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Working with ESEF: the European Single Electronic Format

18 May 2021
Europe, ESEF, IFRS, XBRL
annual financial reporting, annual financial statement, digital reporting, ESEF, ESMA, EU, European Securities and Markets Authority, European Single Electronic Format, Global Connect Admin, XBRL

Header image by Mikael Bomkvist

Every year organizations, accountants and regulators keep up to date with local and international rules and laws regarding accounting and finance. In recent years, digitalization is rapidly growing, including electronic formats and reports. Therefore more European countries start to apply the European Single Electronic Format (ESEF). While the world of financial services moves towards international standards and formats instead of localized ones, each country does this at its own pace. What can we expect from ESEF, and why is it convenient to use this electronic reporting format to prepare annual financial reports?

ESMA

ESEF is assigned by the European Securities and Markets Authority (ESMA), an independent EU Authority. ESMA has one mission in mind: enhancing investor protection and promoting stable and orderly financial markets. Therefore, this EU Authority safeguards the stability of the EU’s financial system. This safeguarding includes the protection of investors while promoting stable and orderly financial markets. They mainly assess risks to investors and markets, contribute to a rulebook for EU financial markets, and promote supervisory convergence and directly supervising specific financial entities.

ESEF

ESMA wishes to make reporting easier for issuers and facilitate accessibility, analysis and comparability of annual financial reports. The digitalization of annual financial statements in the EU is nothing new; in 2013, the Transparency Directive amended a requirement for electronic reporting formats. Only recently, ESEF became mandatory, with the following criteria:

  • Issuers must prepare annual financial reports in XHMTL;
  • Annual financial reports that contain IFRS consolidated financial statements must be labeled with XBRL ‘tags’;
  • The XBRL ‘tags’ must be embedded in the XHTML documents with Inline XBRL technology;
  • The taxonomy must provide the hierarchical structure used to classify financial information. This classification is essential for structured electronic reporting using XBRL as an extension of the IFRS taxonomy
  • Mark-up disclosures using the taxonomy element must have the closest accounting meaning to the marked up disclosure;
  • Primary financial statements must be marked up in detail, with the application of mark-ups for the whole sections of the Notes, otherwise called block tagging.

ESEF is more than just the digitalization of financial reports. To ensure your company publishes the annual financial statements correctly, constant attention to detail is in order. While ESEF is mandatory in the EU, the XBRL-format is still in the application process. Even with one format and one accounting standard, per country rules and annual reporting laws may differ. We at Global Connect Admin BV make sure we stay up-to-date with local changes, so if you have any questions, or wish assistance regarding ESEF, fiscal reporting and cross-border transactions, feel free to contact us anytime. We would love to help out.

Source

ESMA

Happy Easter!

02 Apr 2021
Current news
easter, Global Connect Admin, happy easter

The Global Connect Admin Team wishes you Happy Easter Holidays!

Investing in Fukushima: Wishful Thinking or a Perfect Business Opportunity?

16 Mar 2021
Japan, Cross-border, Current news
corporate tax Fukushima, fukushima, Fukushima business oppurtunities, Fukushima Special Zone Taxation, fukushima subsidies, Global Connect Admin, investment chances in Japan, opportunities manufacturing industry, Promotion of Industry Revival Investment, R&D benefits, Research and Development subsidies, starting a business in fukushima

It has been over ten years since the Great East Japan Earthquake hit Fukushima. Thanks to worldwide support and Fukushima’s rebuilding and cleanup projects in Japan, the prefecture is slowly but surely making an economic recovery. The road to full recovery is not yet finished. However, what if you want to invest or start a business in Fukushima? Is it better to wait another ten years, or are there exciting opportunities for foreign companies? Let’s look at the Japanese prefecture that is mainly known for the earthquake and nuclear disaster.

Restoring the image of Fukushima

In February 2021, the Fukushima Ambassadors of Reconstruction (ふくしま復興大使) published a video explaining the rebuilding of Fukushima and conveying their gratitude to the received support and aid. They are well aware Fukushima is still recovering; however, they want the whole world to know that living and working in Fukushima is not equivalent to nuclear danger. For the prefecture to fully recover and for (foreign) businesses to fully employ, local and national governments need to continue and alter their support.

