Doing business in ASEAN A Legal & Tax Perspective Bangkok Bank 6 March 2015 0
Contents Overview Introduction ASEAN-an introduction Introduction to ASEAN ASEAN Overview ASEAN Free Trade Area ASEAN Investment protection ASEAN Economic Community 2015 AEC Overview Taxation Impact under AEC & Skill Labor Transfer Q&A 1
Overview 2
Evolution of Thai Investment 3
Popular Industries by Thai Investors 4
Investment Value By Thai Investors Source: Bank of Thailand 5
How We Are Responding ASEAN+2 Publications AEC Seminar REACH Magazine Internal News Update ASEAN+2 Website 6
Overview Introduction The ASEAN region has established itself as an economic powerhouse, with significant growth potential ti in the (near) future. The ASEAN members are moving towards free movement of goods, services, investment, skilled labor, capital and introducing a non-discrimination principle. The ASEAN Economic Community (AEC), a single market and production based, will be established on 31 December 2015. All with the aim to foster further economic growth and cross-border trade and investments. 7
ASEAN - an introduction 8
ASEAN - an introduction Introduction to ASEAN Established on 8 August 1967 in Bangkok, Thailand ASEAN Declaration (Bangkok Declaration) signed by the Founding Fathers of ASEAN (Indonesia, Malaysia, Philippines, Singapore and Thailand) Additional countries joined as follows: Brunei Darussalam: 7 January 1984 Vietnam: 28 July 1995 Lao PDR and Myanmar: 23 July 1997 Cambodia: 30 April 1999 9
ASEAN - an introduction ASEAN ASEAN cooperation Political cooperation Social cooperation Economic cooperation The ASEAN Charter was signed on 20 November 2007 and entered into force on 15 December 2008. It serves as a foundation in achieving the ASEAN Community by providing legal status and institutional framework for ASEAN. It also codifies ASEAN norms, rules and values; set clear targets for ASEAN; and presents accountability and compliance. 10
ASEAN - an introduction ASEAN community: 3 pillars Rules-based community of shared norms and values Cohesive, peaceful, stable, resilient region with shared responsibility for comprehensive security Dynamic and outwardlooking region in an increasingly integrated and interdependent world ASEAN Political- Security Community ASEAN Economic Community Single market and production base Competitive economic region development a region of equitable economic development Integration into global economy ASEAN Socio-Cultural Human development Social welfare and protection Social justice and rights Ensuring environmental sustainability Building an ASEAN identity 11
ASEAN - an introduction ASEAN Free Trade Area Intra-ASEAN economic integration process started with liberalization of trade in goods through the reduction and elimination of tariffs under the ASEAN Free Trade Agreement 1992 (AFTA) through the Common Effective Preferential Tariff (CEPT) plan whose aim was to achieve zero tariff for all products by 2010 for the ASEAN-6 countries and 2015 for the CLMV. 12
ASEAN - an introduction ASEAN investment protection The ASEAN investment protection agreement signed 15 December 1987, provides for: 1. liberalization of investment through the provision of national treatment (non-discriminatory treatment) to investors and investments of the other parties with regard to the right of establishment, acquisition, management, enjoyment and disposal of investments; and 2. obligation to provide fair and equitable treatment and restriction on expropriations The investment protection agreement has been reaffirmed by later agreements. 13
ASEAN - an introduction ASEAN investment protection Evolution of investment protection in ASEAN 14
ASEAN - an introduction ASEAN investment protection What does it mean? The ASEAN agreements on investment grant extensive rights to ASEAN companies, investing in other ASEAN countries. This means, i.e., that a ASEAN jurisdiction must apply the same rules to its resident companies and companies from other ASEAN jurisdictions (except for tax legislation): no discrimination is allowed! 15
ASEAN Economic Community 16
ASEAN Economic Community AEC Overview AEC ASEAN Economic Community The AEC Blueprint will transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy." - Declaration on the ASEAN Economic Community 17
