Month: June 2023

Should my company consider using outsourced accounting and bookkeeping services?

Should my company consider using outsourced accounting and bookkeeping services?

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Bookkeeping and accounting are essential functions of any business, but they can be time-consuming and complex as your business expands and you spend more time on revenue-generating activities. Depending on the country and industry that your business operates in, companies are required to comply with the approved accounting standards. In Malaysia, companies are required to prepare financial statements that comply with standards established by the Malaysian Accounting Standards Board (MASB).

Why outsource accounting services?

When selecting an outsourced accounting and bookkeeping services provider, one with vast experience, regional presence, and network is especially beneficial as it has in-depth knowledge of local business environments throughout the region. It can help you consolidate multinational taxes and manage cross-border accounting to ensure strong financial compliance and reporting, reduce your risk, and enhance your efficiency.

In this article, we’ll take a look at the top 5 reasons why companies should use an outsourced why outsourced services are becoming an increasing trend, according to the Global Finance And Accounting Business Process Outsourcing Market Report, 2023 published by Research and Markets.

1. Reduce cost and save time

With bookkeeping and accounting done in-house, companies are faced with situations of employee resignations, which results in the time and cost required to train new staff. When employees leave a company, they also take with them a wealth of knowledge and insights. This loss can have a significant impact on your business’s operations, productivity, and continuity. But by entrusting these services to an outsourcing partner, you can safeguard against such knowledge gaps and ensure undisrupted and seamless operations.

By utilising outsourced bookkeeping and accounting services with a monthly fee, companies gain access to a team of experienced accountants who can provide services such as monthly bookkeeping, invoicing, accounts payable management, financial statement preparation, and cash flow forecasting. With these operational tasks taken care of by the vendor, companies can then focus on their core competencies and growth.

Reduce cost and saves time

2. Stay compliant with accounting standards

Not staying compliant with local rules and regulations can be costly in terms of financial penalties, not to mention the time spent on dealing with the auditors and regulators. As your company expands its scale across multiple regions and countries, the tediousness and complexity of keeping up with the paperwork for accounting and tax reporting intensifies. In order to avoid any blunders, a proficient accounting firm that is well-versed in both local and international accounting frameworks and financial reporting standards like GAAP and IFRS can be the perfect companion to assure you of legal compliance.

3. Foster international business growth

Companies exist for a reason – to grow. An outsourced accounting services provider can be an invaluable business partner on your growth journey. They can provide detailed advice and accurate data at any time so you can make timely strategic business decisions.

For large businesses, an outsourced accounting partner can also help to establish internal accounting controls at your headquarters and roll these out within other branches. Having consistent internal controls in place across your regional locations means you can easily generate accurate group-wide data at any time of the year.

As your business grows and expands regionally or globally, your accounting operations may become increasingly sophisticated and complex, suddenly requiring a higher number of staff and specialists to execute. Outsourced accounting services can adapt to this immediate change, so you can forgo the process of hiring an extra workforce and organising additional training.

Fosters International business growth

4. Maximise tax benefits and tax deduction

Companies may be unaware of tax exemptions that they can benefit from, especially with the many changes and incentives announced during Malaysia’s annual budget each year. There are many types of taxes that MNCs and small business owners should be aware of, such as Malaysia Corporate Tax, Digital Tax, Stamp Duty, Sales and Service Tax (SST), and Withholding Tax.

Eligibility for deductions for the different taxes can be difficult to grasp due to the complexity of the requirements. The intricacies of numerous tax treaties may also be difficult to comprehend, resulting in unnecessary double taxation. An experienced outsourced accounting service provider can help you prevent such occurrences and take advantage of the appropriate tax benefits. This enables your company to maximise profits while ensuring tax compliance with accurate tax filing and advisory services. This also reduces the risk of an audit by tax authorities.

5. Move to digitalisation – Cloud accounting software solutions

The emergence of digital transformation has unlocked endless opportunities to turn data into actionable insights, but it has also left businesses struggling to maintain the skills necessary to achieve success in this new era.

An outsourced accounting services vendor with expertise in cloud accounting software like Xero can help free up finance professionals’ time so they can pursue strategic business goals. Besides the convenience of accessing data in real-time anytime and anywhere, cloud accounting has gained popularity due to its low cost, which eliminates the need for expensive on-premises software installations. Instead, with a SaaS model, companies only pay for the resources they use, allowing for scalability as their needs evolve.

