Mitigating Costs in an Economic Downturn

mitigating_costs_in_an_economic_downturn

Mitigating Costs in an Economic Downturn

The onset of the COVID-19 pandemic along with efforts to contain it has plunged much of the global economy into a recession. In April, the International Monetary Fund’s World Economic Outlook (WEO) projects global growth to shrink by 3 per cent. However, its October publication amended the projection to 4.9 per cent. The impact of the pandemic will continue into 2021, where the WEO projects global growth to be at 5.4 per cent, which is 6.5 per cent lower than the pre-COVID-19 projections of January 2020.

Mitigating costs in an economic downturn-Growth projection

Looking forward, we can expect the recession to leave lasting scars despite the extraordinary efforts of governments worldwide to alleviate the situation through fiscal and monetary policy support.

During these unprecedented times, companies need to take affirmative action to mitigate risk amidst the economic downturn. Crafting recession strategies to retain or expand your customer base, learning to embark on affordable yet effective marketing or even taking this opportunity to review and better optimise business operations are all practical solutions businesses can explore. However, the immediate strategy for most companies would be to adopt cost-cutting measures.

In this article, we will share some of the most popular and effective measures companies can take to mitigate costs during an economic downturn.

Look to outsource

Outsourcing is when a company engages a third-party service provider to handle or manage a business function externally instead of choosing to manage the particular service in-house.

Of the numerous functions that exist in a company, payroll is perhaps the one that will offer the most significant benefit when outsourced during an economic downturn. By outsourcing payroll, your company can effectively improve its focus and expand its accessible talent pool, which are all essential to helping the company navigate through an economic recession. But most notably (and most beneficial during an economic downturn), outsourcing can reduce and control a company’s operating cost.

While the actual cost-savings of outsourcing HR and payroll services may vary between businesses, the most common areas where they could come from are:

  • Reduced payroll employees or headcounts
  • Elimination or change of existing payroll management software (often to something like a cloud-based payroll system that offers automation solution)
  • HR and payroll system updates
  • Employee training
  • Hefty penalties that are incurred when payroll mistakes happen

Outside of payroll, some of the most popular services that companies often outsource to mitigate and manage costs are accounting, administrative services (corporate secretary) and human resources.

Look to your accountants

During an economic downturn, it becomes imperative that you have experienced accountants to help you financially navigate through this challenging landscape. Beyond their capacity for keeping financial records, accountants can interpret them and provide you with a clear and succinct evaluation of the company’s current performance and financial position that could positively influence the outcome of any business decision during a recession.

Given their unique position and objectivity, a critical and core function of accountants on mitigating  costs during an economic downturn is to uncover opportunities to eliminate unnecessary expenses and save costs. In areas where it is not possible to cut costs completely, your accountant can strategically advise on how payments can be deferred to maintain a healthy cash flow during difficult periods.

In addition to cutting cost, seasoned accountants can also analyse your business trends and provide effective forecasting. Such input is critical to helping you understand the changing performance of your business and assist with realigning projections, which can help you assess the viability of your current business plan and provide insights for new alternatives should the need arise.

Look at tax relief and economic stimulus packages

In an economic downturn, it is essential to monitor tax policy changes that can aid in providing financial relief for the company and improve cashflow. During such times, it is common for banks to begin cutting their interest rates while the government actively works to put forward spending and tax packages as well as offer administrative relief by extending tax-filing deadlines. Governments across the world might even introduce tax credits and tax cuts for companies that have experienced a significant drop in revenue.

Additionally, most governments would also roll out stimulus packages as part of their plan to spur their respective economies. However, it is worthwhile to note that in the long term, these governments intend to recoup the funds that were used to finance the stimulus packages and their plans could impact the bottom line of many businesses later. A likely course of action would be adjustments made to policies and tax rates, including but not limited to Corporate Taxes and the Sales and Service Tax (SST). Therefore, we strongly advise that businesses continually revise their tax plan in response to any possible policy changes to achieve greater savings and maximising any tax benefits.

As you embark on any tax planning efforts and find yourself lacking in experience or resources to do so adequately, it is a good idea to engage a professional. In doing so, you can ensure that your tax plan is continuously revised to strategically leverage every tax benefit, maximise tax deductions, and comply with the local tax regulation and statutory requirements.

Look at better managing your working capital

An economic downturn presents several working capital challenges for businesses across industries. To stay operational, companies must look for new ways to finance their working capital. According to the Hackett Group’s 2020 Working Capital Survey, organisations have focused on the availability of corporate debt as a source of working capital for too long. While this may be a common practice, it increases the company’s exposure to unavoidable risks, such as changing customer demands and disruption to the supply chain. During an economic downturn, these potential risks to your working capital could prove detrimental to the survival of the company.

