Crowe Horwath
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African Footprint
Technical Newsletter of the Crowe Horwath International African firms
Issue 11 - April 2014
Algeria
Inside This Issue:
Algeria is situated in North Africa, located in the center of the Maghreb.
Algeria is the largest country on the Mediterranean.
Algeria
1
Foreign Private Investment in
Angola
4
The Public Benefit Organizations
(PBOs) Act 2013 of Kenya
6
South Africa starts to charge
VAT on E-Commerce
8
Amendments to the Guide to Global
Business to conduct Business in
Mauritius
8
Middle East and Africa (MEA)
Meeting Nairobi, Kenya
9
Unlocking the Mystery of Hotel
Management Agreements: Part 1
11
Algeria has been a member of the African Union and the Arab League since
its independence and contributed to the creation of the Arab Maghreb Union
(AMU) in 1988.
Bordered in the north by 1200 km of coastline in the Mediterranean Sea, the
country reflects diversity in landscapes and climates - the ground is covered
with many forests in the interior, vast plains to the east, natural parks and
mountains along the coast.
In its southern part, it has a significant share of the Sahara (which accounts
for 84 % of the territory).
Because of its geographical position, near the Europe “within one (1) hour
flying time”, it is a convenient gateway to Africa for Europe.
Algeria is at the crossroads of three worlds (Mediterranean, Arab and
African). Culturally, Algerians were marked and influenced by several
civilizations (Phoenicians, Romans, Vandals, Byzantines, Arabs, Turks and
French).
The Arabs and the French left the most impression on the country. The first
contributed to the Muslim religion and a strong linguistic impact; the second
by the culture and French language. French is the main language of
communication. English is however, increasingly practiced in the business
world. The time zone is GMT +1 which is also widely used in Europe.
Demography
Algeria has approximately 38.7 million inhabitants with a young population
(54% old 15 to 35 years ) and an average life expectancy of 75 years. There
is a skilled, young and competitive workforce with approximately 2 million
university graduates.
Audit Tax Advisory
Feedback from our
Readers!
Should you wish a specific topic to
be covered in our next issue,
please let us know by emailing
your request to our editor
kent.karro@crowehorwath.co.za
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Economic Data
Algeria is the second largest economy in the Arab world (approximately
US $207 billion in 2012) and centred around industry 61%, services 30%
and agriculture 9%.
Financial
Algeria has relatively low external debt and large foreign currency reserves.
The GDP growth rate is running at approximately 3,3% and it has growing levels
of exports and imports.
Why invest in Algeria?
Investment in Algeria is characterized by particular strengths:
?
Economic stability is focused on –
- Development policies and ambitious sectoral strategies including an Industrial Recovery Program;
- Agricultural and rural renewal;
- Renewable energies program (solar, thermal and wind power);
- Recovery of Tourism program.
?
The Financial system –
- There is a network of 21 banks and financial institutions with a relatively low interest rate of 3,5% with rebates
offered in various sectors e.g. tourism.
?
The Algiers Stock Exchange - The Algerian economy has established an active and well developed Stock Exchange, which has created a
dynamic financial market able to provide a source of direct funding for public and private companies.
?
Inventives for investment Devices and incentives provided to encourage investment including:
- Significant tax benefits and exemption up to 10 years, depending on the location and size of the project;
- Tax incentives and exemptions granted in the areas of mining and hydrocarbons;
- Reduction in payroll taxes for social security contributions for the recruitment of young job seekers.
?
Algerian tax system The tax system constitutes an attractive element of the country's economic activity including:
- An accounting system based on IAS / IFRS with the filing of monthly tax returns and an annual declaration of
financial results;
- Companies are subject to corporate income tax on profits at the rate of 25 % for commercial and service
activities and 19% for industrial, public works and buildings such as tourism activities. This rate is among the
lowest in the Maghreb;
- The tax on personal income is calculated on a progressive scale with a maximum marginal rate of 35%;
- The tax on professional activity is calculated by applying a rate of 2% on turnover;
- There is a dual rate system of VAT: normal rate (17%) and reduced rate (7%);
- Double Tax Treaties: Algeria has signed 31 full bilateral agreements and 48 others to encourage reciprocal
protection and promotion of investments.
