• Posted by admin
• 29 December 2017
• Company Secretarial

Under Section 171(1) Cap 50 of the Companies Act, every company shall appoint one or more company secretary who is a natural person and whose principal place of residence is in Singapore. The responsibility of ensuring that the appointed company secretary is competent and has the requisite knowledge rests with the directors of a company. Public companies, in addition to the above requirements, have to ensure that the company secretary has the required academic and or professional qualifications. A company secretary can operate as the chief administrative officer of the company. They share a number of key responsibilities as stated in the Companies Act. The company secretary handles various legal aspects of the business.

Appointing a Company Secretary

A company secretary is usually appointed by the board of directors in the business. If the company is new, the company secretary has to be appointed with six months from the date of incorporation. It is worth pointing out that company secretaries do not need any formal qualifications for a private company although for public companies there is a set criteria. For smaller companies, the company secretary may be one of the directors of the business.

While there is no strict set of requirements, certain individuals cannot be appointed a company secretary. Legally, this includes the auditor of the business and those charged with bankruptcy. Single director and shareholder cannot act as a company secretary.

Though qualifications are not needed for a small company, company secretaries must still adhere to a number of requirements and will be held accountable for negligence, default, breach of duty, breach of trust. If a company secretaries fails in their duties, they can be legally prosecuted.

There are various sections of the Companies Act that state clearly who should function as the role of the company secretary. For instance, while no qualifications are needed, they must have the knowledge and necessary experience required to complete the role in question.

Public companies must appoint a qualified individual or a registered filing agent.

Company Secretary Delegation

Despite having a number of set roles company secretaries are able to delegate. However, in situations like this they are still required to sign the paperwork and check it. For delegation purposes, a professional chartered secretary or the accountant for the company may be used. Company owners may even hire a solicitor however, this can weigh on the costs of the company.

To understand why a company secretary is still required in the company, we need to explore the extensive role of this position. This covers a number of key responsibilities and legal requirements.

Role of the Company Secretary

Filings

One of the most important roles of the company secretary is ensuring that within a corporate office, information is recorded and noted effectively. The role of filing documents with ACRA on behalf of the company will typically be handled by the company secretary. This can include filing reports of changes in the administration or share capital that are deemed to be substantial or significant. This will be handled based on the strict guidelines set. For instance, a company secretary may be required to notify in no less than 28 days if new shares are allotted. As well as this, the company secretary will be required to handle any issues related to shares including handling the shareholder register and dealing with any complications when transferring shares.

This is an example of the administrative role that company secretaries take on. As well as this, company secretaries are in change of all compliance work related to the ACRA. The individual is also responsible for ensuring that the company does match the deadlines.

The company secretary is also responsible for a number of other key roles related to filing and updating with the ACRA. They must make sure that the ACRA is notified through documents for changes such as the resignation, death or a new appointment of company officers. Naturally, this includes updating of directors’ particulars and any amendments to the company constitution.

The company secretary will also be required to notify the ACRA of a change in name of the business.

Company Meetings

Company secretaries are required to attend all the meetings of directors and shareholders while also preparing the minutes. During these meetings the company secretary may also assist the chairman with the meeting conduct. On top of this, they will also be responsible for the distribution of the financial reports of the company and perhaps even preparing the meeting of the agenda. If resolutions are discussed at the meeting, the company secretary will also be responsible for preparing the resolutions of the directors.

This is an example of the advisory role that company secretaries take in the business. Despite there being no legal requirement for company secretaries to have formal qualifications they are often well versed with an extensive knowledge of the law as well as understanding compliance frameworks. As such, company secretaries often interact and communicate with shareholders as well as directors.

During this time, they provide them with key information and strategies for the company as well as providing necessary aid in key decisions. With their advice owners can make sure that the company stays within the guidelines and regulations of legal frameworks in Singapore.

Indeed, as well as providing advice in meetings, company secretaries are also expected to update directors on changes in the law and ensure that the company remains compliant.

As such, it could be said that company secretaries handle the majority of administrative tasks and tasks related to legal compliance that are necessary to help the company function effectively. This includes ensuring the company is legally compliant with regulatory boards like the ACRA and that deadlines are met to a high level of punctuality. However, the role of the company secretary also extends beyond administrative issues.

Fiduciary Role

Company secretaries certainly have a fiduciary role in any business. They are always required to act in good faith and trust, particularly when interacting with shareholders and directors. A company secretary is expected to either disclose or indeed avoid potential conflicts of interest that could become apparent within the company. It is important to be aware that company secretaries are bound by both the Companies Act and the Company Constitution.

As well as this, the company secretary must make sure that the company adheres to the company constitution. The full and comprehensive company constitution will be set in place at the start of the business and will dictate all the laws and regulations that the company must follow and abide by. One of the many duties of the company secretary is to make sure that the directors do stay within the guidelines of this constitution and follow it to the letter. As well as this, the company secretary must make sure that the company complies with other regulations including the Companies Act, Memorandum of Association, Article of Association and any or all other legal documents that are binding. This is a crucial role in the company as it prevents the company from dealing with legal issues.

Other Roles of the Company Secretary

As well as making sure that the company follows the strict legal deadlines, they are responsible for a range of other small yet significant factors.

Company Seal

For instance, a company secretary must ensure that the company seal is kept safe and that it is used effectively. The company seal is something that is highly recognized and crucial to business proceedings. In the wrong hands, it could be used to falsify documents or commit fraudulent activities using the company as false representation. It is used to emboss all important documents relating to the company to show clearly that they are legal and binding. However, with the new rules under the Companies (Amendment) Act 2017, the common seal is now optional. Documents once requiring the usage of the common seal now needs to be authorized by a director and company secretary, or two directors of the company. If there is only one director then the sole director can sign in the presence of a witness who will attest his signature.

Requirement for New Registers

Under the first phase of the Companies (Amendment) Act 2017 which commenced on 31^st March 2017, every company in Singapore is required to maintain a register with a view to mitigate the risk of misuse of the companies.

Register of Controllers – All companies, both local and foreign, are required to maintain documentation which clearly show who is a controller of the said company. A controller need not be a shareholder or director, but a person or company who exercises significant control over the running of the business. The onus for keeping this register rests with the company secretary and this information, although not publicly available, must be shared with the relevant authorities when requested.

