In this issue - Nexia TS€¦ · environment. Find out more on the diﬀerent types of strategic...

Quarter 4 Issue

In this issue:

Singapore REITs

Overview of Malaysia

Defining Your Business Strategy

Online Tax Savings Calculator

MALAYSIANTS Asia Advisory Sdn Bhd

Unit No 23A-06, Level 23AMenara Landmark, No. 12Jalan Ngee Heng80000 Johor Bahru, JohorTel: (60) 7 221 3285 Fax: (60) 7 221 3289 Website: www.ntsasia.com.my

CHINANexia TS (Shanghai) Co Ltd Room A, 20 Floor, Heng Ji Building, No. 99 East Huai Hai Road, Huang Pu District, Shanghai 20021, ChinaTel: (8621) 6047 8716Fax: (8621) 6047 8712Email: [email protected]: www.nexiats.com.cn

SINGAPORENexia TS Public Accounting Corporation 100 Beach Road Shaw Tower #30-00Singapore 189702Tel: (65) 6534 5700Fax: (65) 6534 5766Email: [email protected]: www.nexiats.com.sg

MYANMARNTS Myanmar Co Ltd

La Pyayt Wun Plaza, 410(B), 4th Floor, 37 Alanpya Pagoda Road, Dagon Township, Yangon, MyanmarTel: (951) 370 836, 370 837, 370 838 Ext- 406, 407, 408 Fax: (951) 376 945Website: www.nts.com.mm

We LISTEN to our clients, THINK on theirbehalf and help guidethem on difficult decisions. We help steer companies towards GROWTH. Ourdomain is ASIA.

Dear Valued Clients and Associates,

We are delighted to welcome you to the year end edition of Nexia Pulse for 2016. As we approach the festive holidays, there’s so much to be excited about. To round off an exciting and fulfiling year, Nexia TS is proud to have launched a first-of-its-kind online tax savings calculator to encourage donations in Singapore in conjunction with Giving Week 2016.

Next, we highlight some of the more salient features of Singapore REITs and the difference between REITs and real property investments. This article also dives into the role of foreign property assets in Singapore REITs.

In another key article, we delve deeper into the construct and the importance of strategy in today’s ever-changing business environment. Find out more on the different types of strategic positioning to drive the sustainability of competitive advantage for your company.

Finally, we have enclosed an infographic snapshot of Malaysia’s general information for your reading pleasure.

We hope you enjoy the informative selection of features in this issue. Thank you for your continuous support. Here’s wishing you and your loved ones and a joyous new year.

Henry TanManaging Director, Nexia [email protected]

1Introduction

Singapore, the island city-state of Southeast Asia spanning a mere 50 km from east to west with a total land area of just 719 square kilometres, represents the second largest REIT market in Asia, after Japan. This is indeed remarkable, given the early perceptions that such a limited stock of land would hamper any ambitions it had in nurturing and growing this sector. The REIT regime was first introduced in 1999, with Singapore marking its first REIT listing in 2002. Since then, there has been no turning back. To date, there are 35 listed REITs and property trusts on the Singapore Exchange (SGX), making Singapore an attractive destination, especially for Asian investors.

Salient features of Singapore REITs

Some of the more salient features of Singapore REITs are as follows:

• Singapore REITs are classified as Collective Investment Schemes and regulated by the Monetary Authority of Singapore.• REITs are listed on the SGX, which guarantees transparency as well as liquidity for the investors.• There are no investment restrictions on non-resident investors.• There are no restrictions on ownership of foreign assets.• Although there is no legal or regulatory requirement for a Singapore REIT to distribute any predetermined percentage of income as distributions, all Singapore REITs distribute at least 90% of its taxable income so as to enjoy the tax transparency treatment. • Under the tax transparency treatment, the trustee is not taxed on REITs’ income. Instead, tax (if any) is levied only at the level of the unitholder.