Cloud accounting providers also have robust security measures in place to protect sensitive financial information from unauthorised access, loss, or hardware failure. This ensures a higher level of security protection compared to traditional on-premises solutions.

Move to digitalisation – Cloud accounting software solutions

6. Reduce manual errors and financial risks

The cloud accounting software provided by the outsourced services vendors often possesses automated systems and built-in features, which can easily reduce the occurrence of errors commonly experienced in multiple accounting tasks, such as manual data entry, tax calculations, transaction recording and financial statement preparations.

A dedicated and trained team will be assigned to operate this advanced accounting software, fully utilising it to give you a comprehensive view of your financial data for better analysis and insights, significantly minimising your financial risks.

Choosing the right accounting and bookkeeping services provider for your business

A full-service accounting and bookkeeping firm goes beyond transactional processing. It should be able to take over all aspects of your accounting and bookkeeping, from your accounts receivable (AR) and accounts payable (AP) to your general ledger and financial reporting. An experienced outsourced services provider will be able to quickly and easily identify effective solutions for any accountancy challenges and ensure that your company has followed all the correct audit protocols. They will also be able to provide business support in other additional areas, such as cash flow management, to help your company reach its goals.

No matter where your business is on the growth journey, by partnering with an expert accounting service provider, you can save time and money, access immediate expertise, ensure compliance, and, ultimately, improve your business performance.

BoardRoom’s world-class accounting and tax services can help you reach your business objectives and maintain a competitive edge. And don’t just take our word for it – see what our clients say about our service!

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Understanding ESOS and tax implications in Malaysia

Understanding ESOS and tax implications in Malaysia

Understanding ESOS and tax implications in Malaysia

boardroomsuperadmin

Employee share option schemes (ESOS) have become increasingly popular among companies in Malaysia as a way to retain top talent and boost productivity. They offer employees the option to purchase company shares at a discounted price, which can result in a significant financial gain if the company performs well.

In this article, we will discuss the fundamentals of ESOS and why they are a valuable tool for employers. We will also examine the tax implications of ESOS in Malaysia; the regulatory bodies and laws governing ESOS taxation; and best practices for companies and C-suite leaders to achieve compliance and minimise tax liabilities.

What are ESOS?

ESOS are a form of employee compensation that allows employees to purchase company shares at a discounted price. These schemes are designed to incentivise employees to work productively and contribute meaningfully to the company’s success, as their financial gain is tied to the company share price movement. The higher the increase in share price, the larger the financial gain to the employees.

ESOS typically have a vesting period, meaning that employees must wait a certain amount of time before they can purchase shares. This period is intended to encourage employees to remain with the company longer and to align their interests with those of the company.

ESOS versus Employee Stock Ownership Plan (ESOP)

An ESOS (Employee Stock Option Scheme) and an ESOP (Employee Stock Ownership Plan) are both employee benefit programs that involve providing employees with a stake or ownership in the company.

However, there are some differences between the two:

  • Nature of ownership
  • Purpose
  • Structure and funding
  • Control and governance

Plan types such as restricted share plans and performance share plans all have different objectives but can all be categorised under long-term incentive plans.

Employee Benefits

Tax implications of ESOS in Malaysia

One of the most critical factors companies must consider when implementing ESOS is the tax implications for the business and their employees.

Failure to comply with tax regulations can result in significant financial penalties and reputational damage. Therefore, it is crucial that companies fully understand the tax requirements of ESOS in Malaysia and take steps to ensure compliance.

ESOS tax implications for employers and employees

ESOS can have different tax implications for both employers and employees.

For Malaysian employers, ESOS are usually considered a non-deductible expense for a company. Employers are required to report the value of the options granted to employees as an expense on their financial statements under Malaysian Financial Reporting Standard (MFRS) 2. The employer would also be required to deduct income tax from the amount of gain realised by the employee on the exercise of the option.

Employees who exercise their options to purchase shares are subject to income tax on the difference between the market value of the shares at the time of exercise and the option exercise price paid. The individual income tax rate in Malaysia varies depending on the chargeable income of the individual, with rates ranging from 0–30%.