ASEAN Economic Community Overview Key Characteristics Deepening and broaden economic integration in ASEAN from 2015 Free flow of goods Competition policy Free flow of services Consumer protection Free flow of investment Free flow of capital Free flow of skilled labour Single market and production base Competitive economic region Intellectual property rights Infrastructure development Taxation & E-commerce SME development Initiative for ASEAN Integration Region of equitable economic development Region fully integrated into the global economy Coherent approach towards external economic relations Enhanced participation in global supply networks 18
ASEAN Economic Community Single Market and Production Base Single Market and Production Base Five Core Elements = 5 Free flows in 2015 Free flow of goods Free flow of services Free flow of investments Free flow of capital Free flow of skilled labours Two Important Components 12 Priority Integration Sectors (agro-based products, air travel, automotives, e-asean, electronics, fisheries, healthcare, rubberbased products, textiles and apparels, tourism, wood-based products, logistics - ASEAN Framework Agreement for the Integration of Priority Sectors) Food, Agricultural and Forestry The AEC will extend non-discriminatory treatment, including national treatment and most-favoured nation treatment, to investors in ASEAN with limited exceptions. The AEC will provide enhanced protection to all investors and their investments to be covered under the comprehensive agreement. Through ASEAN Free Trade Area (AFTA), ASEAN has already achieved significant progress in the removal of tariffs. 19
ASEAN Economic Community Free flow of goods The ASEAN Free Trade Area (AFTA) already has introduced significant elimination of tariff barriers for intra-asean trade in goods AEC 2015 will additionally introduce elimination of quantity restrictions and non-tariff barriers. Only ASEAN s products that are directly consigned within the region will qualify for benefits of AFTA The ASEAN Free Trade Area (AFTA) has now been virtually established. ASEAN-6 : more than 99% of tariff lines have 0% tariff in 2010 CLMV will reduce tariff to 0% by 2015 20
ASEAN Economic Community Free flow of services 1. No restrictions on ASEAN services suppliers in providing services and in establishing companies across national borders in the region, subject to domestic regulations (priority sectors are air transport, e-asean, healthcare, tourism and logistic) 2. Eliminates restrictions to trade in services among ASEAN countries to improve the efficiency and competitiveness of ASEAN services suppliers 3. Recognition of professional qualifications by recognizing mutual recognition arrangements (MRAs) 4. Negotiation of some specific services sectors such as financial services and air transport are carried out by their respective Ministerial bodies Covered Service Sectors Business services Environmental services Professional services Healthcare Construction Maritime transport Financial sector Telecommunication Distribution Tourism Education 21
ASEAN Economic Community Free flow of services To increase foreign (ASEAN) equity participation schedule 2010-2013 2013-2013 2014-2015 At least 70% foreign equity participation for air transport, ICT, healthcare and tourism sectors (2010) At least 51% foreign equity At least 70% foreign equity participation for logistic participation for logistic services (2010) services (2013) At least 51% foreign equity participation for other services sectors (2010) At least 70 % foreign equity participation for all services sectors 22
ASEAN Economic Community Free flow of investment The intra-asean investment is governed by the ASEAN Comprehensive Investment Agreement (ACIA) and consists of 4 main pillars: liberalization, protection, facilitation and promotion AEC 2015: further progress: Objectives Enhancing ASEAN s competitiveness. Attracting foreign direct investment (FDI). Increasing intra-asean investment. Actions Extend non-discriminatory treatments: National treatment to investors from other members; Most-favoured nation treatment must be respected. Reduce and eliminate i restrictions ti to entry for investments. t Reduce and eliminate restrictive investment measures and other impediments including performance requirements. 23