• There are no withholding tax provisions in respect of distributions made to non-resident individuals. However, for non-resident non-individuals, the trustee is required to deduct tax at the prevailing corporate tax rate (i.e. 17%). • Given the lack of a capital gains tax regime in Singapore, any gain from sale of REIT units is tax exempt unless the gain is derived from carrying on of a trade or business in Singapore.

REITs vs. Real property investments

Today, it is common for most shopping malls, offices and industrial buildings in Singapore to be owned and managed by REITs. This structure offers flexibility to investors wanting the exposure to these asset classes but may lack the time and resources to invest directly in them. Investors have the opportunity of enjoying passive rental income through the distributions paid out while standing to benefit from any gains in the property values over time through the REIT unit’s price appreciation.

The role of foreign property assets in Singapore REITs

While many REIT markets have remained largely domestic in their focus, Singapore from the outset has been able to attract a very diversified pool of assets. As shown in the pie chart provided below, foreign property assets constitute more than one-third of the total asset value of Singapore REITs.

Singapore REITsThe Journey Thus FarThis article is authored by Lam Fong Kiew (Head of Tax, Nexia TS)

3Singapore REITS: The Journey Thus Far

The outlook in 2016

At a time when real estate markets in many parts of the world are facing headwinds, Singapore REITs have been true to form in delivering boringly steady returns. Indeed by some measures, they have handily outperformed their global and regional peers. According to a recent report released by the SGX, the Singapore REIT index’s total return of 12.2% from January to July 2016 significantly outperformed the benchmark MSCI World REIT index’s 7.6% in Singapore Dollar terms over the same period.

Even against the lacklustre backdrop of new listings in general, the REIT sector has been a rare bright spot for the SGX. 2016 has proved to be a bumper year for REIT listings with three major listings from the US, Australia and China. Manulife US REIT raised $519m while Frasers Logistics and Industrial Trust raised $672m with its listing of Australian properties. This was followed by EC World REIT raising $630m with its listing of logistic properties in China.

Recently, SGX launched its first Exchange Traded Fund (ETF) for Singapore REITs. The ETF aims to track the index of the S-REIT 20 Index, which measures the performance of the top 20 largest REITs listed on the SGX. In addition, the SGX has launched an index to track a basket of 30 REITs across Asia-Pacific region (excluding Japan) with an ETF to track this index. Both of these ETFs would allow investors to diversify their portfolios enabling them to access some of the largest REITs in Singapore and the Asia-Pacific region.

A brave new world beckons...

The success of the REIT sector in Singapore can no doubt be attributed to many factors such as the readily available pools of capital that could be tapped, a mature local and international investor profile and the ecosystem of infrastructure and service providers that come with being a global financial centre. But at the core of its success lies an effective regulatory and tax framework that underpins the Singapore REIT regime. While the market conditions that ultimately dictate investor interest are often fickle and beyond the control of any one party, the legal, tax and regulatory framework that underpins the regime is not and Singapore will need to ensure the framework stays relevant in a constantly evolving REIT landscape.

CONTACTSFor more information, please contact:

Mr Edwin LeowTax [email protected]

POPULATION

31.7million (2016)

MEDIAN AGE

28years (2016)

LABOUR FORCE

14.76million (2016)

ANNUAL POPULATIONGROWTH RATE

1.5%UNEMPLOYMENT

RATE

3.5%

4.42= 1 USD

MYR

1.5%(2016)

GDP GROWTHMalaysia’s economy expanded to 4.3 per cent in the third quarter of2016. On a quater-on-quarter seasonally adjusted, the GDP improvedto 1.5 per cent.

For the three quarters of 2016, Malaysia’s economy grew 4.2 per centwith a value of RM817.5 billion at constant and RM901.6 billion atcurrent prices.

INFLATION

1.4%

FDI BY SECTORManufacturing sector was the main recipient of FDI flows (39.4%) in2015. This was followed by mining & quarrying (30.4%) and theservices sector (27.7%).

