Key challenges and barriers that hinders SMEs to go Public

The Challenges that SMEs faced when Listings

Listing is the gateway for a company into capital market where funds can be raised for business development and expansion. Many SMEs in Malaysi a are family -run entities and with their own unique of managing the business. However, once a company grows to a certain level, it could require more capital and the most promising option to look for, is entering into the capital market.

Key challenges that most SMEs face where listing is concerned are:

Mindset changes

Before listing, the business is managed and controlled mainly by a family and all important decisions are resolved within the family. However, after listing, management structure and style will change as it will now be managed by a team of professionals designed to be more systematic and policy driven. Besides, they develop a mindset that the company does not belong to them. It belongs to the public instead. Thus, internal control / corporate governance is crucial to ensure public interest is protected.

Corporate governance

This is the greatest challenge as most of SMEs are family based and they manage the business like the do the . SMEs will feel that being tight up after go for listed as every business process must have the written SOP and policy to governance. Besides, the SME also must be in compliance and implement internal control on each process to ensure the risk is being mitigated to ensure the public interest is protected.

Related party transactions

It is common for many SMEs to have a group of companies under one roof for certain business needs and there are business transactions between these companies. For listing purposes, is the listed company is not allowed to have another business entity in its group and have the same nature of business. It will create a conflict with the listed company. It is common for existing businessmen to manage the company with the mindset of right left pocket. Before going for listing, all related party transactions that consists of conflict of interest like loans to directors, loans to related company or related persons must be settled to ensure public interest is being protected. There are some levels of related party transactions that can use the means of disclosure instead of full settlement and it all depends on the situation.

Public interest

Before listing, a company is owned by a family. After listing there are public shareholders thus accountability to public interest. Any outstanding issues against public interest needs to be settled.

Conclusion – Key take away

It can be said that all the challenges faced by company are merely due to “getting use to” issue. The company’s stakeholder and directors will have a easier time moving towards the path of listing when their mindset is adjusted to align with the objectives and regulations of the company.

Additionally, the company must engage with a AOB registered auditor, experience secretary, consultant, and lawyer externally to ensure the listing process goes smoothly. Company should also ensure that the internal operation such as the finance department is efficient and performing, as a strong financial standpoint reflects the company’s position and image in the market. Therefore, the SMI/SMEs company looking to go public should acquire suitable and qualify finance specialist to cater the need.

Singapore 2018 Budget : GST to be levied on imported services from 1 January 2020 – Will Malaysia follow suit?

In the recent announcement of the Singapore 2018 Budget, from 1 January 2020, consumers and businesses who buy imported services from suppliers based overseas which has no establishments in Singapore will have to pay goods and services tax (GST).

The GST will be levied on two types of services which are business-to-business (B2B), such as marketing services, accounting services and IT services; and business-to-consumers (B2C), mainly digital services including video and music streaming services, apps and online subscription fees.

The new measures will not affect the importation of goods or physical products traded via e-commerce.

The Services of B2B – Reverse Charge Mechanism
Singapore is going to adopt similar mechanisms that were adopted by other countries including Malaysia which has implemented imported services for B2B in which case businesses in Malaysia (including GST registered and not GST registered) who acquire and consume the services supplied by overseas suppliers and said services are consumed in Malaysia for business purposes, the local businesses have to account for GST to the Royal Malaysian Customs Department (RMCD).

In Malaysia, for imported services that are acquired and consumed in the course of making taxable supplies by a GST registered business, the GST accounted for via reverse charge mechanism can be claimed as input tax credit by that GST registered business.

If the imported services are acquired for making tax exempt supply or by a business which is not GST registered, the GST accounted for via reverse charge mechanism is not claimable as input tax credit.

Malaysia refers to OECD’s guides on new industries taxation
All these measures emerge mainly to cope with the evolution of E-Commerce which businesses transacted easily without borders and in digital forms which are difficult to trace. The Malaysian authority always keeps an eye on monitoring these industries and as mentioned by Second Finance Minister Datuk Seri Johari Abdul Ghani, Malaysia is eager to learn from Organisation for Economic Co-operation and Development (OECD) how to tax new industries such as Uber, Grab Car, Airbnb etc.

We anticipate that tax will become more dynamic moving forward, in view of rapid economic and technological changes.

The Services of B2C – Overseas Vendor Registration
For B2C services, Singapore will adopt Overseas Vendor Registration which is followed by a few countries such as Australia and New Zealand. Under this model an overseas supplier who does not have any establishment in Singapore and supplies services to consumers in Singapore, if its global turnover exceeds US$1 million and the value of services supplied to consumers in Singapore exceeds S$100,000, it is required to account for GST to the Singapore IRAS (Inland Revenue Authority of Singapore).

Malaysia has so far not adopted such a model but there is a model of GST Agent registration on behalf of overseas business entities who have made supplies in Malaysia which exceeds RM500,000 in 12 months’ time. At present in Malaysia, a foreign entity or a company not able to register for GST directly (unless they set up a Malaysian company to register GST) and if they have made supplies in Malaysia that exceeds RM500,000 they have to look for a Malaysian entity to register on their behalf to carry out the compliances duties required under GST legislations.