?
Foreign inward investment Foreign investments are usually in the form of a partnership with several
possible local resident shareholders.
Preferential rates apply for foreign investors contributing to the transfer
of know-how or the manufacturing of goods with a local content
integration rate above 40%.
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Hamza & Associés Audit Firm
The accounting profession in Algeria has finally achieved its proper position in the service of investors in the financial
market.
During 2010, there were two major accounting reforms in Algeria; the first relates to the conditions for the exercise of the
profession, and the second relates to accounting standards.
This change was driven by the globalization of the economy with the opening of local markets leading to significant
private sector development and the introduction of foreign companies.
During this period, Hamza & Associés has provided support and assistance to Algerian companies.
Established in 1983 by Rabah Hamza, accountant and auditor, the firm has recorded thirty years of experience in the
service of the Algerian company.
Since its creation, the firm has developed while following the values of independence, professionalism and quality. It has
extensive experience in the fields of ?
?
?
?
?
?
Hydrocarbons
Energy
Building and Construction
Industry
Services
Trading
To meet the needs of business, its competences include:
?
Audit: Operational, legal and contractual. The Firm has modernised its work practices with the integration of the world
number one Audit Software “Case Ware Working Papers”;
?
Accounting: Accounting Management, Payroll and social relations, outsourcing;
?
Corporate Services: Management Advisory;
Managing Partner
Tarek Hamza leads a team of highly qualified individuals with solid experience in the fields of
audit, accounting and corporate advisory.
Tarek Hamza is the managing partner and is a Certified Public Accountant & Auditor and also
holds a Masters degree. He is a senior lecturer at the university and combines 20 years of
experience specializing in audit and management control.
Tarek Hamza
Hamza & Associés
Algeria
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Foreign Private Investment in Angola
With an average 11.1% GDP growth rate in the last decade (2001-2010), Angola is today one of the fastest growing
economies in the world, and an attractive destination for investors worldwide.
The country is one of the richest in the region, boasting a variety of natural resources including gas (LNG), oil, diamonds
and one of the largest hydrographical networks in all of Africa. The oil and diamond industries (second and third largest
African producers, respectively) constitute the country's main industries, accounting for more than 50% of the national
GDP.
However Angola is still grappling with the physical, social and political legacy of three decades of civil war that lasted
until 2002. The challenge for Angola in this post conflict phase is to use its resources for the benefit of all its citizens, to
reduce poverty and build a base for sustainable development.
With this objective, the Angolan government, working through the National Private Investment Agency (“ANIP”), is
actively pursuing private foreign investment, not only in the typical oil and diamond extraction industries but also in new
sectors that will allow for economic diversification.
Table 1 - Angolan Macro-Economic data (2009-2013)
Macro-Economic data
2009
2010
2011
2012
2013
Annual Oil Production (Million
Barrels)
Oil price (USD/Barrel)
694
696
620,5
662,5
673,5
60,9
77,9
95,37
77
96
National GDP Growth (%)
2,41
3,4
1,7
8,2
7,1
8,3
7,8
8,1
8,5
6,6
-5,1
-3
-8,8
9
7,3
Petroleum GVA Growth (%)
Non-Petroleum GVA Growth
(%)
Source: Ministry of Finance
In this context, the Angolan Government established a legal regime for foreign investment, which reinforces private
investor rights, and sets a system of incentives, benefits and facilities for investors in strategic sectors to the country's
economic and social development.
In Angola, investment arrangements are subject to a contract between ANIP and the investor. A minimum of
USD 1,000,000 (one million US dollars) initial investment is required, in order to guarantee the proportional repatriation of
capital generated as profits, dividends and similar returns.
