Worldwide: Doing Business In ASEAN: Spotlight On Tax Rates

Last Updated: 30 October 2017
Article by TMF Group

Rankings show at least half of the Association of Southeast Asian Nations sit in the second half, or less complex, end of the financial complexity spectrum. Here's an overview of corporate tax rates in each country, and some of the other taxes you'll face when trading within ASEAN.

Two years on since its inception, the ASEAN Economic Community (AEC) is now an established fact, and investment opportunities within southeast Asia have never been greater. The AEC has reduced trade barriers, going some way to level the playing field among South East Asian nations and attract trade to the region as a whole. Taxation, however, was left out of the regional integration accords of the AEC, so member states are trying to use tax rates to differentiate themselves and ensure it is their country that gets the investment. Many AEC nations have been gradually reducing corporate tax rates in recent years.

And therein comes the complexity, despite greater economic cooperation within the region. Tax systems are one of the main drivers of complexity around Asia, according to TMF Group's inaugural Financial Complexity Index. The ranking of 94 jurisdictions across the world resulted in three top-10 spots for Asia Pacific: Vietnam ranked 5th most complex for compliance, followed by China at 7 and India at 10.

In determining the rankings with its in-house accounting and tax experts, TMF Group used four weighted complexity parameters, considering the accounting and tax rules and regulations in different jurisdictions, and risks associated with non-compliance.

While the Index focused on those countries with a TMF Group presence – meaning Laos PDR, Myanmar and Brunei were not included – it was still highlighted great differences in complexity in the region. For example, Vietnam ranked no. 5 in the list of least complex nations, yet the low rankings of Malaysia (59) and Singapore (83) show complexity is still a concern.

So how complex is it, really, to do business in the ASEAN region? Certainly, rankings show at least half of nations sit in the second half, or less complex, end of the TMF Group spectrum. Our ASEAN-based professionals look at the corporate tax rates in each country, and provide a glimpse of some of the other taxes to be aware of when trading within ASEAN. The following information has come direct from TMF Group's local experts in that country; follow the links to find out more about doing business in that nation.

Corporate tax rates in ASEAN

Indonesia has a flat rate of 25%, which was reduced from 28% in 2010 to make the country more competitive within ASEAN. Local corporate taxpayers with gross revenue up to IDR 50bn (around USD 3.7m) in one fiscal year are entitled to a 50% income tax rate reduction, or 12.5% on a proportional basis. In addition, local taxpayers that fulfil certain criteria and have a maximum gross revenue of IDR 4.8bn (around USD 360k) in one fiscal year can be subject to a 1% final income tax rate from their gross revenue amount.

That's not all the incentives for taxpayers in Indonesia. For example, there is also:

  1. A 5% corporate income tax rate reduction for listed companies, subject to fulfilling certain conditions
  2. Income tax incentives for pioneer industries
  3. Income tax incentives for specific industries and/or specific industries located in a specific region.

Malaysia's corporate tax rate has, in line with others in ASEAN, gradually reduced from 28% (YA2006) to 24% (YA2017), and the effective rate is even lower. This enables Malaysia to be more competitive in the global and regional corporate environment.

Further enticing trade to Malaysia, its offshore jurisdiction of Labuan has a corporate tax rate of 3% of audited net profit, or a flat rate of MYR 20,000 for trading activities. There is no corporate tax on investment holding activities.

The Philippines has also been gradually reducing its corporate tax rate, and it is now at 30% - but certain entities or businesses are entitled to income tax 'holidays' and/or lower income tax rates. For example, entities registered with relevant incentive-giving government agencies may be entitled to an income tax holiday of four years, or six years for pioneer enterprises.

There is also a preferential tax rate of 5% in lieu of all other national and local taxes - which qualified and duly-registered entities may take advantage of – or a minimum CIT of 2% of gross income payable when this is greater than the regular corporate income. This would apply on the fourth taxable year immediately following the corporation's start to business operations.

Tax in Singapore sits at a flat rate of 17% of taxable income. There is, however, a partial tax exemption, and a tax exemption scheme especially for new start-up companies.

Partial tax exemption

 Chargeable income   % exempt from tax   Amount exempt from tax 
 First S$10,000  @15%  = S$7,500
 Next S$290,000  @50%  = S$145,000
 Total S$300,000    = S$152,500

Tax exemption for new start-up companies in Singapore

Chargeable income % exempt from tax  Amount exempt from tax 
 First S$100,000 @100%  = S$100,000
 Next S$200,000 @50%
 = S$100,000
 Total S$300,000    = S$200,000

A CIT rebate of 20% on the corporate tax payable (subject to a cap of S$10,000) is given to all companies – including Registered Business Trusts, non-resident companies that are not subject to a final withholding tax, and companies that receive income taxed at a concessionary tax rate - to help them cope with rising business costs.