Register of Nominee Director – A nominee director is usually appointed by companies to satisfy the legal requirement of having one director normally resident in Singapore. The nominee is usually not involved in the running of the business but takes instruction from the controlling directors. This register must also be shared with the relevant authorities when requested.

Register for Foreign Companies- All foreign companies registered in Singapore are also required to maintain a register of its members in Singapore. This register is available to the public.

Shareholders

The shareholder registers must also be monitored effectively, ensuring that information regarding changes are kept up to date.

As well as this, the company secretary must keep good relations with shareholders and ensure that they are kept up to date with any changes to meet legal compliance within the company.

When corresponding officially with employees and individuals outside of the company, it is the company secretary’s responsibility to ensure that all the information provided is correct and accounted for. This will include everything from the company name and address to the proper entity number.

The company secretary may also be responsible for ensuring that insurance policies are in place with regards to employees’ officers, directors, and indeed the office premises. As well as handling these insurance policies, the company secretary will make sure that they do provide the necessary coverage that the company needs.

Why Do Companies Choose To Hire A Company Secretary?

As explained, despite not being legally required many companies do choose to hire a company secretary. Understanding the role of the company secretary, it may be apparent why this is the case. However, the issue can be further examined by examining the problems that could occur if the company secretary was not hired.

Failure of Legal Compliance

Of the many roles the company secretary undertakes one of the most important is perhaps ensuring that legal compliance is maintained by the company. They monitor law changes and update the directors on new regulations. As such, without a company secretary, it is possible and indeed likely that a company would not be aware of new legal regulations. It is important to understand that issues with compliance will result in the breaking of the law. As such, mistakes in this area can be incredibly damaging to the company and company officials.

The impact of a failure to comply could result in anything from financial penalties to the company to imprisonment. Indeed, in the wake of a failure to comply, a company could be forced to shut down, or the director could be removed from their position. A company secretary will ensure that this is never the case by keeping the officials in the company up to date with legal changes.

Necessity of Knowledge

Although not legally required in private companies to have formal qualifications company secretaries will often have an extensive knowledge of the law and legal compliance. As such, they do operate as a valuable and vital resource when investigating any commercial legal issues.

Due to the fact that they provide advice to the directors of the company they are not just a necessary hire but one that provides a number of advantages and benefits.

One such benefit would be the additional time that directors can dedicate to other areas of the business. This is because company secretaries can work in their role to ensure that the company continues to run smoothly through work in administration and ensuring that it abides by legal compliance.

Issues with taxes and similar processes can be time-consuming and complicated for a typical director. The company secretary handles issues like this including tax assessments that take place annually. With an effective company secretary, directors do not need to concern themselves with issues in this area of the company.

A company secretary is going to be a particularly important hire for foreign investors in Singapore. Relocating, or setting up a company in Singapore, a business may not be aware of the legal regulations, compliance and structures of law that differ from other international locations. Since an individual suited to be hired as a company secretary is often highly knowledgeable in legal regulations, they can be an essential hire and an important asset to new business owners unaware of what they need to do to remain compliant.

And of course, one could argue that local business owners may also be unaware of the legal requirements. The law is constantly changing, and a company secretary can guarantee that important altercations of regulations and legal requirements are noted.

Not Legally Needed But Necessary

As such, one can easily argue that despite that fact that they are no longer required, a company secretary is still a necessary hire and this is why many companies continue to appoint a professional company secretary. Indeed, the role is so important that companies often use specialized services to find the right individual for this role and position. Alternatively, those companies who choose to use outsourcing agents for their company secretary must select the business they work with to ensure that they do get a person who is ready to fill the role effectively.

• Posted by admin
• 28 December 2017
• Company Secretarial, Tips

Thinking of running a business out of your HDB flat? Before you dive in, it’s important to understand what you can ­– and can’t – do. Whether you’re running an online marketing business or hosting tutor sessions from the comfort of your flat, there are rules that must be followed if you want to avoid getting on the wrong side of the law.

You Can’t Transform Your HDB Flat Into a Brick and Mortar Shop

While it may be okay to run an online store from your flat, running a brick and mortar shop from your living room is off limits.

The HDB prohibits the use of flats as shops for the sale of physical products, and for good reason. They’d rather not have hundreds of people walking around your building and block. The noise and parking issues would be a nuisance to neighbors.

You Can’t Turn Your Flat Kitchen into a Bakery

Running a food business in Singapore can be tricky, especially if you don’t have the resources to lease a commercial space. If you have dreams of running a custom cake shop, you may be able to get away with using your flat’s kitchen. But you can’t turn your home into a bakery.

As per HDB’s rules, your business cannot generate smoke, waste or noise that may be a nuisance to others. You can likely avoid these three things provided your business is very small – and will stay that way.

Another stipulation under HDB’s rules is that the main purpose of the flat must be residential. In other words, you can’t turn your baking hobby into a full-time job.

It may be okay to use your kitchen to bake cakes and sell them to friends and family during the holidays. However, if you plan on baking for a living, you’ll need to look into renting a commercial kitchen.

You Can Offer Tutor Services for Up to Three Students at a Time

It’s perfectly fine to offer tutoring services from your HDB flat, but you cannot run a commercial school or tuition centre. According to HDB’s rules, you can tutor up to three students at once.

Do keep in mind that even if you’re not running a commercial school or tuition centre, neighbors may complain if your flat is particularly noisy.

HDB also prohibits the use of flats for business activities that may add unnecessary vehicular or human traffic to the area.

Simply put, you can offer tutor services to a small number of students, but conducting classes of 30 or more in your flat will most certainly raise a few eyebrows and get you into trouble.

You Cannot Have More Than 2 People Working Out Of Your Flat

If your home-based business has grown to the point where you need to hire employees, don’t be overzealous when expanding your staff. The HDB only allows up to 2 non-residents to help you run the business from your flat. Roommates and spouses do not count towards the 2-person rule.

