Investing in Asia Pacific 2013
Australia | China | Hong Kong | India | Indonesia | Japan | Korea | Malaysia | Maldives | Singapore | Taiwan | Thailand | Vietnam
Audit | Tax | Advisory
All lasting business is built on friendship.
Alfred A. Montapert
TABLE OF CONTENTS
5
Introduction
7
About Crowe Horwath International
8
Australia
15
China
24
Hong Kong
32
India
38
Indonesia
48
Japan
57
Korea
63
Malaysia
69
Singapore
79
Taiwan
87
Thailand
97
Vietnam
Investing in Asia Pacific
with Crowe Horwath International
INTRODUCTION
Welcome to the Crowe Horwath International “Investing in Asia Pacific
2013” guidebook.
With this guide, we are providing a one-stop easy reference for those
interested in investing in Asia Pacific 2013. At the same time, we hope
that this compilation will help you to do a quick comparison as well as
pick up salient information about investing in each country. While it is
not exhaustive, it aims to answer some of the key questions that may
arise. When specific issues arise in practice, it will often be necessary
to consider the relevant laws and regulations and to obtain appropriate
professional advice.
The guidebook will cover five main topics as follows:
Establishing the business entity
Tax information
IPO quick facts
Human resource requirements
Withdrawal procedures
Business is in itself a power.
Garet Garrett
ABOUT CROWE HORWATH
INTERNATIONAL
Crowe Horwath International is ranked among the top 10 global
accounting networks with more than 150 independent accounting and
advisory services firms in over 100 countries around the world. Crowe
Horwath International’s member firms are committed to impeccable
quality service, highly integrated service delivery processes and a
common set of core values that guide decisions daily.
Each firm is well-established as a leader in its national business
community and is staffed by nationals, thereby providing a knowledge
of local laws and customs which is important to clients undertaking
new ventures or expanding into other countries. Crowe Horwath
International member firms are known for their personal service to
privately and publicly held businesses in all sectors and have built an
international reputation in the areas of audit, tax and advisory
services.
AUSTRALIA
Establishing the business entity
Contact
Roger Penman
TAX PRINCIPAL
roger.penman@
crowehorwath.com.au
+61 4 1399 4130
or
+61 2 9619 1693
Sam Neale
Tax Associate Principal
sam.neale@
crowehorwath.com.au
+61 4 4758 9076
or
+61 2 9619 1963
Tel 1300 856 065
info@crowehorwath.com.au
1. Formation and costs
Company
■■ Company can be set up within 24 hours with the Australian Securities and Investments
Commission (ASIC) for around A$ 1,500.
■■ Taxation Registrations including Australian Business Number (ABN), Tax File Number (TFN), Goods
and Services Tax (GST) and Fringe Benefits Tax (FBT) required. May take between 10 to 28 days.
■■ Cost A$ 400 – A$ 750.
Branch
■■ Register with ASIC as a foreign company carrying on business in Australia.
■■ Taxation Registrations including ABN, TFN, GST and FBT required. Due to complex identity
check processes, whole process can take one (1) to two (2) months.
■■ Cost between A$ 2,000 to A$ 3,000.
Representative Office
■■ Assuming this is for set up of payroll only with no fixed branded office and no tax Permanent
Establishment and no business carried on according to Corporations Act.
■■ Taxation Registration required to obtain ABN or Pay As You Go (PAYG) withholding number.
■■ Due to complex identity check processes, whole process can take 1 to 2 months.
■■ Cost between A$ 2,000 to A$ 3,000.
2. Investment incentives
Company
a. Research & Development (R&D) incentives (AusIndustry, self assessed application)
b. Film tax incentives (ATO, Screen Australia).
c. Export Market Development Grant (AusIndustry) and Export Finance and Insurance
Corporation assistance.
n For all incentives need to pre-register and detailed information is needed for claim.
Branch
a. Research & Development (R&D) incentives (AusIndustry, self assessed application).
b. Film tax incentives (ATO, Screen Australia)
n For all incentives need to pre-register and detailed information is needed for claim.
3. Foreign ownership restrictions
Company
No limit on % of foreign ownership.
Branch
No limit on % of foreign ownership.
Representative Office
No limit on % of foreign ownership.
4. Work permits and visas
Company
Temporary work visas take around three (3) to four (4) months. In most cases, sponsorship by
employer requires significant documentation and security requirements. Further information can be
obtained from our recommended migration agent or lawyer.
Branch
Temporary work visas take around three (3) to four (4) months. In most cases, sponsorship by
employer requires significant documentation and security requirements. Further information can be
obtained from our recommended Migration agent or lawyer.
08
Representative Office
Temporary work visas take around three (3) to four (4) months. In most cases, sponsorship by
employer requires significant documentation and security requirements. Further information can be
obtained from our recommended Migration agent or lawyer.
Crowe Horwath International
Investing in Asia Pacific 2013
5. Accounting standards and audit requirements
Company
Accounting standards used in Australia are IFRS-compliant. Lodgment of audited financial
statements is required for wholly foreign owned subsidiaries and companies considered “large”.
AUSTRALIA
Company is considered large if two(2) of the following tests are satisfied:
a. > A$ 25 million turnover
b. > A$ 12.5 million assets
c. >50 employees
Some limited exemptions may be available from audit and lodgment of financial statements.
Branch
Accounting standards used in Australia are IFRS-compliant. Lodgment of audited consolidated
foreign financial statements (or local branch financial statements) is required where branch is
registered with ASIC as a foreign company.
Representative Office
Not registered with corporate authority as not carrying on a business per Corporations law.
6. Residential directors/promoters requirements
Company
At least one (1) resident director required.
Branch
At least one (1) local agent required.
7. Foreign ownership over tangible assets
Company
Foreign Investment Review Board (FIRB) reviews asset acquisitions above minimum acquisition
costs and in certain industries including mining and real property. Approval from the board may be
required before acquisition can be effected.
Branch
FIRB reviews asset acquisitions above minimum acquisition cost and in certain industries
including mining and real property. Approval from the board may be required before acquisition
can be effected.
8. Country quirks
Branch
Complexity in tax registration due to requirements to certify/verify of ID documents for all
directors.
Tax information
1. Tax rates on corporate income
30%.
2. Other taxes
GST
10% – but the supply of basic food, medical and health services, education, childcare, the export
of goods and religious and charitable activities is GST free.
Value Added Tax (VAT)
GST is a form of VAT.
PAYG
PAYG tax must be withheld from wages and salaries paid to employees and remitted to the ATO
at rates published by the Commissioner of Taxation.
FBT
FBT is imposed on benefits provided to employees in respect of employment generally at the rate
of 46.5%.
Payroll tax
Payroll tax is implemented at differing rates and thresholds by the eight states and territories.
Rates vary between 4.75% and 6.85% of salaries and wages paid including payments to some
contractors.
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Crowe Horwath International
Investing in Asia Pacific 2013
AUSTRALIA
Stamp duty
Stamp duty (a capital transfer tax) is imposed at differing rates and thresholds by the eight
states and territories. Stamp duty is generally imposed on the transfer of specified items of
dutiable property including land and some intangibles. Rates are usually expressed as a specific
percentage up to 5.5%.
Land tax
Land tax is imposed annually on land holdings at differing rates and thresholds by the eight states
and territories. Rates vary between 0% and 3.7%.
3. Branch income
While there is no Branch profits tax, Australian branch income is taxed on the same basis and at
the same company tax rate as Australian resident company income. Under the business profits
article of most of Australia’s double tax treaties, the profit of the branch of an overseas enterprise
will be taxable in Australia if the branch carries on a business in Australia through a permanent
establishment and only to the extent that profits are attributable to the permanent establishment.
4. Income determination
Generally businesses are assessed on an accruals basis. A taxpayer may adopt the lowest of the
cost, market value or replacement value in valuing trading stock (regardless of the value adopted
for accounting purposes).
Capital assets acquired after 19 September 1985 are subject to tax. However it is not a separate
tax as gains are taxed at the individual or company rate. Individuals may be eligible for a 50%
discount as are trusts provided the gain is distributed to individuals. The tax on capital gains
applies to worldwide assets held by resident individuals. Non-residents may not be taxed on
certain capital gains (see item 10 below).
Australia operates under an imputation system in respect of dividends paid by corporations.
Shareholders that receive a dividend from a company are entitled to an offset for the tax paid by
the company. In the case of individuals this can either reduce the total tax paid by the individual
or result in a cash refund for any excess. A company credits its franking account when it pays
corporate tax or receives a franked dividend. Similarly it debits its franking account when it franks
a dividend or receives a tax refund.
Tax is paid on worldwide income derived by Australian residents. Under Australia’s controlled
foreign company regime, foreign entities controlled by Australian residents pay tax in Australia on
an accruals basis, generally only on certain passive income.
5. Deductions
Taxpayers are allowed deductions against income for expenses connected with the production of
assessable income (normal business expenses), however expenses of a capital or private nature
may not be deducted. Interest is generally deductible to the extent that the sum borrowed is used
for the production of assessable income. The deductability of interest may also be restricted under
Australia’s Thin capitalisation regime where certain debt to equity ratios are exceeded.
For purchases of plant, machinery and equipment, the cost may be deducted over the effective
life of the item. Accelerated depreciation is provided for some small businesses (generally
turnover less than A$ 2 million) and some farming and mining expenditure.
Tax losses may be offset against all income from current accounting period or carried forward
indefinitely for utilisation against future assessable income. Companies that change more than
50% of their underlying ownership may however lose these carried forward losses unless they
can demonstrate that they are continuing to carry on the same business that incurred the loss.
The deductability of interest may also be restricted under Australia’s Thin capitalisation regime
where certain debt to equity ratios are exceeded.
6. Group taxation policies
Under the tax consolidation rules, wholly owned Australian resident group companies can elect
to be treated as a single entity for Australian tax purposes. The head company acts as a single
representative of the group and is able to lodge company tax returns on behalf of the entire group.