ASEAN Economic Community Free flow of capital Strengthening ASEAN Capital Market Development and Integration Actions 1. Achieve greater harmonisation in capital market standards in ASEAN in the areas of, offering rules for debt securities, disclosure requirements and distribution rules 2. Facilitate mutual recognition arrangement or agreement for the cross recognition of qualification and education and experience of market professionals 3. Achieve greater flexibility in language and governing law requirements for securities issuance 4. Enhance withholding tax structure, where possible, to promote the broadening of investor base in ASEAN debt issuance and 5. Facilitate market driven efforts to establish exchange and debt market linkages, including cross border capital raising activities 24
ASEAN Economic Community Free flow of skilled labour Greater mobility of services Greater mobility of qualified service professionals in the region by accepting common standards d of professionals. There are mutual recognition arrangements (MRAs) for the following services: 1. Medical practitioners 2. Dental practitioners 3. Accountancy services 4. Engineering g services 5. Nursing services 6. Architectural services 7. Surveying qualifications 25
ASEAN Economic Community Actions to Achieve 5 Free Flows - Samples Goods Elimination of Tariffs, e.g. Eliminate import duties on all products except for the Sensitive and Highly Sensitive lists Action i. of Item 13, AEC Blueprint Elimination of non-tariff barriers Item 14, AEC Blueprint Rules of Origin - Item 15, AEC Blueprint Services No restriction to service suppliers in providing services and setting up a company across national borders, subject to domestic regulations Allow 70% equity participation in service business by 2015 Action v of Item 21, AEC Blueprint Not completely free, activities that may interfere national public safety still be subject to domestic legal restrictions. Engineering, nursing, architectural, surveying qualifications, tourism professional, accountancy services Investment Protection of transfer or repatriation of capital, profits, dividends, etc. Item 27, AEC Blueprint Harmonize investment policies Capital ASEAN Capital Market Development and Integration Facilitate t the flows of payments and transfer of current account transactions ti Item 32, Action i., AEC Blueprint Skilled Labors Facilitate issuance of visas and employment passes for ASEAN professional and skilled labors Item 33, Action i. AEC Blueprint To support the free flow of services 26
Taxation Impact under AEC 27
ASEAN Economic Community Taxation under AEC Taxation under AEC Apart from Free Flow of Goods (non-tariffs), AEC Blueprint only mentions about taxation in two parts Enhance withholding tax structure, where possible, to promote the broadening of investor base in ASEAN debt issuance - Item 31, Action iv., AEC Blueprint ASEAN member countries should complete the network of bilateral agreements on avoidance of double taxation among all member countries by 2010 - Item 58, AEC Blueprint Now Thailand has Double Taxation Agreement ( DTA ) with almost every ASEAN member countries, except Cambodia and Brunei. (DTA between Thailand and Cambodia is being negotiated.) In short, no single taxation regime for ASEAN member countries under AEC Blueprint. Remark Economic to be integrated t among ASEAN but taxation remains local Government needs to reform tax system to become competitive among ASEAN members Thailand s latest response: Corporate income tax rate reduction to 23% in 2013 and 20% in 2013-2015 2016? Opportunity: Tax Optimization Structure 28
Taxation Impact under AEC Taxation of Global and Regional Companies Key y elements in solid corporate p (profit) (p ) tax: Efficient financing Profit repatriation Companies are global or regional, but tax is local! Avoid taxation of capital gains Amortisation of intangibles Solid transfer pricing Risk control Follow the business Tax can drive shareholders value and add to competitiveness 29
Taxation Impact under AEC Global Tax Trend Corporate tax rates are going down But...the tax basis is being expanded Anti-abuse rules being introduced Transparency required Governments are becoming more aggressive New and high-growth markets are tough Substance required in tax planning 30
Taxation Impact under AEC Tax Comparison Doing business in ASEAN member countries Countries WHT on dividends Effective Tax rate CIT Rate (2014) Brunei Darussalam* 20-20 Cambodia* 20 14 31.2 Indonesia 25 15** 36.3 Lao PDR 24 10 31.6 Malaysia 25 0 25 Myanmar 25 0 25 Philippines 30 15 40.5 Singapore 17 0 17 Thailand 20 10 28 Vietnam 22*** 0 22 *No DTA with Thailand ***reduce the CIT rate to 22% from 1 Jan 2014,and 20% from 1Jan 2016 ** Apply DTA Rate (20% local rate) 31