You Must Register Your Business with the ACRA and Meet HDB Requirements

In order to run your business legally out of your HDB flat, you must meet the following requirements:

• Be 18 years of age, or older
• Be the owner, tenant, authorised occupier or sub-tenant of the flat

Before you begin operations, you must also register your business with the ACRA (Accounting and Corporate Regulatory Authority), unless you are exempt under the Business Registration Act, as one of the following:

• Partnership
• Sole-proprietorship
• Private Company
• Limited Liability Partnership

Home-based businesses must not:

• Involve the selling or buying of physical goods inside the flat
• Involve any form of solicitation that may be a nuisance to neighbors or the public (i.e. you cannot make door-to-door visits)
• Display any advertisements, signage or posters
• Generate noise, smells, smoke, waste or dust that may become a nuisance to residents
• Have an adverse effect on the environment or ambiance of the residential estate
• Introduce extraneous vehicular or human traffic
• Involve any unlawful, immoral or illegal activity

You Must Meet All Safety Requirements

Home-based business must also meet a set of safety requirements. For example, the FFSD (Fire Safety and Shelter Department) requires you to install:

• A single-station smoke detector
• A 2kg ABC Dry Chemical Powder fire extinguisher

The FFSD safety requirement is mandatory due to the increased risk of files, papers and office equipment in a home office.

You Must Obtain a Home Office Scheme License

The HDB allows flat-dwellers to run a home-based business provided they meet all requirements and obtain a Home Office Scheme License. The license is valid for 5 years, and costs $20 to obtain.

When submitting an application for the license, you must have SingPass and a method of payment prepared.

For a complete list of all permitted and prohibited businesses, be sure to visit the HDB’s website.

• Posted by admin
• 20 December 2017
• Accounting

The concept of materiality is a cornerstone in accounting, and the Financial Accounting Standards Board (FASB) issued two exposure drafts that aim to address the concept of materiality on September 24, 2015.

What is the Concept of Materiality?

The concept of materiality is a fundamental principle in accounting. The concept dictates that trivial matter can be disregarded, while all important matter needs to be disclosed. Materiality in and of itself refers to the level of detail that is required or appropriate for different financial reports.

But materiality also refers to the importance of errors in a filing.

The concept of materiality works to report important financial data. The concept is an accounting convention, but issues arise when ascertaining what level of detail is needed for proper disclosure.

For example:

• Too much detail can obscure true financial issues
• Too much detail could be difficult for a non-accountant to read
• Too much detail could lead to unnecessary preparation lengths

Non-material items can then be assessed as distracting and pointless in a financial report because they work to obscure the bigger picture of the financial documents. When removing non-material items, it allows for case analysis for decisions and planning.

If material items are omitted from a financial document, it can cause bad decisions and planning to be made.

FASB’s Proposals of Clarity

Materiality is part of the FASB’s disclosure framework, which aims to improve the effectiveness of disclosures in notes to financial statements. Exposure drafts work to:

• Assist organizations in determining which disclosures are “material.”
• Assist the FASB in understanding the reporting environment.

The FASB revisited the matter because the framework is inconsistent with the legal concept of materiality. The United States Supreme Court established the legal concept 40 years ago, and inconsistencies can have a negative impact on businesses.

An issue businesses and accountants face is determining the “size” of an item that can be omitted. In many cases, accountants will use the following guidelines:

• An item that is 5% of profit will be considered material
• An item of 0.5% of sales revenue or higher is material
• Balance sheet matters worth 0.3% - 0.5% of total assets are material
• Balance sheet matters where the matter is more than 1% of total equity

Accountants utilizing different criteria for their definition of materiality can cause statements to become skewed. The FASB wants to make the definition clear for materiality, and one of the two proposals set forth by the FASB requires:

Filers to use the definition of materiality as set forth by the U.S. Supreme Court.

Stakeholders requested that the FASB take measures to clarify materiality and “eliminate inconsistences” among the framework and the legal concept of materiality. The proposals are an effort to correct these issues.

Public companies are required under federal law to disclose all material information in accordance with the definition as found in TSC Industries Inc. v. Northway Inc. in 1976. In essence, the definition from 1976 classifies material information as:

• Material that if disclosed would have a high likelihood of significantly altering the information made available to the reasonable investor.

An example of this may be a company’s $600,000 loss in materials. If the company only has $3 million in revenue and suffered a loss equal to 20% of the company’s revenue, this would certainly be considered material. The decisions of investors and the company must weigh this loss in future decisions and forecasts.

FASB Chairman Russel Golden reaffirms that the proposal will:

• Improve disclosure effectiveness
• Focus on the material items
• Omit the immaterial items

The exposure draft of the FASB will amend Chapter 3. In the draft, the FASB clearly states that it does not define materiality and puts the US Supreme Court’s definition in place.

The second exposure draft places amendments on Topic 235 Notes to Financial Statements. The draft works to promote use of discretion by organizations. The appropriate use of discretion is being promoted in reference to the decision of which disclosures ought to be considered material.

Key points in the exposure draft are:

• Materiality being a legal concept.
• The omission of immaterial information not being an accounting error.
• Reaffirm that materiality is applied individually, and in the context of financial statements as a whole in a quantitative and qualitative manner.

The proposals do not aim to change the concept of materiality. Rather, the amendments and proposals aim to amend existing standards in the framework to lessen immaterial disclosures found in the notes of financials.

A clear definition of this can be seen as: the disclosure, taken as a whole, with “some, all, or none of the requirements in a disclosure may be material.”

The proposals are met with uncertainty and assert that the FASB’s proposals will make financial statements less valuable to investors. The Council of Institutional Investors further commented on the matter, and asserts that this is not a matter of clarification and that the amendments will harm investors directly.

• Posted by admin
• 20 December 2017
• Company Secretarial

Legislative amendments passed into law in 2015 will have a severe impact on Singaporean companies. The Accounting and Regulatory Authority (ACRA) started implementing these changes in phases, with Phase 1 implemented on July 1, 2015.

Private limited companies will be affected directly by the changes.

Major changes that will have a direct impact on companies in 2016 and going forward include:

Compensation Provided to Executive Directors No Longer Requires Approval

Shareholders no longer need to approve compensation packages granted to executive directors under the new amendment. Shareholders will not have to approve compensation that meets the following requirements, in accordance with the new amendments:

1. The amount paid does not surpass the director’s total remunerations for one year following termination;
2. Termination is agreed upon by the director and the company in an existing agreement;
3. Payment particulars are provided to shareholders before payment disbursement

Audit Exemption Changes

New criteria have been put forth for companies to benefit from audit exemptions. Companies must meet two of three criteria to be exempt from audits. The company’s:

• Total assets must be no more than S$10 million
• Revenue must not exceed S$10 million
• Employees must be no more than 50

Companies that are part of a larger company or group are only provided an audit exemption if the group meets the above criteria as a whole.

