Doing business in Singapore strained by labour, workload issues

It ranked 42nd out of 76 nations in terms of business complexity.

Whilst firms in Singapore have constantly enjoyed a supportive environment, the ease of doing business is increasingly strained by heavy workloads for board members and the deployment of employment regulations that might be too quick for some employers, according to TMF Group. According to its Global Business Complexity Index, Singapore placed 7th out of 14 in the Asia Pacific region and 42nd out of 76 global counterparts in terms of business complexity. 

In an interview with Singapore Business Review, Paolo Tavolato, head of Asia Pacific at TMF Group, delved deeper into the issues plaguing Singaporean firms including updating employee handbooks according to the pace of regulations, operational issues in the implementation of CorpPass, and navigating complex accounting and tax regimes.

Tell us about TMF Group’s Business Complexity Index. What are the specific criteria that informs the score for each jurisdiction, and how do they contribute to their complexity in doing business?

• The Global Business Complexity Index aggregates our combined expertise across specific areas that make a practical difference to companies’ daily operations. It identifies the most and least challenging jurisdictions around the world. It highlights what to expect from different countries across a range of business requirements including legal, compliance, accounting, tax and employment rules. This helps company leaders to assess possibilities for expansion, understand potential risks and determine what local expert support they need.
• The Global Business Complexity Index was compiled using research conducted among our specialists in 76 jurisdictions. An in-depth survey explored three areas:
  • Accounting and tax
  • Rules, regulations and penalties
  • Human resources
• The data for each jurisdiction were statistically weighted and combined to produce an overall complexity score and ranked index. Follow-up interviews were conducted with specialists from the ten highest and ten lowest ranking jurisdictions, exploring their business environments and investigating scores in greater detail.
• Experts were asked to score the complexity of several issues on a scale of 1 to 10, with 10 being the most complex. 

How has the ease of doing business changed in Singapore over the past few years? How would you assess how Singapore stands compared to the rest of its regional neighbours? How about on a global scale?

• For overseas companies and investors, a country’s simplicity or complexity is an important but often overlooked factor, and Singapore scores well on this scale.
• Singapore is positioned as an attractive regional and international financial centre for foreign investors. The factors behind Singapore’s success:
  • Political and economic stability
  • Corporate governance and transparency
  • Pro-business environment
  • Competitive tax rates
  • Robust intellectual property regime
  • High literacy rate
  • Excellent connectivity and infrastructure
• Singapore is built on its ability to harness globalisation and is known for being business friendly. The city-state’s efforts to nurture a skilled workforce, provide sound education and support continuous upskilling have contributed to the nation’s status as a business epicenter in the heart of the region.
• Competitive tax rates and a strategic location also make Singapore a preferred location for businesses looking to expand in the Asia Pacific region. Businesses operating in Singapore are able to easily-harness talent originating from multiple jurisdictions, and this tends to contribute to better work performance and business outcomes.
• However, doing business in this jurisdiction is not without its challenges, and having local help on board is crucial.

TMF mentioned that a reason why Singapore fell behind in Asia in ease of business in 2019 was because the responsibilities of directors and company officers are set to increase over the next five years. Will you tell us about this in detail?

• Singapore has introduced regulatory changes such as the requirement to maintain registers of beneficial owners and registers of nominee directors.
• The city-state is amongst the minority (30%) of jurisdictions worldwide reporting that the responsibilities of the directors and officers of companies have increased over the last three years.
• 27% of such jurisdictions said the amount of responsibilities will increase in the next 5 years.
• Compliance with the provisions of the Companies Act (the “Act”) is definitely a statutory requirement, it is therefore the statutory duties of the directors to ensure compliance. Such statutory obligations apply to all directors regardless of whether a director is an executive, non-executive or is a nominee.
• Non-compliance with the Act will result in various enforcement measures that ACRA may undertake including composition and court fines. ACRA applies different regulatory tools for different types of statutory breaches; such regulatory tools include issuing of warning, making an offer to pay a composition sum in lieu of prosecution, striking off, disqualifying, issuing debarment order to prosecution as deterrent sentences in serious cases. Such regulatory tools can be applied on officers which include directors and company secretaries.
• ACRA being a public body has the paramount concern in the accuracy and integrity of public registers (electronic register of members, directors etc) maintained by ACRA as members of the public and stakeholders such as investors and banks increasingly look to public registers for relevant information about business entities. ACRA pays special focus to the failure to file Annual Returns and will investigate these breaches and take enforcement action. In the recent times ACRA has been taking serious view of breaches to the Act and has been stepping up enforcement and seeking deterrent sentences against directors who commit multiple breaches.
• In February this year a company director was hit with a record fine of $113,400 and disqualified from acting as director of companies for 5 years for multiple breaches including failing to hold annual general meetings and not filing the annual returns on time. An enforcement action as such is publicised in the media and the disqualification appears on the public registers maintained by ACRA.
• Comparing with other countries in the region, Singapore is likely to be holding the highest level of governance/regulation in taking enforcement action towards non-compliant director. 