Taxation Impact under AEC Business Trends and Taxation Changes in business models and supply chain This creates a tax opportunity, in addition to traditional planning Centralisation ti and optimisation i Global/regional trading Global financing Global key account management Central procurement and sourcing Central logistics Shared service centres Captive/group insurance 32
Taxation Impact under AEC Tax Planning-Effective Tax Rate Effective tax rate reduction Current effective tax rate One-off transactional (e.g. gain mitigation) rate Tax Mid-level reorganisations (e.g. holding company, intercompany leveraging) Business driven, structural tax planning (e.g. intangibles, R&D, trading, contract manufacturing, and refinery) Time 33
ASEAN Economic Community Summary of Transfer Pricing Requirements in AEC members Thailand Indonesia Philippines Singapore Malaysia Vietnam TP Required by practice and submitted upon request Statutory Statutory documentation ti requirement requirement Brunei, Myanmar, Cambodia and Laos Penalties a surcharge of 2% per month on 1.5% per month of late payment plus additional tax 50% surcharge if payable up to the an objection to an amount of tax due assessment is lost and possible penalties of up to 100%of additional tax payable N.A. TP disclosure with Tax No Yes No but the related-party No Return However, the Thai One of the transactions (Related Party tax officers send questions is must be Disclosure) the transfer pricing whether the contained in the questionnaire to taxpayer prepares Financial selected and maintains i Statements t t and taxpayers contemporaneous submitted with documentation income tax return 100%-200% of 35% of 10% of the tax under- declared additional tax payable shortfall amount plus late payment interest charges of 0.05% per day Yes - only the Yes amount of transactions with associated persons needs to be disclosed in the annual tax return forms APAs Available Available N.A. Available Available N.A. No specific transfer pricing rules/guidelines 34
ASEAN Economic Community Transfer Pricing Trends Single market and production base will create and support more cross border intercompany transactions Statutory requirement on transfer pricing documentation in the region Transfer Pricing i Trends Restructure of business model and supply chain management to maximize benefits to be received from AEC AEC may create AEC Joint Transfer Pricing Forum (similar to EU Joint Transfer Pricing Forum) 35
ASEAN Economic Community Capital and Investment Choices of fund raising Debts or equity? Interests or dividends? Key consideration Tax efficiency structure Tax on dividend received/ withholding tax Capital gain tax Interest deduction Tax treaty 36
ASEAN Economic Community Skilled Labor Transfer Transferring Aboard : Common Concerns Financial factors expenditures, taxes, duplicate cost at home location as well as at assignment location Compensation package Compliance obligations Liability for income tax / Tax policy Tax equalization policy - assignee continues to bear the same tax costs during an international assignment as would be incurred at the home location. Tax protection policy - assignee will never bear more tax during the international assignment than would have arisen at the home location What factors you need to consider? 37
ASEAN Economic Community Skilled Labor Transfer : Thailand taxation Thailand : Host country Inbound assignees Tax on Thailand sourced income regardless where income is paid. WHT obligation if income is borne by Thailand. No tax on foreign sourced income unless remitted into Thailand in the year of resident of Thailand Subject to Thailand social security Tax policy Thailand : Home country Outbound assignees Income is foreign sourced income if assignees do not work for Thai employer or business of Thai employer. Thai employer should not pay income and not contribute Thai social security for assignees while they are on foreign assignment. Tax policy Thai sourced income ( Section 41 of Thai RC) Income from an employment or work carried on in Thailand Income from business of an employer in Thailand Income from a property situate in Thailand 38
