Which is an ideal jurisdiction for company incorporation in Asia? Singapore and Hong Kong have been dominant players in the Asian region, vying for the position of “the best place to do business.” But the crucial questions are, which of these jurisdictions have an edge over the other? Is incorporating a business easier in Singapore or in Hong Kong?
Strategic location and attractive tax benefits make Singapore the most preferred location for the overseas companies to set up their business. Various options are – opening up a Branch Office, a Representative Office or a Subsidiary in Geylang . The country also has liberal immigration policies. If the company wants to set up their regional head quarters in Singapore they are also provided with Financial Assistance.
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A key determinant for setting up a business in Geylang is the tax regime in force. In this regard Singapore boast of being one of the lowest tax jurisdictions in the world. Detailed below is an overview of the tax system and Accounting Services in Singapore.
Tax jurisdiction Singapore: Taxes are levied on a territorial principle i.e. companies and individuals are taxed on Singapore sourced income. In addition, the Foreign sourced income (branch profits, dividends, service income, etc.) are taxed when it is remitted or deemed remitted into Singapore unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%.
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The Accounting Profession of Singapore
The Institute of Certified Public Accountants of Singapore (ICPAS) is the national body representing the accounting profession in Singapore. It maintains a register of qualified accountants comprising mainly local graduates. Membership is open to members of the Institutes of Chartered Accountants of England and Wales, Australia, Scotland, Ireland and a number of other accounting bodies. Generally, prior to being admitted as a full member, they must attend a week-long pre-admission course. Members are designated as certified public accountants (CPA).
The Public Accountants Board, whose council members are appointed by the Ministry of Finance, licenses and registers accountants who wish to practise. It also handles practice monitoring, disciplinary matters and regulations on professional conduct.
Accounting Records in Singapore
All companies incorporated under the Companies Act are required to maintain books of accounts that sufficiently explain the transactions and financial position of the company.
The books may be kept either at the company's registered office or at another place the directors think fit. If the books are maintained outside Singapore, sufficient records must be maintained in Singapore to facilitate the preparation and/or audit of financial statements that reflect accurately the company's financial position.
Sources of Accounting Principles
Financial Periods Commencing before 1 January 2003 The principal source of accounting principles in Singapore, namely Statements of Accounting Standards (SAS) and Interpretation of Statements of Accounting Standards (INT), are issued by ICPAS. These standards are essentially International Accounting Standards (IAS) modified for certain transitional provisions. They provide guidelines on the accounting measurements and disclosure requirements. Businesses may depart from such standards if the standards conflict with disclosure exemptions granted by law. Otherwise, ICPAS may take disciplinary action against any of its members who are in violation of the standards.
Rules on accounting measurements are generally established by SAS and INT. Disclosure requirements are governed by SAS, INT and the Companies Act.
ICPAS is a member of the International Accounting Standards Committee (IASC). Compliance with IASC standards are not mandatory, but the institute supports the IASC objectives of formulating and publishing standards for observance during presentation of audited financial statements and promoting worldwide acceptance of such standards.
Financial Periods Commencing on or after 1 January 2003 With the implementation of section 37 of the Companies (Amendment) Act 2002, SAS issued by ICPAS will not be used with effect from annual financial periods commencing on or after 1 January 2003. Instead, Singapore Financial Reporting Standards (FRS), issued by the new accounting standards-setting body, the Council on Corporate Disclosure and Governance (CCDG), are now effective. FRS are essentially adopted from International Financial Reporting Standards (IFRS). The previous SAS were adopted from the same set of IFRS (formerly referred to as IAS) but with modification to certain transitional provisions. Consequently, there are differences between FRS and SAS.
Interpretations of Standards are authoritative guidance on the application of the relevant standards. CCDG adopted all international interpretations as Interpretations of FRS (INT FRS) with effect from financial periods beginning on or after 1 January 2003.
Compliance with FRS is a statutory requirement whereby any non-compliance amounts to a breach of the Companies Act by the directors.
Financial Reporting in Singapore
The Companies Act requires that an audited set of financial statements, made up to not more than six months before every Annual General Meeting, is to be presented to the shareholders at the meeting. Generally if a company incorporated in Singapore has one or more subsidiaries, it must prepare consolidated financial statements unless it meets certain criteria as provided for in FRS 27 Consolidated and Separate Financial Statements. Currently, financial statements under the Companies Act consist of the balance sheet, income statement together with explanatory notes. With the Companies (Accounting Standards) Regulations 2002 coming into operation for financial periods on or after 1 January 2003, a complete set of financial statements will comprise the balance sheet, income statement, statement of changes in equity, cash flow statement and explanatory notes.
The financial statements must be accompanied by the directors' and auditors' reports and by a statement from the directors declaring that the financial statements show a true and fair view and that it is reasonable to believe that the company can reasonably pay its debts as they become due.
Companies which meet specific provisions in the Companies Act may be exempt from having their accounts audited but nevertheless must prepare financial statements that comply with the Companies Act.