Can you share with us the specific changes to the Singapore Employment Act and how it stands to further complicate business in the city-state?

• Professionals, managers, executives and technicians (PMETs) now make up more than half of Singapore’s workforce and this is continuing to grow.
• When Singapore’s Ministry of Manpower (MOM) announced changes to the Employment Act (EA) in November 2018, the aim was to keep practices relevant and up to date with workforce trends. Four key areas are affected by these changes, which were effective from 1 April 2019.
• Extension of core provisions to protect more employees
  • Until now, the core provisions of the EA excluded managers and executives (M&Es). With PMETs now forming over half of the workforce, and projected to be two-thirds by 2030, it was clear that the EA was falling behind the changes in the workforce demographic. The core provisions are now being extended to include M&Es.
  • To facilitate this, the $4,500 per month salary cap was removed on 1 April, bringing a further 430,000 M&Es within the protection of the core provisions of the EA. This includes a minimum seven to 14 days of annual leave, paid public holidays and sick leave, timely payment of salary and protection against wrongful dismissal. Public servants, domestic staff and seafarers are not included under the EA core provisions as they come under separate laws due to the inherently different pattern and nature of their work.
• Extension of part IV
  • Part IV of the EA is being amended to benefit a further 100,000 workers. The monthly salary cap has been increased from $2,500 to $2,600 and the hourly overtime rate increased from $2,250 to $2,600. This is a recognition of the increase in the median wage level in Singapore; and will mainly bring white-collar employees not in M&E positions and whose salaries have increased beyond the caps, back under this provision of the EA. The previous monthly salary cap for workmen (ie. blue-collar employees involved in manual labour) remains at $4,500.
• Enhancement of the employment dispute resolution framework
  • In order to centralise employment dispute resolution, the adjudication of wrongful dismissal claims will be transferred from MOM to the Employment Claims Tribunal (ECT), which already adjudicates salary-related disputes. At the same time, the length of service required for M&Es to qualify for protection from wrongful dismissal is being reduced from 12 months to six months. New tripartite guidelines will shortly be issued by MOM to illustrate what might be considered wrongful dismissal.
• Enhanced flexibility for employers
  • There are two main changes that will increase the flexibility that companies have in operating their businesses.
  • Firstly, there is increased flexibility in compensating employees for working during public holidays. All workmen earning up to $4,500 per month and non-workmen earning up to $2,600 per month may be compensated either by payment of an extra day’s salary or by granting another whole day off. For M&Es, and for workmen earning more than the $4,500 cap and non-workmen earning over $2,600, the company can offer an extra day’s salary, a full-day off or time off that is less than a full day.
  • Currently, companies can only make salary deductions for things such as absence from work or loss and damage to goods entrusted to the employee. From 1 April 2019, this will be extended to allow companies to make other deductions provided that the employee consents to the deduction in writing and the employer allows such deductions to be cancelled at any time by the employee without applying any penalties.
• Other amendments to the EA
  • There are also changes to improve employee protections for sickness. Employers must now accept medical certificates from all doctors registered under the Medical Registration Act, and dentists registered under the Dental Registration Act, as evidence for sickness absence.
  • There is clarification that paid hospitalisation leave applies to both the period requiring hospital care and the recuperation period after being discharged. It also applies to any quarantine orders imposed under the law and situations where doctors assess a patient as being in need of hospitalisation but they in fact are cared for outside of hospital.
• As such, these changes to the EA require immediate action by companies to update their HR processes and practices. Employee handbooks, employment agreements and other company policies will need to be reviewed, updated and published by 1 April 2019.
• As businesses expand and build workforces in new jurisdictions, they must be fully primed for the challenges and complexities they will encounter, such as changing regulatory requirements.

What rendered the use of CorpPass as the only login method for online corporate transactions with the government compulsory? How did this pull down the city-state in terms of ease of doing business?