Industries

Fukushima is a prefecture with around 2,8 million inhabitants, with a GDP of 7,399,860 million Yen in 2014¹. From a business perspective, the main challenges are the aftermath of the nuclear disaster and finding the region’s industries and economy’s strengths. However, there are many opportunities if your business or organization is part of the following sectors and industries:

  • Manufacturing
  • IT
  • Metal
  • Ceramic engineering and soil
  • Food and agriculture
  • Electronic machinery
  • Logistics
  • Call centers
  • Data centers
  • Research and development (R&D)
  • Advanced technology
  • Medical and welfare
  • Renewable energy

¹Based on the Prefectural Citizens’ Economic Accounts of 2014 by the Cabinet Office

Incentives, subsidies and tax

Suppose you want to do business in Fukushima Prefecture or Fukushima City. In that case, the Fukushima government provides a subsidy of up to 50% of the designated land acquisition cost to support enterprise establishment. There is a subsidy system for foreign companies as well, for the costs of renting facilities, payment of utilities, management consulting fees, and personnel expenses. Furthermore, the Japanese and prefectural governments offer other subsidy systems and preferential tax systems, such as exempting corporate tax for five years.

You can receive a subsidy worth 50% of the land acquisition cost when you acquire 1.5 ha or more of an industrial park, invest 150 million yen or more in fixed assets, and start operating within three years of acquiring the land (30% for under 1.5). In addition, when you acquire privately-owned land and construct new bases in industrial regions, 5% of the acquisition cost is subsidized. In the case of R&D companies in medical care, medical welfare and/or renewable energy, this will be 10% instead of 5%.

Another subsidy for the promotion of employment is available when a company received a subsidy for land acquisition or was established in the mayor’s area and continuously employs new local employees for more than a year.

Suppose you employ more than five new local employees within a year or more since the start of operating. In that case, a three-year subsidy of 500,000 yen per employer is available if your company has received land acquisition grants. Once again, if your organization is medical and welfare-related and/or focuses on renewable energy R&D, you can enjoy a five-year subsidy instead of a three-year one. Furthermore, 50% of office rents are subsidized for three years as well.

Fukushima Special Zone Taxation for the Promotion of Industry Revival Investment

The manufacturing-related industry can benefit from Preferential Tax Treatment. This Treatment contains the following:

  • Newly established businesses receive essential exempting of corporate tax for five years
  • Businesses receive special depreciation or tax credit for investments in machinery, devices, and building.
  • For the employment of disaster victims, you receive a tax credit of 10% for salaries payment.
  • If your company is active in development and research, you will receive instant depreciation and a tax credit of depreciable assets.
  • There are local tax exemptions in Fukushima Prefecture, such as enterprise tax, real estate acquisition tax, and fixed asset tax.

There is still much work to be done before Fukushima Prefecture is its old self. If you and your business want to assist Japanese communities and organizations hit by natural disasters, you can do so on the Japanese Red Cross Society website.

If you are looking for a professional to help you find your Fukushima business opportunities, do not hesitate to talk to us. We can either help you with this or help you find someone who can!

Related GCA articles

The Future of Accounting Standards in Japan: IFRS or Japanese GAAP

The Brexit impact on Japan

Press Conferences in Japan and the Netherlands: Different news, different actions

The Recent Increase on Consumption Tax in Japan

The Bond Market in EU, China and Japan

Sources

JETRO – Fukushima Prefecture – Monodukuri Fukushima Web

Happy International Women’s Day!

08 Mar 2021
Current news
8 March, International Women's Day

The Global Connect Admin Team wishes you a Happy International Women’s Day!

The road to gender equality is far from over, however, we have some interesting insights for you on developments in the Netherlands:

The Future of Accounting Standards in Japan: IFRS or Japanese GAAP

05 Mar 2021
Japan, Cross-border, GAAP, IFRS, Tax Planning
accounting standard, accounting standards Japan, financial management, financial management Japan, GAAP, IFRS, IFRS GAAP Japan comparison, IFRS Japan, IFRS standards, IFRS versus GAAP, International Financial Reporting Standards, J-GAAP, Japan, Japanese companies, Japanese GAAP, Japanese Generally Accepted Accounting Principles, Japan’s Modified International Standards, JMIS, M&A, US GAAP

The four sets of accounting standards in Japan are the International Financial Reporting Standards (IFRS), Japanese Generally Accepted Accounting Principles (J-GAAP), Japan’s Modified International Standards (JMIS) and the United States Generally Accepted Accounting Principles (US GAAP). In this article, we explain why IFRS and J-GAAP are the most prominent accounting standards in Japan. Whereas J-GAAP is mostly used for Japanese small-medium enterprises (SMEs), more and more Japanese companies apply to IFRS every year. As a Japanese company, with or without (foreign) subsidiaries, what should you keep in mind when applying these standards? Is it more convenient to use J-GAAP since it is well implemented? Or is it perhaps more desirable to choose IFRS since this method makes comparing per country more convenient?

