Together” Stronger “Emerging Singapore Budget 2021 Market Property Commercial Australian Newsletter: Services In Asia Pacific Cfo Fidinam Introducing Fidinam Group Worldwide Newsletter March 2021 March Issue 14 Issue

Newsletter number 14 - March 2021

IN THIS ISSUE

p.3 Editorial

p.4 Singapore Budget 2021 “Emerging Stronger Together”

p.8 Introducing Fidinam Cfo Services In Asia Pacific p.10 Newsletter: Australian Commercial Property Market p.13 Crypto as an asset class for Corporate Treasury

Revenue Recognition of “Virtual p.16 Items” - Best Practice of Hong Kong Mobile Game Companies p.18 Economic substance requirements in U.A.E. Fidinam (Hong Kong) Limited 10th Anniversary!

Dear Clients, Dear Partners, Dear Colleagues,

today we mark an extraordinary milestone within our Group and we celebrate the 10th Anniversary of Fidinam Hong Kong. I take this occasion to thank you all for these 10 years spent together.

To our customers who have trusted us throughout the years: it has been an honour and a privilege to work with you helping to achieve and exceed your objectives.

To our partners for key collaboration: you have played an essential role in helping both Fidinam Hong Kong and our clients reaching their goals.

Last but not least, to our colleagues, for their rentless effort and for their standout professionalism that lead us today here, an will take us further beyond. 10 Years

26 33 5 Employees in Average age of Nationalities of our Team our Team our Team

8 41 23 Languages Jurisdictions where Jurisdictions spoken by our our Clients come served by our Team from Corporate Services

We look forward ahead other decades of success, bright future and innovation. With sincere gratitude,

Mr. Paolo Balen Chairman

Newsletter number 14 - March 2021 3 SINGAPORE BUDGET 2021 “EMERGING STRONGER TOGETHER”

Deputy Prime Minister Heng Swee Keat help tide businesses over this difficult mounted as a whole-of-government delivered the 2021 Budget on Tuesday period, and most importantly, keep the response, has helped avoid a worse 16 February 2021. The Singapore population safe. recession, avert job losses, and mitigate Budget is prepared for each financial Singapore faced the worst recession inequality. year, which begins on 1 April and ends since our independence. on 31 March the following year. Every a. The pandemic-triggered recession The goal of the budget 2021 is to build a Budget builds on the foundations laid has hit both demand and supply stronger Singapore: by earlier Budgets, charting a long term simultaneously. 1. That is economically vibrant, so to strategic financial plan for Singapore, b. Singapore’s GDP contracted by create good jobs for Singaporeans and the budget 2021 makes no 5.4% in 2020. and foreigners and opportunities exception. c. The overall budget deficit for for businesses; The “Emerging Stronger Together” Financial Year 2020 is also 2. That is socially cohesive, with budget unveiled measures to strengthen the largest since Singapore’s a strong social compact and the backbone of Singapore’s ecosystem independence, at $64.9 billion, or community spirit; and provide ammunition to overcome 13.9% of GDP. 3. That is a welcoming home, green the difficult situation propelled by the Despite the situation, the Ministry of and sustainable for generations to COVID-19 pandemic. Finance recently released an interim come; and Last year, the Singapore Government assessment of the COVID-19 Budget 4. That has the fiscal and social committed nearly $100 billion through measures. The combination of fiscal, reserves to enable continued five Budgets to support Singaporeans, monetary, and transitional measures, stability and progress.

Newsletter number 14 - March 2021 4 COVID-19 Resilience Package In the recently announced Budge, as retail, arts and culture, food The Ministry of Finance has announced the MoF has committed to continue services, and built environment, that Singapore has set aside $11 billion to provide the JSS targeted towards that are currently receiving 30% for a COVID-19 Resilience Package. sectors that continue to be hard hit. JSS support, will receive 10% for This Package will have three prongs: The JSS will be therefore extended three months, covering wages paid 1. First, to address the immediate for firms in Tier 1 and 2 sectors by up up from April to June 2021. needs to safeguard public health to six months, covering wages paid up 3. For firms in Tier 3A sectors, JSS and re-open safely; to September 2021. This will provide will continue covering wages up 2. Second, to support workers and continued support for businesses to March 2021, as previously businesses where needed; and and workers in sectors that continue announced. Overall, businesses 3. Third, to target support for sectors to be hard-hit amidst the protracted in these sectors are generally that are still under stress. economic downturn: recovering. The second and most business-related 1. For firms in Tier 1 sectors – prong of the Package is to continue aviation, aerospace, and tourism. The third prong of the COVID-19 support for workers and businesses Firms in these sectors will receive Resilience Package is to provide more where needed. So far, Singapore has 30% support for wages paid from targeted support for the worst-hit committed over $25 billion to the Jobs April to June 2021, and 10% sectors, which continue to be adversely Support Scheme (JSS) – introduced in support for wages paid from July affected in 2021. They will need help the 2020 Budget – and supported over to September 2021. to maintain capabilities and eventually 150,000 employers for up to 17 months. 2. For firms in Tier 2 sectors, such recover. The Government has forecasted