FDI BY REGIONIn 2015, Asia was the main sources of FDI flows 64.7 per cent, followedby Americas (16.4%) and Europe (14.1%). The main countries of FDIflows in Asia were Japan and Singapore.

MAJOR EXPORT PRODUCTS (2015)• Electrical & Electronic Products• Chemicals & Chemical Products• Petroleum Products• Liquefied Natural Gas (LNG)• Palm Oil*Listed in descending order

• Machinery, Appliances & Parts• Manufactures of Metal• Optical & Scientific Equipment• Rubber Products

MAJOR EXPORT MARKETS (2015)• Singapore• China• USA• Japan• Thailand*Listed in descending order

• Hong Kong• India• Indonesia• Australia• Vietnam

MALAYSIA Kuala LumpurCapital and Largest City

Total Area330,803 km²

INTERNET71.1% of individuals in Malaysiaaged 15 years and above areusing the internet.

4Overview of Malaysia

DisclaimerBy necessity, this briefing can only provide a short overview and it is essential to seek professional advicebefore applying the contents of this article. No responsibility can be taken from any loss arising from actiontaken or refrained from on the basis of this publication. Details correct at the time of publication.

Defining Your Business StrategyThis article is authored by Grace Lui (Valuation and Transaction Services Director, Nexia TS)

Strategy, a concept very familiar to most executives, is often what gives our business the competitive advantage over our peers. Interestingly, as not many of us might know, strategy is also a term that comes from the Greek term ‘strategia’, meaning "generalship". Some say leading a business is like warfare – the deployment of troops (resources), navigating terrain obstacles (business challenges), countering enemy tactical manoeuvres (competition), and ultimately, winning the war with minimal casualties (monetary loss) in the quickest time possible (efficiency) to meet the objectives (can be profit or non-profit goals).

On Strategy

Business is dynamic, fast-paced, and requires an effective and efficient use of scarce resources. As the case with major business decisions, before jumping head on into deploying the adopted business strategy as soon as possible, it might be worthwhile to take a step back and relook at the overall game plan to ensure that it is well-defined, aligned with clear resource prioritisation and recognise the possible trade-offs from pursuing the desired course of action. This step might prove to be invaluable to fine-tune our stratagem.

Michael Porter, a renowned management expert defines the essence of strategy¹ as “Choosing a unique and valuable position rooted in systems of activities that are much more difficult to match”. In this regard, Porter traces the economic basis of competitive advantage down to the level of the specific activities a company performs. Essentially, business strategy defines what needs to be fulfilled with the prioritisation of relevant resourcing to execute an enterprise-wide activity plan with clear goals, direction and what not to do (ie trade-offs). Using Ikea² as a case study, he shows how making trade-offs among activities is critical to the sustainability of a strategy.

Strategy is served – on a plastic platter

Strategy might come across as a frequently-used term in today’s business environment. Management consultants, as well as senior business leaders alike rave about their “long-term strategy” or their latest “growth strategy”. However, just what is strategy? The concept has been used frequently in so many different contexts that its meaning has become watered down and somewhat vague. Therefore, this article aims to provide a deeper discussion on its construct, its application to counter competition and in growing the business.

When doing it best is not enough

To begin with, operational effectiveness, although necessary for performance, has often been mistaken as a business strategy. While both are equally essential to an organisation, they are markedly different. Operational effectiveness entails generating greater speed, quality and productivity from current business activities. Think Total Quality Management, Kaizen techniques or time-based competition. Simply put, while operational effectiveness is about achieving excellence in each activity, strategy is about combining activities.

While being highly productive has its advantages, the problem with focusing purely on operational effectiveness is that such techniques can easily be copied by competition. Improvements in operational effectiveness can offer businesses a competitive advantage if other firms are operating far from the productivity frontier – this holds true for companies who are ahead of their pack, especially in the early market entry phase. However, if the majority of market players catch up in the productivity game, then the market leaders will need to find other ways to distinguish themselves further besides doing well in the productivity

6Defining your business strategy

game. The more companies focus on operational effectiveness, the more similar and homogeneous they become. For many companies, this state of affairs is simply not sustainable.

