Tax Compliance & Risk Management Challenges

Risk management and compliance might not seem like the most essential item on your business programs, however understanding them adeptly can help you distinguish between simply avoiding risk and really producing tangible value. Let’s start by knowing their differences and main challenges faced in respective to offshore business.

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Difference between Compliance & Risk Management

Differentiating compliance and risk management effectively can get confusing at times, because both target to tackle structural damage and abide with legislation. However, it is possible to make comparisons, depending primarily on another side of seeing at the two procedures, accordingly – the necessity to prevent risks and guarantee the impactful implementation of the combat tools.

What actually matters is that combining these two instruments will produce competitive benefits and contribute significant value to your business. Compliance with standard rules and regulations is directly synced with the security of organisations against risks which can cause the negligence of the present rules.

In this manner, risk management alleviates compliance work and promotes its execution without leading to big disintegrations to the organisation’s activities. A company cannot really have a strong Risk Management Program in the absence of compliance and vice versa. In this regard, compliance is the gratification of all needs related to risk management for the business and model compliance with the rules and rules so that the organisation is not jeopardised. The organisation’s sustainability is also assured, guaranteeing the dividends of stakeholders, employees, and consumers.

Risk management is associated to a more tactical process, compliance is more preceptive in nature. Risk management is based on analysis to circumvent risks or, mitigate process failures. Compliance will work resolutely with probable fines and penalties, for instance, as well as rectify the damage to reputation associated to management failures.

Therefore, risk management is more predictive and less reactive. This approach must be able to foresee the effect which possible failures can lead to the organisation and it also motivates new processes to reduce risk circumstances and determine combat activities and solicit enhancements. On the contrary, compliance is more conventional as organisations must follow to the rules and standards already in place.

Addressing Main Challenges

Political and Country Risk

If the outsourcing is being done in a different country than the country in which the sourcing organisation is situated, it can be mandatory to analyse the political ambience of the service provider’s country.

Cultural Risk

This is presented with language variants, differing communication protocols, varying work ethics and cultural norms. Organisations might be susceptible to various kinds of ethics related with information sharing.

Contractual Risk

If the contracts are not particular or receptive enough to adapt to changes in the business atmosphere, the organisation can face risks. Furthermore, the feasibility of imposing the contracts if the service provider is in a situation other than their native country can be tough.

Operations Risk

Organisations can experience the risk of sub-par level service quality, cost overruns or business disruptions. Information security risk and compliance risks are frequently embodied under operational risk.

Compliance Risk

The sanctions and/or material loss of any type which any organisation can face if it fails to adhere with the set of laws, industry standards and internal needs which govern its atmosphere.

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Business Continuity Risk

The risk related with an organisation’s proficiency to recover and/or restore partially or entirely disrupted critical function(s) in a predetermined time after a disaster or prolonged disruption.

Organisations are required to create a strategy for comprehending and handling these risks, that are spirited and flexible. There is an inverse relationship between the level of control and ownership and the amount of risk; the risk related with outsourcing grows as the level of ownership and control over business procedures is reduced. In spite of that, risks can be impactfully handled with governance programs and with program management offices which offer oversight and management of all elements of the outsourcing initiative. Whether outsourcing a particular function or a range of programs, attention must be given to make sure that all facets of the decision are evaluated and recorded.

Labuan – A Tax Haven

Labuan is known as a tax haven owning to its beneficial tax frameworks for non-residents and is evolving as one of the preferred jurisdictions in Asia for offshore company formation as the Malaysian government developed it into an international offshore financial centre with the passing of legislation in 1989.

Labuan provides offshore investors a number of feasible advantages, friendly offshore incorporation laws, and highly appealing tax benefits. It is also an extremely reputable jurisdiction that is completely compliant with international standards. Furthermore, its location is ideal for giving business owners access to both Middle Eastern and Asian markets.

Tax Advantages of Setting Up a Labuan Company

  • Labuan Offshore companies have either zero or very low taxes, based on the kind of offshore company formed.
  • Offshore companies need only a single director and shareholder who can be the same individual. There are no restrictions on ownership, so it can be completely owned by foreign investors.
  • The registration fees are low, as is the minimum authorised capital requirement. Although, annual fees are generally high compared to other offshore jurisdictions.
  • Labuan is highly convenient for foreigners to open an offshore bank account.
  • The offshore banking sector is enhancing with a variety of major banks operating. This is advantageous as having a bank account in Labuan is a great way to keep up a physical “commercial substance” in Labuan, that is a mandatory requirement for having a Labuan International Company.
  • There is a top notch level of confidentiality for offshore companies and offshore account holders.
  • The Malaysian Federal Government cannot access banking information, and there are minimal disclosure requirements for offshore companies.
  • The Labuan jurisdiction is in a perfect site which provides access to both Middle Eastern and Asian markets.
  • The infrastructure is conducive for offshore corporate setup, that encompasses reach to a highly competent work-force.
  • Labuan is a “free port” that signifies there are no import or export duties on traded goods, and no sales taxes are imposed.
  • English is extensively spoken in all parts of Labuan.

Offshore accounts provide abundant opportunities as an insurance against the negligence of an unreliable banking system which has overextended itself by having low-interest rates, poor capital reserves, mountains of debt practically making a majority of banks insolvent, together with a system of banking governance and policymaking, together are all pieces of a broken system. To know all the related information about setting up an offshore account, Contact QX Trust’s team of consultants at CONTACT US or