Newsletter number 14 - March 2021 5 a cost of $ 870 million to support the by the Budget 2021, particularly in 2019 and 2020 was further raised aviation sector and $133 million for the interesting is the new Emerging from the current 15% and 10%, land transport sector. Technology Programme. This will to 20% and 15% respectively. encourage more mature enterprises, The qualifying gross wage ceiling was Support to innovation from micro and small, to medium and also raised from $4,000 to $5,000 In the newly released budget it large enterprises, to invest in new and for both years. was confirmed that Singapore will emerging technologies to sharpen their enhance several packages to support competitiveness. In the Budget 2021, the Scheme capability development and sector has been further extended by one transformation, to encourage the The new Emerging Technology year to 2021, with the government community to deepen skills, go digital, Programme will co-fund the costs co-funding ratio remaining at 15% and transform business models. of trials and adoption of frontier and the qualifying gross wage ceiling One of the main pillars of the new technologies like 5G, artificial at $5,000. Gross monthly wage budget is to grow a vibrant business intelligence and trust technologies. increases (at least $50) previously community, with a strong spirit of This will support commercialisation of given in 2019 and 2020 by the same innovation and enterprise, deeply innovations and diffusion of technology employer will continue to be co- connected with the ASEAN region. downstream. funded if they are sustained in 2020 To support Singapore businesses to and 2021. innovate and grow, the Government will Human Capital invest in three key platforms. As the employment landscape is Lastly, the budget 2021 has 1. The first platform is the undergoing fundamental changes, the introduced the provision to reduce the Corporate Venture Launchpad, Singapore government has launched Manufacturing S Pass Sub-Dependency which will be piloted this year to several initiatives, the most important Ratio Ceiling, or sub-DRC, in two steps, drive new innovative ventures. being the Jobs Growth Incentive and to 18% from 1 January 2022, and to This Launchpad will provide co- the Wage Credit Scheme. 15% from 1 January 2023. funding for corporates to build new The Jobs Growth Incentive (or JGI) ventures through pre-qualified supports employers to accelerate Singapore Green Plan 2030 venture studios. their hiring of local workers between The last section of the budget is 2. The second platform is the Open September 2020 to September focused on the Singapore Green Plan Innovation Platform, or OIP. 2021 (inclusive), to create good, 2030. The OIP facilitates the matching long-term jobs for locals. If the This is an ambitious long-term of problems faced by companies Qualifying Criteria for the Firms plan that builds on ongoing efforts, and public agencies, with are met - employers must have an to secure a green, liveable, and solution providers, and co-funds overall increase in local headcount sustainable home for generations prototyping and deployment. and increase in locals earning of at of Singaporeans to come. The main 3. The third platform enhanced is the least $1,400 per month, compared to measures introduced are: Global Innovation Alliance, or GIA. their local workforce in the baseline • To continue supporting technology month – for non-mature local hires adoption in the agri-food sector, The GIA serves to catalyse there is an incentive 25% on first the MoF has set aside $60 million cross-border collaboration $5,000 of gross monthly wages for for a new Agri-Food Cluster between Singapore and major up to 12 months. Transformation Fund. innovation hubs globally. • To catalyse partnership between The GIA network currently has 15 city The current budget has extended the public and private sectors, the links, including four Southeast Asian the Wage Credit Scheme (WCS) Singapore government will fund cities – Bangkok, Ho Chi Minh City, introduced the first time in Budget $30 million over the next five years Jakarta, and Manila. I will expand 2013 and already extended in the for EV-related initiatives. it to more than 25 cities around the Budgets 2015, 2018, 2019, 2020. • The Government will take the lead globe over the next five years. In Budget 2020, the government by issuing green bonds on select Among the many measures introduced co-funding ratios for wage increases public infrastructure projects.

Newsletter number 14 - March 2021 6 Main Tax Changes introduced by the Budget 2021:

TAX CHANGE SUMMARY

Extend the Year of Assessment To continue providing support to (“YA”) 2020 enhancements to the businesses, the enhancements to the carry-back relief scheme carry-back relief scheme for YA2020 will be extended to apply to qualifying deductions for YA2021, with the same TOMMASO BARINDELLI parameters. Head of Singapore Desk Extend the option to accelerate the To continue providing support to bu- write-off of the cost of acquiring plant sinesses, the option to accelerate the Fidinam Singapore Pte Ltd and machinery (“P&M”) write-off of the cost of acquiring P&M [email protected] will be extended to capital expenditu- www.fidinam.com re incurred on the acquisition of P&M in the basis period for YA2022 (i.e. FY2021), with the same parameters.