IFRS in Japan

IFRS is principle-based, emphasizes balance sheets, and has global standards, with a flexible implementation convenient to use and easy to understand. Both Japan and the US implement GAAP but have adopted IFRS as a bylaw principle. This is a set of detailed rules regarding accounting standards, interpretation guidelines, practical guidelines and more. However, the rules are roughly sketched compared to J-GAAP. Many notes need to be taken with efficient substantiation for a sufficient interpretation of details per company and country. Unlike J-GAAP, IFRS includes non-operating income as ‘other operating income’ and ‘other operating expenses.’

J-GAAP

In Japan, the income statement is emphasized as information for evaluating the asset value required for investors and creditors and the profit and loss statement for a certain period. Japanese accounting standards implement ‘ordinary’ and ‘extraordinary’ profit and loss. Non-operating income – such as dividends and stock interests, deposits and savings – and operating income – such as main business profit – are included. After deducting non-operating expenses (e.g., loss on sales of interest payments and loans), ordinary income is an essential indicator of corporate profitability under the Japanese accounting standards.

IFRS versus J-GAAP

 

 

 

 

 

 

For companies with a subsidiary or subsidiaries overseas, the implementation of IFRS can unify the accounting indicators: Accounting management becomes convenient by comparing everyone’s performance efficiently. Japanese companies without subsidiaries can apply to IFRS as well if they have a capital of 2 billion yen or more, or are newly registered to the stock market. The application is voluntary, as a de facto national policy. At this moment (March 2021), no conclusion has been reached by the Japanese government regarding compulsory applications.

 

 

 

 

 

As stated by the Companies Act, disclosure under J-GAAP is still required, so companies have to prepare multiple reports for both IFRS and the Japanese accounting standards. As IFRS is based on principles, a significant amount of information is necessary, which increases the amount of clerical work involved and the burden on the person in charge.

 

 

 

 

 

 

‘Goodwill’ is the difference between a company’s acquisition price and its book value. Under J-GAAP, a fixed amount is amortized and expensed every year, so profits in the account settlements will inevitably decrease. Goodwill must be amortized within every 20 year acquisition period, but in IFRS, this is not the case. In the IFRS case, goodwill is amortized unless the corporate value drops significantly, resulting in not being recorded as an expense. The value decreases after each period, registered as an impairment loss without amortization.

 

 

 

 

 

 

It will cost a certain amount of money to switch from J-GAAP to IFRS. Changing standards, systems, and audits costs time and money, making companies think twice before switching systems, especially if they choose to do business in Japan only.

 

 

 

 

 

 

Companies that are active in mergers and acquisitions (M&A) can profit in their financial results with IFRS. Since IFRS is a globally used method, many foreign investors understand IFRS better than J-GAAP. Examples of companies applying IFRS that are active in M&A are Rakuten and Softbank.

 

 

 

 

 

 

In December 2018, Japan erased the variances between IFRS and J-GAAP, by bridging the gaps. However, IFRS is different from Japanese conventional accounting standards, which can make application challenging. IFRS is frequently revised, so companies have to consider this as well. As mentioned before, Japanese companies adopting IFRS are increasing but compared to the world, the number of applications is still small, making referred information scarce.

 

In Japan, J-GAAP still mostly applied standard; however, with global IFRS support and more Japanese companies applying this standard, IFRS is most likely the accounting future for Japan. IFRS is frequently revised and has different rules than J-GAAP, so you need to keep up to-to-date with the latest information and knowledge, which is both rewarding yet time and cost-consuming. This track of data can be quite challenging, so many companies leave this part to an expert. If you are looking for an expert to help you with this, feel free to contact us. Global Connect Admin (GCA) already helps multinationals with subsidiaries with IFRS standards, accounting and financial management, and fiscal reports. While they focus on their core business, we assist them with their financial business. Feel free to ask us questions or read other GCA articles.