Annual Requirements for Companies in Singapore
The Companies Act requires every company, except for those exempted in accordance with the provisions in the Act, to appoint one or more auditors qualified for appointment under the Accountants Act to report on the company's financial statements. The auditors are to ascertain whether proper books of accounts have been kept and whether the financial statements agree with the company's records. They will then report on the trueness and fairness of the financial statements to the shareholders at the Annual General Meeting.
Audit Exemption Starting with the financial year beginning on or after 15 May 2003, the following companies are no longer required to have their accounts audited. However, they are still required to prepare accounts (and consolidated accounts where applicable) that comply with FRS.
o Small exempt private companies An exempt private company with revenue in a financial year below S$5m is exempted from appointing auditors and from audit requirements. Revenue is defined according to the statutory accounting standards, i.e. the FRS.
o Dormant companies A dormant company is exempted from appointing auditors and from the audit requirements if it has been dormant either (a) from the time of its formation or (b) since the end of the previous financial year. A company is considered dormant during a period in which no accounting transaction occurs, and the company ceases to be dormant on the occurrence of such a transaction. For this purpose, transactions arising from the following are disregarded:
- Taking of shares in the company by a subscriber to the memorandum
- Appointment of company secretary
- Appointment of auditor
- Maintenance of a registered office
- Keeping of registers and books
- Fees, fines or default penalties paid to the Registrar of Companies
Company Registration Options in Singapore
The Accounting and Corporate Regulatory Authority (ACRA) of Singapore regulate the businesses, public accountants, and the accounting services in Singapore. ACRA, unlike other government regulators, also facilitates for the promotion of these entities.
As a national regulator, ACRA demands strict statutory compliance from these entities. For this reason, Singapore businesses are better off with the assistance of accounting services in Singapore.
Compared to other countries, it is easier, seamless and effortless to open a company in Singapore. Although it depends on individual choices, ACRA advises foreigners to take assistance from external firms offering Singapore company registration services. There are many firms in Singapore offering incorporation services along with many other corporate business services like, accounting, auditing and taxation to different national and international clients.
Accounting Services for Small and Medium Enterprises in Singapore
Singapore's taxation year or the Year of Assessment (YA), starts on 1 January and ends on 31 December. However, in case of many Singapore companies, the end of their financial year does not coincide with stipulated date, i.e., 31 December.
These business entities still have to complete their financial reporting and tax filing, as per the due dates issued by ACRA and IRAS (Inland Revenue Authority of Singapore). They need to host an annual general meeting and table their financial statements for the review and approval of their shareholders.
Genuine and accredited accounting firms in Singapore assist its clients to maintain their books of accounts, by offering their flawless and punctual bookkeeping services. These firms ensure that each and every financial transaction is entered and accounted for. These firms also offer preparation of bank reconciliation, XBRL, and directors' reports, along with the financial analysis on weekly, monthly, quarterly and annual basis.
The well-known CPA firms, while preparing the financial statements of clients prepare a balance sheet, profit and loss statement and cash flow statement. The 'books of account' maintained by the client, plays a major role in preparing these statements. Most of the entries and inputs in these statements are retrieved from what is found in the client's books of accounts. These financial documents are prepared in compliance with the Singapore Financial Reporting Standards (SFRS). In addition to that, different types of transactions are treated as per the set principles and governing practices of the governing bodies.
In order to offer unmatched and high-quality accounting and auditing services to the clients, firms offering accounting services employ only experienced and certified auditors. These professionals are trained to structure their auditing reports on the data contained in the books of accounts, submitted by clients for inspection. After the auditing reports are prepared and authenticated by the prime service provider, these reports are submitted to shareholders, investors, employees, management and the government regulators for analysis and approval. A comprehensive auditing report serves as a definitive medium for the client, to take speculative decisions about the future course of their business. Therefore, preparing such report, from a well-known and qualified audit firm in Singapore is much more necessary.
After understanding the importance and necessity of well-structured audit report, business management proceeds to hire an external auditing firm for conducting internal audits of their company. The reports generated, allow them an insight into the effectiveness of processes, internal checks and methods that are in place in the organization. On the other hand, the shareholders of the company are also empowered to hire audit services in Singapore, for conducting parallel external audits for them.
The meticulously prepared financial reports are essential for gauging the financial health of a company. These reports also reveal its weaknesses and help the management in taking preventive measures against them. Remember, apart from exempted companies, every single Singapore business must file their financial statements with the ACRA.
It is the duty of the corporate business services firms based in Singapore to advise and help their clients with accurate Singapore tax filing. ACRA specifically mandates; that it is a duty of the business service-providing firm to educate and advise its clients on GST registration in Singapore, GST filing, ECI filing, Withholding tax and other taxes. Most importantly, it assists the client in the careful preparation of its corporate income tax.
The CPA's working at these firms usually takes into account the tax rebates, incentives, deductions and exemptions that client qualifies for, to incorporate those relevant details in the financial statements. The firm also assists Singapore businesses in complying with the ACRA's XBRL filing requirements, by converting their business data into the XBRL format.