Extend the option to accelerate the To continue providing support to deduction of expenses incurred on businesses, the option to claim R&R renovation and refurbishment (“R&R”) deduction in one YA (i.e. accelerated R&R deduction) will be extended to qualifying expenditure incurred on R&R in the basis period for YA2022 (i.e. FY2021), with the same parame- ters.

The information contained in this note is for general information purpose only and is not intended to be relied as a substitute for tax, corporate and accounting professional consultation. Please refer to Fidinam staff for specific advice.

Newsletter number 14 - March 2021 7 INTRODUCING FIDINAM CFO SERVICES IN ASIA PACIFIC

Fidinam supports the growth of Small CFO”, who directly manages the provides its clients with cash flow and Medium-sized Enterprises in finance department of the company analysis including projections Asia Pacific by assisting its clients in and support the top management in of the future financial position managing their economic and financial strategic decision-making, or by an (managing liquidity and ensuring position with a new service line: “CFO “Interim Controller”, who supports the organization has the necessity Services”. the management control through of cash to meet its obligations, the mapping of corporate processes avoiding funding issues) and a Thanks to a team of professionals based and the implementation of a digital comprehensive financial planning in Hong Kong and Singapore with a solid accounting platform. in order to identify potential finance background, our Group can shortfalls in cash balances. offer a range of tailor-made solutions Services are delivered in a customized Our services also include treasury supporting the strategy of our clients in way: Fidinam professionals, indeed, management for corporate clients the Region. The range of Fidinam CFO set targets, timeline and available (which involves maintaining Services includes the followings: resources together with the Client. liquidity or solvency of the • Business planning & budgeting; company, dealing with payment • Cash Flow forecasting; Details of our services follow below. transactions, managing bank • Due Diligence and Data Room 1. Business planning & budgeting: accounts). preparation; Fidinam assists SMEs in drafting 3. Due Diligence and Data Room • Corporate restructuring & clients’ business plans by developing preparation: Fidinam assists Business valuation; positioning statements, 5-years start-ups and SMEs willing to start • Executive reporting; business plans (products & services, fundraising and grow by M&A • Review and implementation of market analysis, marketing strategy, through the entire Due Diligence corporate control models; financial planning, risk analysis) process. Our services include the • Mapping of corporate processes; and 1-year budgets. Moreover, our preparation of virtual data rooms • Digital finance. team also offer assistance in the in order to provide the investors preparation of periodic reviews and with accurate and organized The afore-mentioned services are analysis of variances. information in a secure way to provided by an appointed “Interim 2. Cash Flow forecasting: Fidinam store documents.

Newsletter number 14 - March 2021 8 4. Corporate restructuring & Business assistance in mapping and valuation: Fidinam supports its analysing corporate processes clients in implementing both in order to improve the efficiency financial and organizational of the organizational flows and restructuring, in order to meet spot potential inefficiencies, changes in the strategy, lack making sure that all processes of profits or new cash flow are aligned with the company’s requirements. Moreover, Fidinam values and tailored to its also provides business and capacity. ALESSANDRO PEDRINONI corporate valuations. 8. Digital finance: Fidinam leads CEO Fidinam Asia Pacific 5. Executive reporting: Fidinam SMEs in the implementation assists its clients in reviewing and of digital accounting projects Fidinam Asia Pacific implementing recurrent executive based on our business partner [email protected] reporting including tailor-made Xero platform. Our services www.fidinam.com dashboards and forecasting with include the re-design of clients’ customized KPIs, in order to give business and the integration CEOs an at-a-glance visibility into with payment systems as well business performance across all as e-commerce platforms, units and projects. providing ongoing support in 6. Review and implementation different jurisdictions including, of corporate control models: among others, Singapore, Hong Fidinam supports its clients in Kong, Australia and Dubai. implementing an analytical control model to ensure that objectives, The Leading team will be based targets or standards are met. In in Hong Kong and Singapore and The information contained in this note is addition, our services also include includes our CEO Asia Pacific for general information purpose only and is the review of existing corporate (Alessandro Pedrinoni), the Head of not intended to be relied as a substitute for models. Singapore Desk (Tommaso Barindelli) tax, corporate and accounting professional 7. Mapping of corporate processes: and the Senior Manager of Swiss Desk consultation. Please refer to Fidinam staff Fidinam professionals provide (Patrick Heimann). for specific advice.