Related GCA articles

Cross-Border Positions during the pandemic

The Brexit impact on Japan

The Bond Market in EU, China and Japan

Cultural business differences between Germany and the Netherlands – an Overview for the Japanese businessperson who might be working with both countries

The New IFRS 16 in China

Sources

Digima – KPMG Japan

The New Transatlantic Agenda: The Journey to a bright US-EU Future

24 Feb 2021
Europe, China, COVID-19, Cross-border, Current news, United States
2021, AmCham, climate change, COVID-19, difference US China, digitalisation, digitalization, Emissions Trading System, EU ETS, free trade agreements, FTA, future, Paris Agreement, societal systems, trade war, US China, US China Trade War, US-EU, VNO-NCW, WHO, World Health Organization

Just as the year before, 2021 is another year with many changes. The European Commission has published new documents on the New Transatlantic Agenda. We are entering a new era with the US re-joining the Paris Agreement and President Joe Biden supporting the World Health Organization (WHO). With the enrollment of European green energy projects and the COVID-19 vaccines, together with global cooperation, the future seems brighter. However, there is still a lot to do before the European Union and the United States can sit back and relax.

Challenge 1: COVID-19 pandemic

Perhaps the biggest challenge for both the US and the Netherlands is the COVID-19 pandemic. Luckily the USA has re-joined the WHO. At the same time, the WHO is making sure vaccines are distributed to the developed world. This distribution is in everyone’s interest because the economy cannot go back to normal until the pandemic is completely vanquished and the world economy is restored.

Challenge 2: Digitalization

Forced by the pandemic, the speed of digitalization has significantly increased. Hopefully, the next time emergencies happen, the world is better prepared and able to act more efficiently with strategic autonomy. Protectionism is not the answer; we need to invest in our strengths and those of other countries. The EU aspires to be the world leader in energy, defense, key technologies and raw materials. The US is an exciting partner for the EU, and vice versa.

Challenge 3: Free Trade Agreements

“America First” became “Build Back Better.” The US economy has to be sufficiently competitive, and there are still actions needed to combat trade issues, but establishing FTAs can support this. Former-president Donald Trump blocked the application for new WHO memberships, which created uncertainty for businesses. If there is one thing businesses do not enjoy, it is uncertainty. President Biden has lifted the application block, which helps rebuild the partnership between the US and the WHO.

Challenge 4: US-China Trade War

China continues to both assist and challenge the world. The US and China have opposite technology and societal systems. In the past years, trade wars occurred between the two nations, affecting the EU. It seems the EU has to choose one of the two eventually, which adds fuel to the fire. The US and the EU have familiar societal systems and dialogue on technology. However, China is the EU’s leading supplier of goods. What will happen in the future is something only time can tell.

Challenge 5: Climate change

Organizations need to align a common strategy to make the best out of online platforms and big tech. With a solid plan, the approach to critical technologist protection, global change program implementation, and continuing the EU-US technology trade council goes sufficiently smoother. A big topic right now is climate change, with the US immediately re-joining the Paris Agreement at the start of President Biden’s inauguration. To reach the 2030 and 2050 climate goals, an ETS system (Emissions Trading System) is necessary. In 2005 the EU established the first large greenhouse to combat climate change by reducing greenhouse gas emissions. The EU ETS is the first global greenhouse gas emission trading-scheme and still the largest. If two immense economic powers (hint: the US and the EU) were to share the same system, we can effectively combat global warming, bringing hope to future generations. Another future investment is hydrogen: the EU is busy setting up hydrogen projects. We have not reached our climate goals. However, with the US back in the Paris Agreement, the future seems promising.

 

Are you wondering how to establish or expand your business to China or the US? As an experienced global administration office, Global Connect Admin can assist you with all matters of financial management, company administration, accounting and bookkeeping, and much more. Feel free to talk to us.