ASEAN Economic Community Taxation Impact Individual Tax Rates Comparison Countries Brunei * Cambodia* Indonesia Lao PDR Resident No individual income tax Graduated rates from 5% - 20% for income over KHR12.5 million Graduated rates from 5% - 30% for income over IDR 500 million Graduated rates 5% - 24% for income above LAK 40 million Malaysia Graduated rates from 1% - 26% for income over MYR 100,000 Myanmar Graduated rates from 5% - 25% for income over MMK 30 million Philippines Graduated rates from 5% - 32% for income over PHP 500,000 Singapore Graduated rates from 2% - 20% for income above SGD 320,000 Thailand Vietnam Graduated rates from 5% - 35% for income over THB 4 million Graduated rates from 5% - 35% for income above VND 960 million on employment income *No DTA with Thailand ** rates applicable for 2013/2014 39
ASEAN Economic Community Taxation Impact Individual Tax Rates Comparison Countries Non-resident Brunei * 0% Cambodia* 20% Indonesia 20% Lao PDR Same as resident Malaysia 26% Myanmar 35% Philippines 25% Singapore Thailand Vietnam 15% or resident tax rates, whichever is higher on employment income same as resident 20% on employment income *No DTA with Thailand ** Rates applicable 2014 40
ASEAN Economic Community Business Travelers or Short Stay Business Travelers Not assigned outside of home location Frequent business travel to work location (s) Company business expenses policies Costs typically borne in home location Issues Immigration Individual tax Permanent establishment Compliance obligations Double Taxation Agreements 41
ASEAN Economic Community Double Taxation Agreements (DTA ) Dependent Personal Services under DTAs with Thailand Countries No. of days in other State Income is not Income is not paid by a resident borne by PE in of other State other State Indonesia 183 within fiscal year Lao PDR 183 with in12 month-period * Malaysia 183 days in calendar year Services are performed for a resident of the first mentioned State. Myanmar 183 days in fiscal year Not borne by a resident of other State or PE Philippines 183 days in the calendar year (90 days in case of professional services) Singapore 183 days in the fiscal year Same as Malaysia Vietnam 183 days in the fiscal year 42
Detailed CV -Wirat Name Position Education and Qualifications Wirat Sirikajornkij (ว ร ตน ศ ร ขจรก จ) Partner(กรรมการบร หาร), Tax, KPMG Thailand, Myanmar, and Laos Bachelor of laws, Thammasat University, Bangkok Member and licensed lawyer of the Lawyers Council of Thailand under the Royal Patronage Experience Wirat has more than thirty years of extensive experience servicing multi-national and Thai clients in the areas of Thai income tax, value added tax, specific business tax, stamp duty and international tax, including corporate and commercial laws. Wirat has been providing tax and legal advice, notably in the areas of tax due diligence, tax structuring, mergers and acquisitions, group reorganisations, tax planning, tax dispute resolution, and corporate and commercial law issues. Wirat leads the mergers and acquisitions tax and legal practice in Thailand, Myanmar and Laos. Wirat was the lead partner in charge of tax and legal practice during the years 2003-2006. 2006. He has currently extended his responsibilities and roles as a senior relationship partner with major clients. He has extensive experience in investment structure to comply with local regulation and tax planning, specifically outbound investments for large Thai corporations. Wirat has been involved in the review of the tax assumptions adopted in the valuation model in respect of a many power projects across a range of industries, including gas power plants & pipelines, coal fired power plants as well as wind & solar energy plants. His clients are in a wide range of industries, including oil and gas, financial services, telecommunication, insurance, electronics, manufacturing, trading, energy, logistics, real estate and private equity and property funds. 43
Thank you Presentation by Wirat Sirikajornkij, Senior Tax Partner Email: wirat@kpmg.co.th th Office Tel: 02 677 2423 Mobile Tel:081 3733939
2015 KPMG Phoomchai Tax Ltd. A Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International). This information is intended as a general guide only. Tax law is complex and professional advice should be taken before acting on the information provided. 45