A game of differentiation

Arguably, it might very well be the case where most companies approach strategy in the following manner: Do what everyone else is doing but better (spend lesser resources doing it), or do something no one else can do (differentiation). While either approach can be successful, the two are not the same. Competing in the efficiency game alone, for example, pricing, just shrinks the overall pie everybody is getting their hands on – as a result, profitability declines for the entire industry.

Alternatively, businesses could expand the pie by staking out a unique market position or advantage. For example, this is clearly evident in the airline industry, where most airlines “compete to be the best,” as Porter puts it³, fighting over a very stingy pie indeed, while Southwest, among a handful of other airlines, built far more profitable businesses with a completely different approach, which targeted a different customer (people who might otherwise drive, for example) with a cleverly efficient set of interdependent activities, thereby expanding the entire market.

Strategic positioning

At its core, strategy entails performing different activities or performing related activities in different ways from other competitors. This is in contrast to operational effectiveness, which seeks to perform related activities in better ways. Therefore, settling on an optimal strategic positioning and constantly adjusting it to meet the demands of the competitive landscape is key to operating in a challenging market environment.

According to Porter, there are three different types of strategic positioning⁴:

1. Variety-based Positioning: This is suitable for businesses who can provide a subset of an industry’s product or services which are better than their competitors. Usually, firms who adopt such a positioning can reach a wider pool of customers due to their speciality but will be able to satisfy only a portion of their needs.

2. Needs-based Positioning: This is suitable for businesses who can serve all or almost all the needs of a specific group of customers. For such a strategic positioning to be sustainable, the set of activities being performed should be different from other competitors.

3. Access-based Positioning: This is suitable for companies who can cater to the similar needs of customer segments who are accessible in different ways (geography, scale, or other differentiator that requires customising of activities to reach this group of customers). For example, accessing rural customers as opposed to cosmopolitan urbanites will require different sets of business activities.

It is important to note that a company’s strategic positioning can be a combination of any of the three types of positioning. Nonetheless, any sustainable strategic positioning will require a business to configure its operational processes such as marketing, logistics or after-sales support so as to ensure that the business as a whole is geared towards a unique set of activities which reinforces strategic positioning. It is certainly not ideal, much less impossible, for a company to be all things to all customer segments. However, if competitors notice their rival’s success and start to copy its business strategy, they will have to first deal with a number of trade-offs when they change course to embark on a different strategy.

There are two main types of trade-offs:

1. Brand Dilution: If a firm is known for delivering a certain type of good or service, for example, mass market products, attempts to deliver higher end products run the risk of confusing its existing customers and therefore diluting its brand through dissonance between the original brand attributes and the new premium product attributes. In general, the smaller the perceived fit between the extension and the original brand, the more probable it is that the brand image will deteriorate.

2. Different Activities: Different strategic positions will require different activities to reinforce the respective strategic position. Operational processes, equipment, employee skillset as well as management command and control will have to be re-configured. If a firm were to attempt to straddle two different strategic positions, the resources invested as well as opportunity cost incurred may prove detrimental.

Having determined the appropriate strategic positioning and having thought through on the necessary trade-offs, a business leader’s next task should be to forge a fit among the firm’s various activities, and by doing so, it will be harder for competitors to imitate that strategic positioning, thus promoting the sustainability of the competitive advantage.

7Defining your business strategy

According to Porter, there are three types of fit⁵:

1. Simple Consistency: First, the activities a firm undertakes has to be consistent. At the bare minimum, a company should not be undertaking activities which are inconsistent with the firm’s strategy. For example, to align activities with a low-cost approach in its low-cost strategy.

