Singapore Trends: Singapore company registration as your investment holdings
As our group accounting firm in Singapore, GPC Avic Pte. Ltd.(now known as DCC CORPORATE SERVICES PTE. LTD.), manages the accounting & tax processes to close annual books for our client companies, especially those that opted for business registration Singapore and have with subsidiaries in Vietnam and Indonesia,
I’m Xavier from GPC Singapore (now known as DCC Group). I hope you are having productive days as we approach the end of year 2024.
Year-End Consolidation Time is here!
Are you experiencing delays in consolidating your Vietnam or Indonesia subsidiaries at the Singapore company level after your company registration in Singapore?
As our group accounting firm in Singapore, GPC Avic Pte Ltd (now known as DCC CORPORATE SERVICES PTE. LTD.), manages the accounting & tax processes to close annual books for our client companies, especially those that opted for business registration Singapore and have with subsidiaries in Vietnam and Indonesia, I would like to share some key issues & practical tips we use to streamline the process for your business. I hope this helps your business to successfully file the financial statements at Singapore Group Level in a timely manner!
In this section, I will focus specifically on subsidiaries in Vietnam as I delve deeper into the topics. Subsidiaries in Indonesia will be covered in future email magazine editions.
Most-Frequently Issues we face in consolidating Vietnam Subsidiaries:
Consolidating subsidiary accounts in Vietnam can be challenging due to differences in regulations, currency, and reporting standards, especially if you’ve recently registered a business in Singapore and are looking to expand.
For companies that have gone through Singapore company registration and have subsidiaries in Vietnam, While common challenges like currency translation and exchange rate volatility, differences in accounting standards, intercompany transactions and balances, timing differences and reporting deadlines, and tax implications including deferred tax accounting are frequently highlighted, these issues are often too generic and applicable to most consolidation efforts.
Below, I will outline the top three specific challenges and tailored tips to address then effectively in the context of consolidating Vietnamese subsidiaries.
Challenge 1: Intercompany Transactions with Vietnam Subsidiary
Did you know there is “Sub-Contractor” local tax rule in Vietnam?
If you are outsourcing work to your Vietnam subsidiary and essentially controlling its gross sales, the subsidiary may be classified as a “Sub-Contractor” within your group company. This is particularly common in the IT (offshore development), BPO, and manufacturing industries.
We faced a similar challenge while setting up a Vietnam subsidiary for digital content creation (specifically in animation). Initially, our focus was solely on global transfer pricing to set intercompany unit prices. Our project required collaboration between four divisions: 3D Division, Video Division, Background Design Division, and Painting Division. Sometimes, only two or three divisions were involved, and the management established clear and fair rules based on “arm’s-length” unit pricing for each division’s contribution.
Despite having these transparent rules in place, we faced an unexpected challenge. In our first financial year, after increasing staffing to about 55 employees, we projected a loss due to rising hiring expenses. However, toward the year-end closing, our local tax accountant pointed out: “Do you only have one sales channel from the group company?”
In Vietnam, tax authorities often expect a profit margin of 5-10% of gross sales to be recorded if the local entity is deemed a “Sub-Contractor.” Addressing this took us 1-1.5 months and led to delays in finalizing the Vietnam subsidiary’s books.
For companies in the IT, BPO, or manufacturing sectors, it’s crucial to consider this local tax practice when consolidating your Vietnam subsidiaries to avoid compliance issues and potential delays.
Challenge 2: Language, Language and Language
There is a growing number of local Vietnamese staff proficient in English. During my visit to Ho Chi Minh City, I attended a weekend Free English Coffee Session to meet local friends. To my surprise, around 30-40 young people, aged 15-25, were enthusiastically participating. I was told that there are around 20-30 such free English clubs in Ho Chi Minh City alone.
This growing trend means you are more likely to find English (or even Chinese) speakers within local accounting firms or internal finance teams who can help resolve issues and explain local accounting practices. However, our experience dealing with businesses from Japan showed us that language barriers can still pose significant challenges.
In our case, a Japanese holding company was the primary owner of a successful business in Vietnam, with several shareholders investing in its growth. As global investors expressed interest, management decided to set up a Singapore holding company to receive future investments. All seemed well.
Initially, our plan was to have the Singapore holding company directly hold both the Japanese and Vietnamese companies in parallel. However, holding a Vietnam business directly as a foreign entity requires FDI approval, which can be a lengthy process. So, we chose a three-tier structure, with the Singapore holding company owning the Japanese holding company, which in turn held 100% of the Vietnam company.
We were fortunate to establish direct communication with an English-speaking finance team in Vietnam, and local audit reports were issued in English, which significantly helped in the consolidation process. Unfortunately, the tax accountant handling the Japanese holding company communicated directly with the group’s CEO as an English translator, causing simple issues like intercompany loans from Japan to Vietnam to become unnecessarily time-consuming.
We are now discussing two possible solutions with management: (1) transferring balance sheet items from Japan to Singapore or (2) changing the local tax accountant in Japan.
Challenge 3: Red Invoices
When consolidating a Vietnam-based business, understanding local terminology is crucial, especially when communicating with local finance staff or accounting firm representatives.
In Vietnam, “Red Invoices” are a key concept that applies across all industries but are particularly relevant for trading companies and retail businesses like F&B, where a significant portion of expenses come from supplier invoices.
What is Red Invoices?
Red Invoices are locally so popular and here is Google Search explanation for your reference:
Red invoices usually show information on the value of goods sold and services provided to the buyer, information on the seller and buyer issued by the service provider, and also serve as a basis for determining the amount of tax to be paid into the state budget of the enterprise. Some of the following activities and services give rise to a specific red invoice as follows:
– Buy and sell goods, services, domestic products
– Export of goods and services
– Domestic and international transportation…
To explain simply, let’s say you visit a bookstore to buy office supplies like pens, erasers, and notebooks. After paying, you receive a regular receipt from the cashier. However, if you want to record these expenses in the company books, you must request a “Red Invoice” at a different counter. You provide the bookstore with your company information, which they register with the Vietnam IRAS system to generate the official Red Invoice number. This process often involves a bit of waiting.
Some well-established businesses have the authority to issue their own Red Invoices, while others must contact the tax authorities to generate invoice numbers. Companies may also set internal guidelines for issuing Red Invoices, such as only for transactions above a certain amount (e.g., VND 200,000) due to the complexity of the process.
How Do Red Invoices Impact Consolidation at the Singapore Level?
When consolidating at the Singapore level, the details of Red Invoices may not be immediately visible unless you closely examine the trial balance of your Vietnam subsidiary. Under “Expenses” or “Cost of Sales,” you might notice a line item for VAT expenses. VAT in Vietnam, equivalent to GST, is set at 8% in 2024. If VAT expenses do not appear to be exactly 8% of your total expenses, it might raise questions.
This discrepancy is often due to varying practices regarding the issuance of VAT invoices (Red Invoices) among suppliers. During due diligence, it’s common to find that only 50-60% of regular suppliers are compliant with issuing Red Invoices, while others are not. This inconsistency can create local-level discrepancies, which need careful attention when consolidating.
Understanding and accounting for these local practices is essential for achieving an accurate view of your Vietnam subsidiary’s tax liabilities and financial position.
Proactively addressing these challenges can streamline the consolidation process and enhance the reliability of financial reporting for Vietnamese subsidiaries in Singapore.
Thank you for reading our original article. If you have any questions about consolidating a Singapore holding company with its subsidiaries in Vietnam, please feel free to reach out to us at info@dcc-gr.com. I hope the information above has been helpful.