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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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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