For example, if Group A owns XYZ Company, and Group A has 55 employees and S$11 million in revenue, but XYZ Company has 5 employees and S$5 million in revenue, XYZ Company would not be eligible for a tax exemption due to the parent company’s figures.

Numerous concessions are provided to companies that are eligible for audit exemptions:

• Auditors’ reports are not required to be provided to members of the company
• Auditors’ report copies are not required at Annual General Meetings
• Balance sheets, consolidated accounts, and profit and loss accounts are not required to be audited by an approved auditor

Only companies that are private will be able to seek audit protection.

Higher revenue requirements allow many small- and medium-sized businesses to qualify under the new exemption laws. Associated costs of an audit are lowered as a result in an attempt to help small businesses flourish.

Financial Assistance Changes

Singaporean companies were prohibited under Section 76 from giving financial assistance to acquire its own shares. Any financial assistance for the purpose of or in connection to share acquisition was not allowed.

These stringent rules prohibited companies from making share purchases when:

• Refinancing
• Restructuring
• Reorganizing

Protecting the company’s financial capital was the reason behind Section 76. The above provision has been removed for private companies wherein the company is owned by a few shareholders.

Private companies owned by a public company may be allowed to finance the purchase of the company’s own shares.

Insolvent Company Preferential Payments to Employees

Insolvent companies under previous law were required to pay employee salaries and wages before paying retrenchment benefits and unsecured creditors. The Companies’ Act included limits imposed by the Employee Act of 1993.

Previous law stated that insolvent companies must pay employees S$7,500, or five months of salary, whichever is lower.

The amendment moves in the right direction and updates the limit automatically based on the salary cap of non-workmen. The Employment Act included the salary cap and adjustments. An updated maximum salary limit will be better aligned with current salary requirements.

Share Warrants

Share warrants issued before December 29, 1967 will be phased out. Bearers of the warrants will have a period of two-years from the amendment to surrender their warrants and have them cancelled. Names will be added to the company’s register of members when the warrants are surrendered for cancellation.

The transition period for share warrants has been over 40 years.

Legislation aims to phase out share warrants in their entirety.

Striking Off

The final legislative amendment that warrants discussion is striking-off. The implementation changes of striking off are to occur in Phase 2 of ACRA’s process. Companies will need to submit the documents through Bizfile in accordance with filing procedures, which is the reason for the amendment occurring in Phase 2.

Circumstances in which the ACRA will take into consideration during its review include:

• Failure to file an annual return
• Failure to respond to correspondences sent by the ACRA via registered post
• Mail delivered by the ACRA to the company’s registered office returned as “undelivered”
• Credible information provided to the ACRA backing the company not carrying on business
• Failure to contact resident directors
• The death or disqualification of a sole director resulting in the inability to act as director

If companies fall into any of the criteria above, immediate action is required if the company wishes to remain in existence.

Amendments to previous legislation will require businesses and their stakeholders to take a proactive approach to understanding the changes set forth by the ACRA. Small companies in particular will want to take advantage of audit exemptions, where applicable, to keep administrative costs down.

• Posted by admin
• 20 December 2017
• Tips

Self-employment is freeing. Being your own boss allows you to earn more money, and control the resources and growth of your business. But it also requires further diligence on your part. self-employed persons need to maintain strict accounting measures to avoid costly mistakes when filing self-employed income.

Singapore requires all self-employed individuals to pay taxes on the net income of their business.

Net income can be derived from subtracting business expenses from the company’s gross revenue. Filing taxes on your own can lead to costly mistakes when dealing with the IRAS. The most common mistakes are:

1.     Filing Estimated Income

Improper record keeping can lead to immediate and future tax concerns. Proper record keeping is essential when running a business – small and large. It’s recommended that all business keep the following documents for a period of no less than 5 years:

• Invoices
• Receipts
• Bank statements
• Vouchers

Proper record keeping is a must for all Singapore businesses.

2.     Not Declaring Commission Income

Your tax return must include any and all income derived from commission. The income must be listed in the Trade, Business, Profession or Voucher section of your tax return.

3.     Filing Income Wrongly

Filing your taxes as a self-employed person is required. This includes income for:

• Freelancers
• Agents (real estate, insurance, commission)
• Tutors

This income must be declared as trade income under the Trade, Business or Vocation section of your tax return when filing online. This income will not be filed under employment income.

4.     Claiming Money Paid to a Partner as an Expense

Money or fees paid to a partner cannot be consider an expense. The money must be treated properly as business drawings.

5.     Claiming Private Vehicles and Travel Expenses as Deductions

Private automobiles and travel expenses cannot be claimed as a deduction on your self-employed tax returns. Expenses incurred when using the vehicle for business purposes should also not be deducted.

Proper proof of the expenses incurred will be needed if deducting these expenses as business expenses. Documentation includes:

• Purpose of travel
• Person incurring the expense
• Mode of transportation
• Total amount incurred

It’s best to keep private and company vehicle usage separate. When vehicles are owned by the owner and not an asset of the business, it can be difficult to assess the usage of the vehicle.

6.     Claiming Estimated Entertainment and Gifts

Entertainment and gifts can be deducted from your self-employment tax return, but there needs to be clear documentation of the event. A good example of a time when entertainment and gifts may be given are:

You court a potential client and discuss business over dinner. The expense of the dinner as well as the travel cost to the dinner can be deducted. A gift of a company t-shirt, product sample or other good is provided to the client in hopes of future business.

In this case, you’ll be able to deduct these costs accordingly.

Documentation is necessary, and it’s important to be as thorough as possible when documenting entertainment and gift deductions. The following supporting documents should be filed:

• Total amount incurred
• Name of the person(s) entertained
• Capacity of person(s) receiving gifts
• Reason for giving the gift(s)

All of these documents should be kept on hand for a period of at least 5 years.

7.     Deducting Private Expenses as Business Expenses

Penalties can be assessed to a business owner that deducts private expenses as business expenses. Self-employed persons cannot deduct personal expenses as business expenses. A few key items that cannot be deducted include:

• Life insurance
• Medical insurance
• Purposely-incurred business expenses
• Schooling or course costs

Expenses only related to the business or betterment of the business can be deducted. A freelance web designer who takes a course on PHP to bolster his or her expertise and business can deduct the cost of the studies. If, however, the owner took a cooking course that has no relation to his or her business, this expense cannot be legally deducted.