Tax incentives will be granted to investments in strategic industries that will serve as an engine for creating jobs,
improving the commercial balance, reduce the dependence on imported essential goods, promoting technological
development and the rehabilitation, expansion and modernization of basic infrastructure, namely:
? Agriculture and cattle breeding;
? Infrastructures (roads, railroads, highways, ports and airports);
? Manufacturing industries (packaging, machinery, equipment, tools,
recycling, textiles, wood and its derivatives, food products, construction materials, Information Technologies);
? Telecommunications & Information Technologies;
? Fishing Industry (including fishing boats and nets);
? Energy and water;
? Social housing;
? Healthcare and education; and
? Hospitality and Tourism.
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Tax incentives can either be in the form of a temporary tax reduction or exemption. These benefits will be granted for a
limited period of time. Higher incentives will be granted to greater value added projects located in less developed regions.
The following tables summarize the rules for the grating of tax incentives and the rules applying to the repatriation of
dividends to foreign investors:
Table - Tax benefits by development zone
Tax Incentives
Industrial tax
Capital Gains
Property Transfer Tax
Tax
ZONE A
1 to 5 years
Up to 3 years
ZONE B
1 to 8 years
Up to 6 years
ZONE C
1 to 10 years
Up to 9 years
Property transfer tax
exemption for the
acquisition of land and real
estate connected to the
project
Source: ANIP
Development zones:
ZONE A: Luanda, principal municipalites of Benguela, Lobito, Huila and Cabinda;
ZONE B: Benguela, Cabinda, Huíla, Cuanza-Norte, Bengo, Uíge, Cuanza-Sul, Namibe and Malange;
ZONE C: Huambo, Bié, Moxico, Cuando Cubango, Lunda-Norte, Lunda-Sul, Cunene and Zaire.
Table 1 - Repatriation of dividends rules
Transfer of dividends
ZONE A
ZONE B
From Year 1
From Year 2
From Year 3
Investment
Amount
from USD 50
Million
Investment
Amount
from USD 5 Million
Investment
Amount
USD 10 - 50
Million
Investment
Amount
USD 1 - 5 Million
Investment
Amount
up to USD 10
Million
-
-
-
ZONE C
-
Source: ANIP
Both the tax incentives granted and rates of the
dividends to be repatriated are negotiated on a case by
case basis and must be part of the investment
agreement signed with ANIP.
This commitment from the Angolan government is the
recognition of the key-role played by foreign investment
in achieving its political-economic development
objectives and above all, is intended to make Angola a
center for investment in the competitive market within the
sub-Saharan African region.
Carlos Florêncio
Crowe Horwath Angola
Angola
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The Public Benefit Organizations (PBOs) Act 2013 of Kenya
- Review of Intent and Content
The letter and spirit of the Public Benefit Organizations (PBOs) Act 2013 of Kenya is that of a thinking and forward
looking nation. In summary, the Act is saying “Charities, you are welcome to establish your offices here in Kenya even if
you want to work in any other country in Africa”. Although as of the date of writing this article, the PBOs Act had not yet
come into force, it is anticipated that it will happen later this year.
The PBOs Act – Enactment, Arrangement and Definition of PBOs
The PBOs Act received presidential assent on 14 January, 2013. The Act is divided into seven parts: preliminary;
registration of public benefit organizations; self-regulation; administrative and reporting obligations; establishment,
powers and functions of the authority; the public benefit organizations tribunal; financial provisions and miscellaneous
provisions.
At the end of the Act itself, six schedules have been provided covering (i) principles for effective collaboration between
the government and Public Benefit Organizations, (ii) benefits of registration, (iii) procedure for nominating members of
the Board of the PBOs Authority, (iv) provisions as to the conduct of business and affairs of the Board of the PBOs
Authority, (v) transitional provisions and (vi) description of areas for which an organization may be registered.