Related GCA articles

Cross-Border Positions during the pandemic

The 2021 New Year Resolutions of China in Economy and Finance

The investment for the future: Hydrogen

US, China, EU, and the Trade War

The trade war between China and the United States – The consequences for Europe

Sources

AmCham – VNO-NCW

Cross-Border Positions during the pandemic

19 Feb 2021
Cross-border, Brexit, China, COVID-19, Europe, France, Germany, Japan, Netherlands, United Kingdom
advanced economies, banking, BIS, claims, cross-border, cross-border position, developed countries, developing countries, emerging market and developing economies, financial sector, global economy, liabilities, offshore centers, outstanding claims, outstanding liabilities

Image by slon_dot_pics

Cross-Border positions, also referred to as external positions, are most likely for any organization that goes global. Suppose your organization has its main office in, for example, the United States, with branches in Europe and/or Asia. In that case, you will have asset and liability positions of reporting banking offices outside the US. Cross-border financing helps with international trade by providing a source of funding, enabling businesses to compete globally and beyond their domestic borders. This sometimes requires the lender or provider to act as an agent between companies, suppliers, and end-customers. Examples are cross-border loans, letters of credit, repatriable income, or bankers acceptances (BA).

With the global pandemic forcing organizations to change strategies or even their core business, many have expanded globally or relocated to another country. We have taken a closer look at the changes in cross-border positions worldwide by viewing outstanding claims and liabilities of Q3 2020 in trillions of US dollars.

Developed countries

Between Q3 2019 and Q3 2020, cross-border claims on developed countries increased by 1.75 trillion USD, with the liabilities increasing by 1.46 trillion USD.

Claims in developed countries, otherwise called advanced economies, have declined. Intragroup positions partly drove the movements from one year earlier. The decline is centered on related offices, especially on those in the US, due to the unwinding of central bank dollar swap lines.

Non-bank financial institutions (NBFIs) were involved with the decline; claims on the UK, the Netherlands, Luxembourg, France and Italy declined, with most of them vis-à-vis NBFIs. Another partly offset influence was the increase in Japan and Germany’s claims, notably their NBFIs and resident banks.

During the pandemic, creditor banks in developed countries and offshore centers have reported a large contraction in their cross-border claims on emerging markets and developing economies (EMDE). During Q2 and Q3 of 2020, global cross-border shares on emerging markets and developing economies declined by 95 billion USD. Major developed countries and offshore creditors – such as UK, US, Hong Kong, Singapore and Japan banks –  reduced their lending to developing countries by 97 billion USD in these six months.

Offshore centers

The Q3 2020 claims have increased by 0.07 trillion USD in the offshore centers, with the Q2 2020 liabilities increasing by 0.15 trillion USD.

Compared to claims on developed countries, claims on offshore centers expanded by 41 billion USD. Especially Hong Kong SAR and the Cayman Islands have been doing well. More than half of Hong Kong’s increase was intragroup claims, with Singapore and Bermuda having the least growth.

Emerging market and developing economies

The Q3 2020 claims increased 0.03 trillion USD compared to Q3 2019. The Q3 2020 liabilities, compared to Q3 2019, have increased as well, with 0.13 trillion USD.

Cross-border claims on emerging markets and developing economies continued to fall, driven again by claims on Latin America and the Caribbean, with the year-on-year growth remaining negative. Just as one year earlier, these movements were partly driven by intragroup positions. Claims on non-financial corporations in major economic regions of Brazil, Mexico, Chile, Colombia and Argentina declined the most.

As mentioned earlier, creditors reported a large contraction in cross-border claims in developing countries. However, simultaneously, creditor banks within these countries reported a modest expansion. In contrast to the reduced lending of 95 billion USD, banks in EMDE booked a 26 billion USD increase in cross-border claims during Q2 and Q3 2020. The banks that led this expansion in emerging Asia-Pacific were mainly China and Chinese Taipei.

 

Before you expand or start abroad, it is helpful to know what parts of the world are convenient for your business. Having cross-border positions in countries such as the US, the Netherlands, France, Germany, and Japan can be rewarding; however, even though they work well together, each country and/or state has individual rules. Meanwhile, China and Russia have many business opportunities, but you must have high insider knowledge to use and find all the business possibilities. The UK has always played a big part in the global economy; however, much has changed due to Brexit. In case you want a professional to help you with this, feel free to send us a message. As the saying goes: a good beginning is half the work.

 

Related GCA articles:

The 2021 New Year Resolutions of China in Economy and Finance

The Brexit impact on Japan

Brexit: Some pointers for you and your company

More Global Transparency on Assets and Less Tax Havens on the List

Cooperation between China and Central-Eastern European Countries (CEEC) is to be deepened

 

Sources

BIS

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