Any expenses that are incurred for the sole purpose of claiming a tax deduction are strictly prohibited.

8.     Claiming CPF Relief

Central Provident Fund relief for self-employed persons in Singapore allow for the self-employed to make contributions to CPF accounts in an attempt to reduce tax requirements. The caps for self-employed persons in 2016 are as follows:

• Net Trade Income Ceiling: $85,000 or $5,000 x 17 months. This figure moves up to $102,000, or $6,000 x 17 months in 2017.
• CPF Contribution Rate: 37% for 2016 – 2017
• CPF Relief Cap: The relief cap is $31,450 in 2016 and $37,740 in 2017.

A business must have an assessable net trade income to be able to claim CPF relief. There is no need to claim relief on Form B – it’s automatically sought for self-employed.

Singapore’s complex tax codes and regulations should not be traversed without the help of an accountant. Staying within the legal borders of business requires proper tax filing.

• Posted by admin
• 20 December 2017
• Tips

The PIC grant often gets a bad reputation, but this useful scheme can help businesses ease their tax burden or take advantage of cash payouts to improve productivity.

The Productivity and Innovation Credit, or PIC, grant provides tax deductions, cash payouts and other benefits to Singaporean businesses. The goal is to encourage businesses to try out new technologies or to boost productivity without having to resort to cheaper labor.

Under the PIC scheme, businesses can take advantage of 400% tax deductions for qualifying expenses incurred when performing any of the Six Qualifying Activities. Some qualifying businesses may also convert eligible expenditures up to $100,000 for each Years of Assessment into cash, at a 60% conversion rate.

Many businesses overlook these 6 less-obvious uses for the PIC grant, and wind up making costly mistakes in the process.

1.     Cloud Computing Services

Many businesses are transitioning to cloud-based platforms, but most don’t realize that a PIC grant can be used to cover the cost of transitioning to cloud services.

If you’re currently using cloud services as part of your business operations, talk to your accountant to see if these costs qualify for PIC benefits.

2.     Leasing or Buying IT Equipment

If you’re running a business that sells IT software or equipment, you can get a PIC grant when leasing or purchasing equipment. Many business owners assume that the grant can only be used when buying equipment outright, but you may use it when leasing.

A PIC grant may also cover the cost of leasing your office software.

The equipment must be listed on the PIC IT and Automation Equipment List for it to qualify. Check with the IRAS to see the list of qualifying equipment.

3.     Creating Your Website

Most business owners are unaware that PIC benefits can be claimed on web development costs – but only if you’re building a new website.

Businesses can claim PIC benefits on the cost to design and develop the website as well as the one-time fee to register the domain. But there is one stipulation here: the website must be up and running (i.e. accessible online). Benefits cannot be claimed on a website that is still in development.

Any changes or enhancements to the website (e.g. content re-writing, maintenance, updates and support) are considered a revamp of your existing website and do not qualify for PIC benefits. There are a few exceptions to this rule, however. If you are adding e-commerce functions or enhancing your website to make it mobile responsive, the costs of these developments would qualify for PIC benefits because they are considered software development.

4.     Purchasing or Licensing Intellectual Property

Costs incurred in the acquisition of IPRs (intellectual property rights) can also qualify for PIC benefits, but only if a company or partnership is making the claim.

In order to qualify, the acquirer of the IPR must be granted legal and economic ownership of the IPR by the seller of the intellectual property rights.

If licensing an IPR, business can claim PIC benefits on the costs incurred to license the property for use in their operations.

IPRs can include patents, trademarks, copyrights, registered designs, and other forms of intellectual property. The IRAS website has a complete list of the properties covered under PIC.

5.     Registering Your Own Intellectual Property

If you plan on registering trademarks, patents, plant varieties and designs, the costs associated with this process may qualify for PIC benefits.

Benefits can only be claimed if you acquire the economic and legal ownership of a qualifying IPR. If you prefer the cash payout, you may not opt for partial conversion. Cash payouts are done on a “per registration basis” on the complete cost of the IPR registration up to the maximum expenditure permitted.

If costs associated with the registration of the IPR exceed the maximum expenditure cap, the excess expenditure will be forfeited and will not qualify for deduction claims against the business’s income.

6.     In-House Employee Training

The costs you incur for training your employees will qualify for PIC benefits, and this may include in-house training. As per the IRAS, training can be performed by company personnel or external trainers.

For YA 2012 to YA 2018, qualifying costs associated with in-house training from sources not accredited by the ITE (Institute of Technical Education) and WDA (Workforce Development Agency) will also qualify for PIC benefits. The cap is $10,000 per YA.

No prior approval from the IRAS is required for training to qualify for PIC.

The PIC scheme allows businesses to lower their tax burden, but many fail to take full advantage of the program. While some activities are an obvious choice for PIC benefits, these six lesser-known activities can also help you save money on your taxes while boosting production. Be sure to talk to your accountant about claiming PIC benefits if you engage in any of these activities.

• Posted by admin
• 09 June 2016
• Tips

Singapore’s rules for real estate investment trusts (REITs) have changed. The Inland Revenue Authority of Singapore (IRAS) released a new guide to help investors understand how REITs will be taxed going forward as Singapore aims to strengthen its position as an REIT hub in Asia.

Income Tax on REITs Under the New Guidelines

Tax concessions on REITs have been extended through 31 March 2020. The current treatment for REITs allows for all trusts listed on the SGX to benefit from a myriad of tax concessions. A trustee of an REIT that distributes 90% or more of the income earned by the REIT to unit holders enjoys tax transparency.

Tax transparency will not be applied if the trust sells real estate.

Sales of real estate through an REIT will be considered capital gains. Distributions to a Singapore branch from a foreign trustee will not be subjected to withholding tax.

Listed REITs will also maintain the following concessions:

• Non-tax residents or non-individual investors will still enjoy a concessionary income tax rate of 10%.
• Tax exemptions for foreign-sourced income will remain. Income may include:
  • Branch profits
  • Distributions
  • Dividend income
  • Interest income

The tax exemption only applies to foreign-sourced income if the REIT is listed. Subsidiary companies of the REIT will enjoy the same benefits if they’re wholly-owned. Overseas properties are subject to the following conditions:

• Tax exemption is granted only if the property is acquired by the trustee on or before 31 March 2020.
• The property remains beneficially owned by the REIT’s trustee or its Singapore tax resident subsidiary company.

