ARE YOU READY FOR ASEAN 2015? Free trade agreements and economic partnerships are dramatically changing Asia s business opportunities

Transcription

1 Issue 1 January and February 2013 From Dezan Shira & Associates Inside This Issue: Why ASEAN is Important for Your Asia Business Strategy The term ASEAN is cropping up more often these days, yet still many businesses globally remain unaware of its impending impact on trade and the supply chain. Inter-Asia Trade Flows We outline the fastest growing China trade corridors. Using Singapore as a Base for Asia Expansion As a financial and services hub, Singapore is the new corporate base for Asia. Vietnam as a Manufacturing Destination for Sales to China As China labor becomes more expensive, Vietnam s factories are poised to fill the cost gap. ARE YOU READY FOR ASEAN 2015? Free trade agreements and economic partnerships are dramatically changing Asia s business opportunities Scan this QR code with your smartphone to visit:

2 ASIA BRIEFING Issue 1 January and February 2013 Introduction Dear readers, Welcome to Asia Briefing, our new publication for the new breed of Asia-focused regional executives. Many of you are familiar with China Briefing magazine and business news website, which has now moved entirely online at Chris Devonshire-Ellis Principal, Dezan Shira & Associates, Singapore and ASEAN Publisher, Asia Briefing This Month s Cover Art By: Pham Khanh Thanh Courtesy of: Green Palm Gallery, Hanoi Asia, however, offers an even larger panorama than just China; one toward which businesses in Asia, and overseas to the United States, Europe, Middle East, South America and especially Australasia are all looking. This huge region is being brought together by increasing economic integration, and its rapid development from India to Australia and all points in between will dramatically impact the global supply chain and trade corridors. At Asia Briefing, we believe that there is still a dearth of information examining the Asian region as a whole and drawing meaningful comparisons for foreign investors between economies in the region. For this reason, we have brought our company name to life in the form of this new business magazine and a newly revamped business, legal, and tax portal: In this first issue of the bi-monthly Asia Briefing magazine, we introduce the vision that Asia is about to project into reality, focusing on the new dawn that ASEAN free trade brings to the entire region, as well as the dramatic added impact of pan-asian free trade agreements such as the RECP - changes of which many seem blissfully unaware. We are of course able to do this do with the assistance of Dezan Shira & Associates ( a specialty foreign investment firm now in its 21st year in Asia, and we have them to thank for much of the legal, tax and technical information within these pages. Welcome to Asia. Welcome to Asia Briefing. Kind regards, To subscribe to Asia Briefing Magazine (US$60/year), and choose your complimentary Asia Country Guide, please visit Asia Briefing Contributors Chet Schltema Senior Legal Affairs Consultant, China china@dezshira.com My Nguyen Legal Affairs Consultant, Vietnam vietnam@dezshira.com Olaf Griese Partner, Dezan Shira & Associates, India india@dezshira.com Our Asia Business Resources Christian Fleming Managing Editor, Asia Briefing Online editor@asiabriefingmedia.com Corporate Establishment, Tax, Accounting & Payroll Throughout Asia Twenty-one years of excellence Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. For further details or to contact the firm, please asia@dezshira.com, visit to download the company brochure. (coming in February) INDIA BRIEFING VIETNAM BRIEFING All materials and contents 2013 Asia Briefing Ltd. No reproduction, copying or translation of materials without prior permission of the publisher. 2 - ASIA BRIEFING January and February 2013

3 Why ASEAN is Important for Your Asia Business Strategy By Chris Devonshire-Ellis, Dezan Shira & Associates The term ASEAN is cropping up more often these days, yet still many businesses are unaware of what it is and why it is gaining in importance. The basic answer is fairly simple free trade across Asia. That means reduced or zero customs duties across a space that includes the 10 ASEAN nations in Southeast Asia, and includes additional agreements, still under negotiation, that are expected to link in China, India, Australia, New Zealand, Japan and South Korea with the same ASEAN bloc. But firstly, let s step back from that weighty statement - with all its trade and supply chain implications - and examine exactly what ASEAN is and how it will impact all businesses in China, India, Australasia, Asia and beyond to the EU and United States. ASEAN the Association of Southeast Asian Nations was formed in 1967 and comprises 10 Asian countries as an economic trade bloc. It includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Collectively, ASEAN represents a market of some 600 million people, with a combined GDP of about US$1.8 trillion. If it were a country, in economic terms it would be the ninth largest in the world. Effectively a trade bloc situated between China and India, ASEAN is the third Asian dragon in terms of its development as an emerging economy. The OECD (Organization for Economic Cooperation & Development) 1 for has projected growth within ASEAN to be about 6 percent per year for the period , making it the second fastest growing January and February 2013 ASIA BRIEFING - 3