Once a group is consolidated, all intra-group transactions, such as payments of dividends and
asset transfers are ignored for tax purposes. Subject to some conditions, losses of subsidiaries
may be transferred to the head company.
10
7. Tax incentives
The Australian tax system provides tax incentives in the form of tax deductions related to
capital invested in domestic manufacturing and scientific research operations. Assistance
includes reduced rates of payroll tax, low cost industrial land, low interest loans and government
guarantees. In addition, grants and rebates are available for export market development.
Crowe Horwath International
Investing in Asia Pacific 2013
From 1 July 2011, qualifying research and development expenditure attracts a 45% refundable
R&D tax offset for companies with a turnover of less than A$ 20m and a non-refundable 40% R&D
tax offset for other companies. The R&D tax offset is now available for companies that undertake
R&D activities on behalf of a related foreign company. Also, under the new rules up to 50% of the
Australian core activities may be undertaken overseas if certain conditions are met and approval
is obtained from the Australian government through AusIndustry.
AUSTRALIA
Investments in the Australian film industry may also qualify for concessional Australian tax
treatment.
8. Withholding tax
Paid to non-treaty country
Unfranked Dividends
Franked Dividends
Bank interest
Other interest
Royalties
Technical fee
Branch profits (see above)
30%
0%
10%
10%
30%
0-30%
0%
Paid to treaty country
0-30%
0%
0-10%
10%
5-30%
0-30%
0%
9. Tax administration
The federal income tax system is administered by the ATO, which is headed by the Commissioner
of Taxation. The states and territories have their own Offices of State Revenue which administer
the various state taxes.
The federal tax system operates under a system of self assessment. Under this system, income
tax return forms which are required to be lodged with the ATO provide only limited information.
However, taxpayers are required to retain records in relation to transactions relevant to the
calculation of their taxable income.
The Commissioner of Taxation carries out tax audits on a random or specific basis, which can
cover all transactions over a number of years. Administration of the various state taxes involves
liable entities being required to register (e.g. Payroll tax and Land tax) or payment of the relevant
duty when a particular document is stamped.
10. Taxable incomes for non-resident companies and individuals
Non-residents are liable to Australian tax on all items of income and some capital gains which
have a source in Australia. Non-residents are exempt from Australian tax on foreign source
income. However, a special regime applies in determining a non-resident’s liability to Capital
Gains Tax (CGT). In relation to ordinary income, individual non-residents generally pay tax at a
higher rate than their resident counterparts and are excluded from claiming personal tax offsets.
Non-resident companies are taxed at the same rates of tax as resident companies but are treated
differently on important aspects such as dividend imputation, tax consolidation and CGT.
For individuals, taxpayers qualifying as “temporary residents” are also treated in a concessional
way.
IPO quick facts
1. Bourses in the country
a. Australian Securities Exchange (ASX).
b. National Stock Exchange (NSX).
2. Admission requirements (excluding investment entities and pooled development funds)
Australia Securities Exchange (ASX)
a. Company size
i. Aggregated net profit from continuing operations of at least A$ 1 million. Over the past 3
years and at least A$ 400,000 over the past 12 months.
ii. Net tangible assets of at least A$ 3 million or a market capitalisation of at least A$ 10 million.
iii.Less than half of the total tangible assets must be cash or in a form readily convertible to
cash, or if greater, the entity must have commitments consistent with its business objectives.
iv.sufficient working capital (generally) at least A$ 1.5 million).
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Crowe Horwath International
Investing in Asia Pacific 2013
AUSTRALIA
b. Public shareholding requirement
i. Minimum 400 investors at A$ 2,000 or
ii.Minimum 350 investors at A$ 2,000 and at least 25% held by unrelated parties, or
iii. Minimum 300 investors at A$ 2,000 and at least 50% held by unrelated parties.
c. Qualitative requirements
No specific qualitative factors, but consideration must be made as to whether the investment
community will view the company as attractive and give appropriate support.
National Stock Exchange of Australia (NSX)
a. Company size
Minimum market capitalisation of A$ 500,000.
b. Public shareholding requirement
Minimum 50 shareholders at A$ 2,000 of which 25% in non-directors hands.
3.Typical issuance size
■■ Australian Securities Exchange (ASX): Minimum generally of A$ 100,000 but average is
significantly higher.
■■ National Stock Exchange of Australia (NSX): No real guide.
4. Moratorium imposed
Depends on the type of listing and shareholder spread but can be up to two (2) years.
5. Securities quoted allowed in foreign currency
No.
6. Requirements for the appointment of a resident/local director and board composition
■■ All companies must have a Director and Secretary that reside in Australia.
■■ A listed company must have at least three (3) company directors with at least two (2) residing
in Australia.
■■ Best practice and Corporate governance look for boards to have a certain number of
independent non-executive directors.
7. Restrictions for foreigners
Certain takeover transactions may require Foreign Investment Review Board approval.
8. Methods of offer and restrictions
Contact Sydney office for details.
9. Timeline
Generally three (3) months.
10. Approving authorities
ASIC and relevant stock exchange.
11. Estimated cost involved
This varies across different size companies. It includes:
a. Listing fees
b. Brokers and Underwriting fees
c. Legal fees
d. Accounting fees
12. Restriction on secondary listing or dual listing
Available in limited circumstances.
13. Language required for:
a. Prospectus: English
b. Annual reports: English
c. Audit report: English
14. Audit opinion required for
a. IPO
An Investigating Accountant’s Report is required for inclusion in the prospectus.
b. After IPO
A full audit under Australian Audit Standards (which are fully compliant with ISAs) is required
for each Annual Report. In addition, a review of the interim financial statements is required
after 6 months of each financial year and continuous disclosure rules also apply.
15. Requirements of accounting auditors to be appointed
Only Australian Registered Company Auditors may sign audit reports.
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Crowe Horwath International
Investing in Asia Pacific 2013
Human resource requirements
AUSTRALIA
1. Special labour standards to take heed of
From 1 January 2010, employers and employees in the national workplace system are covered
by the National Employment Standards (NES). Under the NES, employees have certain minimum
conditions. Together with pay rates in modern awards (which also generally take effect from
1 January 2010) and minimum wage orders, the NES makes up the safety net that cannot be
altered to the disadvantage of the employee. The NES include minimum entitlements to leave,
public holidays, notice of termination and redundancy pay. In addition to the NES, generally an
employee’s terms and conditions of employment can come from a modern award, agreement,
pre-modern award and state or federal laws.
2. Social welfare: insurance, pension, etc
Australia has a non-contributory welfare system; benefits are flat rate rather than earnings related.
We also apply a much tighter means test than many other countries. In Australia the age pension
is only available to those on low incomes. Some companies have a system whereby employees
are eligible to become a member of a National Income Protection Plan. This Income Protection
Insurance is designed to pay employees a regular monthly income should they be unable to work
due to illness or injury.
Superannuation is a retirement (including pensions) program in Australia. It has a compulsory
element whereby employers are required by law to pay an additional amount based on a
proportion of an employee’s salaries and wages (currently 9%) into a complying superannuation
fund. From 1 July 2013 the rate will be increased to 9.25%.
3. Requirements for retirement benefits
The traditional retirement age in Australia is 65 years of age. However, employers do not have
to retire employees once they reach 65, and are free to continue to employ them as long as they
wish. Some people with private pensions are already able to retire from the age of 55. Australians
are still able to contribute to their pension beyond being 65 years of age. They can make
contributions and receive tax relief up to their 75th birthday.
4. Legal annual leave and public holidays
Australian Employees are entitled to either 20 or 25 days annual leave for each year of
service, dependent upon their job position. Unless otherwise provided by the Fair Work Act, the
Employee’s entitlement to annual leave accrues progressively during each year of service on a
pro-rata basis and accumulates from year to year. Subject to the Fair Work Act, the Employer and
the Employee may from time to time (as from 1 January 2010) agree in writing that the Employee
may take an additional period of annual leave, in exchange for foregoing an equivalent amount
of pay. Subject to the Fair Work Act, the Employer and Employee may from time to time (as from
1 January 2010), agree in writing that the Employee may cash out an amount of accrued annual
leave, provided that the Employee shall retain at least four (4) weeks accrued annual leave after
cashing in any annual leave. In such circumstances the Employee will be paid the full amount
that would have been payable had the Employee taken that amount of accrued annual leave
foregone. The Employer may, where it is reasonable to do so, direct the Employee to take a
period of annual leave.
5. Brief information on labour unions
The Australian Council of Trade Unions (ACTU) was established in 1927 with the purpose of lifting
the living standards and quality of working life of all working people in Australia. Their strategy
was to build union organisation of the workforce on a national basis. They still are in operation
today and deal with issues around wage increases through the award system and campaigns in
the field, safer workplaces, equality for women, working hours, entitlements to paid holidays and
employment conditions, as well as superannuation.
Withdrawal procedures
1. Company: legal procedures required for liquidation
For a solvent company the directors can place the company into members voluntary liquidation,
whereby the Shareholders appoint a liquidator who takes control of the company, discharges its
liabilities and distributes any surplus to the shareholders.
Alternatively, any company with assets of less than A$ 1,000 and no liabilities may be
deregistered with ASIC. This process is simple, but provides less protection for the Shareholders.
Where company is insolvent then the directors must appoint a liquidator as soon as they are
aware the comp trading whilst insolvent or they can be personally liable for debts. This process is
more complex and requires specialist practitioners to undertake this work.
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Investing in Asia Pacific 2013
AUSTRALIA
2. Company: tax requirements
When a Company withdraws from Australia there are several taxation requirements that must
addressed:
■■ To notify the ATO of the Company’s withdrawal from Australia a final income tax return must
be lodged. The final income tax return is for the period ending on the date in which the
Company ceased trading in Australia. In this return the ATO is notified that the Company has
ceased trading and that no further income tax returns are necessary.