Real estate trusts were initially allowed to earn income from foreign properties in their portfolio without paying taxes indefinitely. The benefit, introduced a decade ago, was an incentive that was slated for an indefinite period. When the 2010 budget was introduced, the expiry date was changed to 31 March 2015.  The 2015 budget allowed for these benefits to be extended for a period of five years.

Stamp Duty Concessions Have Expired

Stamp duties on Singapore properties have been exempt since 2005. These concessions have been allowed to expire. Previously, two stamp duty concessions were available to REITs in Singapore:

1. Remission on the transfer of an immovable property in Singapore to a REIT
2. Remission on the transfer of 100% of issued share capital for properties outside of Singapore transferred to a Singapore-incorporated company.

The IRAS has allowed these two stamp concessions to expire. The concessions were set forth with the intention of allowing the industry to grow and expand overseas. Growth and expansion goals have been met, allowing stamp duty concessions to expire.

Trusts that have a portfolio made entirely of Singapore properties face a maximum duty of 3%. The duty corresponds to the value of the properties that the trust acquires.

Singapore has listed over 30 REITs and business trusts in the country since 2002 due to the tax-efficient structure that is in place.

Gross Distribution of an REIT to Foreign Citizens

The gross distribution of an REIT to a non-Singapore national will be taxed at a rate of 10%. The reduced tax rate does include specific requirements that must be met to benefit from the tax reduction.

• Recipients must not have a permanent establishment in the country.
• The recipient must not conduct other forms of activity in the country.

MAS Changes to Strengthen REITs

The Monetary Authority of Singapore (MAS) announced on 2 July 2015 numerous changes to the REIT sector with the goal of strengthening the market in response to industry feedback. The changes that were made have an impact on how much operational flexibility is given to REITs.

Two changes of note for operational flexibility include:

1. The development limit on deposited property has had its limit increased from 10% to 25%. The change requires the added 15% to be used on a property that has been: held by the trust for at least 3 years and the REIT will continue to own for an additional 3 years following redevelopment of the property. Redevelopment in this case refers to “building works,” in accordance with the Building Control Act.
2. REITs with credit ratings will now have a single-tier leverage limit equating to 45% instead of a previous upper limit of 60%. REITs without a credit rating will have a 35% leverage limit.

The single-tier leverage limit will have a major impact on REITs in the country.

An increased leverage limit is good news for Singapore REITs. Two-thirds of REITs in the country have a credit rating and could benefit from leverage ratios as high as 60% previously, but most REITs have leverage ratios in the 35% range.

Increased leverage ratios will allow REITs to borrow more money, which will have an effect on balance sheets.

Several changes have been made to the requirements of managers and directors of a REIT. These changes include:

• Independent Directors: Half of an REIT’s board must be comprised of independent directors. These directors will monitor the performance of the board and will help to balance the interests of both the REIT and its investors.
• Manager Fees: Managers must explain how performance fees are derived. Furthermore, managers must justify how each fee is charged. The interests of unit holders and the company will be strengthened as a result. This practice is followed by many REITs already, but it is now a requirement.
• Managers Must Prioritize the Interest of Unitholders: Managers now have a legal right to prioritize the interest of unit holders over themselves and their sponsors. If managers fail to adhere to this change, they may face jail time.

All of the changes set in motion by the MAS will take effect from 1 January 2016. The changes, especially the leverage ratio changes, will give REITs further control of their financial actions in 2016 and beyond.

Real estate investment trusts have been a thriving force for Singapore, and the changes made reflect the IRAS’s intent to ensure that Singapore REIT’s still offer the best returns in Asia. MAS has further strengthened the industry by listening to the recommendations and concerns of the industry.

• Posted by admin
• 09 June 2016
• Tips

In Singapore, corporate tax is applied to certain types of income under the Income Act of Singapore. This tax is imposed on:

• Income generated in Singapore
• Income that was received in Singapore, but generated outside of the country

The latter of the two is considered foreign-sourced income and, barring certain exceptions, is subject to taxation.

What Qualifies as Taxable Overseas Income?

Overseas income is subject to taxation in Singapore if:

• The work you perform overseas is part of your work in Singapore.
• The income is received in Singapore through a partnership within Singapore.
• You are employed in a foreign country on behalf of the Singapore Government.
• The overseas income was considered service income, unless it qualifies for an exemption.
• You run a business or trade in Singapore, and you run a business or trade overseas that is incidental to your business in Singapore.

If your overseas income is subjected to taxation in a foreign country, you may qualify for double taxation relief, which would prevent you from being taxed twice on your income.

Determining whether the income fits into the above categories can sometimes be a complex endeavor. Things can get tricky when trying to ascertain whether the profit is sourced in Singapore and whether the income is sourced overseas, but received in Singapore.

There are a few ways to gauge whether the income fits into one of the two above scenarios.

• Where and How the Income Was Generated: Determine which operations produced the income, and the location of those operations.
• Location of Contracts for Purchase and Sale: The locality of the income can also be determined by considering the location of where the contracts for purchase and sale were effected. Effected not only includes where the contract was executed, but where the deal was negotiated and concluded.
• Location of Commission Agent Activities: If the business obtains commission through deals with suppliers or buyers, the location of the commission activity must be considered. If the activity takes place in Singapore, the income will be considered as sourced in Singapore.
• Lack of Overseas Presence: If a Singapore business generates income overseas but has no overseas presence, the income is typically considered as sourced in Singapore.

Determining Whether Foreign Income Was Received in Singapore

Even if the income is foreign-sourced, it would be considered tax-exempt if the income was not actually received in Singapore.

Determining whether foreign-sourced income is “received” in Singapore can be complicated and is a subject that has been debated heavily. To clarify the requirements and avoid confusion, the IRAS (Inland Revenue Authority of Singapore) offers the following guidelines:

Foreign Income Used to Pay Debts in Singapore

The IRAS states that any foreign-sourced income used to satisfy debts incurred by a business or trade operating in Singapore is considered income received in Singapore.

Simply put, if your business uses income derived from overseas to pay debts owed in Singapore, that money falls into the category of “income received in Singapore.” It does not matter whether that income was sitting in a foreign bank account for several years, if it is brought into the country to pay off debts, it is “received in Singapore.”

Foreign Income Brought Into Singapore

IRAS considers any income derived from outside of Singapore and brought into, transmitted to or remitted to Singapore as “received in Singapore.”