4 Issue 131 January and February 2013 From Dezan Shira & Associates quality gap, China GAAP vs. IFRS, and annual renewals for ROs, FICE, WFOEs and JVs Inside This Issue: The Annual Compliance Process for China FIEs Getting your China accounts and audits to international standards can be problematic. We discuss China GAAP vs. U.S. GAAP/IFRS, and the 2012 annual audit and filing processes for ROs, FICE, WFOEs, and JVs. Individual Income Tax Finalization for Expatriates An annual IIT declaration needs to be completed by almost all expats in China for 2012 earnings. We discuss what determines salar y, what can be counted as tax deductible expenses, and the exact definition of the 183 day residency rule. Current U.S. Securities and Exchange Proceedings W e c o m m e n t o n t h e proceedings against the Chinese arms of the Big Four and how this may impact foreign investors. Available in multiple languages Scan this QR code with your smartphone to visit: Why ASEAN Is Important for Your Asia Business Strategy region globally after China. Because of that, and ASEAN s developing wealth and trade opportunities, China has specifically targeted ASEAN as a bloc with which Chinese companies need to be doing business. It makes sense; China-based companies and foreign investors need to expand overseas, ASEAN is right next door, and ASEAN represents a fast growing opportunity for growth in sales and trade. Indeed, ASEAN overtook Japan in 2011 to become the third-largest trade partner with China with trade figures reaching US$362.3 billion, only behind the European Union (US$567.2 billion) and the United States (US$446.6 billion). Even so, aware that not everyone has fully recognized the significance of ASEAN, the Chinese government has been going to some lengths to encourage Chinese trade with the bloc, even setting up a China-ASEAN trade office to raise ASEAN s profile within China. That is important, as China has double tax and free trade agreements with ASEAN, only recently inking a deal that permits zero tariffs on over 7,000 products. That was done as part of the ASEAN-China Free Trade Area (ACFTA), being an agreement between China and the 10 member states of ASEAN. The ACFTA is the largest free trade area globally in terms of population and third largest in terms of nominal GDP. The free trade agreement reduced tariffs on 7,881 product categories, or 90 percent of imported goods, to zero. This reduction has already taken effect in China and the six original ASEAN members: Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The remaining four countries Cambodia, Laos, Myanmar and Vietnam will follow suit in With India following on with its own ASEAN FTA in 2016, these dates acquire some significance for Asian-focused trading companies in getting prepared. However, ASEAN has also signed other significant agreements. The ASEAN-India Free Trade Area (AIFTA) is a similar agreement and came into effect on January 1, The AIFTA will see tariff liberalization on over 90 percent of products traded between the two dynamic regions, including so-called special products, such as palm oil (crude and refined), coffee, black tea and pepper. Tariffs on over 4,000 product lines will be completely eliminated between ASEAN and India by Additional agreements are also in place with Australia and New Zealand in the form of the ASEAN Australia New Zealand Free Trade Area; with Japan in the form of the ASEAN Japan Comprehensive Economic Partnership; and in South Korea with the ASEAN Korea Free Trade Area. All of these came into effect in 2010 and have already begun to lift trade figures between ASEAN and these respective countries. What this means is that from now until 2015 and then 2016, the flow of trade, the shape of the global supply chain, and the opportunities for selling goods and services right across Asia are changing and, in doing so, the customs duties will be increasingly attractive. Taking advantage of the trade opportunities means getting prepared now. The impact of the ASEAN bloc upon the region, and upon global trade dynamics will be immense. It also opens up huge potential for global businesses to enter the ASEAN market, establish a presence, and use that