■■ If the Company is registered for GST and/or PAYG Withholding it will be required to cancel
these registrations on the date it ceases trading. A final Business Activity Statement is then
required to be lodged to this date, following which the GST and PAYG Withholding
registrations will be cancelled. The ABN of the Company can also be cancelled at this time.
■■ The Company must notify any relevant State Taxation Authorities of its withdrawal so as to
cancel any Payroll Tax Registrations.
3. Branch: legal procedures required for closing branch
When a Company withdraws from Australia there are several taxation requirements that must
addressed:
A Foreign Company carrying on business in Australia must register the branch with ASIC.
Upon cessation of business in Australia the Branch must notify ASIC within 7 days by lodging
Form 407: Notification of cessation, winding up or dissolution of a foreign company or registered
Australian body. This will cancel the Australian Registered Body Number (“ARBN”).
In addition to the above statutory requirements, other commercial considerations for the cessation
of a Branch include (where applicable):
■■ Termination of lease and rental agreements
■■ Payout of employee entitlements
■■ Closure of banking facilities
4. Branch: tax requirements
A Branch is generally required to fulfill the same taxation obligations as a Company; accordingly
the withdrawal process for tax purposes is similar to that of a Company.
The Branch must:
■■ Notify the ATO of its withdrawal from Australia and lodge a final income tax return to the date
of cessation.
■■ Prepare and lodge a final Business Activity Statement to the date of cessation, following
which the GST and PAYG Withholding registrations will be cancelled. The ABN of the Branch
is also required to be cancelled.
■■ Notify the relevant State Authorities that the Branch has ceased trading so as to cancel any
payroll tax registrations.
5. Representative office: legal procedures required for closing office
A Foreign Company with a representative office in Australia must register with ASIC.
Upon cessation of the representative office in Australia it must notify ASIC within 7 days by
lodging Form 407: Notification of cessation, winding up or dissolution of a foreign company or
registered Australian body. This will cancel the ARBN.
6. Representative office: any tax requirements
A representative office generally does not have any tax obligations in Australia. Accordingly, the
closure of the office will have no tax implications or requirements.
It is important however to ensure that the representative office is not treated as a branch for
Australian tax purposes.
14
CHINA
Establishing the business entity
1. Formation and costs
Company
For Foreign-invested limited liability company, the minimum registered capital is no less than CNY
30,000, or the equivalent foreign currency; For Wholly Foreign Owned Enterprise (WOFE), the
registered capital is no less than CNY 100,000 or equivalent foreign currency; For foreign-invested
joint stock limited company, the minimum registered capital is no less than CNY 5 million.
The set up process usually takes three (3) – four (4) months or longer.
Contact
Kaylee Yang
INTERNATIONAL
LIASON OFFICER
Kaylee.yang@chcncpa.com
+86 15811137928
Chinese government requires once per year inspection for WOFE.
Branch
In establishing a branch, a foreign company shall file an application with the Chinese department in
charge and submit its articles of association, registration certificate issued by the country of register
and other related documents. After the approval is given, the branch of the company shall go
through the registration procedures according to law and obtain business license. The procedures
for the examination and approval of branches of foreign companies are formulated separately by the
State Council.
In establishing a branch in China, a foreign company shall appoint a representative or agent in
charge of the branch in China and appropriate the necessary funds compatible with the operations
of the branch. When it is necessary to set a minimum for the operation fund for a branch of a foreign
company, it shall be provided for separately by the State Council.
Representative Office
The resident representative office of foreign enterprises and those foreign invested corporation
without a business license do not require the annual inspection.
2. Investment incentives
Company
Tax incentives for R&D centers of foreign investment;
Duty-free for the imported equipment for foreign invested enterprises;
MNCs are encouraged to set up their regional headquarters in Beijing.
3. Foreign ownership restrictions
Company
Currently the approved trades for foreign investment are: production-oriented enterprises that are in
compliance with environmental regulations; High-tech enterprises which improve China’s
productivity; Qualified financial institutions; insurance companies; IT companies; Investment
consultancies; software developer; trading companies; consulting companies and so on.
Referring to the <Foreign Investment Industrial Guidance Catalogue (2011)>, any business activity
that do not belong to the prohibited zone for foreign investment in the article can be operated.
Within a joint venture’s registered capital, the foreign partner’s investment ratio is generally no less
than 25%.
Representative Office
1. The foreign rep office shall not be engaged in profit-making activities.
2. However the foreign rep office can be engaged in business with foreign enterprises in the
following activities:
a. Marketing research, display, and promoting activities that is related to the products or services
of foreign enterprises.
b. Foreign enterprises’ sales, service delivery, domestic purchasing and investing related liaison
activities.
3. There is no permission to import and export; ie the foreign rep office cannot be engaged in any
import and export activities.
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Investing in Asia Pacific 2013
CHINA
4. Work permits and visas
Company
Foreigners who work in China must hold a valid Chinese visa. It is generally a Z type visa (12
months valid period) and can be extended in China after the expiration.
Branch
Foreigners who work in China must hold a valid Chinese visa. It is generally a Z type visa (12
months valid period) and can be extended in China after the expiration.
Representative Office
Foreigners who work in China must hold a valid Chinese visa. It is generally a Z type visa (12
months valid period) and can be extended in China after the expiration.
5. Accounting standards and audit requirements
Company
Converged into IFRS since 2005. Please kindly refer China National Audit Standards.
Branch
Converged into IFRS since 2005. Please kindly refer China National Audit Standards.
Representative Office
Converged into IFRS since 2005. Please kindly refer China National Audit Standards.
6. Residential directors/promoters requirements
Company
WOFE’s board of directors should comprise 3 to 13 people, including a Chairman and a
Vice-chairman. For smaller size WOFE, there is no need to set up a board of directors but an
executive director is allowed and this executive director can also be the GM of the company.
The highest authority in a sino-foreign JV is the board of directors. The board should comprise of
no less than 3 persons. The distribution of directors shall be in accordance to the investment
proportion by the JV parties.
Branch
Though a foreign company is a legal person of the said foreign country, its branch in China shall not
enjoy the status of a legal person in China. A foreign company shall bear the civil responsibility for
the operational activities of its branch in China.
Representative Office
1. Foreign companies should appoint a chief representative (CR). CR can sign registration
documents for the company on behalf of the Rep office’s foreign parent company, within the
writing scope of attorney letter issued by the parent company.
2. If the CR is a Chinese citizen, than a dispatch letter issued by the Foreign Affairs Service unit
should be submitted.
3. The total number of employees including the CR should be no more than four (4).
7. Foreign ownership over tangible assets
Company
For land usage of foreign companies, it can be arranged after reviewing by the foreign company’s
local authority (at county level or above) according to the region’s situation.
8. Country quirks
Representative Office
In China, the maximum duration approved for a Rep office is three years (five years for insurance
companies and six years for banks). The duration date is calculated from the date on which the
approval document is issued by the authority. If the Rep office wishes to continue its operations
after the expiry of the registration certificate, it must renew its registration by submitting an annual
report of its business operations and the application for renewal is 30 days prior to the expiry of the
existing registration certificate.
Tax information
16
1. Tax rates on corporate income
Generally is 25%. However there is a number of tax incentives:
1. Reduction in taxable income
Income for resource utilization enterprises.
2. Additional deductions
New tech, new products, and new process development costs can be deducted by 1.5.
Settle wages for disabled person can be deducted by 2.
Crowe Horwath International
Investing in Asia Pacific 2013
CHINA
3. Income tax reductions
For companies engaged in agriculture, infrastructure construction, environmental protection,
energy saving and water saving.
4. Tax reliefs
For high-tech companies, the income tax rate is 15%.
For software companies, the income tax for the first three (3) profitable years is exempted
and for the next three (3) years is half of the original rate.
2. Other taxes
Good and Services Tax (GST)
Parties providing or receiving services in China need to pay tax; transfer or rent fixed assets and
intangible assets in China are required to pay tax.
Taxable activities 1. Transport and logistics
2. Construction
3. Finance and insurance 4. Culture and sports
5. Entertainment 6. Service 7. Transfer of intangible assets
8. Sales of fixed assets Income Tax Rate 3% 3% 5%
3% 5%-20% 5% 5% 5% Value Added Tax (VAT)
The VAT rates levied on general taxpayers are:
Services 1. Selling or importing goods
2. Processing, repair and replacement
3. Selling or importing certain goods (grain, vegetable oil,
gas, books, feed, fertilizer, pesticides etc.)
Rate of VAT 17%
17%
13%
A pilot scheme of switching from business tax (BT) to VAT has been launched targeting the
transportation industry and certain modern service sectors in twelve provinces and cities – Shanghai
City, Beijing City, Tianjin City, Ningbo City, Xiamen City, Shenzhen City, Jiangsu Province, Zhejiang
Province, Fujian Province, Hubei Province, Anhui Province and Guangdong Province. The VAT rates
levied on general taxpayers are:
Services 1. Leasing of tangible property
2. Transportation services industry
3. Modern service industry (except leasing of tangible property)
4. Taxable services determined by the Ministry of Finance and
State Administration of Taxation
Rate of VAT 17%
11%
6%
0%
The rate of VAT levied on small-scale taxpayers shall be 3%.
Consumption tax: imposed for production, processing, and import goods
Goods that are subject to consumption tax include: tobacco, alcohol, high-end cosmetics, jewelry,
fireworks, firecrackers, gasoline, diesel, cars, motorcycles, car tires and others.
There are two collection methods:
Specific unit for tax assessment: wine, gasoline, diesel.
Price for tax assessment: all others except above.
Resource Tax
Companies who are engaged in mining, marine, oil, gas, solid salt, and other resources.
3. Branch income
If the branch is located in different place, the goods turnover tax should be paid in the local place
where the branch is located. Income tax for the branch should be pre-paid according to the
approved proportion in the operation place. For each year end, it should be included in
headquarter’s for financial settlement and payment of corporate income tax.