If foreign-sourced money, dividends or other forms of payment are paid to a bank account in Singapore owned by a Singapore company, it is “received in Singapore.” The money should be a result of the company’s activities and adds to the company’s profit or revenue.

Foreign Income Used to Purchase Movable Property or Goods

According to the IRAS, foreign-sourced income used to purchase movable property is considered “received in Singapore.” Movable property does not refer to land or real estate, which are fixed property. Rather, movable property refers to your belongings, goods, equipment and materials that are related to your business.

If you use income generated overseas to purchase equipment overseas and have that equipment delivered to Singapore, that income would be considered “received in Singapore.”

Foreign Income Generated by Companies Outside of Singapore

Overseas income is only subject to taxation if it applies to a Singapore-based company. If a foreign-based company has no offices in Singapore, it is free to use banks and wealth management firms in the country without the money being subject to taxation in Singapore.

Foreign Income Used for Overseas Investments

Foreign-sourced income may not be subjected to taxation if it is used for investments outside of Singapore. The company may not use these expenses or investments as a basis for tax deduction claims in Singapore.

Tax Exemption for Overseas Income

If the foreign-sourced income is considered “received in Singapore,” it may qualify for exemption if the income is subject to overseas taxation. To qualify for exemption, the income must meet all of the following requirements:

• The overseas jurisdiction’s highest corporate tax rate was 15% or higher at the time the income was generated.
• The foreign-sourced income was subject to taxation in the overseas jurisdiction it was received.

To obtain the exemption, you must include the following information when filling out your Income Tax Return:

• The foreign jurisdiction where the income was received
• The nature of the income and the amount of income you received
• The headline tax rate of the foreign jurisdiction
• Proof that the foreign tax was paid in the respective jurisdiction

The last point satisfies the IRAS “subject to tax” condition.

If the overseas income meets these requirements, it may be exempt from corporate tax. However, if you have overseas income received in Singapore that does not meet these requirements, it will likely be subject to taxation.

With that said, the IRAS will provide you with a tax credit for any taxes you pay overseas even if the country does not have a double-taxation agreement in place. This credit will prevent you from being subjected to double-taxation on the same income.

Determining whether income is considered foreign-sourced and received in Singapore can be a complicated matter. For this reason, hiring a tax professional is advised.

• Posted by admin
• 10 April 2016
• Accounting, Articles, Tips

Sam Antar was the co-founder of Crazy Eddie; an electronic goods retailer. Despite being a relative success, Eddie Antar (Sam’s cousin) engaged in commercial fraud nearly from the first day Crazy Eddies opened its doors.

Systematically, Sam Antar engaged in phases of fraud that are still relevant today. Sam was named CFO of the company in 1986 and earned his degree in accounting in 1980.

Under the expertise of Sam, Crazy Eddies was able to further commit commercial fraud. Sam worked for the company since he was 14 years old, starting in 1971. Fraud was occurring under the Crazy Eddie brand before Sam, but his expertise helped the company reach a new level of tax fraud.

Tax Fraud

Skimming money, or taking money without reporting it, is still a common practice in today’s business world. There is no viable proof of income when customers pay for a product with cash. If a person walks into a pizzeria and pays in cash, the owner can easily put the cash in their pocket and not pay taxes on it – it happens a lot.

Antar did this in multiple ways – all to avoid paying income tax:

• Cash Skimming: It’s claimed that he would take $1 out of every $5 the company made in cash. This money would not be accounted for, and reached $3 - $4 million per year at the height of the fraud. Antar deposited $6 million in offshore accounts between 1980 and 1983.
• Payroll Taxes: Crazy Eddie employees were paid “off the books” in cash. This allowed the company to report lower income to the IRS.
• Insurance Claims: The company would report or exaggerate insurance claims to increase profits.

Many companies still conduct this same exact fraud today.

Initial Public Offering

Hiding the money that was being made became difficult for Crazy Eddie. In 1979, Antar decided that it was time for the company to skim less money each year. Systematically, the company’s profits rose the next three years a reported 171%.

The increase in the company’s profits were only 13% when the skimming was accounted for accurately.

A major increase for any brand, the company decided that it would go public. On September 13, 1984, Crazy Eddie stock was being sold for the first time and was valued at $8 a share. This number would rise to $75 per share by early 1986.

Smart and decisive, the Antar family did not unload their stock during the company’s IPO. Instead, the family sold stock slowly over a 3 year period, netting over $90 million.

How did Crazy Eddie’s stock jump so high?

Sam Antar, a superb accountant by all means, created what is called the “Panama Pump.” The company had been skimming profits and not reporting it by keeping the profit in Israeli bank accounts. The company needed new capital to open new stores while still keeping the company’s stock price high.

The Panama Pump provided the ability to commit further fraud.

The money that the owners had skimmed was transferred to Panama using fake identities. This money would then be laundered back into the company to inflate profits. During the first 10 months of 1986, comparable store sales rose by 20%.

During the final two months of the company’s fiscal year, sales growth slowed to 4%.

This was a problem for the Antar family, who wanted to raise $35 million in capital. The family used their secret bank accounts to make up for the slow sales growth by utilizing $2.2 million of their own money.

The Panama Pump was brilliant because money was transferred to Panama, and bank drafts were used to withdraw the funds. Using bank drafts, disclosure laws on the movement of funds in Panama were avoided. Ultimately, this allowed for no plausible way to trace where the money derived and ended up in Crazy Eddie’s bank accounts as sales.

1987 – The Fraud Continues

Fraud was a part of the Crazy Eddie brand, and the family decided to continue with their deceptive practices. In 1987, channel switching was the first “great” fraud of the year in an attempt to inflate comparable store sales.

Merchandise was shipped or sold to other re-sellers and not end-users for the channel switching scam to work.

Trans-shipping sales were not regulated thoroughly and neither were comparable store sales. A major wholesaler at the time, Zazy International purchased $20 million in merchandise from the company, but paid for the merchandise with a series of checks.

These small denomination checks allowed Crazy Eddie to deposit smaller checks into the bank accounts of individual stores to increase same store sales. The money truly originated from the company’s main office. In total, $10 million of the sales were improperly reported to the government as comparable store sales.

Profitable from 1970 – 1984, the company didn’t start losing money until Q3 1987.

Counteracting the decline in sales occurred through inventory inflation. The company purchased $5 - $7 million from Wren Distributors without including the amount as being owed to a vendor. The store inflated inventory by $15 - $20 million, affectively misrepresenting the amounts of assets the company maintained.