• Singapore Corporate Access (or CorpPass) is a corporate digital identity for businesses to transact with government agencies online. CorpPass is required for all entities to transact with government agencies from 1 September 2018. Employees have been appointed/assigned CorpPass admin/user to transact with government agencies online on behalf of their organisations.
• Before CorpPass, SingPass, in short for Singapore Personal Access was used by all employees who are SingPass holders to log into government digital services to make transactions for their employers.
• SingPass is an entryway for individual SingPass holders to hundreds of digital services offered by over 60 government agencies, this includes the Central Provident Fund (CPF), person tax portal of IRAS etc.
• Employers have provided feedback that employees often shared their SingPass with fellow colleagues to conduct transactions for their employers. This might create unnecessary exposure of personal data.
• Security, better control and convenience and more importantly CorpPass supports the Singapore Smart Nation objectives. CorpPass enhances cyber hygiene by allowing employees to use CorpPass, instead of SingPass, to transact on their employer's behalf. CorpPass also allows business owners greater control, with the flexibility of granting employees separate roles to access government digital services. Last but not least, it allows companies greater convenience and visibility, by providing a single platform to grant and manage the authorisations given to their employees across all government digital services.
• In the initial stage of the implementation of CorpPass, foreigners were not able to register for CorpPass which resulted in some operational issues; this was subsequently fixed. As company secretary we are able to facilitate the registration of CorpPass.
• The security and better control perspective of CorpPass coupled with Smart Nation exercise outweigh the complexity faced in the initial stage.

What other regulatory changes and issues are burdening businesses in the city-state?

• Many jurisdictions change their legislation frequently, either to bolster the economy or make their market more attractive for investment. These local rules, regulations and penalty systems can be hard to navigate. Companies in over a third of jurisdictions find this very or extremely complex.
• Managing accounting and tax is also extremely complex for 17% of jurisdictions — often because local authorities prescribe their own reporting formats for accounting. Strict deadlines for tax reporting requirements, and harsh fines and penalties for non- compliance, can ramp up the pressure.
  • However, Singapore has adhered relatively well to international accounting standards to achieve greater harmonisation, a trend only seen in 21% of jurisdictions in Asia Pacific.
  • The transition from local to International Financial Reporting Standards (IFRS), also known as Singapore Financial Reporting Standards (SFRS), highlights this trend of increasing convergence in industry standards in order to reduce financial reporting costs for entities reporting in multiple jurisdictions and foster stability in Singapore’s financial system.
• However, Singapore trails behind its Asian counterparts when it comes to digitisation. It ranks amongst the minority (46%) of jurisdictions in the region where it is not compulsory to submit tax invoices electronically.
  • Although electronic invoices are becoming more commonplace in Singapore, the lack of legislation deeming it necessary means that there is still a significant number of companies processing their invoices manually. 
• As a member of the Financial Action Task Force, Singapore has established strict regulations to fight money laundering and the financing of terrorism. To be a regional and international financial centre, the Monetary Authority of Singapore keeps a close surveillance on financial institutions and maintaining appropriate regulations in regulating them.
• The Accounting and Corporate Regulatory Authority (ACRA) then started to impose anti-money laundering (AML) and anti-financing of terrorism (AFT) obligations on corporate service providers (CSP) who are licensed registered filing agent (RFA), like TMF Singapore, and regulate them under the Accounting and Corporate Regulatory Authority Act.
• With such regulations, the way RFA goes about their business as CSP including incorporating companies, electronic filing with ACRA on behalf of client entities have changed to become more complex. This has to do with the KYC exercise under the AML/AFT obligations that we as RFA must perform on all our clients before onboarding them.
• The same or even more stringent KYC exercise is also imposed by banks on opening of bank account. Time and cost are involved, productivity is affected. On the other hand, KYC due diligence requirements are clear and transparent, thus avoiding some of the bureaucratic obstacles the process entails elsewhere in the world.
• Singapore has introduced regulatory changes such as the requirement to maintain registers of beneficial owners and registers of nominee directors.

What should be done to amend these problems? In what other ways can doing business in Singapore be further simplified?

• As businesses expand and build their workforce in new jurisdictions, they must be able to swiftly comply with the evolving employment legislation in territories like Singapore.
• Additionally, adopting new digital technologies, such as artificial intelligence (AI), blockchain and cloud computing, will enable faster and more accurate processing of reports, contributing to the competitive edge that Singapore will need to develop into a global accounting hub.
• Countries that have sound business regulations with a high degree of transparency and coupled with the widespread use of electronic system, such as e-filing, digitalisation initiative can further simplify the way business is done going forward.