The Act defines a PBO as a voluntary membership or non-membership grouping of individuals or organizations, which is
autonomous, non-partisan, non-profit making and which is :(a)
organized and operated locally, nationally or internationally;
(b)
engages in public benefit activities in any of the areas set out in the 6 Schedule to the Act; and
(c)
is registered as such by the Public Benefit Organizations Regulatory Authority (PBOs RA)
th
Objects and Purposes of the Act 1
encourage and support public benefit organizations in their contribution to meeting the diverse needs of the
people of Kenya by (i)
creating a conducive environment for the growth of public benefit organizations sector and for the operations
of the registered public benefit organizations;
(ii) establishing an administrative and regulatory framework within which public benefit organizations can
conduct their affairs;
(iii) encouraging public benefit organizations to maintain high standards of governance, transparency and
accountability and to improve those standards;
(iv) creating an environment within which the public may have access to information concerning registered
public benefit organizations; and
(v) promoting a spirit of co-operation and shared responsibility within government and among donors and other
interested persons in their dealings with public benefit organizations;
2
give meaningful protection to the internationally recognized freedoms of expression, association, and peaceful
assembly;
3
promote the development of self-regulation among public benefit organizations;
4
promote compliance by public benefit organizations with their legal obligations to exercise effective control and
management over the administration of their activities and funding;
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facilitate a constructive and principled
collaboration between public benefit
organizations, the Government, business, donors
and other actors in order to advance public
interest; provide registration procedures, which
are transparent, and which will facilitate the
establishment of public benefit organizations
while safeguarding freedom of association;
Non-Profit but not for Public Benefit – Excluded
People Organizations
(a)
trade unions within the meaning of the Labour
Relations Act, 2007;
facilitate mechanisms for government
collaboration with public benefit organizations,
including funding of public benefit organizations
activities and involvement of public benefit
organizations in the implementation of
government projects;
(b)
a public body established by or under any written
law;
(c)
a political party within the meaning of the Political
Parties Act, 2007;
(d)
a religious organization which is primarily devoted
to religious teaching or worship;
(e)
a society within the meaning of the Societies Act;
(f)
a co-operative society within the meaning of the Cooperative Societies. Act;
(g)
a sacco society within the meaning of the Sacco
Societies Act;
(h)
a micro-finance institution within the meaning of the
Micro-Finance Institutions Act;
(i)
community based organizations (CBOs) whose
objective include the direct benefit of its members.
facilitate the establishment and growth of public
benefit organizations in order to generally
strengthen civil society, promote social welfare
and improve the conditions and quality of life for
the people of Kenya.
Not all non-profits qualify to be registered under the
PBOs Act in Kenya, some notable exclusions include :-
Duty of the Government and State Organs of Kenya
Consistent with its obligation to respect the freedoms of
association and assembly, it is the duty of the
Government to provide an enabling environment for
public benefit organizations to be established and to
operate.
Every State organ shall determine and co-ordinate the
implementation of its policies and measures in a manner
designed to promote, support and provide an enabling
environment for public benefit organizations to perform
their functions.
The Government and all public benefit organizations shall
comply with the principles for effective collaboration set
out in the First Schedule. (See African Footprint
Issue 10 of January 2014).
The effect of the PBOs Act 2013 of Kenya says one thing
for non-profits that would want to station their
offices in Kenya - “You are welcome!”
Erastus K Omolo
Horwath Erastus & Co
Nairobi, Kenya
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South Africa starts to charge VAT on E-Commerce
As has been the case in many countries, foreign
suppliers of electronic services to South African
residents have not been required to register as VAT
vendors. These suppliers would have no physical
presence in South Africa. The foreign supplier does not
charge VAT for the services rendered because the
foreign supplier is not registered for VAT in South Africa.
This has left local e-commerce suppliers (especially ebook providers) in an uncompetitive position in relation to
foreign suppliers of e-books.
Electronic services have been very widely defined to
include all educational services (e.g. webinars); games
and games of chance (e.g. electronic betting); internet
based auction services; the supply of e-books, movies
and videos and images and music as well as all
subscription services.