Calculating ESOS tax liabilities

Companies must accurately calculate the tax liability associated with share options for both the employer and employee to ensure compliance.

Under MFRS 102, companies are required to recognise the fair value of the share-based payment as an expense in their financial statements. The fair value of the share-based payment is determined at the grant date, taking into account the exercise price, the term of the option, the current price of the underlying share and the expected volatility of the share price.

Once the fair value of the share-based payment has been calculated, it is recognised as an expense over the vesting period.

Tax Liabilities

How to ensure ESOS compliance

In Malaysia, the regulation of ESOS is overseen by several government bodies, including the Securities Commission Malaysia and the Inland Revenue Board of Malaysia (IRBM).

Under Malaysian law, ESOS tax treatment varies depending on whether the option is granted to a local or foreign employee. Local employees are subject to Malaysian tax on the gain from exercising the option. In contrast, foreign employees are taxed only on the portion of the gain attributable to work done in Malaysia.

Penalties for non-compliance with ESOS taxation regulations can be severe. Companies that fail to comply with ESOS regulations may face fines, penalties and legal action from the authorities.

Best practices for C-suite leaders

C-suite executives can support ESOS compliance while minimising tax liabilities by implementing the following best practices in their organisation:

  • Engage with tax experts who can provide guidance on the tax implications of ESOS and assist in accurately calculating tax liabilities for your business and your employees.
  • Ensure compliance with all regulations and laws governing ESOS taxation in Malaysia.
  • Develop a comprehensive understanding of the accounting for share options under MFRS 102. This accounting involves measuring the fair value of the options, recognising an expense in the income statement and recognising a liability in the balance sheet.
  • Keep accurate records of all ESOS transactions and ensure that all employees are adequately informed and educated about the tax implications of their share options.
Best Practices

Common pitfalls to avoid

Despite the importance of compliance and accurate tax calculation, there are some common pitfalls that companies and C-suite leaders can encounter when it comes to ESOS taxation, including:

  • failure to accurately calculate the tax liability associated with share options, which can result in underpayment or overpayment of taxes;
  • incorrectly accounting for share options under FRS 102, which can lead to misstated financial statements and regulatory compliance issues; and
  • failure to meet ESOS reporting obligations.

Woon Chee says it is not enough to ensure your company pays its ESOS taxes on time; it is also important to be aware of and fulfil the reporting requirements that follow. For example, she notes that “upon launching the ESOS, the employer has to notify the IRBM within 30 days after the expiry date of the period of acceptance of the offer.”

How to avoid pitfalls

To avoid these mistakes, it is crucial for companies to engage with an expert ESOS provider who:

Offers a comprehensive platform for ESOS management that gives your employees and HR professionals full visibility of the details and status of each scheme
Possesses a deep knowledge of local tax laws within the jurisdictions your organisation operates, a wealth of ESOS management and relevant professional qualifications
Specialises in an integrated suite of corporate services alongside ESOS management, including taxation, accounting and payroll (so that all the expertise you need is easily, quickly accessible via one point of contact)

Woon Chee urges businesses not to underestimate the power of an innovative ESOS management platform.

“A good ESOS platform shows you all the details of every ESOS, so it’s easy for you to keep track of them and will largely reduce your tax liability,” she says.

It also takes the guesswork out of tax calculations so you can have confidence in your regulatory compliance.

Unlock the power of ESOS

ESOS is a powerful tool for retaining talent and boosting productivity, but C-suite leaders need to have a comprehensive understanding of the tax implications and regulatory requirements for ESOS in Malaysia.

By engaging with tax experts, staying up to date with regulatory requirements and following best practices for compliance and accurate tax calculation, companies can minimise tax liabilities and ensure that their ESOS programs successfully achieve their intended goals.

At BoardRoom, we offer expert accounting and tax advisory services across the Asia-Pacific region. By engaging our tax professionals, you receive access to specialist guidance and support to ensure compliance with all regulatory requirements and minimise tax liabilities related to ESOS.

Additionally, we can connect you with trusted consultants to support you with plan design, prior to implementing, so that your schemes are tailored to your needs.

Please contact us to find out how our world-class ESOS services can benefit your business.

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