top of page

ASEAN – FDI DRIVEN FAVORABLE CORPORATE TAX REGIMES

Updated: May 31

The Association of Southeast Asian Nations (ASEAN) is a regional intergovernmental organization, MANY OF WHICH OFFER FAVORABLE TAX REGIMES.

ASEAN - Top Global FDI Destination
ASEAN - Economic Juggernaught

The Association of Southeast Asian Nations (ASEAN) is a regional intergovernmental organization comprising of the following ten member states in Southeast Asia –

  1. Brunei - State of Brunei Darussalam

  2. Cambodia - Kingdom of Cambodia

  3. Indonesia - Republic of Indonesia

  4. Laos - Lao People’s Democratic Republic

  5. Malaysia - Malaysia

  6. Myanmar - Republic of the Union of Myanmar

  7. Philippines - Republic of Philippines

  8. Singapore - Republic of Singapore

  9. Thailand - Kingdom of Thailand

  10. Vietnam - Socialist Republic of Vietnam


The total population of ASEAN is just over 687 million and together, the countries encompass approximately 4.48 million square kilometres. Table 1 shows a breakdown of the population, area and Gross Domestic Product (GDP) by country –

GDP Of ASEAN Countries
Populatio, Area & GDP Asean Countries

The two smallest countries in terms of area and population – Singapore and Brunei – have the highest GDP per capita. Singapore’s GDP per capita is more than twice that of Brunei which is quite a feat given that Singapore does not have any of the natural resources that Brunei is blessed with.


Each member state has its own taxation regime, and while there are some commonalities and regional cooperation efforts, taxation policies and systems vary significantly from one country to another within ASEAN. We highlight the main components of the tax regime in each country in ASEAN in the following.


It should be noted that in respect of Malaysia, the information provided does not include Labuan, a Malaysian territory which has a preferential and separate tax structure.


Corporate Tax


Some ASEAN countries do offer favorable tax regimes. The following graph (figure 1) illustrates the Corporate Income Tax (CIT) and Indirect Tax – namely, Value Added Tax or Goods and Services Tax and similar consumption taxes – imposed by each of the ASEAN countries.

ASEAN Corporate Tax & VAT Rates
Corporate Income Tax & Value Added Tax Rates in ASEAN

Figure 1: Corporate Income Tax & Value Added Tax Rates in ASEAN

Source: AZEAN VENTURES SDN BHD (2023)

* Malaysia has a Sales and Services Tax (SST) which ranges from 5-10%

** Myanmar imposes a Commercial Sales Tax ranging from 5-120%


Based solely on the corporate and consumption tax rates, Brunei is the most favourable jurisdiction and the Philippines is the least favourable for companies intending to conduct business in ASEAN. However, the Philippines with over 117 million people is a very attractive market in size and concentration. Although Indonesia is the only other country in ASEAN with a higher population of over 277 million people, the Indonesian archipelago is very large, dispersed and varied in stages of development. Accordingly, the Philippines may be more attractive for countries looking for new markets in ASEAN.


Myanmar and Cambodia have the lowest GDP per capita in ASEAN. One of the ways countries seek to spur development is by attracting foreign direct investment (FDI) flows. Myanmar’s political instability has been a major disadvantage in attracting FDI even from other ASEAN member states although ASEAN’s non-interventionist principle has thus far been upheld. The Cambodia CIT rate of 20% and VAT rate of 7% is, arguably, too high and may have to be reconsidered so as to make the country more attractive to foreign investors.


Double Tax Agreements (DTA)


The ASEAN countries have entered into bilateral DTAs which seek to avoid double taxation on income and promote co-operation between the countries. Table 2 below shows the DTAs that exist at the time of writing between the ASEAN countries.

Double Tax Agreements Between ASEAN Countries

Of the 10 ASEAN countries, only Malaysia, Singapore and Vietnam have entered into DTAs with all other ASEAN countries. Several negotiations are ongoing between member states to strengthen the DTA networks. It should be noted that Myanmar’s ability to negotiate bilateral treaties within ASEAN has been hindered due mainly to the political instability in the country.


Withholding Taxes (WHT)


The current WHT on the four main income categories – dividends, interest, royalties and services – for each ASEAN country is presented in Figure 2 below. These WHT rates may vary depending on the terms of the DTA with corresponding countries.



Witholding Tax Rates In ASEAN
Witholding Tax Rates In ASEAN

Figure 2:Withholding Tax on Payments to Non-Residents

Source: AZEAN VENTURES SDN BHD (2023)


WHT rates and regime are important to attract passive investors and foreign investment inflows particularly in the service sectors. Based on the WHT regimes, Brunei would be the most favourable jurisdiction and the Philippines the least favourable for foreign companies intending to trade in ASEAN. However, this will have to be reconsidered on the basis of any DTA that may exist between the individual ASEAN countries and the residence country of the foreign company as DTA would normally provide for preferential WHT rates between countries.


WHT encourages foreign direct investments in domestic economies. Accordingly, the WHT exemption on dividends paid to foreign entities from Brunei, Malaysia, Myanmar, Singapore and Vietnam may encourage foreign equity investments in these countries and allow for foreign entities to become significant investors in the respective domestic equity markets.


Conclusion


ASEAN countries’ economies have been growing steadily over the past years and ASEAN has emerged as a power house of development and wealth in its own right. The level of co-operation and strong bonds among the ASEAN countries are commendable especially given their significant differences in terms of development and relative economic strength.


ASEAN has been a strong recipient of FDI as shown in the table below –

ASEAN FDI Flows

Source: ASEAN Secretariat (June 2023)

It is clear that Singapore has been a favoured recipient of FDI in 2022 and significantly outperformed all the other ASEAN countries. The Financial Services sector accounted for approximately 35% of the total FDI into Singapore in 2022, while Trade and Manufacturing sectors accounted for approximately 40% of the total FDI.


While tax is not the only factor in attracting FDI, it is an important one. Singapore is home to most of the major investment and commercial banks including JP Morgan and HSBC and it hosts the regional headquarters of many multinationals including behemoths like GE, General Motors and Proctor & Gamble.


While Singapore has a corporate tax rate of 17%, it has also introduced clever incentives and provides reliefs in the form of accelerated capital deductions and exemptions which can provide for a lower effective tax rate. Malaysia too, has it's own machinations that provides a much lower effective tax rate than the declared rate of 24%. Proper tax planning and navigating into Malaysia via the Labuan Offshore Financial Center as the gateway could bring the effective corporate tax rate in Malaysia down to 3%. ASEAN countries all have their respective policies and national priorities and have tailored their corporate and tax structures to align with those dogmas. To attract FDI throughout ASEAN and fuel economic growth, perhaps some member countries might do well to review and re-calibrate their respective foreign investment policies, corporate tax regimes and organizational structures with the expectations of investors.


Monica Pheny

Director,

Azean Ventures Sdn Bhd

Kuala Lumpur, Malaysia.


Visit ASEAN

There is no substitute for experiencing the vibrant and diverse culture of ASEAN firsthand. We strongly encourage our clients to visit their preferred destinations in ASEAN to gain a deeper understanding of the local market dynamics. To make this easier, we are offering exclusive travel discounts to selected ASEAN cities. Use our promo code APP10TW to enjoy discounts on your travel arrangements and see for yourself why ASEAN is the place to be for global businesses.




112 views0 comments

コメント

5つ星のうち0と評価されています。
まだ評価がありません

評価を追加
bottom of page