4. Income determination
Business tax; confirm prepaid accounts as income when implementation labour service occurs, and
others made to income as rights in receivables achieved.
VAT: credit sale or installment sale shipped merchandise should be confirmed by payment period of
the contract, the income realization of direct payment or collection and acceptance are achieved by
the shipment of goods.
Corporate income tax: the time recognition of revenue and accounting should at the same time
period.
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CHINA
5. Deductions
Generally, expenses associated with operating activities are allowed to be deducted in the
calculation of taxable income. However for certain expenses, there are limits and any costs
exceeding the limit cannot be deducted (costs include reception, advertising, employee
benefits, education funds and so on).
Asset losses are generally can be deducted. The tax authority has set a list of some asset loss
provisions that can be deducted. Others would have to be approved by tax authority before
deduction. Any losses that made by oversea operating institute shall not be offset by the profits
generated from domestic business unit.
6. Group taxation policies
None.
7. Tax incentives
VAT:
In order to support the development of China’s cultural promotion, approved by the State Council,
VAT can be exempted for cultural promotion, agricultural machinery, tools. Besides, the country has
issued tax document in a specific period listing the scope of products that can be subjected to tax
exemptions, such as,
1. VAT is exempted for rural power grid;
2. VAT for imported process is exempted for imported copper with gold materials products;
3. VAT and income tax are exempted for companies engaged in film production, distribution, and
screening (including group companies), film production companies and other film companies’
revenue generated from film copies, transfer of film rights, film distribution.
Corporate Income Tax (CIT):
Incentives for CIT are depending on the industry but not regions. Additionally, there are tax benefits
for disabled person, placement of ex-serviceman, employment for laid-offs. For example:
1. Small low-profit companies which meet the criteria, can use a reduced rate of 20%.
2. High-tech industry companies, which receive government’s main supports, can use a
reduced rate of 15%. Using the total expenses relating to operational activities for both
domestic and international, total revenue, and revenue for high-tech products(services)applied
and approved high-tech corporation, the revenue generated from overseas can be benefited
from the high-tech CIT incentive. It is to say that income generated from overseas can use a
reduced 15% as the CIT. The tax calculation base can be considered as the total taxable
income of both domestic and international.
3. The following CIT may be exempted, or reduced:
Income generated from agriculture, forestry, graze and fishery projects.
Income generated from the key national public infrastructure investment which is supported
by government.
Income generated from environmental protection, energy and water saving projects which
meet certain criteria.
Income generated from the transfer of technology which meet the conditions.
8. Tax administration
Tax payer can only get a refund for VAT when exporting.
CIT should be prepaid quarterly, settled and paid at the end of year.
Business tax and VAT is paid monthly.
9. Taxable incomes for non-residential companies and individuals
Personal allowance for foreign citizens is 4800CNY, for Chinese citizens is 3000CNY
Monthly Taxable Income
1. Less than CNY 1,500
2. More than CNY 1,500 and less than CNY 4,500 3. More than CNY 4,500 and less than CNY 9,000
4. More than CNY 9,000 and less than CNY 35,000
5. More than CNY 35,000 and less than CNY 55,000
6. More than CNY 55,000 and less than CNY 80,000
7. More than CNY 80,000
IPO quick facts
18
1. Bourses in the country
a. Shanghai Stock Exchange (Main Board)
b. Shenzhen Stock Exchange (Small and Mid Board; GEM)
Tax Rate
3%
10% 20% 25% 30% 35% 45% Crowe Horwath International
Investing in Asia Pacific 2013
2. Admission requirements
Shanghai Stock Exchange (SHSE)
CHINA
a. Company size
1. The company must be in business for more than three (3) years and have made profits over
the last three (3) consecutive years. The cumulative net profit must be more than CNY 30
million. Net profit is calculated as the lower value of before and after excluding
non-operating gains and losses.
2. The accumulated cash flow generated from operating activities for the recent three (3) fiscal
years is more than CNY 50 million; or, the accumulated revenue for the recent three (3)
fiscal years is more than CNY 300 million.
3. Minimum share capital of CNY 30 million before issuance, and minimum share capital of
CNY 50 million after issuance.
4. Intangible assets (excluding land use rights, marine cultivation rights and mining rights) not
exceeding 20% of the net assets at the end of the latest year.
b. Trading record
1. A joint stock limited company established under the PRC law with more than three years of
continuing operation after establishment (except with exemption granted by the State
Council).
2. For a limited company converted to a joint stock limited company through certain
restructurings, the track record can be counted from the date of establishment of the limited
company.
3. The company must not have been guilty of any major illegal activities or false accounting
records in the last three years.
c. Public shareholding requirement
1. Publicly offered shares must be more than 25% of the company’s total share capital.
2. For company whose total share capital exceeds RMB 400 million, the ratio of publicly
offered shares must be more than 10%.
d. Qualitative requirements
1. The registered capital has been fully paid up;
2. The transfer of titles of assets contributed has been completed;
3. There is no major dispute on the title of key assets;
4. The promoters’ production and operation is in compliance with laws, regulation and articles
of association, also in line with national industrial policy.
5. A rigorous treasury policy has been established. There shall not be any appropriation of
funds through borrowings, repayment of debts, reimbursements or any other means by the
controlling shareholders, de facto controlling person and other entities under the issuer's
control.
6. No significant change in directors and senior management, and no change in de facto
controlling person(s) in the last three (3) years.
7. Shareholding structure is clear.
e. Others
1. The funds shall be used on the principal business with clear objectives.
2. The amount of funds raised and investment projects should be commensurate with the
existing operating scale, financial position, level of technology and management capability
of the issuer.
3. Investment projects using the funds raised shall comply with the state’s industrial policies
and rules about management of investments, environmental protection, land management
and other laws and regulations.
4. Implementation of the projects using the funds raised shall not result in a competition in the
same industry or have any adverse influence on the independence of the issuer.
Shenzhen Stock Exchange (SZSE)
a. Company size
1. Consecutive profitable for the last two fiscal years; the accumulated net profit for the recent
two fiscal years is no less than CNY 10 million, and is growing; or profitable for the last
fiscal year, and net profit is no less than CNY 5 million, revenue for the last fiscal year is no
less than CNY 50 million, the revenue growth rate for last two years is no less than 30%.
Net profit is calculated as the lower value of before and after excluding non-operating gains
and losses.
2. Net asset is no less than CNY 20 million for the last fiscal year-end and no cumulative loss.
3. Minimum net assets of CNY 20 million at the end of the latest year, and minimum share
capital of CNY 30 million after issuance.
b. Trading record
1. A joint stock limited company established under the PRC law with more than three years of
continuing operation after establish.
2. For a limited company converted to a joint stock limited company through certain
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Crowe Horwath International
Investing in Asia Pacific 2013
CHINA
restructurings, the track record can be counted from the date of establishment of the limited
company.
3. The company must not have been guilty of any major illegal activities or false accounting
records in the last three years.
c. Public shareholding requirement
1. Publicly offered shares must be more than 25% of the company’s total share capital.
2. For company whose total share capital exceeds CNY 400 million, the ratio of publicly
offered shares must be more than 10%.
d. Qualitative requirements
1. The registered capital has been fully paid up;
2. The transfer of titles of assets contributed has been completed;
3. There is no major dispute on the title of key assets;
4. Focusing on one line of business.
5. Complying with the State’s environmental protection policies.
6. No significant change in principal operations for the last two (2) years.
7. Showing continued profitability.
8. No significant change in directors and senior management, and no change in de facto
controlling person(s) in the last two (2) years.
9. A rigorous treasury policy has been established. There shall not be any appropriation of
funds through borrowings, repayment of debts, reimbursements or any other means by the
controlling shareholders, de facto controlling person and other entities under the issuer's
control.
10. There has been no significant illegal activity for the last three (3) years.
e. Others
1. The funds shall be used on the principal business with clear objectives.
2. The amount of funds raised and investment projects should be commensurate with the
existing operating scale, financial position, level of technology and management capability
of the issuer.
3. Investment projects using the funds raised shall comply with the state’s industrial policies
and rules about management of investments, environmental protection, land management
and other laws and regulations.
4. Implementation of the projects using the funds raised shall not result in a competition in the
same industry or have any adverse influence on the independence of the issuer.
3. Typical issuance size
SHSE: minimum share capital of CNY 50 million after issuance.
SZSE: minimum share capital of CNY 30 million after issuance.
4. Securities quoted allowed in foreign currency
No.
5. Requirements for the appointment of a resident/local director and board composition
Directors, supervisors and senior managements should meet the requirements of laws regulation
and article of association. The following circumstances shall not permitted:
a. Banned entry into the capital market by China Securities Regulatory Commission (CSRC) ;
b. Received penalty from CSRC within the recent 36 months, or been publicly condemned by the
Stock Exchange within the recent 12 months;
c. Subjected to judicial suspicion of criminal investigation or suspected to be illegal by the CSRC.
6. Timeline
Due diligence and counseling
(2-3 months)
Documentation and reporting
(3-9 months)
Review of the applied documents
(3-4 weeks)
Issuance and listing
7. Approving authorities
CSRC (China Securities Regulatory Commission).
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CHINA
8. Estimated cost involved
A Shares
B Shares
Initial
listing fee
0.03% of total par value listed,
not more than CNY 30,000
0.1% of total issued share capital, not more
than equivalent of US$ 5,000
Annual
listing fee
0.012% of total par value listed,
not more than CNY 6,000
US$ 600/year
9. Language required for:
a. Prospectus: Chinese
b. Annual reports: Chinese
c. Audit report: Chinese
10. Audit opinion required for
a. IPO
The issuer must have standard basic accounting system; financial reports prepared must be in
accordance with the enterprises’ accounting standards and related accounting regulations. The
financial reports must fairly reflect in all material respects the issuer’s financial condition,
operating results and cash flow. Financial reports should be independently audited with
unqualified audit opinions.
b. After IPO
No requirement for audit opinion.