Newsletter number 14 - March 2021 9 NEWSLETTER: AUSTRALIAN COMMERCIAL PROPERTY MARKET

2020 Year in Review vaccine rollout which commenced in office culture, and provide better Australia managed multiple economic February 2021. opportunities to work collaboratively. setbacks through 2020 including a serve drought, the worst bushfires on Responsive Government action has seen Interestingly, in 2015 only 13% of the record, mass flooding and the global the unemployment rate decrees to 6.4% office-based workforce had “flexible COVID-19 pandemic. Australia’s as at January 2021, down from 7.4% in work arrangements” while a Roy Morgan strong fiscal management and prompt July 2020. Further, the Reserve Bank Research survey released in June 2020 implementation of various stimulus of Australia is forecasting 5% growth in found that over 58% of traditional packages by the Federal Government Gross Domestic product over 2021. office workers were working from home including Job Keeper and Job Seeker at the peak of Australia’s lockdown. meant Australia was able to quickly Work from Home The recent push by companies to bring exit from its first technical recession in The forced work from home staff back into the office with flexible nearly 30 years. “experiment” made organizations working arrangements highlights the rethink their office requirements. ongoing relevance of office space. 2021 Economic growth is forecast This flexible working environment has seen an increased acceptance through 2021 as Australians spend proved the effectiveness and from business and Government to have domestically given their inability to efficiency of available technology. flexible working arrangements with travel internationally, historically However, many organizations are agreed minimum required days in the low interest rates and substantial requiring their staff to work at office. Early research is suggesting that infrastructure expenditure by the least part time from the office. the new normal could be around 3 Days State and Federal Governments. This It is expected that office occupancy will in the office and 2 remotely. optimistic outlook is further driven continue to increase through the latter by the containment of the virus half of 2021 and 2022 as businesses 2021 Outlook within Australia and the COVID 19 seek to reclaim lost efficiency, build Foreign purchasers accounted

Newsletter number 14 - March 2021 10 for most commercial real estate in 2021 underwriting asset values and Face rents broadly held firm whilst transactions through 2020. believing in longer term fundamentals. incentives rose nationally, it remains the This attests to Australia’s well preferred sector of investment across recognized and ongoing position as Australia’s long term economic Asia Pacific for 2021 as investors seek a safe and transparent investment outlook is expected to improve with to reweight their exposure to industrial market and supported by its strong growing real estate sectors including and logistic asset classes (CBRE). underlying economy and world Industrial, Commercial and Residential The sector is set for growth with the leading management of the COVID-19 with particular interest in alternative addition of 350,000sqm annually over pandemic. sectors such as Data Centers and the next 4 years to meet to high demand, Health Care. Changes in FIRB (Foreign with ecommerce set to be a key driver Further, a record low cash rate of 0.10% Investment Review Board) thresholds of new warehouse accommodation makes the cost of debt attractive and returning to pre-COVID levels will (CBRE), which comprises traditional provides a natural hedge for offshore streamline asset purchases increasing warehouse space, last mile logistics, investors. This has enhanced investor additional offshore investment. bulky goods/retail, and the evolution of trust and intertest in the commercial parcel lockers. The sector outlook for property market, as they seek to achieve Capital Markets – Commercial Real 2021 is forecast to see industrial rents a low weighted average cost of capital Estate Australia and capital values remain stable on a which improves total returns. Combined The Industrial property sector led the national level over the next two years. with a large amount of foreign capital market in 2020 with a strong economic seeking higher yields with the perception performance managing Australia’s Throughout 2020 the Office sector that assets may be mispriced. As a result, uncertainty with COVID-19. Being experienced disruptions with net industry experts forecast increases in the only sector in 2020 to increase in absorption reaching historic lows and transactions across all asset classes transactions from 2019 by 13% (CBRE). vacancy rising to levels not seen since

Newsletter number 14 - March 2021 11 the 1990’s. Nationally vacancy rates near CBD shopping centers with a large sit at 13.3%, recording a negative level of discretionary spend will need to net absorption of 116,000sqm in the rework their offerings to generate more December 2020 quarter. Effective consumer traffic and we expect this to rents are expected to decline over take some time. As a result, continued the course of 2021 impacted by an pressure will remain on the value of increased supply of sub leased stock these centers. by businesses managing COVID-19. In 2021 vacancy rates are further set to Two alternate asset classes MATTHEW BURROWS increase with subdued tenant demand which have found favor amongst Managing Director before levelling out. However, with institutional investors are Health the resumption that offices will return Care (Medical, Pathology, Hospitals, Fidinam (Australasia) Real Estate sooner, accommodating staff will likely GP clinics, Aged Care) and Data [email protected] require more space to meet different Centers. This is somewhat quantified www.fidinam.com office configurations due to COVID-19. by Australia’s ageing population, The unknown question remains with by way of reference Australia will closed borders will we see a skill have over four million people aged shortage in the finance, engineering, between 65-84 by 2022. In addition, and healthcare sectors, where many Data Centers support cloud storage of the candidates have been sourced which has allowed employees offshore in the past. In any event the accessibility to work remotely. sooner we can open the boarders the Large demand was experienced better for Australia. Overall, even with across the asset classes in 2020 some uncertainty we expect asset values and is set to grow dramatically in to remain stable as overseas investor the next five years (Savills). These demand should continue to outweigh investments are highly attractive to supply. investors with short development times, minimal capital expenditure The Retail sector experienced record and long lease terms to “sticky” blue trade growth across e-commerce in 2020 chip tenants, who invest substantial and forecast to remain at raised levels capital into the facility. throughout 2021. Although experiencing the largest declines are department Whilst the pandemic has impacted stores which have been late to embrace Australia’s economy it has been e commerce and are set to experience a surprising to see how fast we have 2.6% annual decline in space needs over rebounded over the short term. the next few years. Reforms in consumer Industry leaders and business sectors spending shifting towards online has remain highly positive and globally resulted in the amount of physical retail Australia is seen as a safe destination space required declining. Homewares to invest with strong government and home furnishing are set for the fiscal management. Real Estate strongest market growth in floorspace assets classes to watch in 2021, will over 2020-2024 with Compound be large industrial logistics, quality annual growth rate of 2.5% (CBRE). regionals retail shopping centers Rent declines in 2020 are also set to and healthcare and data centers. The information contained in this note is stabilize in 2021. Due to homeware If taking a longer-term view, there is a for general information purpose only and is spending and non-discretionary lack of development opportunities for not intended to be relied as a substitute for spending, regional shopping centers and office buildings in the major CBD’s of tax, corporate and accounting professional bulky good retail will be favored asset Melbourne and Sydney, where demand consultation. Please refer to Fidinam staff class in 2021 however major CBD and is forecast to out-way supply. for specific advice.