Crazy Eddie was still losing money at this point and would need to report a major loss. Debit Memo fraud would occur in an attempt to avoid reporting a loss and having the company’s stock tumble. The company would purchase inventory while not properly accounting for volume rebates.

An example of this is:

• Crazy Eddie purchases $30 million in inventory from Sony.
• The company sells a high volume of the product.
• Sony agrees to a volume rebate of $1 million.
• The accounts payable ledger reflects that Crazy Eddie owes $10 million to Sony.

The company made it look like the $1 million rebate was actual purchases and not lowering the accounts payable as a result. The company started issuing debit memos to claim “chargebacks” and not waiting for the credit memos as they did in the past.

Crazy Eddie was immediately able to reflect less amounts owed to vendors, making it look like income for the company.

All of these frauds avoided audits. First, Sam Antar worked for Penn & Horowitz, the company in charge of auditing Crazy Eddie between 1981 and 1984. Sam learned the ins-and-outs of auditing at this time, and lax auditing companies allowed for the fraud to continue unknowingly until the company was taken over in 1987 by Elias Zinn.

Weeks after the acquisition, Zinn’s financial analysts uncovered the company’s inventory fraud, estimating inventory was short by $40 - $50 million.

• Posted by admin
• 10 April 2016
• Accounting, Articles, Tips

Over the last few decades, accounting standards have become increasingly complex. In today’s global economy, new services and products are constantly emerging, and new financial instruments are growing in complexity. At the same time, financial statement users are demanding more data. In turn, standard setters are forced to create new disclosure requirements in order to provide such transparency.

As the list of information on financial statements has continued to grow, “simplicity” has become a common theme for both regulators and standard setters. The SEC, IASB and the FASB are all working on projects related to the reduction of discloser overload and simplification. The FAF’s Private Company Council has also been working on modifying GAAP for private companies to help minimize complexity.

Despite there being a demand for simplicity, there is still much debate over whether or not reducing complexity is truly the best option.

The Argument for Simplicity

Many agree that reducing complexity will be beneficial for the industry as well as businesses and investors. Those in favor of the trend argue that simplification will bring the following benefits:

Reduced Costs for Private Companies

When complexity is reduced and disclosure is more effective, financial reporting is less costly, especially for private companies. The GAAP changes that have already been adopted by the FASB have proven to be beneficial to many private companies.

Before these changes, preparers were required to disclose more information than GAAP requires. Disclosure simplifications for private companies is sensible because private companies are more transparent to the users of their financial statements.

Small businesses stand to gain the most from these changes as they are unnecessarily impacted by overly complex standards.

Increased Effectiveness for Public Company Disclosures

As for public companies, these new initiatives improve the effectiveness of disclosures. Public companies are often challenged to find a balance between what is relevant to users and what is required. Setting global financial reporting standards could eliminate some of the unnecessary complexity that global companies often face.

Improved Reporting Quality and Focus on Making Better Business Decisions

Simplification may reduce reporting costs through the reduction of required personnel and improved efficiencies. In turn, this allows businesses to focus those additional resources on improving reporting quality and making better business decisions.

Once the reporting and the disclosure process has been simplified, accountants and others on the finance staff can focus on analysis and building strategies to improve ROI.

The Challenges Simplification Will Bring

Simplification brings with it many benefits, but it also brings many challenges. Clients and users of financial statements will stand to gain the most benefit.

Auditors will Remain Virtually Untouched

Experts do not believe that auditors will be impacted much by these changes in terms of fees and workload.

Auditors that work with private companies say that many companies were struggling with complicated GAAP in areas like fair value, intangible assets, derivatives and hedging, and impairment of goodwill. As a result, difficult audit issues also arose. Simplification in these key areas should provide some cost and time savings.

The accounting departments in public practice are also in favor of simplification, but the impact it will have on the firm will largely depend on the type of businesses it works with. Private companies will gain the most because they can take advantage of different frameworks.

That being said, the audit workload will remain virtually the same. Accounting firms may see some decrease in the time spent on certain engagements, but these changes will not have an extensive impact on gross revenues.

Most middle-market companies will only see minimal time and cost benefits, so finance staff is unlikely to see any major relief. If small businesses and private companies only account for a small percentage of the accounting firm’s clients, changes in workload are not expected.

Implementation Challenges

As varying frameworks and standards are introduced, firms may need to make adjustments in procedures, training and quality control. For firms that do not have centralized oversight, this can be prove to be challenging.

Clients will also face challenges in keeping up with new standards and frameworks. CPAs will need to improve communication with clients to inform them of their options, explain the differences and why it would be a good fit for their company. Ultimately, small businesses can really only benefit from these changes if they understand them.

What Changes are in the Works?

Standard setters and regulators are working hard to create initiatives that improve financial reporting by simplifying financial statement preparation. These include:

• SEC: The Disclosure Effectiveness project, created by the SEC, is designed to make disclosures more effective by reducing costs for preparers and making them more useful for investors.
• FASB: The aim of the Disclosure Framework Project is also to improve the effectiveness of disclosures. This is achieved through framework development for board’s decision making process. The project will also reevaluate existing disclosure requirements and establish new standards.
• FRF for SMEs: The FRF for SMEs was created by the AICPA and launched in 2013. This special-purpose, non-GAAP reporting framework can be used by eligible private companies who are looking to simplify their reporting and accounting.
• IASB: The IASB launched a rather broad initiative in late 2012 to explore improvements and simplifications of disclosures in IFRS reporting. This initiative includes a number of proposed amendments and projects to current standards.
• PCC: The FAF’s Private Company Council was launched in 2012, and its goal is to determine when GAAP modifications are required to simplify accounting requirements for private companies. The council may also make proposals for GAAP alternatives that private companies can choose to adopt, but these alternatives are subject to FASB approval.

Is Simpler Truly Better?

It’s hard to determine with absolute certainty whether the simplification of financial reporting will be beneficial. On paper, simpler always appears to be better. Smaller businesses and private companies may stand to gain the most from these changes, but public companies will also benefit from more effective disclosures. Many companies will also save on costs and time when it comes to reporting preparation.

Regardless of whether or not simpler is better, standard setters and regulators are moving forward with their pursuit of simplification, which means auditors and preparers will need to be ready to simplify.