2. Reinforcing: Second, business leaders should think about how the various activities reinforce and strengthen one another. For example, the subtle enhancement of a product’s upscale brand image by distributing its products only at luxury hotels.

3. Optimisation of Efforts: Third, in line with the company’s overall strategy, there may be activities that can be jettisoned so as to minimise costs.

Achieving such a strategic fit through a system of inter-locking activities, which has taken into account the necessary trade-offs, is key to deterring imitation and sustaining a strategic position. At its core, strategy is about planning how to win. Having the right strategy takes time, reflection, effort and discipline.

References:¹ ⁴ ⁵https://hbr.org/1996/11/what-is-strategy

²http://www.isc.hbs.edu/strategy/creating-a-successful-strategy/pages/making-strategic-trade-offs.aspx

³https://hbr.org/2015/05/what-is-strategy-again&ab=Article-Links-End_of_Page_Recirculation

CONTACTSFor more information, please contact:

Ms Grace LuiValuation and Transaction Services [email protected]

Online Tax Savings CalculatorThis article is authored by Grace Lui (Head of Marketing Communications, Nexia TS)

Recognising that businesses have an impact on society, this year, Nexia TS embarked on a new direction to pursue CSR on a broader scale which will bring greater philanthropic benefits to society in its implementation. Thus, the idea of an easily accessible online tax savings computation tool was conceptualised.

As a public service contribution, the Online Tax Savings Calculator (themed Jar of Hearts) aims to encourage the spirit of giving by providing a general estimation of tax savings that aims to encourage more givers to support causes that are close to their hearts. As such, the firm hopes that the new Online Tax Savings Calculator will be able to do its part to encourage more to do good, out of the pure goodness of our hearts - with tax savings as a bonus. Hence, the team behind this new CSR initiative believes this tool could be potentially useful to assist both individuals and corporations to achieve a clearer picture (in terms of tangible benefits) from a tax efficiency perspective, and in turn, it hopes to encourage everybody to give more.

The official launch also coincides with Giving Week 2016 (29 November to 5 December), a national movement that encourages everyone to give back, an annual event organised by the National Volunteer & Philanthropy Centre (NVPC) in Singapore.

The Dollars and Cents of Giving

The Online Tax Savings Calculator helps corporations and individuals to get a general estimation of their potential tax savings when they donate to approved registered Institutions of a Public Character (IPCs) in Singapore. To increase its relevance to both individuals and corporations, the online platform caters to both donor segments.

For instance, having a tool to compute potential tax savings from one’s donation will allow a potential donor to have a better picture of his/her tax savings when he/she decides to donate to an IPC of his/her choice. For companies, finance managers will be able to utilise the tax savings calculator to get an estimation of their company’s potential tax deductions.

Not a Substitute for Professional Advice

However, having said that, users will need to understand that calculations are provided for informational uses only (for example, estimations on potential tax savings on the desired amount of donation to the IPCs in Singapore). Figures are based on the current tax rates in Singapore, stated assumptions and the user’s inputs, and they are not intended to be used for actual financial forecasts or planning or any other purposes. For insights on the validity of the figures in users’ particular case, it is recommended to seek professional advice.

CSR with a Long-Term Goal

Having a long-term objective in mind, the independent CSR initiative was introduced to encourage people to give back to the community while making the act of giving a more meaningful activity. With that, the initiative sought to enhance NVPC’s efforts by linking donors and potential donors to a list of approved IPCs in a bid to drive donations to good causes.

To learn more, please visit www.jarofhearts.sg

Nexia TS is a rapidly growing mid-tier accounting firm based in Singapore. We are an independent member firm of Nexia International and are directly associated with Smith & Williamson of United Kingdom.

The business conditions are changing rapidly worldwide, with shrinking economic cycles and the emergence of a new economic world order. Whether one is doing business within the known boundaries or expanding globally, one cannot escape the challenges of this new state of affairs. Those who quickly adjust to and master these continually evolving conditions are also known to reap huge rewards from the abundant opportunities available today.