Newsletter number 14 - March 2021 12 CRYPTO AS AN ASSET CLASS FOR CORPORATE TREASURY

The recent crypto frenzy driven COMPANY NAME MARKET CAP by soaring prices seems to have reached its apex in the recent Microsoft Corporation 1,838.57B days, following Elon Musk’s twitter Visa Inc. 455.35B announcement about its Tesla NVIDIA Corporation 353.16B USD1.5B investment in digital PayPal Holdings, Inc. 332.85B assets (namely Bitcoins – BTC). Mastercard Incorporated 331.59B

Although Mr. Musk’s move could be Square, Inc. 116.40B considered a gamble by many, an Advanced Micro Devices, Inc. 110.12B increasing number of companies The Goldman Sachs Group, Inc. 103.38B have some level of exposure to CME Group Inc. 68.92B crypto, either through investments, Interactive Brokers Group, Inc. 31.19B partnerships, or side ventures. Nasdaq, Inc. 23.51B Below a list recently issued by Yahoo! MicroStrategy Incorporated 12.20B Finance, at the time of writing the information about Tesla has not been Cboe Global Markets, Inc. 9.95B update yet. Overstock.com, Inc. 4.43B

Newsletter number 14 - March 2021 13 So why are cash rich companies buying Why Hong Kong accounting standards The accounting treatment – US vs. HK crypto? have an edge on USGAAP when it – the advantage The answer is rather simple, they are comes to crypto Domestic public entities in US are changing capital allocation strategy for As HKICPA states, HKFRS/IFRS required to apply U.S. Generally maximizing value for its stakeholders. Standards do not explicitly discuss Accepted Accounting Principles (US As Microstrategy CEO Michael Saylor crypto-asset transactions. Therefore, GAAP). As for private companies, recently stated, Bitcoin is “not only a companies may need to apply whose capital market activities fall reasonable hedge again inflation but judgment as to how to account for such outside the perimeter of US SEC’s also the prospect of earning a higher transactions. requirement, there is no centralized return than other investments”. determinant of the financial reporting The IFRS Committee defines crypto framework to be used. Having said What are the accounting implications currencies as: that, in practice, most domestic for companies using BTC for • A digital or virtual currency companies would apply US GAAP treasury management purposes recorded on a distributed ledger in meeting the requirements or – US vs HK IFRS Foundation, the that uses cryptography for standards of the local authorities or non-profit organization that sets security. business partners. international accounting standards, • As not issued by a jurisdictional Although cryptos should be classified as has issued an agenda decision in authority or other party. intangible assets under both US GAAP June 2019, outflinging the proposed • It does not give rise to a contract and IFRS, there are differences to the accounting treatment of “Holding between the holder and another accounting treatment. of Crypto Currencies”. Rather than party. creating a specific accounting Under IFRS, intangible assets may treatment, in the agenda decision, In layman terms, crypto is not classified be revalued to fair value (under the the IFRS Interpretation Committee as cash or equivalent by the Committee, condition that there is an active market) concludes that Cryptos meet the it is rather considered as an Intangible while under US GAAP, revaluation definition of an intangible assets Asset (an identifiable non-monetary is not allowed but intangible assets as defined in IAS38 - Intangible asset without physical substance). should be tested for impairment. Assets. In Hong Kong, HKICPA supports While in general, it is possible to Below we have drafted an example the tentative agenda of IFRS, agree with IFRS classification, we of the different accounting treatment nevertheless acknowledges that find it nowadays difficult to consider in the case of a company purchasing IAS38 was developed long before all cryptos as intangible assets. digital assets in 2020, assuming a cryptocurrencies and was not Stable coins such as USDT or USDC may decrease in the fair value during 2021 designed with transactions that be identifiable as monetary assets (as and in increase in 2022. US company involve cryptocurrencies in mind. they give the holder a right to receive a will be forced to apply impairment Applying IAS 38 may not always fixed or determinable number of units charges to their books, having a provide the most useful to users of of currency), being pegged by definition negative effect on their earnings. financial statements. to the US dollar. Below a graphical example:

55k USD 49k USD

40k USD PRICE OF BTC

31/12/2020 31/12/2021 31/12/2022

Newsletter number 14 - March 2021 14 UNDER UNDER REPORTING PERIOD IFRS US GAAP 31 Dec 2020 Assets (balance sheet) Intangible assets US$49k US$49k

31 Dec 2021 Assets (balance sheet) Intangible assets US$40k US$40k P&L Impairment loss US$9k US$9k

31 Dec 2022 Assets (balance sheet) Intangible assets US$55k US$40k P&L Impairment loss US$9k - Other comprensive Fair value gain on intaginble US$6k income assets

Under both IFRS and US GAAP, under «other comprehensive income/ companies would record the impairment Chang of fair value of intangible assets». loss in the P&L if the fair value of An example of Hong Kong accounting the cryptos is below carrying value. treatment of crypto is provided by the The difference appears when the value company Global Token Limited, whose goes back up, companies would record financial statements are available to the fair value gain under P&L or other public. comprehensive income under IFRS In the notes of the consolidate financial while companies may not make any statements, the company mentions FILIPPO BUZZI upward revisions until the cryptos are that crypto currencies are carried at Head of Crypto services disposed. cos less impairment, reflecting the fact that the Group’s cypto currencies are Fidinam (Hong Kong) Limited On the other hand, Hong Kong assets which are resources controlled [email protected] companies apply the Re-evaluation by the Group and from which future www.fidinam.com model. Decrease in value of Crypto will economic benefits from selling the have a negative impact on the P&L, while crypto currencies in the OTC markers an increase will be reflected in the P&L are expected to flow to the Group.

The information contained in this note is for general information purpose only and is not intended to be relied as a substitute for tax, corporate and accounting professional consultation. Please refer to Fidinam staff for specific advice.

Newsletter number 14 - March 2021 15 REVENUE RECOGNITION OF “VIRTUAL ITEMS” BEST PRACTICE OF HONG KONG MOBILE GAME COMPANIES

Introduction Revenue Recognition and Industry best An asset is deemed as transferred If you have ever been commuting practice when the customer obtains control of through the busy streets of Hong Kong, If we take a closer look at the business that asset. you probably have already noticed that model of these game companies, we every bus or MTR available seat can notice that users normally download Depending on the terms of the contract, easily become a comfortable station for the game for free from different control of the good or service may be hundreds of passionate online game distribution platforms (i.e., Google Play transferred from one party to the other players. or Apple Store), whereas developers over time or at a given point in time. generally derive revenues from the sale Even though commuting time is of in-game “Virtual Items”, defined as If control of the good or service is relatively short in Hong Kong, players virtual currency, goods and services, transferred over time, revenue is may spend several hundreds or even which are sold to the player throughout recognized over the period of the thousands of HK dollars on games the game. contract by reference to the progress each month. towards complete satisfaction High smartphone penetration rate Now, a question that all mobile game of that performance obligation. in the City has indeed made mobile companies have to face at a certain Otherwise, revenue is recognized at game playing very popular among the point is: “Based on this business the point in time when the customer young generations. model, how do I recognize my revenue obtains control of the good or service. in my financial statements?” This trend has given rise to a number According to the “Hong Kong Financial For the specific case of mobile games, of successful mobile game developers Reporting Standard 15 (“HKFRS the period over which the performance in recent years that contributed to 15”) - Revenue from Contracts obligation is satisfied depends on the create a wide offer of games (ranging with Customers”, an entity shall duration of the hosting period of the from fantasy, to war, adventure and recognize its revenue when the entity individual virtual good purchased. even kids’ entertainment) which satisfies a performance obligation In other words, revenue from sales are sold through third party online by transferring a given good or of virtual items is recognized over the platforms. service (i.e., an asset) to a customer. period during which the paying players