Companies need to manage their working capital during an economic downturn effectively to mitigate cost through individual strategies that address their levels of debtors, creditors, procurement and inventory, and receivables process.

Mitigating cost and managing working capital in an economic downturn

Look at BoardRoom to help you through this crisis

During an economic downturn, when faced with numerous challenges, companies will naturally seek to hunker down and begin cost-cutting strategies. Such strategies are necessary, but it is also vital to note that even in crisis, there are opportunities. Companies will have to practice greater diligence and adapt to the changing landscape quickly through the adoption of forward-looking, growth-oriented plans that prepare the company for when the economy improves.

BoardRoom can help you through any recession period and prepare your business for the inevitable upturn. As a market leader in providing accounting, payroll and corporate services, our in-house team of dedicated experts can help to provide effective cost strategies regardless of your business size or needs. Our in-depth understanding and experience of economic trends will empower your business to discover and explore new opportunities.

Are you looking for a trusted partner and advisor as you weather this difficult time? We are here for you. Contact our BoardRoom outsourcing experts here!

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Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

Malaysia Budget 2021 - The tax highlights for Rakyat and Enterprises

Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

On 6 November 2020, Finance Minister Tengku Zafrul Aziz delivered the Malaysia Budget for 2021. The budget is anchored on three crucial goals – Rakyat’s well-being, Business continuity, and Economic resilience. The three goals are a continuity of the PRIHATIN, PRIHATIN SME PLUS, PENJANA, and KITA PRIHATIN stimulus packages. Find out more below as we summarise the key tax highlights for Rakyat and Enterprises in the Malaysia Budget 2021. For further details you can download our full report.

Corporate Tax

Key takeaways in relation to corporate tax cover the following areas:

  • Support for companies relocating their operations to Malaysia and undertaking new investments via tax incentives for both new and existing companies. This is an extension from the original incentives unveiled in PENJANA, however, the deadline for application has been extended until 31st December 2022.
  • New incentives added for companies who have Malaysia as their principle hub and a global trading centre.
  • Income tax exemption for Equity Crowd Funding to encourage alternate financing methods for technology start-ups.
  • Tax incentives for Maintenance, Repair & Overhaul activities
  • Preferential tax rate for manufacturers of pharmaceutical products
  • Extension of income tax exemption until YA2022 for export of private healthcare services
  • Simplify and merge the tax incentive for manufacturers of industrialised building system
  • Income tax exemption has been extended for both East Coast Development Corridor, Iskandar Malaysia and Sabah Development Corridor & Sustainable and Responsible Investments (“SRI”)
  • Tax incentives for non-resource-based R&D product commercialization activities will be reintroduced.
  • Tax incentives for commercialization of R&D product by public research institutions will be extended to private higher education institutions.
  • There were also a number of incentives released in relation to employment of senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependents.
  • Income tax deduction on investment on ASNB wakaf fund
  • Extended implementation timelines for the Wage Subsidy Programme

Individual Tax

Several initiatives were released in relation to individual tax:

  • Reduction in income tax rate by 1% for the chargeable income band range of RM50,001 – RM70,000
  • There were also a number of incentives released across
    • Compensation due to job loss
    • National Education Savings Scheme
    • Education fees
    • Private Retirement Scheme contributions
    • Lifestyle expenses
    • Disabled spouse
    • Medical treatment
    • Employee Provident Fund (“EPF”) contributions
  • A special income tax rate for non-resident individuals holding key positions in companies investing in new strategic investments was announced
  • Amongst other incentives a flat 15% tax rate was announced for the Revision of Returning Expert Programme (“REP”)

Sales & Services Tax (“SST”)

The following initiatives were unveiled in relation to SST

  • Sales tax exemption for the purchase of locally assembled bus including air-conditioner
  • Increase of Sales Limit for Value-added and Additional Activities Carried Out in the Free Industrial Zones (“FIZs”) and Licensed Manufacturing Warehouses (“LMWs”)

Stamp Duty

The key takeaways from the budget in relation to Stamp Duty are as follows:

  • Stamp duty exemption of 100% for the purchase of a first residential home
  • Stamp duty exemptions for the revival of abandoned housing projects
  • Stamp duty exemption will be extended for 5 years for the purchase of insurance policies and takaful certificates for “Perlindungan Tenang”
  • Stamp duty exemption will be extended for another 5 years on the Trading of Exchange Traded Fund (“ETF”)

There were a number of other incentives announced around Indirect Taxes. Our full report covers these and the above highlights in more detail.

