Corporate Governance Requirements in Singapore
A quick definition of Corporate Governance
Corporate Governance is a general term encompassing all the directives, processes and rules which characterized “the system by which companies are directed and controlled” (Cadbury Committee, 1992). It also defines the responsibilities of all the stakeholders within the organisation, including the procedures for taking decisions in corporate matters, mainly to prevent any conflicts of interests.
Corporate Governance principles
Global Corporate Governance principles are to this day based mainly on three fundamental texts written after the 90’s: The Cadbury Report (UK, 1992), The Principles of Corporate Governance (OECD, 1999, 2004 and 2015) and The Sarbanes-Oxley Act (USA, 2002).
Every country has then proceeded to establish its own code of conduct: Corporate Law Economic Reform Program Act 2004 (Australia, 2004), Clause 49 (India, 2005), J-SOX (Japan, 2006), German Corporate Governance Code (Germany, 2002), Financial Security Law of France (France, 2003), etc.
In Singapore, those principles are set out by the Code of Corporate Governance, first issued in 2001 and subsequently revised in 2005 and 2012, under the purview of the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX).
A comprehensively reviewed version was issued in August 2018, accompanied by a Practice Guidance, which supersedes the previous version. It applies to Annual Reports covering financial years commencing from 1 January 2019.
An example of default in Corporate Governance: the Hyflux story
Hyflux was founded in 1989 in Singapore by current CEO Olivia Lum, initially selling water treatment systems. It was listed in the Singapore Stock Exchange in 2001, with its first public share offering raising S$6.8 million. The company expanded exponentially after that and became the symbol of a Singaporean success-story. One of their biggest projects was the opening of the Tuaspring facility, which combined desalination and power plant, in 2013.
But to achieve such growth, the company kept accumulating debts. And the fall of power prices finally made the Tuaspring plant in deficit. The company is now facing the risk of liquidation by the end of the month, and its expected rescue plan by Salim-Medco failed two weeks ago. This turnaround took all stakeholders by surprise and raised questions about the way the company was governed.
Several Singaporean regulators took interest in the affair: ACRA, MAS and SGX are now watching closely how it will unfold. ACRA is especially interested in the role of Hyflux’s auditor, “Big Four” firm KPMG, who failed to flag the risk of Hyflux falling into heavy debt.
What is mainly criticized about the company’s corporate governance is that the majority of decisions are coming from the same individual. As the founder and CEO, supported by her aura as a legendary entrepreneur, Ms Lum is not challenged enough by her board of Directors, of which she is also Executive chairwoman. That and poor risk management have a role to play in the company’s current predicament. The 2018 version of the Code of Corporate Governance recommends the independence of the board to prevent such unilateral decision-making: “There is a clear division of responsibilities between the leadership of the Board and Management, and no one individual has unfettered powers of decision-making“ (Principle 3).
An associate professor at National University of Singapore Business School, who specializes in corporate governance, was cited by Bloomberg: “Corporate governance in Singapore is not as good as we would like to believe,’’ he said at NUS. “Other companies dominated by founders who are unwilling to let go and bring in the right people may go the same way.’’
The regulation of Corporate Governance
In Singapore, The Accounting and Corporate Regulatory Authority (ACRA) provides the regulatory environment and the corporate governance practices for businesses, public accountants and corporate service providers. ACRA’s role is to achieve synergies between the monitoring of corporate compliance with disclosure requirements and regulation of public accountants performing statutory audit.
Incorporation of a company:
ACRA defines the following requirements for setting up a company in Singapore:
- The company has at least one shareholder (individual or corporate entity), up to a maximum of fifty;
- It has one resident Director (Singapore Citizen, Permanent Resident or EntrePass holder);
- It has one Corporate Secretary locally resident in Singapore;
- The initial paid-up share capital is of at least S$1;
- The company has a Singaporean registered office address.
Ongoing compliance requirements:
Every company must comply with several statutory obligations, such as:
- The first Annual General Meeting (AGM) must be hold within six month of the Financial Year End;
- The company must appoint Auditors within three months of its incorporation. There are exceptions: if its revenue or assets are superior to 10M, if it has more than 50 employees, etc.;
- The Annual Return must be filed with the Registrar within thirty days after the AGM. XBRL filing, if applicable, happens with annual return;
- The company must file the Estimated Chargeable Income (ECI) within three months of their financial year end, with some exceptions available;
- The company must file the Corporate Income Tax Return for the relevant year of assessment by November 30th;
- If the company turnover is S$ 1M for the past four quarters or if it registers voluntarily, it must file for GST (Goods and Service Tax).
Other key features:
- Status: the company is an independent legal entity separate from its shareholders.
- Shareholding: it is permitted to have 100% foreign shareholding, and shareholders can be either individuals or corporate entities.
- Liability: shareholders are not personally liable for debts and losses of the company.
- Tax: the company is considered a tax resident and its profits are taxed at 17%. Dividends are tax free in the hands of shareholders. Companies are eligible for tax exemptions and incentives subject to certain conditions. For instance, qualifying new startups are exempted for the first three years of up to 75% for the first S$100,000 of chargeable income; and of up to 50% for the next 100,000.
- Banking: to open a bank account, signatories and directors must be physically present.
What Argus (now Waystone Compliance) offers
Argus’s (now Waystone Compliance’s) corporate services team provides a wide array of solutions to meet your specific compliance needs. We can handle for you the incorporation of your company, accounting and financial reporting, payroll, bookkeeping, corporate secretarial services, tax filing (corporate, individual and GST) and calculation of tax relief…
We make sure your meet every corporate governance requirements you need so you can focus on what really matters: your business.