to reach out to China, India, and beyond. It makes sense China s manufacturing capacity is slowing, and becoming more expensive just at the time when its population is moving to a more consumer-based society. The immediate impact of ASEAN, to some extent, is to provide a lower cost manufacturing base and to use that as a springboard to export to China. This is why manufacturing in Vietnam is starting to take off as an alternative to China not purely because Vietnam is cheaper in terms of labor costs, but also because as part of ASEAN, that 90 percent of manufactured goods will be traded with zero duties by The Vietnamese government has just announced plans to make corporate income tax in the country among the most competitive in Asia, reducing it to 23 percent (against China s 25 percent) later this year. The same applies to Cambodia, Laos and Myanmar, which is one reason the latter suddenly appears to be in such a hurry to get its reforms in place. But multinationals being based in Vietnam, with a border directly with China and a long coastline with increasing TEU capacity through its ports, in order to target the China and India markets is beginning to make a lot of sense. When it comes to the Asia-Pacific region, including the west coast of the United States, the UN Economic and Social Survey of Asia and the Pacific released a 2012 survey 2 showing that Asia is the world s fastest growing region and an anchor for global economic stability. With those sorts of sustainable growth rates, it is no wonder that investment gurus such as Mark Mobius are so bullish on Asia. Quoted in Thailand s largest English language newspaper, The Nation, he stated that emerging markets are growing four times faster than developed countries. For more business news, foreign investment legal, tax and operational intelligence about China. Daily news updates and ten annual issues of our well known business magazine, published since Annual subscription from US$75 includes a free 156 page full color China business guide This promotional subscription offer open until end February 2013 only. See the subscriber button on the China Briefing homepage. Annual Compliance, License Renewals, & Audit Procedures Including discussions of audit procedures, China s audit Annual Compliance & License Renewals New January Issue Out Now 4 - ASIA BRIEFING January and February 2013

5 Why ASEAN Is Important for Your Asia Business Strategy ASEAN then is developing as an excellent starting point for reaching out to the region s developing markets, but the benefits of that extend beyond setting up a physical presence in the bloc. An ASEAN-based company enjoys not just the automatic tax and free trade benefits of intra-asean trade, but also those sexy free trade and double tax agreements that ASEAN is currently negotiating with China, India, Australiasia, Japan and South Korea. This includes the Regional Comprehensive Economic Partnership (RCEP). These ASEAN agreements are the primary reason why international trade and tax experts expect Asia to help the world economy get out of the current financial doldrums. Taking advantage of ASEAN then is a relatively simple matter; just as many Hong Kong companies have been used as springboards and advantageous tax structures for getting into China, foreign-owned Singapore companies now offer tax efficiency combined with a level and transparent regulatory and legal environment, coupled with a zero approach tolerance towards corruption and a free trade springboard into ASEAN and its other free trade agreements. Establishing such a presence gives access to the ASEAN free trade agreements that the bloc has between its own members, and with China, India, Australasia, Japan and South Korea. Using a Singaporean company to hold subsidiary operations in any of these then allows foreign businesses the ability to enjoy Singapore s low tax rates while also taking full advantage of the free trade and double tax agreements of ASEAN and each of its trade partners, including China, India and the Japan-Korea-Australasia triumvirate. This is a total free trade area that is already the fastest growing in terms of returns and will become the largest free trade area in the world. Businesses interested or even currently based in Asia, China and India should be looking at Singapore-based ASEAN subsidiaries to take advantage of what is going to be a huge free trade area with a significant impact on global trade and supply chains. Furthermore, China has agreed to negotiations to create a 16-nation trade bloc, known as the Regional Comprehensive Economic Partnership (RCEP), formalizing the steps at the 21st ASEAN summit in Phnom Penh 3 two months ago. The RCEP will include the 10 members of the Association of Southeast Asian Nations (ASEAN) plus China, India, Japan, South Korea, Australia and New