11. Requirements of accounting auditors to be appointed
The report should be signed by CICPAs who work in China established accounting practicing firm.
12. Delisting standards from bourses
The securities regulatory body under the State Council shall order a company, after listing its bonds,
to suspend its bond listing if one of the following conditions occur:
a. The company commits a major violation of law;
b. The company experiences major changes, which do not conform to the conditions for a
company to list its bonds;
c. The funds raised by the company's bonds are not used in accordance with the purposes
approved by the authorities concerned;
d. The company fails to carry out its obligations stipulated by the company's measures for raising
bonds;
e. The company experiences consecutive economic losses in the most recent two (2) years.
If a company experiences one of the situations enumerated in paragraphs (1) to (4) of the preceding
article and is found to have severe consequences after investigations or one of the situations
enumerated in paragraphs (2), (3), or (5) of the preceding article and these situations have not been
eliminated within a set period of time, the securities regulatory body under the State Council shall
make a decision to terminate the listing of the company's bonds.
When a company is disbanded, ordered to close in accordance with law, or announced bankrupt,
the stock exchanges shall terminate the listing of its bonds and report for the record to the securities
regulatory body under the State Council.
The securities regulatory body under the State Council can authorize the stock exchanges to
suspend or terminate the listing of a company's stocks or bonds in accordance with the law.
13. Other notes
Above are the main requirements for China IPO. For a detailed reference, please see China’s
<Company Law>,<Security law>, and other circulars that is issued by CSRC and Bourses.
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Crowe Horwath International
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CHINA
Human resource requirements
1. Social welfare: insurance, pension, etc
Social welfare includes: Pension, medical, unemployment, injury, maternity insurance, and housing
fund, of which, pension, medical and unemployment insurance are paid jointly by the company and
private, injury and maternity insurance are paid fully by the company. The first five insurances are
statutory, however housing fund is not.
2. Requirements for retirement benefits
Start from the second month of retirement, the pension will be paid to those who has fully submitted
their application via bank or post office.
3. Legal annual leave and public holidays
Annual leave can be applied for those who has accumulated working for more than one (1) year.
The public holidays in China are:
New Year’s Day (1)
Chinese New Year (3)
National Day (3)
Tomb-Sweeping Day (1)
Mid-Autumn Festival (1).
Labor Day (1)
Dragon Boat Festival (1)
4. Brief information on labour unions
Workers and staff of enterprises with foreign capital may organize trade unions in accordance with
the law, in order to conduct trade union activities and protect their lawful rights and interests.
The enterprises shall provide the necessary conditions for the activities of the trade unions in their
respective enterprises.
Withdrawal procedures
22
1. Company: legal procedures required for liquidation
1. The board of directors shall make a resolution on the termination of business and liquidation
of the enterprise, appoint members and establish a liquidation committee, and conduct a
capital verification.
2. The liquidation committee submits the board resolution and the liquidation application report
to the original approving authority. The approving authority will release an Official Reply if it
approved the application, the date of approval shall be the date of the commencement of
liquidation.
3. The liquidation committee shall commission an accounting firm to audit the accounting
statements for the period until the date the liquidation of the audit and then issue the audit
report.
4. The liquidation committee shall, within 60 days from the date of the establishment, make
public announcement at least twice in a national newspaper and a local provincial or
municipal newspaper notice. The first liquidation announcement should be published within
10 days from the date of establishment of the liquidation committee. The corporate creditors
shall submit the claims to the liquidation committee within 90 days from the date of the first
notice.
5. The liquidation committee shall dispose of corporate assets, handling corporate credit and
debt during the liquidation period, and make liquidation accounting in accordance with the
accounting requirements of the liquidation.
6. The liquidation committee shall make the state and local tax returns according to the
schedule in the liquidation period.
7. Tax write-off procedures. Liquidation committee shall apply for tax (state and local tax)
write-off by submitting the statements aforementioned, audit report and the cancellation
application form. The tax authorities shall decide whether to have a field inspection of the
accounting information of the enterprises according to their actual condition. After making up
for tax payable, the enterprises will receive tax payment certificate and certificate for
cancellation of tax registration.
8. The liquidation committee shall complete the “liquidation balance sheet”. “Liquidation profit
and loss account”, “Debt settlement form”, “Property Allocation Form” and “Explanation on
liquidation matters” on the liquidation date, and then commissioned the accounting firm to
audit the accounting statements for the period until the date the liquidation of the audit and
then issue the audit report.
9. Cancellation of registration certificate of finance and statistics.
10. Cancellation of customs registration. The customs registration certificate shall be cancelled
after the liquidation committee paid the tax in arrears.
Crowe Horwath International
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11. Cancellation of bank deposit accounts, the surplus shall be remitted to overseas investors by
purchasing foreign exchange, and go through the cancellation procedures for foreign
exchange registration certificate.
12. Handing in of business license, official seals, and conducting cancellation procedures with
administration of industry and commerce.
13. Returning the “approval certificate” to the original approving government agencies.
CHINA
2. Company: tax requirements
The State Administration of Taxation, Guoshuihan [2009] No.684 reiterates that companies must
treat the whole liquidation period as a separate tax year and calculate the liquidation income
accordingly. The liquidation return shall be filed within 15 days of the completion of the liquidation
process and the CIT liabilities settled within this period. Pursuant to Circular 684, companies shall
inform the in-charge-tax authorities upon entering into the liquidation period. It also stipulates that
failure to file CIT returns or settle the tax liability within the prescribed timeline will result in
surcharges in accordance with the Tax Collection and Administration Regulations.
3. Branch: legal procedures required for closing branch
Before closing its branch in China, a foreign company shall clear the debts of the branch according
to law and conduct liquidation according to the liquidation procedures provided for by the Company
Law of PRC. It is not allowed to move assets of the branch out of China before the debts are fully
paid.
4. Branch: tax requirements
a. De-register the tax certificate from the local tax bureau of the branch.
b. De-register the business license from local industrial and commerce bureau.
c. De-register the organization code from the local Technical supervision bureau.
d. Cancel the Bank accounts.
5. Representative office: legal procedures required for closing office
a. Liquidation audit report issued by CPA firm.
b. Submit audit report and other related materials to the tax officer from tax bureau for review.
c. Tax officer sign off the agreement, and passing the materials to the tax bureau for approval.
d. After approval from tax bureau, apply “tax clearance certificate”.
e. If the Rep office is involved in any inbound or outbound businesses, they should obtain a tax
clearance certificate issued by the Customs.
f. Cancel the foreign exchange registration certificate and obtain a cancelation approval
document.
g. Cancel bank accounts.
h. Cancel business license.
i. Cancel the organization code certificate.
j. Cancel the statistics permit.
6. Representative office: any tax requirements
Cancellation application from the local tax bureau:
a. Cancelation application form (with company chop and chief rep’s signature).
b. Cancelation application draft by the overseas headquarter with GM or director’s signature,
company chop.
c. Approval of chief rep’s demission from headquarter.
d. Copy of the recent three years’ tax payment, including revenue tax, expatriates income tax,
Chinese personnel’s income tax, vehicle license tax, and housing tax.
e. Tax registration certificate.
f. Tax registration form.
g. Definition of the business tax notice.
h. Copy of Business registration certificate.
i. Copy of all contracts for the recent three (3) years.
j. Copy of audit reports for the recent three (3) years.
k. Audit report before the cancellation of Rep Office.
l. Filling in the <tax settlement form>.
m. Filling in the <registration form of cancellation>.
23
HONG KONG
Establishing the business entity
Contact
Delores Teh
INTERNATIONAL
LIAISON OFFICER
delores.teh@
crowehorwath.hk
+852 2894 6860
1. Formation
Company
A. Formation
1. Tailor-made company
a. Company name of your choice, subject to the name is not identical or very similar to any
existing company.
b. Incorporation process takes about six (6) working days to complete; or for e-incorporation, it
takes about two (2) days to complete (i.e. Certificate of Incorporation and Business
Registration Certificate are ready) after submission of formation documents.
2. Shelf company
a. A ready-made company with Certificate of Incorporation and Business Registration
Certificate.
b. Subsequent change to the name of the shelf company, if you so wish.
c. After submission of papers, change of name process takes about six (6) working days for
issuing the Certificate of Change of Name and updating the Business Registration
Certificate.
B. Annual Requirements
a. Every company must hold an annual general meeting each year. Audited accounts should
be presented at the meeting.
b. An annual return made up to the anniversary day of the company must be filed at the
Companies Registry within 42 days thereof. Higher filing fee will be imposed on late filing.
c. Notification to Companies Registry and/or Business Registration Office for any changes in
the particulars within specific deadlines.
d. Business Registration Certificate shall be renewed each year.
Branch
A. Registration
1. Branch of a Hong Kong private limited company
a. Application for a Branch Business Registration Certificate, which takes about one (1) to two
(2) working days.
2. Branch of overseas company (Non-Hong Kong company)
a. Name search is required. If name of foreign company is identical with an existing company
in Hong Kong, it is required to adopt a trade name to differentiate.
b. Submission of relevant forms together with the certified copies of certain corporate
documents of the foreign company to the Companies Registry and Notice to Business
Registration Office for registration of a branch.
c. Registration process takes about 16 working days to complete after submission of
registration documents.
B. Annual Requirements
a. An annual return made up to the date of registration of the company and its group accounts
(unless exempted) must be filed at the Companies Registry within 42 days thereof. Higher
filing fee will be imposed on late filing.
b. Notification to Companies Registry and/or Business Registration Office for any changes in
the particulars within specific deadlines.
c. Business Registration Certificate shall be renewed each year.
Representative Office
24
A. Registration
Application for a Business Registration Certificate (for liaison purpose only and the regional
office is not allowed to carry on any business) takes about one (1) to two (2) working days.
Crowe Horwath International
Investing in Asia Pacific 2013
B. Annual Requirements
Business Registration Certificate shall be renewed every year.