 

Download the full Malaysia Budget 2021 tax highlights here

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Payroll Outsourcing or SaaS: Which is Best for Payroll Management

Payroll Outsourcing or SaaS: Which is Best for Payroll Management

Payroll Outsourcing or SaaS: Which is Best for Payroll Management

Payroll Outsourcing or SaaS: Which is Best for Payroll Management

A well-managed payroll process is one of the key drivers for achieving employee satisfaction. However, it also hinges heavily on an effective payroll system that cuts through tedious paperwork to present pay checks to employees on a timely basis.

Today, Human Resource (“HR”) managers are doing away with cumbersome payroll processing and opting for more efficient solutions. Such solutions include engaging payroll outsourcing service providers or leveraging an all-in-one cloud-based Software as a Service (“SaaS”) Human Resource Management System (“HRMS”) solution. A SaaS HRMS is a method of software delivery where HRMS applications are located on external servers and accessed remotely over a network to manage payroll and handle employees.

How do these two payroll models benefit HR managers? How do they compare to each other? When determining which type of model is most appropriate for managing payroll, HR managers must first understand how each model can benefit their corporate objectives while managing costs; cross border functionality and; confidentiality of employees’ personal data.

In this article, we will discuss the key difference between the two payroll models so that HR managers can make informed decisions when selecting a solution that best fits their payroll needs.

01 Task & Responsibility – Who is Doing What?

With a cloud-based SaaS model, the payroll software is hosted offsite and HR managers gain access to the software via a network. With such a model, the SaaS service provider undertakes maintenance of the software and server, technical support, and data backup of the software system for a subscription fee. As such, HR managers do not have to pay a hefty price tag for owning the software. This is not only cost-saving for the business but takes away the burden of maintaining a proprietary system, consequently allowing HR managers to spend more time on handling employee requests, processing payroll and other primary HR duties.

Comparatively, a full or partial payroll outsourcing service can provide an even higher level of ease to HR managers. Such services take on most, if not all, of the payroll function with little need for HR management intervention. This implies that the HR department can enjoy greater flexibility in deploying its manpower to manage other in-house duties.

Let’s look at a summary of the key tasks and who is responsible in both scenarios.

TasksWho is Responsible?
Cloud-based SaaSOutsourced Payroll
Payroll processingHR managerService provider
Handling employee & management enquiriesHR managerHR manager
Data backup & system recoveryService providerService provider
System upgradesService providerService provider
System support & developmentService providerService provider

02 Ease of Payroll Management – Cross Border Expansion

As a company expands operations to global markets, the complexity of payroll management will multiply because of legislative requirements, market regulations and even differences in cultural practice.  Furthermore, employees’ expatriate terms and tax obligations can make payroll processing increasing tricky especially if HR managers are unfamiliar with local regulations.

Take China as an example, due to the city-tier classification within the country, companies that are expanding their business into this market are faced with complex regulatory requirements because each city-tier has its own set of rules and conditions.  As such, the structure of employee tax, insurance and allowance are also processed very differently across different states.

For companies venturing into new markets abroad, payroll outsourcing can offer an efficient and effective solution to this problem.  Such service providers are usually well-versed with local policies and are in the best position to respond to dynamic changes that are happening in the global market. Entrusting payroll processing to an experienced service provider can reduce the risk of errors and non-compliance, freeing up local managers to concentrate on the growing business.

While the cloud-based SaaS model can provide software support that is essential for upkeeping payroll processing, HR managers who are unfamiliar with the foreign markets are still faced with tremendous difficulties in managing the payroll and employees’ enquiries.  Unless the in-house HR team has a clear understanding of the foreign regulations, adopting a SaaS solution alone may still present a high degree of challenges for the business.

03 Time & Cost Efficiency – Operating in Multiple Markets

For larger companies that operate in multiple markets with a fair number of employees (usually more than 100), outsourced payroll can serve as an efficient solution that is both timely and cost-effective. With such services, companies need not invest in costly proprietary payroll software or hire and train an in-house HR team in each market to facilitate payroll processing.

This is especially true for foreign companies that are managing payroll out of a regional headquarter. As per the example on China, illustrated in the above point, it can be a mammoth task for HR managers to keep abreast of regulatory standards and changes across multiple countries/regions when they are not physically based there. At the most basic level every market has its own unique tax rates, standard employee entitlements, currency exchange and employee social security contributions. HR managers will need to spend a significant amount of time to acquire this information and more importantly stay up to date with any changes happening across the individual markets.