Zealand, and when implemented will have the effect of lowering trade barriers and custom duties across the region by the end of The Regional Comprehensive Economic Partnership CHINA INDIA MYANMAR LAOS THAILAND VIETNAM CAMBODIA PHILIPPINES BRUNEI MALAYSIA SINGAPORE INDONESIA SOUTH KOREA JAPAN AUSTRALIA The RCEP framework was endorsed by leaders at last November s ASEAN summit. South Korean Trade Minister Bark Tae-ho has said that China at first only wanted to have ASEAN plus three other nations (China, Japan and South Korea) included in the pact, but a counter proposal from America for a Trans-Pacific Partnership (which excludes China) pushed China to enter into talks for a wider-ranging accord, and one that includes India. With the dawning of the RCEP, Asia is poised to enter into a new era of mutual trade and growth dynamics. ASEAN already has individual free trade agreements in place with each of the participating countries. The emergence of free trade across the region through the numerous ASEAN FTA will have a profound effect on China, India and Asia, let alone the global players that do business here. Is your company prepared? 1 See: 2 See: 3 See: NEW ZEALAND Our complete guide to all ASEAN nations including demographics, double tax treaties and free trade agreements between ASEAN nations and the US, EU and other key regional markets. Includes foreign investment information for Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Look out for our February Launch of Scan this QR code to visit the ASEAN Briefing website. January and February 2013 ASIA BRIEFING - 5

6 Intra-Asia Trade Flows Intra-Asia Trade Flows China and India Corridors to Lead The Way A report last month from the United Overseas Bank (UOB) of Singapore has indicated that the global economy will increase by 73 percent over the US$63 trillion seen in 2010 to reach US$109 trillion by 2020, with Asian trade flows one of the key factors contributing to this robust growth. Within Asia, bilateral trade corridors involving China and India will be the fastest growing sectors, leading the way for Asia (excluding Japan) to make up roughly one-third of the world s total economy by 2020 (double the region s current levels). The report, entitled The Rise of Intra-Regional Trade in Asia 1 suggests that several trade corridors are opening up that are of immense significance to both Chinese and global trade. The fastest growing trade corridor globally will be India s trade with the Middle East, whereas the fastest growing trade routes involving China are: ASEAN s Total Merchandise Exports by Destination Region Percent of ASEAN s Total Exports Forecast Intra-ASEAN China India Japan EU United States Middle East Source: UOB Report, The Rise of Intra-Regional Trade in Asia supporting this theory include strong demographics, growth in disposable income levels, and increased urbanization throughout Asia. An explosion of middle class wealth across Asia is expected to launch a wave of spending power good news for global manufacturers looking to break out of their domestic markets. China-India China-Africa Latin America-China EU-China China-MENA China-United States China-Asia The report suggests that import demand from emerging Asia will increase as private consumption develops to become an important growth engine for the region. Structural factors The establishment of free trade across ASEAN by 2015 is a major factor underpinning this evolution of higher intra-regional trade. Although the free flow of most trade goods can be expected, there may still be some resistance to banking and telecommunications, although within ASEAN and its other trade partners such as China and India, talks are underway to find common ground. The statistics presented are likely to resonate beyond 2020, however, as by that time the ASEAN member state Indonesia is expected to become one of the world s top 10 largest economies, with a US$3 trillion GDP. 1 See: For more business news, foreign investment legal, tax and operational intelligence about India. Daily news updates and quarterly business magazine. Annual subscription from US$30 includes free 158 page full color India business guide. To contact Dezan Shira & Associates in India, please investment enquiries to india@dezshira.com Establishing A Business In India New Issue Out Now 6 - ASIA BRIEFING January and February 2013