HONG KONG
2. Work permits and visas
Company
There is a genuine job vacancy and applicants who have a good education background, normally a
first degree in the relevant field and possess special skills, knowledge or experience of value which
are not readily available in Hong Kong may apply to come to work under the General Employment
Policy.
The application process normally takes six (6) weeks.
Branch
Same as for company.
Representative Office
Same as for company.
3. Accounting standards and audit requirements
Company
IFRS-compliant.
Branch
IFRS-compliant.
Representative Office
IFRS-compliant.
4. Resident directors / promoters requirements
Company
A company must have a secretary.
a. if an individual, ordinarily resides in Hong Kong;
b if body corporate, have its registered office or a place of business in Hong Kong.
Branch of overseas company
An Authorized Representative who is a Hong Kong resident; or solicitor corporation; or corporate
practice within the meaning of section 2 of the Professional Accountants Ordinance; or firm of
solicitors or professional accountants (practicing) must be appointed.
5. Foreign ownership over tangible assets
Company
No restriction imposed.
Branch
No restriction imposed.
Representative Office
No restriction imposed.
Tax information
1. Tax rates on corporate income
16.5% on assessable profits.
2. Other taxes
Good and Services Tax (GST)
No GST in Hong Kong.
Value Added Tax (VAT)
No VAT in Hong Kong.
Other taxes
Property tax, salaries tax, stamp duty, etc.
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HONG KONG
3. Branch income
Branch of a non-resident company
Branch accounts should be prepared to show its true profits for tax assessment, without which the
tax authority will estimate its profits adopting one of the following basis:
a. Hong Kong branch’s profits
= Worldwide profit of the whole company
X Hong Kong Branch Turnover / Worldwide turnover of the whole company.
b. by a fair percentage of the turnover of the branch in Hong Kong.
Unaudited branch accounts are acceptable for tax reporting.
4. Income determination
Taxpayers should follow the generally accepted accounting principles in Hong Kong, which are
IFRS convergent, in their income determination. Audited accounts are required.
Overseas income is non-taxable if it is proved to the satisfaction of the Inland Revenue
Department (IRD) that they were generated outside Hong Kong.
Bank interest income is non-taxable if it is generated from non-pledged deposits in Hong Kong
or from deposits placed outside Hong Kong.
Dividend income and capital gains are non-taxable.
5. Deductions
In general, expenses or outgoings incurred in the production of the assessable profits in Hong Kong
are deductible. Domestic, private or capital expenditures are however not deductible.
a. Depreciation
Accounting depreciation is not an allowable tax deduction. The following allowances would
apply instead:
1. Depreciation allowance for fixed assets (Initial Allowance (I.A.) at 60% on cost, Annual
Allowance (A.A.) at 10%, 20%, or 30% on reducing balance).
2. Commercial building allowance (A.A. at 4% on qualifying expenditure excluding land cost)
3. Industrial building allowance (I.A. at 20% and A.A. at 4% on qualifying expenditure
excluding land cost).
4. Building refurbishment expenditure and environmental protection installation of building
(20% straight line basis per annum).
5. 100% deduction of capital expenditure on the following items:
i. Plant and machinery used in R&D.
ii. Prescribed fixed assets (computer hardware and software and plant and machinery
used for manufacturing purposes).
iii. Purchase cost of specified environmental protection plant and machinery and
environment–friendly vehicles.
b. Interest expenses
Interest expenses are generally allowable for Profits Tax purposes if they are incurred in the
production of assessable profits in Hong Kong and the interest is taxable in Hong Kong in the
hands of recipient (subject to anti-avoidance rules).
c. Payments to foreign affiliates
The payments must be incurred in the production of assessable profits and are not capital in
nature nor related to non-taxable or offshore income before they could be deductible. The
payments must also be for genuine services performed and charged on an arm’s length basis.
Interest expenses to foreign affiliates are, in general, not tax deductible.
d. Tax Loss
Tax loss can be carried forward indefinitely under the anti-avoidance rules to set off future
profits. However, change in ownership could affect the use of the tax loss.
Tax loss cannot be carried back.
e. Taxes paid
Taxes with the nature similar to Hong Kong Profits Tax are not deductible as expenses.
However, it is possible to obtain tax credit for the foreign taxes paid if the taxes concerned are
paid to countries/areas that Hong Kong has double tax agreements. So far Hong Kong has
concluded 22 double tax agreements.
6. Group taxation policies
There is no group relief in Hong Kong. Tax reporting is on individual company basis.
26
7. Tax incentives
Investment income derived by genuine offshore fund is tax exempted. Businesses with overseas
manufacturing activities may be entitled to 50% profits tax reduction. Bank interest income,
dividend, offshore income and capital gains are also tax exempted.
Crowe Horwath International
Investing in Asia Pacific 2013
HONG KONG
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
There is no withholding tax on dividends.
There is no withholding tax on interest.
There is withholding tax (WHT) on royalty paid to non-residents.
If the recipient is a foreign corporation, WHT is 4.95% or 16.5%
(for payment to associates and the intangible assets have previously
been used in Hong Kong).
There is no withholding tax on technical fee.
There is no withholding tax on branch profit.
9. Tax administration
In general, Profits Tax returns and Employer’s returns are issued annually and due for filing within
one month from the date of issue unless extensions are granted by the IRD.
Late filings may attract penalty of HK$ 10,000 and/or up to three times of tax payable.
As an employer, it is also required to notify the IRD the commencement of employment of staff
within three months of the commencement of employment and cessation of employment of its staff
one month before such cessation. Late notification will attract penalty.
Profits Tax is usually paid annually in one (1) or two (2) instalments. The IRD will levy a surcharge of
5% on the overdue tax payment followed by a further 10% if tax is overdue for six (6) months.
10. Taxable incomes for non-residential companies and individuals
Non-resident companies or individuals are liable to Hong Kong tax if they carry on a trade,
profession or business in Hong Kong and derive Hong Kong sourced income.
11. Other pertinent information
a. There is no thin capitalization rule.
b. There is no foreign exchange control.
c. Related party transactions are subject to transfer pricing rules following the OECD model.
IPO quick facts
1. Bourses in the country
a. The Stock Exchange of Hong Kong Limited - Main Board
b. Growth Enterprise Market (GEM) Board
2. Admission requirements
The Stock Exchange of Hong Kong Limited - Main Board
a. Company size
Have a trading record of not less than 3 financial years and meet one of the following 3
financial criteria:
i. Profit Test
Profit attributable to shareholders : At least HK$ 50 million in the last three (3) financial
years (with profits of at least HK$ 20 million recorded in the most recent year, and
aggregate profits of at least HK$ 30 million recorded in the two (2) years before that).
ii. Market Cap / Revenue Test
Market Cap: At least HK$ 4 billion at the time of listing.
Revenue: At least HK$ 500 million for the most recent audited financial year.
iii. Market Cap /Revenue /Cashflow Test
Market Cap: At least HK$ 2 billion at the time of listing.
Revenue: At least HK$ 500 million for the most recent audited financial year.
Cashflow: Positive cashflow from operating activities of at least HK$ 100 million in
aggregate for the three (3) preceding financial years.
b. Trading record
At least three (3) financial years.
c. Public shareholding requirement
At least 25% of the issuer’s total issued share capital.
Market capitalization of at least HK$ 50 million.
The equity securities in the hands of the public should be held among at least 300 holders.
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Crowe Horwath International
Investing in Asia Pacific 2013
HONG KONG
d. Qualitative requirements
1. Management continuity for at least the three (3) preceding financial years; and
2. Ownership continuity and control for at least the most recent audited financial year.
Growth Enterprise Market (GEM) Board
a. Company size
Have trading record of at least two (2) financial years comprising:
1. A positive cashflow generated from operating activities in the ordinary and usual course of
business of at least HK$ 200 million in aggregate for the two (2) financial years immediately
preceding the issue of the listing document.
2. Market cap of at least HK$ 100 million at the time of listing.
b. Trading record
At least two (2) full financial years.
c. Public shareholding requirement
At least 25% of the issuer’s total issued share capital.
Market capitalization of at least HK$ 30 million.
The equity securities in the hands of the public should be held among at least 100 holders.
d. Qualitative requirements
1. Substantially the same management throughout the full financial years; and
2. A continuity of ownership and control throughout the full financial year immediately
preceding the issue of the listing document.
e. Others
A GEM issuer may transfer its listing to the Main Board under a streamlined procedure.
3. Specific requirements for specific Industries
An issuer or its group (other than an investment company) whose assets consist wholly or
substantially of cash or short-dated securities will not normally be regarded as suitable for listing,
except where the issuer or group solely or mainly engaged in the securities brokerage business.
Additional requirements, modifications and exceptions to basic listing requirements will be applied
for the following:
Spin-off of assets or businesses for a separate listing.
Collective investment schemes.
Investment companies.
Newly-formed "project" companies (infrastructure projects).
Mineral companies.
Secondary listings.
Depositary receipts.
4. Typical issuance size
Main Board - At least 200 million market cap.
GEM - At least 100 million market cap.
5. Requirements for the appointment of a resident / local director and board composition
Every board of directors of a listed issuer must include at least three independent
non-executive directors; and (2) at least one of the independent non-executive directors must have
appropriate professional qualifications or accounting or related financial management expertise.
New applicant applying for a primary listing on the Exchange must have a sufficient management
presence in Hong Kong. This will normally mean that at least two of its executive directors must be
ordinary residents in Hong Kong.
The secretary of the issuer must be a person who is an ordinary resident in Hong Kong and has
the requisite knowledge and experience to discharge the functions of a secretary.
Every listed issuer shall appoint two authorised representatives who shall act at all times as the
listed issuer’s principal channel of communication with the Exchange. The two authorised
representatives must be either two directors or a director and the listed issuer’s secretary.