Appointing an outsourced payroll service provider that has a deep understanding of the local market can ensure that payroll processing is executed professionally and according to government standards.

Is a cloud-based SaaS model beneficial for companies that operate in multiple markets then? Using SaaS does present its own advantages, especially for companies with smaller headcounts. The subscription-based model is cost-effective and easy to implement across various markets. In addition, many SaaS solutions are robust enough that once the initial setup is complete the remainder is largely automated, simplifying payroll handling. However, for it to be successful HR managers will need to be prepared to spend time on staying up to date with the requirements of each market they operate within and updating the system settings accordingly, which in itself can be a time consuming task.

04 Confidentiality and Security – Is Employee & Company Data Secure?

One of the key concerns of HR managers when selecting between an outsourced payroll service provider and a cloud-based SaaS solution lies in confidentiality and security issues. Payroll processing is an extremely sensitive matter that involves employees’ personal data and compensation details, the risks of such information becoming public knowledge can be detrimental for any organisation.

While it is common knowledge that payroll service or software providers will attest to maintaining the confidentiality of data provided to them, HR managers must still take steps to consider if these partners have legitimate security features and robust processes in place to uphold the claim.

This is especially true for payroll outsourcing service providers that have full access to employees’ records, the risk/cost of a confidentiality breach may far outweigh that of the increased time required to implement a cloud-based SaaS model. The lack of in-house HR personnel involved in the outsourced process can certainly heighten the risk of exposure.

In the case of the cloud-based SaaS model, it is not without its risk too. Fundamentally, the cloud-based system is hosted on a network that has potential for security breaches by external parties.

Choose a Payroll Model That Aligns with HR Objectives

Every company has its own unique objectives and considerations when selecting a payroll solution. There is no right or wrong option but rather one that fits into the specific HR strategy seamlessly.

Outsourced payroll processing may be the easiest option for most HR managers, however, choosing the cloud-based SaaS model can be just as beneficial if the HR team requires a flexible and cost-effective solution that can simplify a legacy in-house process.

Whatever the choice, selecting a model that aligns with the company’s go-to-market plan can certainly optimise business potential and encourage long-term growth.

Looking for a Software Solution or an Outsourcing Partner?

At Boardroom, we are experts in helping companies, from corporations to fast-growing SMEs, with their payroll, allowing them to focus on what matters – growth and profitability.

From local payroll services handling to managing substantial payroll obligations for bigger companies spread across Asia-Pacific, we help businesses comply with local statutory regulations while ensuring their most valuable asset, the employees, are paid on time.

Contact us today and empower your organisation with greater freedom through our payroll solutions.

Or you can also learn more about our payroll solutions here.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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FAQs on International Tax Issues Due To Covid-19 Travel Restrictions

International Tax Issues Due to Covid-19 Travel Restrictions

FAQs on International Tax Issues Due To Covid-19 Travel Restrictions

The Inland Revenue Board of Malaysia (“IRBM”) has issued FAQs on 14 May 2020 to provide additional clarifications on international tax issues arising from travel restrictions imposed due to the global COVID-19 pandemic.

Some of the key salient points are as follow:-

1. I am currently outside of Malaysia because of COVID- 19 travel restrictions. How would my absence from Malaysia affect my residence status in Malaysia?

It will not affect your residence status in Malaysia. The period of temporary absence from Malaysia because of COVID-19 travel restrictions is considered as part of your period or periods in Malaysia for the purpose of tax residence. However, relevant documentations and records (e.g. travel documents, local authority travel restrictions guideline etc.) should be kept upon request from the IRBM.

2. My company is unable to convene a meeting of the Board of Directors (BOD) in Malaysia because of COVID- 19 travel restrictions. Will this have an effect on the company’s residence status in Malaysia?

If your company is not able to convene its Board of Directors’ meeting in Malaysia due to COVID-19 travel restrictions, the company will be considered as a Malaysian resident provided that all the conditions below are met:

  1. the company is a resident in the immediate previous year of assessment;
  2. there are no changes to the economic circumstance of the company; and
  3. the directors of the company have to attend the BOD meeting held outside Malaysia (either physical meeting or via electronic means) due to COVID 19 travel

Relevant documentations and records (e.g. board minutes stating the reason of directors were attending board meetings from their respective locations) should be kept upon request from the IRBM.

3. My company is not resident in Malaysia. Does the temporary presence of my employees or personnel in Malaysia due to COVID-19 travel restrictions lead to the creation of a permanent establishment in Malaysia?