Newsletter number 14 - March 2021 16 are expected to access and consume need to use judgement and should reporting requirements as stated the benefits acquired though virtual have enough data to support the under HKFRS 15. items. estimation of the average game When dealing with these challenges, playing period (also referred assistance from accounting experts Virtual items are therefore distinguished as “period of performance”) of is highly recommended, mobile game between two items’ categories, (i) players, i.e., how long a player will companies are therefore encouraged to Consumable in-game virtual items and continue to play a particular game. start their HKFRS 15 assessment in due (ii) Durable in-game virtual items. course. • Consumable in-game virtual Challenges items represent items that are When applying revenue recognition Fidinam developed relevant industry immediately extinguished / for mobile games, there are significant knowledge and is able to support your consumed after a specific game issues and challenges that mobile game business by providing professional action (e.g., a virtual bomb that developers have to face. accounting support. a soldier throws during a war game). The player will not be able First of all, companies are expected to continue benefitting from the to collect and maintain sufficient in-game virtual items thereafter. data to properly estimate the period When these items are consumed, of performance. This may not be an the relevant services are rendered easy task, especially when the game and revenue is immediately becomes more popular and thanks to a recognized by mobile game multitude of new players, new gaming companies. features are added to the game. • Durable in-game virtual items As a result, the size of data becomes represent items that are accessible large and sophisticated, whereas PATRICK HEIMANN and beneficial to players over an advanced analytical tools may be Senior Manager Swiss Desk extended gaming period. Durable needed to process the data. virtual items are often purchased Fidinam (Hong Kong) Limited to enhance the player’s game Finally, a significant level of [email protected] experience over an extended judgement is required to assess www.fidinam.com period of time (e.g., an enhanced whether a virtual item should vehicle or a shelter that the player be categorized as “durable” or uses to protect his army during “consumable”. The information contained in this note is the game). Revenue from these The mobile game industry is young, for general information purpose only and is items is normally recognized by dynamic and fast changing. It is not intended to be relied as a substitute for mobile game companies ratably likely that new internal control and tax, corporate and accounting professional over the estimated life of durable accounting systems will be needed consultation. Please refer to Fidinam staff virtual items. Game developers in order to comply with the financial for specific advice.

Newsletter number 14 - March 2021 17 ECONOMIC SUBSTANCE REQUIREMENTS IN U.A.E.

Background disposition of ESR Regulations and ESR Exemptions The United Arab Emirates joined the OECD Directive shall be referred to as the “ESR A. Entities that are tax Inclusive Framework on Base Erosion Legislation”). resident outside the UAE: and Profit Shifting (“BEPS”) on 16th May the UAE entity must submit a 2018 and committed to implement the Entry in force tax residence certificate or other following minimum standard actions: ESR Legislation have a retroactive documentation issued by the tax Action n. 5: Harmful tax practices; effect as of 1st January 2019. authority in the foreign jurisdiction in Action n. 6: Prevention of tax treaty abuse All entities affected shall have to which it claims to be a tax resident Action n. 13: Country-by-Country comply with requirements of the ESR to prove that it is treated as a local Reporting (“CbCR”), Legislation with reference to financial tax resident entity in that foreign Action n. 14: Mutual agreement years started from 1st January 2019. jurisdiction, in support of its ESR procedures. notification claiming exemption. Substantial activities requirements in Scope of ESR Legislation B. Investment Funds: no or only nominal tax jurisdictions is The target of the ESR Legislation is the exemption applies to the one of the three keys areas covered by to enforce Licensees that carry out a Investment Fund as well as any Action 5. In order to comply with BEPS Relevant Activity to meet substance UAE entities used by the Investment minimum standard action n. 5 the United requirements in UAE. Fund to make or hold investments, Arab Emirates introduced new Economic Relevant activities are the followings but does not extend to the entity Substance Regulations (“ESR”). I Banking or entities in which the Investment II Insurance Fund ultimately invests. Legislation III Fund management C. Entities that are wholly owned by ESR has been initially adopted in UAE IV Lease-finance UAE residents and that (I) are not toward Cabinet Resolution No. 31 of V Headquarters part of a multinational group, and 2019 and Ministerial Decision No. 215 for VI Shipping (II) only carry out business activities the year 2019. VII Holding company in the UAE. On August 2020 the UAE Cabinet of VIII Intellectual property (IP) D. UAE branches of a foreign head Ministers has issued Cabinet Resolution IX Distribution and service centre. office/parent whose relevant income No. 57 of 2020, hereinafter referred to as is subject to tax in the jurisdiction of the “ESR Regulations” and Ministerial The definition of Licensee includes all the foreign head office/parent. Decision 100 of 2020, hereinafter companies (FZ/Mainland/Offshore), referred to as the “ESR Directive”, which unincorporated partnership and Special focus on Distribution and service replaced and repealed the previous UAE branches of foreign companies, centre activity legislation (hereinafter the combined registered in UAE. Over the years the economic success