Every listed issuer must establish an audit committee comprising non-executive directors only. The
audit committee must comprise a minimum of three members, at least one of whom is an
independent non-executive director with appropriate professional qualifications or accounting or
related financial management expertise as required under the listing rule. The majority of the audit
committee members must be independent non-executive directors of the listed issuer.
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Crowe Horwath International
Investing in Asia Pacific 2013
6. Restrictions for foreigners
None.
HONG KONG
7. Methods of offer and restrictions
Offer for Subscription, Offer for Sale, Placing, Introduction.
8. Timeline
It varies from case to case but it usually takes around six (6) months to one (1) year to compile with
all the documents required for the listing application. The listing application on the prescribed form
should be submitted to the Hong Kong Stock Exchange not less than 25 clear business days prior to
the date on which it is expected that the Listing Committee will meet to consider the application.
9. Approving authorities
Listing committee of the Hong Kong Stock Exchange.
10. Estimated cost involved
Initial listing fee is charged by the Hong Kong Stock Exchange at a progressive rate based on the
monetary value of equity securities (MVES) to be listed.
For Main Board listing, the initial listing fee ranges from HK$ 150,000 to HK$ 650,000 for MVES
not exceeding HK$ 100 million to over HK$ 5,000 million.
For GEM Board listing, the initial listing fee ranges from HK$ 100,000 to HK$ 200,000 for MVES
not exceeding HK$ 100 million to over HK$ 1,000 million.
Fee to sponsors, reporting accountants, legal advisors, underwriter/placing agent and valuers is
subject to agreement between the parties.
Listed companies are required to pay an annual listing fee which shall be calculated by reference
to the nominal value of the securities (NVS).
For Main Board listing, the annual listing fee ranges from HK$ 145,000 to HK$ 1,188,000 for
NVS not exceeding HK$ 200 million to over HK$ 5,000 million.
For GEM Board listing, the annual listing fee ranges from HK$ 100,000 to HK$ 200,000 for NVS
not exceeding HK$ 100 million to over HK$ 2,000 million.
11. Restriction on secondary listing or dual listing
The Exchange has set out additional requirements, modifications and exceptions which apply to
an overseas issuer whose primary listing is or is to be on another stock exchange.
Companies can apply for a listing on the Main Board of the Exchange in the form of depositary
receipts (HDRs). The HDR framework is formed as an alternative facility for, among others,
issuers from jurisdictions that prohibit the issuance of shares or the maintenance of a share
register overseas.
Secondary listing or dual listing is allowed in Hong Kong.
12. Language required for:
a. Prospectus: English and Chinese
b. Annual reports: English and Chinese
c. Audit reports: English and Chinese
13. Audit opinion required for:
a. IPO
True and fair view opinion and prepared in accordance with Auditing Guideline 3.340
“Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified
Public Accountants.
Three (3) years for Main Board and two (2) years for GEM Board.
b. After IPO
True and fair view opinion.
14. Requirements of accounting auditors to be appointed
All accountants’ reports must normally be prepared by certified public accountants who are qualified
under the Professional Accountants Ordinance for appointment as auditors of a company.
There are 12 mainland accounting firms that have been approved by the Ministry of Finance (MOF)
of China and the China Securities Regulatory Commission (CSRC) to act as reporting accountants
and/or auditors for mainland incorporated companies listed in Hong Kong. Crowe Horwath China
Certified Public Accountants is one of them.
15. Delisting standards from Bourses
The issuer has obtained the permission from the exchange and approval from more than 75% of its
shareholders and number of votes cast against the resolution is not more than 10% of the votes.
The shareholders are offered a reasonable cash or other reasonable alternative.
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Crowe Horwath International
Investing in Asia Pacific 2013
HONG KONG
Human resource requirements
1. Special labour standards to take heed of
Employee must be a HK Identity Card holder and/or hold a valid HK employment visa.
2. Social welfare: insurance, pension, etc
All employees should be covered by “Employee Compensation Insurance” and are eligible to join
the company’s Mandatory Provident Fund Scheme. All employees should join the company’s
Mandatory Provident Fund at 60 days of employment. The Employer’s Account can be used to
off-set the employer’s obligations of paying severance payments or long service payments, if
applicable.
3. Requirements for retirement benefits
An employee is eligible to Long Service Payment if he/she is employed not less than five (5) years
under a continuous contract. The balance in the Mandatory Provident Fund Employer’s Account can
be used to off-set the employer’s obligations of paying Long Service Payments, if applicable.
4. Legal annual leave and public holidays
An employee is entitled to annual leave with pay after having been employed under a continuous
contract for every 12 months. Annual leave entitlements for the 1st year of service are seven (7)
days and increases progressively from seven (7) days to a maximum of 14 days according to the
employee’s length of service.
Minimum entitlement is 12 days statutory holidays a year. Most companies provide 17 days public
holidays a year.
5. Brief information on labour unions
Labour unions exist in large private companies and public companies. It is not common in small and
medium sized enterprises.
6. Country quirks
The Statutory Minimum Wage comes into force on 1 May 2011 and the initial Statutory Minimum
Wage rate is HK$ 28 per hour. Better off employment and conditions has become a moral
obligations to employers.
Withdrawal procedures
1. Company: legal procedures required for liquidation
a. By Winding Up:
Three (3) Types: Members’ Voluntary Winding up; Compulsory Winding up (by court) and
Creditors’ Voluntary Winding up. The more simple way is Members’ Voluntary liquidation.
1. Members’ Voluntary Winding up
The Company is solvent and a special resolution (i.e. 75% of total voting right) should be
passed in a general meeting; Various notices of a liquidation must be published in the
Government Gazette; a tax clearance should be obtained; a final meeting should be held
after settling all assets and liabilities; at least one (1) year is required to process the said
procedures.
2. Creditors Voluntary Winding Up
Creditors’ winding up when company is insolvent. Creditors’ and members’ meetings
should be held for commencement and finalization of liquidation; Tax clearance should be
obtained; various notices should be published in the Government Gazette, English and
Chinese newspapers. Processing time depends on the complexity of the case.
b. By De-registration:
Company may apply for de-registration if:
1. The company has never commenced business or has ceased to carry on business for more
than three (3) months immediately before the application;
2. the company has no outstanding liabilities; and
3. all the members agreed to the de-registration.
Processing time is no more than nine (9) months under normal circumstance. A de-registered
company may be reinstated within 20 years of the de-registration.
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Crowe Horwath International
Investing in Asia Pacific 2013
2. Company: tax requirements
Company has to obtain a tax clearance from Inland Revenue Department before it close.
HONG KONG
3. Branch: legal procedures required for closing branch
a. Notifications to the Companies Registry and Business Registration Office, within seven (7)
days and one (1) month respectively from the cessation date of business; and
b. Need to maintain the Hong Kong authorized representative for one (1) year after cessation of
business.
4. Branch: tax requirements
The branch must also obtain tax clearance and file its final Profits Tax returns and Employer’s
returns and pay taxes before it could be closed.
5. Representative office: legal procedures required for closing office
Notification to Business Registration Office within one (1) month from the date of cessation by
submission of relevant statutory form.
31
INDIA
Establishing the business entity
Contact
Vijay P. Thacker
INTERNATIONAL
LIASON OFFICER
vijay.thacker
@crowehorwath.in
+91 22 6631 1480
1. Formation and costs
Company
Requires approval of Registrar of Companies (ROC), Director Identification Number and Digital
Signature pre-requisites.
FDI under automatic route requires reporting to Reserve Bank of India (RBI) through an Indian
commercial bank which acts as the Authorised Dealer (AD), within stipulated timelines; this is
important to ensure ability to remit dividends and sale proceeds.
FDI under restricted route requires Foreign Investment Promotion Board (FIPB) prior permission.
Company formation can take up to six (6) weeks, particularly if foreign directors are involved
FIPB approval may take two (2) – three (3) months.
Audited statements are to be reported annually with ROC, RBI and the tax authorities.
Cost of registration (US$ 1,000 – US$ 2,000 with minimum authorized share capital) and annual
cost (approx. US$ 500 - US$ 1,000 statutory filing fee) and professional fees.
Branch
Requires RBI approval for each branch and registration with ROC. Branch can operate from the
approved branch office.
Approval can take up to six (6) weeks.
Branch approval typically requires:
a. profit making track record for 5 immediately preceding five financial years and
b. US$ 100,000 net worth, both, in home country.
Application to include latest audited financial statements and Certificate of Incorporation issued in
home country.
Annual audit, tax filings and reporting are required.
Profits can be repatriated to home country.
Annual compliance is approx. US$ 2,000 - US$ 2,500 annually.
Representative office
Requires RBI approval.
Initial permission is given for three (3) years; thereafter renewal applications to be made to RBI.
Approvals can take up to six weeks.
Requires:
a. profit making track record for three (3) immediately preceding financial years and
b. US$ 50,000 net worth, in home country.
Only liaison activities permitted.
Cannot undertake income earning activity in India. Expenses are to be met out of head office.
Certified Annual Activity Certificate (in Form 49C) to be filed with RBI.
Required to register with ROC and file annual audited accounts.
Cost of registration and annual cost payable to government are nominal (approx. US$ 1,000 US$ 2,000 annually).
2. Investment incentives
Company
Tax holidays, investment allowances, export benefits, subsidy in certain industrial areas. Various
central and state government departments implement various schemes. Limited direct tax benefits
available for future years.
Branch
Same as for company.
Representative office
Not applicable as revenue earning activities are not permitted.
32
3. Foreign ownership restrictions
Company
100% foreign ownership under automatic route permitted for sectors other than defence
production, air transport, banking, broadcasting, commodity markets, insurance, petroleum
refining, print media, telecommunications, single brand trading & and multi brand trading
investment; subject to specific compliance procedures.
Crowe Horwath International
Investing in Asia Pacific 2013
26% to 74% for sectors listed above; shareholding exceeding specific cap needs special
approval.
INDIA
4. Work permits and visas
Company
Similar to procedures followed internationally.