They say the world is getting smaller, and it really is. We help many talented entrepreneurs from across the globe with our sound strategic advice and highly-professional services. We go beyond the mandate typically enjoyed by accountants and become custodians of your business interests. In short, Team Nexia works with you to design game-changing business solutions.

Our Service Portfolio

We believe that we must continually evolve and augment our skills to protect your business interests. We are continually expanding our range of services in tune with your changing business needs. We serve you with:

• Tax Services

• Assurance & Business Services

• Governance, Risk Management & Internal Audit

• Valuation & Transaction Services

• M&A Advisory

• Financial Advisory, Insolvency & Restructuring

• Accounting & Corporate Services

• Forensic & Litigation Support Services

• Technology Advisory Services

• Sustainability Reporting

• Business Advisory in China, Iskandar Malaysia & Myanmar

A Bouquet of ValuesBest of both worlds

We are a home grown company from Singapore yet are connected with our highly skilled counterparts from different economies. We can therefore put together seamless solutions when your business is partaking in cross-border opportunities. In doing so we leverage the knowledge and expertise offered by our associates across the globe.

People you can trust

Having worked with our clients through many different business conditions, the insights developed over these years have helped us quickly to find the solutions that serve your business interest in the best possible manner. Today we enjoy the implicit trust of our clients and often win business through referral.

Seamless advice from professional teams

We can draw up a team from our vast talent pool that undertands your needs and serves you efficiently, but we also give you a dedicated single point of contact, making it very easy to interact with us.

Competitive in every sense

With our comprehensive portfolio of assurance, tax, accounting and advisory related services, we can offer service levels equivalent to our larger competitors but for more competitive fees, and ofter with a more personal service and greater levels of partner involvement.

Obsessed with quality, just like you

We share with you common values, such as professionalism, business ethics and trust. We give individual attention to every minute service detail, ensuring a high-quality experience.

“We help many talented entrepreneurs from across

the globe with our sound strategic advice and

highly professional services.”

Our Approach and ExpertiseOur Leaders

Edwin Leow

[email protected](65) 6536 1312

Chin Chee Choon


Gary Ng


Loh Ji Kin


Chin Chee Choon


Loh Hui Nee


Philip JC Tan


Christine Lee


Low See Lien


Meriana Ang


Chan Siew Ting


Assurance and Business Services

Tax Services

Governance, Risk Management & Internal Audit

Ross Y. Limjoco



com.sg

Sitoh Yih Pin

sitoh@nexiats.(65) 6538 8744

Grace Lui


Valuation and Transaction Services

Chin Chee Choon


.com.sg

Tan Swee Wan

tansweewan@nexiats(65) 6597 5802

Tan Kah Leong


Low See Lien


.com.sg

Tan Swee Wan

tansweewan@nexiats(65) 6597 5802

Tan Kah Leong


Accounting and Corporate Services

Forensic and Litigation Support Services

Technology Advisory Services

Market Expansion Advisory Services

Henry Tan


Ross Y. Limjoco


M&A Advisory


www.nexiats.com.sg

Chan Yee Hong


Financial Advisory, Insolvency and Restructuring

Chin Chee Choon


Gary Ng


Sustainability Reporting

We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Nexia TS Singapore 2016

Nexia TS is a member firm of the “Nexia International” network. Nexia International Limited does not deliver services in its own name or otherwise. Nexia International Limited and the member firms of the Nexia International network (including those members which trade under a name which includes the word NEXIA) are not part of a worldwide partnership. Member firms of the Nexia International network are independently owned and operated. Nexia International Limited does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members. Nexia International Limited does not accept liability for any loss arising from any action taken, or omission, on the basis of the content in this publication or any documentation and external links provided. The trade marks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited and used under licence. References to Nexia or Nexia International are to Nexia International Limited or to the “Nexia International” network of firms, as the context may dictate. For more information, visit www.nexia.com.

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