7 Using Singapore as a Base for Asia Expansion By Eunice Ku and Nathan Susanto, Dezan Shira & Associates As a financial and services hub, Singapore is the de facto financial capital of ASEAN. For companies interested in doing business with ASEAN, the place to start is Singapore. Companies in Singapore enjoy a low corporate income tax rate of 17 percent, no tax payable on dividends earned externally from its borders, and even tax incentives for SMEs wishing to establish operations in the country. It is also possible to operate a Singapore company as a shelf entity to take advantage of these benefits without going to the expense of setting up a full service office. As such, Singaporean companies are an excellent base from which to direct operations from ASEAN, thus qualifying for the intra-asean free trade agreements and for those with China, India and beyond. Identity Card (NRIC) holders, non-employment Pass holders and/ or non-dependant Pass holders in the role(s) of director, company secretary and/or shareholder. Key points of Singapore company incorporation include: At least one shareholder A Singapore private limited company should have at least one shareholder, but no more than 50. The shareholder can be a person or another legal entity and 100% foreign shareholding is allowed. New shares can be issued or existing shares can be transferred to another person anytime after the Singapore company has been incorporated. While Hong Kong remains an attractive location from which to hold investments into China, Singapore s close relationship with ASEAN countries (Indonesia, Malaysia, the Philippines, Thailand, Brunei, Burma, Cambodia, Laos and Vietnam) make it an appropriate destination for all aspects of business in the region beyond the free trade access provided under the ASEAN Free Trade Agreement itself. While China (including Hong Kong) has a separate free trade agreement with ASEAN, this agreement is not as far reaching as the tax treatments that ASEAN members enjoy. Furthermore, economic agreements such as the RCEP also enhance Singapore s position as a base from which to reach out to destinations such as India and even Australia. Requirements for Incorporation A professional services firm must be engaged to register on the behalf of companies with non-singapore National Registration At least one director that is a Singapore resident A resident is defined as a Singapore Citizen, a Singaporean Permanent Resident, an Approval-in-Principle Employment Pass holder, or a person who has been issued an Entrepass, Employment Pass, or Dependent Pass. There is no limit on the number of additional local or foreign directors a Singapore private limited company can appoint. Most companies will have at least two directors, as banks and other financial institutions usually require two signatories. The sole shareholder and sole director can be the same person, but non-shareholders can also be appointed as directors. Company secretary who is a Singapore resident A company secretary must be appointed within six months of its incorporation. In the case of a sole director/shareholder, the same person cannot act as the company secretary. SME Tax Incentives Tax incentive programs offered by the Singapore government, such as the Global Trader Program and HQ Program, are also draws, as well as tax incentives are available under the Productivity and Innovation Credit (PIC) Scheme, which encourages businesses, especially SMEs, to invest in productivity and innovation. Under the PIC Scheme, businesses can get cash payout or a 400 percent tax deduction/allowances on expenditure of up to S$400,000 on each of the following six activities: 1. Purchase / lease of prescribed automation equipment 2. Training expenditure 3. Acquisition of intellectual property 4. Registration of intellectual property 5. R&D 6. Design expenditure January and February 2013 ASIA BRIEFING - 7

8 Using Singapore as a Base for Asia Expansion Paid-up Capital The minimum paid-up capital (also known as share capital) for registration of a Singapore company is S$1. The paid-up capital can be increased anytime after the company s incorporation. Registered Address A physical (residential or commercial) local Singapore address must be provided as the registered address of the company. The premises of this address must be approved for business use by the Urban Redevelopment Authority (URA) and residential flats or properties can only be used under the Home Office Scheme. (P.O. Boxes cannot be used.) Incorporation Process Similar to Hong Kong, most Singapore companies are registered as private limited liability companies. Generally, a private limited liability company can be incorporated in 1-2 days. Company registration is completed online with the Accounting & Corporate Regulatory Authority (ACRA). Incorporation will only take between 14 days and 2 months if the application needs to be referred to other authorities for approval or review. Certain types of businesses (e.g. private school, spa, telecommunications) require licenses and permits, which can be obtained post-incorporation. Annual Compliance Annual General Meeting Each Singapore company must hold the first annual general meeting within 18 months of its incorporation, and no more than 15 months may elapse between subsequent annual general meetings (unless approval of the Registrar is obtained). Private companies can dispense with annual general meetings if a resolution to that effect is passed by all members with voting rights at a general meeting of the company. At the annual general meeting, directors should present a true and fair view of the company s profit and loss accounts to their shareholders. Accounts presented at the annual general meeting should be made up to a date not more than 6 months before the annual general meeting. Filing of Annual Return Singapore companies must file an annual return with the ACRA within 1 month of the company s annual general meeting. Particulars of the company officers, registered address, and auditors (if applicable) must be included in the annual return. A company can engage the services of a professional firm or a service bureau to file the annual return on its behalf Changes to the Singapore Companies Act The Singaporean Ministry of Finance (MOF) has accepted 192 and modified 17 recommendations of the Steering Committee for the Review of the Companies Act, as of October This comprehensive review marks a major step forward in Singapore s corporate regulatory framework, and these changes are scheduled to pass into law in mid These wide ranging changes are expected to reduce regulatory burden and compliance costs, provide greater flexibility for companies, and improve corporate governance. They will bring benefits to various stakeholder groups such as companies, small-and-medium enterprises (SMEs), retail investors and company directors, including the following: Impact on Companies Companies will be allowed to issue non-voting shares and shares carrying multiple votes if their Articles allow it and subject to certain safeguards. This will give companies greater flexibility in raising capital, and meet different investor preferences. Impact on SMEs A new small company concept will be introduced for determining the requirement for statutory audit. SMEs can look forward to lower compliance costs. An approximate additional 10 percent of companies or about 25,000 more companies can enjoy exemption from audit. Impact on Retail Investors A multiple-proxies regime will be introduced to allow indirect investors and Central Provident Fund (CPF) investors to attend and vote at shareholders meetings. This will provide for more active participation at general meetings by the beneficial owners of the company, and help strengthen the culture of corporate governance. When passed into Singaporean legislation, these changes will provide even greater incentives to invest into Asia via Singapore, especially for SMEs. Coupled with the ASEAN FTA agreements Singapore enjoys as a full member, these changes can be expected to project the country as a primary destination for finance and investment into Asia over the next decade. Source: Singapore Ministry of Finance, October 3, 2012 For more information on establishing and maintaining Singapore companies, please singapore@dezshira.com or visit ASIA BRIEFING January and February 2013

9 Vietnam as a Manufacturing Base for Sales to China By Hoang Thu Huyen and My Nguyen, Dezan Shira & Associates One of the great enigma s concerning managers across Asia today is Vietnam s trade relationship with China, its massive northern neighbor with which it shares an 840-mile border. This is a timely question to examine, not least because Vietnam is one of Asia s Tiger Economies and, although it has suffered over the past three years like everyone else in the wake of the Global Financial Crisis, the country has proven remarkably resilient. The addition of an ASEAN-China free trade agreement in 2015 will likely mean that ASEAN, with Vietnam as a core member, will become China s largest trade partner that same year, with total trade worth some US$500 billion. To contrast the enormity of this figure, the entire United States sold just one-fifth of that in exports to China in Vietnam can easily link with China s supply chain infrastructure - there are already extensive rail connections between Hanoi, Kunming and Nanning, and the northern Hai Phong Port is undergoing substantial development. Yet Vietnam s relationship with China is both economic and political, and the manner in which these play out that will provide clues as to the true nature of the stresses and opportunities within the trade gap. Despite both countries being officially communist regimes, Vietnam has offered a cool hand to China, wary of getting too close due to the 1979 war and ongoing territorial disputes still fresh in many people s minds. While other Asian nations including nearby Myanmar and Cambodia have fully embraced China in the past in terms of economic assistance, Vietnam has remained and continues to remain aloof. That is not to say that bilateral trade between Vietnam and China is