In line with OECD principles, it has been proposed that
place of supply rules be introduced in respect of
e-commerce. Foreign suppliers will be required to
register for VAT in South Africa. Because the location of
the customer is also unknown, the location of the
electronic services will be deemed to be in South Africa if
payment comes from a South African bank or if the
customer resides in South Africa.
VAT registration is compulsory after the value of
electronic services reaches R50 000 per annum. The
effective date for this new system is 1 June 2014. The
current rate of VAT is 14%.
It has been announced that a simplified VAT registration
process is to be introduced for this category of service
suppliers. It will not be obligatory for a bank account to
be opened in South Africa. How the South African tax
authorities (SARS) plan to enforce registration for VAT is
not yet clear.
What is relevant
about these
developments is that
tax authorities the
world over are
unhappy that they
have been unable to
collect VAT (or any
similar indirect tax)
on the ever growing
volume of international
e-commerce transactions.
Kent Karro
Horwath Zeller Karro
Cape Town, South Africa
Amendments to the Guide to Global Business to conduct Business in Mauritius
What is Global Business?
Global Business (GB) is a framework available in Mauritius to a resident corporation which proposes to conduct business
activities outside Mauritius. GB is regulated by the Financial Services Commission (the FSC) under Section 71(1) of the
Financial Services Act 2007 (FSA).
There are 2 categories of Global Business Licences:
(i) Category 1 Global Business Licence (GBL1); and
(ii) Category 2 Global Business Licence (GBL2).
To be eligible for a Category 2 Global Business Licence (GBL2), the applicant's proposed business should be outside
Mauritius.
For the purpose of increasing substance, the holder of the GBL2 may be allowed by the FSC to conduct business in
Mauritius if it can demonstrate that the overall group structure has strong economic impact in Mauritius, i.e., whether the
proposal will generate revenue in Mauritius, and is likely to create employment in Mauritius or may impact on the
development of the country.
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A Category 1 Global Business Company (GBC1) does not
need to seek the FSC's approval before conducting business
in Mauritius. However the GBC1 should comply with all
restrictions, terms and conditions provided.
(i)
The GBC1 is able to demonstrate to the FSC its
eligibility to be a GBL1- that most of its business is
being carried out outside Mauritius.
(ii)
The GBC1 is in compliance with other relevant
laws of Mauritius e.g. the Food Act 1998.
The holder of a GBL1 conducting business in Mauritius
must also abide by various licensing conditions.
The GBC1 is required to submit every year, together with its audited financial statements (a)
a report signed by the directors certifying that the Company has complied with all the provisions of the FSA and
any Regulations, FSC Rules and guidelines issued under it; and
(b)
a certificate from its auditor confirming the percentage of the business conducted in Mauritius.
Suresh Sewraz
Crowe Horwath (Mur) Co
Mauritius
Middle East and Africa (MEA) Meeting
Nairobi, Kenya 19th – 21st February 2014
Crowe Horwath EA was proud to host the Crowe Horwath International Global Audit Process and the MEA partners
meeting which took place on 19th to 21st February 2014, in Nairobi, Kenya. This was our third annual African Partners'
meeting, and the 2nd combined meeting with the Middle-East Partners.
It was a great opportunity for partners and firms with interests in the region to network and build strong working
relationships, as there is tremendous potential for cross-border assignments within Africa and the Middle East.
The Nairobi training drew participants from the Crowe Horwath Africa network member firms of Kenya, South Africa,
Tanzania, Qatar, Oman, United Arab Emirates, Yemen, Saudi Arabia, Nigeria, Cote d’Ivoire and the United Kingdom.
Crowe Horwath International Chairman, Andrew Pianca was in attendance as well as Bernard Delomenie, EMEA
Regional Director and David Chitty, Crowe Horwath International Audit and Accounting Director. The meeting was held at
the Hemingways Hotel, Nairobi
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The meeting began with audit training on 19th February
2014 with David Chitty. The training was on
understanding and implementation of the Crowe Horwath
Audit Methodology and Processes (CHAMP) and Crowe
Horwath International Audit Templates (CHIAT). We had a
CaseWare representative Tertia Barret, who took
participants through the audit process. Future training will
be conducted by CaseWare via webinars and a number
are scheduled to be carried out in the current year.
