Malaysia’s accounting, tax regimes favourable for crowdfunding

It’s 1 of the least complex jurisdictions in Asia, according to maiden Financial Complexity Index 2017 by TMF Group

By HABHAJAN SINGH

The growing regulation of the crowdfunding industry is not putting off investors as South-East Asia pushes forward with the expanding medium of raising funds.

In fact, a global report inspecting accounting and tax regimes found that Malaysia, as a whole, is one of the least complex jurisdictions in Asia, aiding the way for crowd-funding activities.

In the inaugural Financial Complexity Index released by global business services outfit TMF Group, the report noted that there was a large chunk of South-East Asian countries which ranked on the less complex side of the table, including Malaysia which was among the first country in Asia to regulate crowdfunding.

Malaysia was ranked 59th out of 94 countries, with the smaller number denoting countries with more complex accounting and tax compliance regime. Labuan was ranked at 84, one notch above neighbouring Singapore which is at the 83rd spot.

Turkey, Italy, Brazil, Greece and Vietnam were ranked as the most complex in the world for accounting and tax compliance, while the Cayman Islands was the least complex.

Some of the better performing Asian nations were the United Arab Emirates (92), Hong Kong (91), Qatar (85), Japan (76) and Myanmar (73).

The Financial Complexity Index 2017 examines the varied complexities of maintaining accounting and tax compliance across 94 jurisdictions worldwide, and explores some of the forthcoming trends that will affect multi- national businesses in 2017 and beyond.

In order to determine the rankings, TMF Group surveyed its in-house accounting and tax experts, and used four weighted complexity parameters to evaluate the accounting and tax rules and regulations in different jurisdictions, as well as risks associated with non-compliance.

“When operating in a diverse global market, knowing and understanding the local jurisdictional requirements for financial compliance could well prove the difference between the success or failure of your cross-border business activities and investments,” the report said.

Crowdfunding Opportunities
With Malaysia leading the way in crowdfunding regulation, TMF Group said it is becoming easier to get funding for small businesses and startups.

Malaysia was the first country to regulate the growing industry to support new ideas by providing a funding mechanism with regulator Securities Commission Malaysia approving 12 crowdfunding platforms — six equity-based and six peer-to-peer lending.

TMF Group business development associate director for Malaysia Calvin Chan said though there are strict guidelines for operation, the market is creating new avenues for entrepreneurs.

“It’s all part of advancing the financial services sector in the country, and equity crowdfunding is seen as one of the ways to enable more firms to raise growth capital and unleash innovation,” he said in an article shared at the group’s website.

Under the Capital Markets and Services (Amendment) Act 2015, it noted that private companies with a paid-up capital of not more than RM5 million and with a strong business plan can now fund their ventures through crowdfunding.

The amount of capital collected through crowdfunding is limited to RM5 million, while small and medium enterprises can crowdfund up to RM3 million in a year. For retail investors, the maximum investment amount is limited to RM5,000 for each company and RM50,000 a year for total crowdfunding investment, it added.

Three Challenges

The report findings showed that financial complexity could be grouped within three key areas of challenge: Regulation, knowledge and technology.

On regulation, it said the rate of change in each jurisdiction indicates the need to increase efforts to meet the demands of legislative changes. The diverse reporting requirements for each market highlight the importance of a robust internal risk framework, allowing total financial compliance across department and process.

On knowledge, it pointed out the need to build a local knowledge base to avoid the risk of non-compliance across all areas of finance. Here, applied local knowledge, not just of legislation but also currency and language, can prove vital in meeting reporting and compliance requirements.

As for technology, it noted the increased use of technology by local authorities to deliver operational transparency. More and more jurisdictions, in all parts of the world, are now automating and digitising their information storage, as well as reporting requirements.

Vietnam Challenge

The report ranked Vietnam as the most complex country in the Asia-Pacific region, with many foreign nationals finding its regulations on business unnecessary and overly burdensome, with a multitude of business-related licences.

As part of its ongoing effort to combat tax evasion, the report noted that Vietnam’s General Department of Tax has set higher goals for tax auditing, resulting in a higher frequency of audits and investigations.

“These regulatory requirements can be burdensome. Regular filings are required alongside various monthly, quarterly, and semi-annual statistics reports, foreign contractor tax and value- added tax (VAT) returns, along with numerous yearly statutory reports.

“In addition, accounting documents are required to be stored for 10 years, according to Vietnam’s accounting laws. English can be used for accounting purposes, but Vietnamese language is a must to comply with Vietnam’s accounting requirements. This is difficult for foreign companies that want to maintain an accounting system handled by their regional accounting centre,” it said.

It also noted that Vietnam’s VAT system is also very confusing and requires expertise to understand its exemptions, refunds, various VAT rates and proper filing of VAT. It is also important to correctly determine which VAT calculation method best suits the business and ensure tax processes are followed correctly.

“There are also rules regarding invoicing. For example, as per Vietnam’s law for export of goods and services, a commercial invoice must be used or sales invoice be applied for the enterprises in a non-tariff zone, whereas a standard VAT invoice is used for other enterprises. Enterprises classified as high tax risk have to order printed or self-print invoices from the tax authorities,” the report added.