Temporary presence of employees or personnel does not result in the creation of a permanent establishment in Malaysia, provided the criteria below are met:

  1. your company does not have a permanent establishment in Malaysia before the existence of COVID-19 travel restrictions;
  2. there are no other changes to the economic circumstances of the company;
  3. the temporary presence of the employees in Malaysia is solely due to travel restrictions relating to COVID-19; and
  4. the activities performed by the employees during their temporary presence would not have been performed in Malaysia if not for the COVID-19 travel

Relevant documentations and records should be kept upon request from the IRBM.

4. Before the MCO, I commute daily to Singapore from my home in Johor Bahru for work. Due to the MCO, I am temporarily working from home in Johor Bahru. Is my income taxable in Malaysia?

Your employment income from your employment exercised in Malaysia due to COVID-19 travel restrictions will be considered as not derived from Malaysia if the criteria below are met:

  1. there is no change in the contractual terms governing your employment overseas before and after your return to Malaysia; and
  2. this is a temporary work arrangement due to COVID-19 travel restrictions.

If any of the conditions are not met, normal tax rules will be applied to determine the taxability of your employment income for work done in Malaysia.

5. I am currently temporarily working from overseas due to COVID-19 travel restrictions. Is my income taxable in the current location?

If you would normally exercise your employment in Malaysia and is forced to work temporarily outside of Malaysia because of COVID-19 travel restrictions, you are regarded to be exercising your employment in Malaysia. The income is deemed derived from Malaysia and therefore, the income is still taxable in Malaysia.

You may be subject to taxation in the locality where you are temporarily present if no special tax measures for COVID-19 are provided by that locality’s tax authority. If you are in a state that has a tax treaty with Malaysia, you will not be taxable if you are present for less than 183 days.

6. I am a non-resident individual and currently working from Malaysia because of COVID- 19 travel restrictions.

You will be considered as not exercising an employment in Malaysia for the period of your temporary presence due to COVID-19 travel restrictions and have been working remotely from Malaysia for your overseas employer during your temporary presence in Malaysia if the conditions below are met:

  1. the period of your temporary presence is for a period of not more than 60 days; and
  2. the work you have done during your temporary presence is not connected to your assignment in Malaysia and would have been performed overseas if not for COVID-19 travel restrictions.
How we can help

As a committed tax advisor to our clients, we welcome any opportunity to discuss the relevance of International Tax Issues that your business may be facing. Find out more on our tax advisory services for more information.

Boardroom Limited is a well-established professional business service provider with a strong and reputable 50-year track record. Headquartered in Singapore, we are listed on the Singapore Exchange and ranked amongst Forbes Asia’s Top 200 Companies under a Billion. For seven years running, we have also been ranked in DP Information Group’s Singapore 1000. With our strong presence in the region, and a direct office presence in Singapore, Malaysia, Hong Kong, China and Australia, we are well positioned to support you.

Our smart business solution suite comprises of the following services:

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Malaysian Business Reporting System (“MBRS”) Training Course

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SSM Offers Incentive of up to 80% for Compounds

SSM Offers Incentive of up to 80% for Compounds

SSM Offers Incentive of up to 80% for Compounds

SSM has announced a discount of up to 80% reduction on compounds in relation to offences for non-compliance with sections 143, 165 and 169 of the Companies Act 1965.

Payment PeriodReduction Rate*
9 to 30 September 201580%
1 to 31 October 201570%
1 to 30 November 201560%
1 to 31 December 201550%

* The reduced fee is based on the original compound amount and is subject to the terms and conditions.

Payments can be made at any SSM counters nationwide.

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Malaysian Private Entities Reporting Standard (“MPERS”) with effect from 1 January 2016

Malaysian Private Entities Reporting Standard (“MPERS”) with effect from 1 January 2016

Malaysian Private Entities Reporting Standard (“MPERS”) with effect from 1 January 2016

The Malaysian Accounting Standards Board (“MASB”) had announced on 14 February 2014 that the current Private Entity Reporting Standards (“PERS”) would be replaced with the Malaysian Private Entities Reporting Standard (“MPERS’), for financial statements beginning on or after 1 January 2016. Early adoption recommended. Although MPERS is a replacement for PERS, a private entity may not necessarily adopt MPERS. In fact, private entities have the option to apply in its entirety either the MPERS or the Malaysian Financial Reporting Standards (“MFRS”).

With both options available, it is therefore necessary to evaluate and decide on the most appropriate framework, to best suit your company’s business before end of this year. Private entities are advised to evaluate the pros and cons of the respective accounting frameworks before making any decision.

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