not booming, because it is, reaching US$35.7 billion last year. Yet Vietnam remains politically cautious towards China. Ongoing territorial disputes between the two in the South China Sea certainly are not helping the situation, and Vietnam has recently refused to endorse the new Chinese passports which depict the entirety of the contested territory as Chinese. This lack of trust over longer-term Chinese intentions has steered Vietnam to look in multiple directions north and east towards China, but also to the south and west towards Asia. Vietnam s trade with fellow ASEAN member countries is currently some US$27 billion and, unlike countries such as Cambodia, the country has been active in using ASEAN free trade agreements with other countries such as India, Japan and Australia to widen its economic base and lessen dependence upon trade with China. Of the ASEAN members, Singapore, Thailand and Malaysia are Vietnam s largest partners, while outside of the group trade is also growing significantly with India and Japan. Vietnam is spreading its trade wings further afield at least partly due to its belief that China has not always proven particularly sensitive to other nations within the region. Vietnam has past experience of being treated as a de facto vassal state, and until recently even Myanmar was treated in this manner through China s support of their military regime for many years. Yet even the hard-line Burmese generals began to feel enough was enough. Additionally, Vietnam, while communist, is still largely Buddhist in its beliefs, and quietly, the Dalai Lama is a respected figure among many Vietnamese. The typical Chinese rhetoric towards the Buddhist leader makes many Vietnamese uncomfortable. Meanwhile, while Cambodia is still close to China, it too is being wooed by President Obama, who visited shortly after his reelection. Such American moves fit in with Vietnam s China policy; trade is healthy, but Vietnam remains cautious in terms of the political ramifications of ASIA BRIEFING Asia Briefing Mobile Application gives you the ability to access our Asia Briefing, ASEAN Briefing, China Briefing, India Briefing and Vietnam Briefing portals from the convenience of your mobile device. Complimentary download available from Scan this QR code with your smartphone to download the Asia Briefing mobile application. January and February 2013 ASIA BRIEFING - 9

10 Vietnam as a Manufacturing Base for Sales to China The message is simple while China evolves to a consumer economy, the choice of locations to service that from the manufacturing perspective do not necessarily have to be based in China. Vietnam offers an alternative option well worth consideration, and the lead up to ASEAN integration and the additional free trade agreements expected by 2015 will begin to shine the spotlight on Vietnam with increasing brilliance. an overreliance on China s economy a necessary caution with a powerful neighbor that has been well-observed in Hanoi. Vietnam s policy of enlarging its multilateral trade space is also about to pay dividends. With the 2015 ASEAN free trade agreements with China, India, Japan, South Korea and Australasia coming into effect, the country is poised to offer a manufacturing base for many companies wishing to sell to the entire region. Wage increases in China are a matter of national policy, and although this is creating a much-needed and fast-growing consumer market, it is also having the effect of raising salary levels at an average rate of some 22 percent per year. While prices in Vietnam have also risen and its economy is not immune to inflationary shocks Vietnamese wages are about one-third of those seen in South China. FDI by Economic Activity (total registered capital, US$ million, accumulation of projects having effect by the end of 2011) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Manufacturing Real estate activities Accommodation and food service activities Construction Electricity, gas, stream and air conditioning supply Source: General Statistics Office of Vietnam This means that Vietnam is developing as an export-driven manufacturing base, just as China was in the late 1990s to mid-2000s. The free trade agreements coming into force mean that Vietnamesemade products (or those from anywhere else in ASEAN) will, for the most part, be able to be sold to the China market at zero tariffs. Add to that an array of free trade and bonded zones (just like China used to have) that minimize taxes on products assembled and then exported, plus commitments to improve the nation s ports (especially those at Haiphong and HCMC), the tax and operational infrastructure to push Vietnam forward as a credible manufacturing destination for China consumption is already taking place. Vietnam also offers a lower wage base compared to China, whose own labor costs are