Newsletter number 14 - March 2021 18 and popularity of U.A.E. has been components parts, materials or 1. the Licensee conducts the largely determined by its peculiar goods. necessary core income-generating geographical position and political b. Providing services to foreign group activity in the UAE; stability that contributed to develop companies. 2. the Relevant Activity is directed the country as an efficient business and managed in the UAE, this hub linking Europe, Africa, Asia and There are basically two distinct activities is satisfied if the following the Far East. As a result, it is very included in the Distribution and Service conditions are met: common that companies established Centre Business: a. the Licensee’s board of in UAE are part of international groups directors meet in the UAE at and hence are involved in commercial 1. Distribution center when the an adequate frequency and transactions with foreign group entities licensee purchases from foreign there is a quorum of directors that may attract these companies group entities goods or materials to physically present in the UAE; under the scope of ESR for conducting be sold. b. the board meetings are the activity of Distribution and Service 2. Service center when the licensee recorded in written minutes Centers. provides any kind of service to noting the making of strategic foreign group entities. decisions in relation to the As per ESR Legislation the definition of Relevant Activity and are Distribution and Service Centre Business Substance requirements signed by the directors refers to any of the following activities: During each financial year in which attending such meetings; a Licensee earns income from a c. the minutes of all board a. Purchasing from a foreign group Relevant Activity, the Licensee must meetings and the records company components parts or satisfy the criteria below in relation to relating to the Licensee are materials for goods; or goods the Relevant Activity in order to meet kept in the UAE; and The ready for sale, and reselling such the Economic Substance Test: directors have the necessary

Newsletter number 14 - March 2021 19 knowledge and expertise to year (special deadline apply for the discharge the duties of the first reporting referred to financial board; year 2019) Licensees that carry out a 3. having regard to the Relevant Relevant Activity and earned income Activity: generated from such Relevant a. there is an adequate Activity must submit an Economic number of qualified full- Substance Report that include, time employees who are among others: physically present in the • Details of parent company, ultimate STEFANO MENOTTI UAE; parent company and ultimate Manager Fidinam DMCC b. there is adequate operating beneficial owner expenditure incurred by the • Total revenues Fidinam DMCC Licensee in the UAE; and • Accounting profit [email protected] c. there are adequate physical • Net book value of tangible assets www.fidinam.com assets in the UAE. Failure to comply A Licensee whose activity is restricted Failure to comply with the ESR to carrying out a Holding Company Regulations triggers penalties and Business is not required to conduct potential disclosure of information with core income generating activity in UAE. foreign authorities. Core income-generating activities are activities that are of central importance • AED 50,000 for failure to submit to a Licensee for generating income report or failure to meet the from a Relevant Activity. Further requirements of the tests in the first details and guidance on Core Income- year Generating Activities referred to • AED 400,000 for failure to submit each Relevant Activity can be found report or failure to meet the in Article 3 of ESR Regulation and requirements of the tests in the Schedule 1 of ESR Directive. second year ESR legislation allow to outsource • AED 50,000 for providing inaccurate services to external providers in order information to the RA or FTA to meet substance test. • AED 20,000 for failure to submit a notification Notification and Reporting filing • License annulment for persisted Within six months from the closure of each non-compliance relevant financial year (special deadline apply for the first notification referred Conclusions to financial year 2019) all Licensees Due to the nature of UAE as and exempted Licensees that conduct a international business hub it is likely Relevant Activity are required to submit that a large number of companies an Economic Substance Notification fall under the scope of UAE ESR. At setting out (the Notification): the same time, being established in a • The nature of the Relevant Activity real international business hub also being carried out; provides these companies with tools • Whether Relevant Income was and instruments to successfully meet The information contained in this note is generated; the substance test. Recommendation for general information purpose only and is • Whether an exemption is claimed. is to consult with professionals in not intended to be relied as a substitute for order to assess the ESR position of any tax, corporate and accounting professional Within twelve months from the relevant Licensee and meet, within the consultation. Please refer to Fidinam staff closure of each relevant financial given deadlines, the ESR requirements. for specific advice.

Newsletter number 14 - March 2021 20 OUR GLOBAL PRESENCE

SWITZERLAND EUROPE & ASIA PACIFIC MIDDLE EAST

Lugano Milano Hong Kong Zurigo Monte Carlo Singapore Ginevra Luxembourg Ho Chi Minh City Berna Dubai Sydney Basilea Lucerna Bellinzona Mendrisio NEWS VIA E-MAIL If you are interested in receiving Fidinam Group Worldwide NEWS in electronic version just connect to www.fidinam.com and subscribe for the Fidinam Newsletter

GET IN TOUCH FIDINAM GROUP WORLDWIDE LIMITED

Room 1501, Prosperity Tower, 39 Hong Kong , Singapore, Ho Chi Minh City, Sydney, Queen’s Road Central, Hong Kong Lugano, Zurigo, Ginevra, Berna, Basilea, Lucerna, +852 2110 0990 Bellinzona, Mendrisio, Milano, Monte Carlo, Luxembourg, Dubai [email protected] Member FIDUCIARI|SUISSE www.fidinam.com