chargeable income (i.e. taxable income after tax adjustments) will be able to enjoy the new start-up tax exemption.