increasing at an average rate of 22 percent per annum. This trend has been duly noted, not least by American companies already extant in Vietnam. As Christopher Towmey, current Chairman of the American Chamber of Commerce in Hanoi mentioned in the Chamber s annual end of year 2012 Vietnam Business Forum address: AmCham cooperation with and support of Vietnam s government and business has led to a substantial increase in bilateral trade over the last twelve years: from only US$1.5 billion in 2001 when the BTA went into effect (December 2001); to US$9.7 billion in 2006 when Vietnam achieved WTO Accession and Permanent Normal Trade Relations with the U.S. (December 2006); to more than US$22 billion in Based on trade data for the first nine months of 2012, we expect that Vietnam-U.S. bilateral trade will have been US$24.5 billion in 2012, and will reach nearly US$50 billion by 2020, if present trends continue. For professional advice concerning investment into Vietnam, please contact Dezan Shira & Associates at vietnam@dezshira.com or visit For more business news, foreign investment legal, tax and operational intelligence about Vietnam. Daily news updates and quarterly business magazine. Annual subscription from US$30 includes free 173 page full color Vietnam business guide. To contact Dezan Shira & Associates in Vietnam, please investment enquiries to vietnam@dezshira.com Annual Compliance & Audit New Issue Out Now 10 - ASIA BRIEFING January and February 2013

11 INCLUDING A Look at China, India and Vietnam s Corporate Taxes Holding Company Destinations: Hong Kong and Singapore Individual Income/Personal Income/Salaries Tax Comparison Q&A: How does total tax rate (% profit) compare across these countries/regions? Scan this QR code with your smartphone to visit: Available in multiple languages Essays and Observations by Chris Devonshire-Ellis, Principal of Dezan Shira & Associates The Asia Briefing Asian Starter Kit Since 1999, Asia Briefing has been publishing business magazines and guides for foreign investors in Asia. Today, the Asia Briefing bookstore ( is home to several hundred business publications on China, India, Vietnam and other nations in emerging Asia. Asia Briefing ASIA BRIEFING From Dezan Shira & Associates The Asia Tax Comparator ASIA BRIEFING From Dezan Shira & Associates Moving from China to India, Vietnam and Emerging Asia Asia Briefing features the on-the-ground insights of professionals at Dezan Shira & Associates ( a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinational corporations investing in emerging Asia. Asia Briefing Magazine (6 issues/year) Essential Reading for all CFOs and CEOs Across Asia The 2013 Asia Tax Comparator Tax rates across Asia explained China Briefing Relocating From China To India & Vietnam Labor, land and relocation costs examined Award Winning Dezan Shira & Associates won the 2012 Innovative Firm of the Year award for its Asia Briefing publications from the Leading Edge Alliance, a leading network of over 180 global professional firms operating from more than 450 offices in 100 countries. Doing Business in China (150 page field guide) Relocating Or Expanding Your China Business China-International Related Party Transactions Magazines Our magazines contain practical, easy to understand, legal, financial and operational intelligence aimed at the corporate CEO, CFO, or on the ground manager in Asia. Annual subscriptions to each series are available, while Briefing websites contain daily regulatory updates and operational commentary. Business Guides Our business guides detail all aspects of conducting business in several Asian countries, ranging from comprehensive introductory titles Doing Business In to highly specialized technical topics such as tax and audit, incorporating a business (from representative and liaison offices to wholly foreign-owned factories and stores, to joint ventures and private-public partnerships), human resources and payroll, intellectual property, transfer pricing, mergers and acquisitions. Doing Business in India (150 page field guide) Doing Business in Vietnam (170 page field guide) India Briefing An Expatriate Managers Introduction To India Vietnam Briefing Human Resource Issues For Foreigners In Vietnam India Compliance For Foreign Invested Entities Vietnam s Provinces & Key Economic Zones

12 This Is Asia. Are You Prepared? Foreign Investment, Legal, Tax and Operational Advice across Asia Corporate Establishment Due Diligence Business Advisory Tax Planning Accounting Payroll Audit and Compliance us at or see our regional offices below: Beijing: Delhi: Dalian: Guangzhou: Hangzhou: Hanoi: Ho Chi Minh City: Hong Kong: Mumbai: Ningbo: Qingdao: Shanghai: Shenzhen: Singapore: Suzhou: Tianjin: Zhongshan: Scan this QR code with your smartphone to visit us at: China Hong Kong India Vietnam Singapore