Thailand has also been reducing its corporate income tax, from 30% to 20% of net profits, though there are of course some exceptions:

  • Foundations and associations pay 2-10% of gross business income, depending on activity
  • International transport companies pay 3% of gross ticket receipts or gross freight charges; concessions are granted to airline or shipping companies resident in certain countries that have double tax treaties with Thailand
  • Small companies with a registered capital of not more than 5m Baht at the end of any accounting period are subject to step-up rates up to 20%, with 300,000 Baht in profit being tax exempt
  • A regional operating headquarters (ROH) company is permitted a tax exemption on income derived from foreign operations, and a concessionary tax rate of 10% on other qualifying net profits
  • An international headquarters (IHQ) company is exempt from tax on qualifying net profits deriving from a foreign associate company or branch, and is taxed at the rate of 10% on qualifying net profits derived from a Thai associate company or branch
  • An international trade centre (ITC) company is exempt from tax on qualifying net profits derived from the procurement and sales of goods abroad, provided that the goods are not imported into Thailand, and from services provided to foreign companies related to international trade
  • Foreign companies engaged in international transportation are subject to a 3% tax on gross receipts.

Finally, Vietnam – the least complex jurisdiction in ASEAN - has also been gradually reducing its corporate tax rate which now sits at 20%.

Enterprises operating in the oil and gas industry are subject to rates ranging from 32% to 50%, depending on the location and specific project conditions. Enterprises engaging in prospecting, exploration, and exploitation of mineral resources (eg. silver, gold, gemstones) are subject to rates of 40% or 50%, depending on the project's location. Enterprises established under the laws of Vietnam are taxed on worldwide income, with the 20% rate also applicable to foreign income. There are no provisions for tax incentives for such income.

Foreign organisations carrying out business in Vietnam without setting up a legal entity in Vietnam and/or having Vietnam-sourced income are considered foreign contractors, irrespective of whether the services are performed inside or outside Vietnam. Payments to foreign contractors are subject to Foreign Contractor Tax (FCT), which consists of VAT and CIT elements. Preferential CIT rates of 10%, 15%, and 17% are available where certain criteria are met.

But it's not just corporate tax to think about ...

Each country levies different taxes at different rates in other areas. Here is just a brief snapshot of some other taxes you can expect to encounter when trading in ASEAN.

  • Labuan has no GST (goods and sevices tax - the VAT equivalent) and is included in most of the double taxation treaties that Malaysia has signed with other countries.
  • Indonesia imposes VAT at the general rate of 10%. The country imposes a sales tax on luxury goods, stamp duty, land and building tax, and duty on acquisition of land and/or building rights, though it does also have double taxation agreements with a range of countries. It's worth noting that the Indonesian tax authority will require any tax treaty partner country to provide them with the valid DGT-1 Form or common Certificate of Residence issued by the counter-party's tax authority.
  • There are no additional taxes on corporate income in Malaysia, however other taxes and duties apply which are not imposed on Corporate Taxable Income/Profit but on 'specifics' incurred as part of the operation of a business, such as Government Sales Tax (GST) on services rendered, Real Property Gain Tax (RPGT) on gains derived from the disposal of real estate, Import Duties and/or Excise Duties on various imported items.
  • The Philippines has double taxation treaties with several countries, which provide preferential withholding tax rates on interest, dividends, royalties, capital gains and business profits. On a national level, other internal revenue taxes levied aside from income tax and VAT include estate and donor's taxes, percentage taxes, excise taxes and documentary stamp taxes. On a local government level there are business taxes, real property taxes and various permits and licenses imposed. There are also duties, taxes and other levies on importations.
  • In Singapore, properties are subject to tax and stamp duty; stamp duties may be due on the sale/transfer or mortgage of shares and betting.
  • Thailand levies petroleum income tax, duty stamp tax, excise tax and house and land tax, and a special business tax of 3.3% is imposed in lieu of VAT on some financial and property transactions.
  • Vietnam has a range of additional taxes, such as import and export duties, Capital Assignment Profits Tax, Natural Resources Tax, Property Taxes, Environment Protection Tax and other taxes.

Smart-source your compliance to the experts

All of this complexity, all of these differing rates and things to consider, can prove challenging when doing business in ASEAN – especially if you're trying to establish a new business, or begin operating in a new territory. Outsourcing your tax compliance to an expert partner can help you to keep on top of regulatory changes and help to ensure your compliance, wherever you operate.

TMF Group works with hundreds of clients across the region, and our experts remain on hand to provide guidance based on our many years of experience.

Read more about the Financial Complexity Index; download it here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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