The participants shared their experience and all noted
that respective member firms must apply the global audit
methodology for accounting periods beginning on or after
1st January 2014.
The participants were also updated by David Chitty on
the latest developments in International Accounting and
Auditing Standards. Tertia Barret of CaseWare CQS was
present to answer the participants' questions on the
challenges they have faced in implementation of CHAMP.
Crowe Horwath EA also held a client cocktail evening at
the Karen Country Club during which the CEO Crowe
Horwath EA, Coutts Otolo hosted the firm's key clients
and officially welcomed Andrew Pianca.
The partners' business meeting was held on the 2nd and
3rd day of the meeting. Regional business strategies
were reviewed and updated by the participants. Overall,
the partners agreed on the need to increase
representation in the region and explore the existing
cross border work opportunities in view of the changes
expected in the regulation of the appointment of auditors
and non audit services in the European Union.
A post conference safari to the world famed Masai Mara
was organized and some of the participants who took
part included Andrew Pianca, Bernard Delomenie, David
Chitty, Alex Osike, Abdullah Al Azem, Pesh Framjee,
Davis Kallukaran and Dr Khalid Maniar.
Nereah Ndalo
Crowe Horwath EA
Nairobi, Kenya
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Unlocking the Mystery of Hotel Management Agreements: Part 1
Over the past several
months we have noted a
significant uptick in the
number of Clients
requiring assistance in
assessing and
(re)negotiating, where
applicable, the
commercial terms set
forth in hotel management
agreements. My
colleague Matt Gebbie of
the Horwath HTL office in
Jakarta Indonesia, recently published a paper aimed at
demystifying the peculiarities of the hotel management
agreement.
In this edition of the African Footprint, we share part one
of this three part paper. I trust you might find of interest
the explanations that follow of some of the key
commercial terms that form the backbone of a typical
hotel management agreement of interest.
Terminology
HMC
Hotel Management Company
HMA
Hotel Management Agreement, made between
HMC and Owner
GM
General Manager
FD
Finance Director
FF&E
Furniture, Fixtures and Equipment
Introduction
The following discussion provides a preliminary overview
of key commercial terms ONLY.
Most terms within a HMA are negotiable and owners are
therefore encouraged to seek legal and commercial
advice prior to signing a HMA. The relationship between
an owner and an HMC is complex and lasts many years
and often through many economic cycles.
The establishment of a mutually beneficial agreement
that recognises (i) the HMC's need to operate the
property without undue interference; AND (ii) the owner's
right to participate in decisions which are important to
them, will go a long way to ensuring an amicable and
rewarding long term partnership.
Uniform System of Accounts for the Lodging
Industry
Why must the hotel's accounting follow the Uniform
System of Accounts?
The Uniform System of Accounts establishes
standardised formats and account classifications to guide
hotel management in the preparation and presentation of
financial statements. It permits internal and external
users of financial statements to compare the financial
position and operational performance of a particular
property with similar types of properties in the lodging
industry. It is the internationally recognised standard
practice for hotels and resorts.
Technical Services Fees
Why should I pay technical services fees?
Typically, technical service fees cover technical
assistance and advice with respect to the design, both
exterior and interior, space planning, engineering and
construction of the hotel and related facilities.
Branded properties, both domestic and international,
have certain brand standards relating to health and
safety, security, fire, room size, facilities offered, etc.
Participation of the HMC, with its experience and knowhow, during planning and construction, ensures these
standards are met and a quality, commercially
sustainable product is realised.
How do I benefit?
Having your chosen HMC provide oversight to your thirdparty consultants during the planning and construction
process ensures there are no conformity issues/
problems and expenses further down the line.
How are they calculated?
