Trade War Incentive Schemes in ASEAN (ASEAN Briefing)

  • ASEAN members have issued a variety of incentives to attract investors affected by the US-China trade war.
  • These incentives come in the form of tax breaks as well as initiatives to improve the investment climate.
  • Investors should seek the help of registered advisors to better understand which incentives are beneficial for their business.

Governments across ASEAN have been unveiling an array of incentive packages to entice businesses affected by the US-China trade war.

Countries such as Thailand, the Philippines, Malaysia, and Indonesia have introduced tax breaks and initiatives to improve the ease of doing business whereas Vietnam, Singapore, and Cambodia have accelerated business reforms, such as executing free trade agreements (FTAs), and double taxation agreements (DTAs).

We consolidate and briefly discusses the development of each country’s incentives over the past year. The developments showcase how ASEAN members are distinguishing themselves from the fellow competition and what opportunities are available for investors looking elsewhere in Asia.

Thailand Plus

Thailand introduced a stimulus package called Thailand Plus that covers seven key points which include the introduction of new tax incentives and deductions.

Thailand already offers investors corporate income tax (CIT) exemptions through the Eastern Economic Corridor, but Thailand Plus allows companies to be eligible for further reductions if they invest at least 1 billion Bhat (US$32 million) and apply for the incentive before 2020.

Investors that are developing advanced technology, engaging in automation systems, or employ highly-skilled individuals in the fields of science, technology, engineering, and mathematics (STEM), can receive tax deductions of up to 200 percent.

Additionally, the government will amend the main law regulating foreign business activities to simplify the process of acquiring visas and work permits and to improve information sharing between the government and relevant state agencies.

Thailand will endeavor to expand its FTA network under Thailand Plus, reviving the Thailand-EU FTA and joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Moreover, special investment zones for companies from South Korea, Japan, China, and the US will be developed.

Foreign investors with a foothold in the country, especially in high-value manufacturing sectors like electronics, automotive, aerospace, and maintenance, repair, and overhaul (MRO) services, could benefit from this latest package.

The Philippines’ CITIRA, and legislative amendments

In September 2019, the Philippines introduced the Corporate Income Tax and Incentives Rationalization Act (CITIRA). CITIRA will gradually reduce CIT from 30 percent to 20 percent over a ten-year period as well as rationalize specific tax incentives. The current CIT of 30 percent is the highest in ASEAN.

The Act is the second phase of the government’s Comprehensive Tax Reform Package program and aims to increase foreign investment, stimulate job growth, and enable domestic small and medium-sized enterprises (SMEs) to be more regionally competitive.

Under CITIRA, the government will also develop new priority regions beyond the National Capital Region, Metro Manila. Investments outside this region could help the country develop its infrastructure and supply chains to compete more readily with other ASEAN countries.

To further encourage foreign investment, lawmakers amended two provisions of the Foreign Investment Act (FIA) of 1991.

The amendments include the removal of the ‘practice of professionals’ from the foreign investment negative list (FINL). This was done to attract more skilled foreign professionals. The other amendments aim to reduce the number of mandatory direct local hires by foreign investors from 50 to 15 and to allow foreign investors to have 100 percent ownership of SMEs.

The government also revized the Public Service Act and the Retail Trade Liberalization Act. The formerly opened utility sectors like telecommunications and transportation to foreign investors. The latter set the minimum paid-up capital at US$200 thousand for foreign businesses looking to invest in the country’s retail industry.

Malaysia’s budget, investment fast track

Malaysia’s 2020 budget focused on tax incentives and grants to attract investments from multinational companies, particularly from China.

The target of the incentives is Fortune 500 companies dealing with high-end technology, manufacturing, or value-added industries. Qualifying companies will need to invest at least 5 billion Ringgits (US$1.1 billion) into Malaysia. In return, the government will make available 1 billion Ringgits (US$238 million) in incentives over five years.

Moreover, Malaysia will establish a specific channel to cater to Chinese investors and has set up a panel to fast-track investments for US and Chinese businesses looking to move operations out of China.

A ten-year tax exemption is being instituted for investors in the electronics and electrical industry, particularly investors in select knowledge-based services.

Additionally, the budget provides a grant to develop the digital economy. The goal is to advance the industry through the introduction of new technology, re-training of the local workforce, and the development of new electronics and electrical subsectors. Incentives are also available for businesses to implement automation into their practices.

Indonesia’s tax incentives

Indonesia introduced GR 45/2019, laying out a host of tax incentives for businesses that invest in labour-intensive industries, training programs, and research and development (R&D).

The regulation expanded on the previous legislation’s criteria regarding taxpayers eligible to receive tax incentives irrespective of industry. The move aims to garner further foreign investment, expand the skilled labor base, and advance diverse industries.

GR 45/2019 can be particularly advantageous for foreign companies looking to establish a manufacturing base in Indonesia for areas such as textiles, commodities, and services.

Taxpayers that engage in R&D initiatives can receive a tax facility of 300 percent in gross income reduction of total costs incurred. This incentive is designed to encourage more companies to generate innovation and shift to more high technology industries and products.

Indonesia is preparing another incentive for 2021 in the form of reducing its CIT rate from 25 percent to 20 percent.

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ASEAN Briefing

21 November 2019


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