Technical services fees are typically structured as a lump
sum often based on an amount per guest room. They
are negotiable, albeit in trade-off to other terms.
Technical services fees are limited to a certain time
frame and calculated on the basis of a typical project
time line. Extended timelines or unnecessary delays may
warrant additional fees.
Typically technical services fees are paid in instalments,
the first due upon contract signing and subsequently
spread (i) evenly throughout the construction period or
(ii) payable upon reaching or completing certain
development stages, such as schematic design,
construction documentation, completion of super
structure or commencement of pre-opening services.
Management Fees
What are base and incentive management fees?
Management fees are paid for management services
provided by the HMC engaged to operate the property.
They are negotiable and can vary according to:
?
?
?
the brand/ product positioning and/or scale of a
property relative to the potential revenue and profit
it can be expected to generate;
the priority the HMC places on securing the
contract relative to their existing and targeted
property network; and
trade-offs made in other commercial terms such
as the contracting period, exclusivity zone/period,
technical services fees, etc.
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How are they structured and calculated?
Similarly to an employee's salary of base plus bonus, management fees are typically made up of:
Base Management Fees are typically computed as a percentage of total revenue. They are often classified as license or
royalty fees, or split into part license/royalty and part base management fee. Ostensibly this split is to differentiate
between fees associated with the use of an HMC's brand trademarks and those for the provision of management
services; PLUS
Incentive Management Fees are typically structured as a percentage of gross operating profit (GOP) (after base
management fees are deducted). In some instances, the fee percent may increase incrementally as the achieved GOP
percent reaches designated ranges up to a maximum level. Incentive Management Fees may be referred to as
Management Fees when the base fee equivalent is referred to as a license or royalty fee.
The HMC is typically responsible for any income taxes associated with the management fees regardless of their
classification (ie. management, license or royalty fee), including in the form of a withholding tax.
Centralised / Group Systems’ Fees
What types of centralised/group system fees do I have to pay?
The centralised/group services and systems fees cover the costs associated with the centralised/group sales and
marketing department and related payroll, advertising and collaterals production, website operation, revenue
management systems, office expenses, sales programs, related travel and training, communication, etc.
Centralised systems' fees are typically non-negotiable as they are not-for-profit fees designed to cover expenses
associated with the HMCs centralised services and systems. These include sales and marketing activities,
reservations/booking systems and channels and loyalty programs. As such, the fee structure is usually fixed across the
HMC's network. That said, the structure and scale of such fees differ across HMCs and brands and should be examined
carefully.
The following highlight the most common types and structures:
Variable sales and marketing system related fee, calculated as a specified percentage of gross operating revenues
?
or gross rooms revenues;
Fixed sales and marketing system related fee, based on a specified amount per room per annum (typically
?
combined with a variable fee);
Central reservation systems charge, on each booking made through the HMC's system, be it via the HMCs
?
website, sales office network or OTAs. This is typically based on a specified amount per booking, regardless of the
room rate or number of nights involved (but can also be incorporated as part of the sales and marketing system
related fee);
Global distribution systems (GDS) charge, on each booking made through a GDS such as Sabre and Amadeus.
?
This is typically a specified amount per booking, regardless of room rate or number of nights involved; and
Loyalty programme fee, which is typically based on a specified percentage of the total revenue generated by loyalty
?
programme members during their stay at an HMC managed/ branded property.
How do I benefit from these fees?
Connection to a HMC's centralised/group services and systems is a key selling point of engaging an established operator
offering huge potential for raising a hotel's visibility and saleability to demand sources across Indonesia and the world.
These systems typically generate a significant percentage of hotel bookings at net rates considerably higher than other
booking channels such as local corporate accounts, wholesaler, OTA and tour operator contracts.
In part two of this three part paper, we will share insights into the operating bank account, the requirement for operating
capital and the FF&E reserve, the annual hotel budgets and who is responsible for hotel staffing.
Michelè De Witt
Horwath HTL
Cape Town, South Africa
12
Crowe Horwath
TM
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13