Minimum annual salary of US$ 25,000.
Process may take up to 15 - 30 days.
Contribution to Provident Fund requirement might arise.
Branch
Same as for company.
Representative office
Same as for company.
5. Accounting standards and audit requirements
Accounting standards are in process of convergence to IFRS. However, largely similar to IAS.
Greater but not full convergence by 2012 / 2013.
Financial year for tax purposes is 1 April to 31 March. Company can have different financial year
under the Companies Act requirements.
Compulsory annual audit for shareholder reporting and ROC filing. Tax audit required if revenue
threshold exceeded (INR 6 millions for business; INR 1.5 million for professionals). Transfer
pricing and other audit reports may be required for tax purposes.
Branch
Same as for company.
Representative office
Same as for company.
6. Residential directors / promoters requirements
Company
Can be Indian or foreign residents. Must obtain Director Identification Number.
Branch
Same as for company.
Representative Office
Not required. Changes in directorship of parent company must be reported to ROC and RBI.
7. Foreign ownership over tangible assets
Company
Acquisition of tangible assets by a domestic company is permissible.
Branch
Branch can acquire immovable property which is necessary for or incidental to carrying on branch
activity. The payment for acquisition should be made from foreign inward remittance through proper
banking channels. A declaration in form IPI is to be filed with RBI within 90 days from acquisition
date. The property can be mortgaged with a bank as bank as security for borrowings. On sale or
closure of branch, the sale proceeds from property can be repatriated only with the prior approval of
RBI.
Representative Office
RO can acquire property by way of lease not exceeding five (5) years.
8. Other information
www.mca.gov.in
www.rbi.org.in
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Crowe Horwath International
Investing in Asia Pacific 2013
INDIA
Tax information
1. Tax rates on corporate income
Income tax Rate
Domestic Companies - 32.445%, Foreign Companies - 42.024%; if the taxable income exceed
INR 10 million. 30.9% and 41.2% respectively if taxable income does not exceed INR 10 million.
Domestic Companies – 33.99%, Foreign Companies – 43.26%; if the taxable income exceed
INR 100 million.
Tax rate on Book Profit (Minimum Alternate Tax):
Domestic Companies - 19.055% , Foreign Companies - 19.055 %if the taxable income does not
exceed INR 10 million.
Domestic Companies - 20.00775% Foreign Companies - 19.436% if the taxable income
exceeds INR 10 million.
Domestic Companies - 20.9605% Foreign Companies - 20.00775% if the taxable income
exceeds INR 100 million.
Tax payable for a year will be higher of tax on profit per normal tax calculations or tax on book profit.
Tax paid on book profit is eligible for future credits.
Service Tax 12.36% for most of the services. Abatement for certain services.
Dividend Distribution Tax - 16.2225 %
2. Other taxes
Good and Services Tax (GST)
GST is in the process of implementation, moving the present
multi disciplinary indirect taxes of transferring current indirect
tax laws to GST.
Value Added Tax (VAT)
Ranging from 4% to 14%, based on classification of goods
under the provision of respective state VAT Act. Some basic
commodities are exempted.
Other taxes
Certain states levy special taxes on manufacture and sale.
Custom duty is levied on import of goods.
Central Excise Duty (ED)
10% for most of the manufactured goods. Some of the basic
commodities are exempted. Tax is applicable on goods
manufactured.
Service Tax
12.36% for most of the services. Abatement for certain
services.
Tax exemption is available for goods / services exported and
realized in foreign currency.
3. Branch income
Branch income is taxable at income tax rates applicable to foreign company viz, 42.024%. Profits
can be repatriated to home country.
4. Income determination
Inventory valuation at lower of cost or NRV. (FIFO and Weighted Avg only).
Long Term Capital Gains Tax at 10 % without indexation; 20% with indexation.
Short term Capital Gains Tax at 15% / 30% in different cases.
Foreign Income = Included in Total Income, tax credits under DTAA permissible.
Intercompany Dividends = Dividend Distribution tax applicable on distribution of dividend.
Dividends are exempted in the hands of the recipient.
Stock Dividends = Dividend Distribution tax applicable on distribution of dividend. Dividends
are exempted in the hands of the recipient.
Buy Back of stock taxable as distributed income and the company needs to pay tax at the rate
of 21.63% and the same is exempt in the hands of the shareholder.
5. Deductions
Depreciation: Depreciation under WDV method at rates stipulated for various blocks of assets.
Depletion: No deduction allowed other than depreciation on block of assets basis.
Net Operating Losses: Business Loss that can be carried forward and set off within 8 years.
The Depreciation loss carried has no time limit.
34
6. Group taxation policies
Entities are taxed individually; the concept of group taxation is not recognized in India.
Crowe Horwath International
Investing in Asia Pacific 2013
7. Tax incentives
Most tax incentives have withdrawn, including a major incentive for exemption of export profits. The
limited remaining incentives are for:
Companies located in Special Economic Zone and deriving its income from manufacture and
export of goods / export of services.
Enterprises engaged in providing certain infrastructure facilities.
Enterprises engaged in providing telecommunication services.
Enterprises engaged in developing industrial parks.
Enterprises engaged in hotel industry operating hotels at specified locations.
INDIA
Certain states are promoting industries by providing indirect tax incentives for setting up industries
in the respective states.
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
Nil. (Dividend Distribution Tax alternatively applicable at rate of 16.2225 %)
Lower of 26.265% or DTAA rate
Lower of 26.265% or DTAA rate
Lower of 26.265%or DTAA rate
Nil. (Income tax at rate of 42.024% is payable on income earned in India)
9. Tax administration
Returns for each tax year (1 April to 31 March) to be filed by September.
Payment of tax - Advance tax to be paid in installments:
15% of tax (as estimated) by June 15;
45% of tax by Sep 15;
75% of tax by Dec 15 and
100% of tax by Mar 15.
Interest levied on shortfall of taxes is at 1% per month.
10. Taxable incomes for non-residential companies and individuals
Incomes received or deemed to be received or accrued or deemed to be accrued in India are taxed
at rates applicable to foreign company. However, benefits under DTAA and other special rates of
Income Tax for certain heads of income may be available.
11. Other pertinent information
Change in accounting reporting format for company accounts for financial years commencing on or
after 1st April 2011.
IPO quick facts
1. Bourses in the country
a. National Stock Exchange of India (NSE).
b. Bombay Stock Exchange of India (SENSEX).
2. Admission requirements
National Stock Exchange of India (NSE)
a. Company size
Issue size of INR10 Crores and minimum post issue market capitalization of INR 25 Crores.
b. Trading record
Three (3) years.
c. Public shareholding requirement
Minimum of 1,000 shareholders after listing.
Bombay Stock Exchange of India (SENSEX)
a. Company size
Issue size of INR 10. Crores and minimum post issue market capitalization of INR 25 Crores.
b. Trading record
Three (3) years.
c. Public shareholding requirement
Minimum of 1,000 shareholders after listing.
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Crowe Horwath International
Investing in Asia Pacific 2013
INDIA
3. Typical issuance size
National Stock Exchange of India (NSE): INR10 Crores
Bombay Stock Exchange of India (SENSEX): INR10 Crores for Large Caps and INR 3.00 Crores
for Small Caps
4. Securities quoted allowed in foreign currency
No.
5. Requirements for the appointment of a resident / local director and board composition
Minimum three directors. One third of the board shall be independent directors, Chairman of the
audit committee and two-thirds of its members to be independent directors.
6. Methods of offer and restrictions
Book building process followed in BSE.
7. Approving authorities
Securities and Exchange Board of India.
8. Estimated cost involved
Listing fee of INR 20,000 in BSE and Listing fee of INR 50,000 NSE. Other costs depend on the size
of the issue.
9. Restriction on secondary listing or dual listing
Follow on public offering and rights issue permitted.
10. Language required for:
a. Prospectus: English
b. Annual reports: English
c. Audit reports: English
11. Audit opinion required for:
a. IPO
b. After IPO
12. Requirements of accounting auditors to be appointed
Foreign auditors are not allowed to sign the reports. Indian audit firms to be appointed.
13. Other information
www.bseindia.com
www.nseindia.com
www.investor.sebi.gov.in
Human resource requirements
1. Special labor standards to take heed of
Labor regulations are governed by several central government and state government regulations.
2. Social welfare: insurance, pension, etc
Provident Fund Act - Employer is required to make a contribution of 13.61% of employee’ basic
salary component to the credit PF Organisation. Provident Fund provisions mandatory to
international workers.
Employee State Insurance Act (ESI) - Employer to contribute 4.75% of gross salary to credit of ESI
regulator. Employees drawing less than INR 15,000 of gross salary covered.
3. Requirements for retirement benefits
Gratuity - 15 days of basic salary for every year of completed service, subject to employee
completing five (5) years of service with the company. Maximum tax-free contribution of
US$ 18,518 (Calculated at exchange rate of Rs. 54 per US$ 1).
4. Legal annual leave and public holidays
One day of privilege leave for every 25 days worked.
5. Brief information on labor unions
Labour unions are generally found in companies engaged in manufacturing of goods and having
strength greater than 500.
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Crowe Horwath International
Investing in Asia Pacific 2013
6. Other information
www.epfindia.com
www.esic.nic.in
www.labour.nic.in
INDIA
Withdrawal procedures
1. Company: legal procedures required for liquidation
For closely controlled companies - Application for striking off company name can be to ROC if
certain conditions are satisfied.
Voluntary Liquidation by Shareholders and Liquidation by Creditors. Liquidation procedures can
take anywhere between three (3) months to a couple of years.
2. Company: tax requirements
All pending tax assessments must be completed.
Registrations are to be surrendered.
3. Branch: legal procedures required for closing branch
Annual Activity Certificate, Auditor’s Report to be filed with RBI.
Tax Clearance Certificate from Income Tax Authority.
Report from ROC.
Confirmation from parent company on no existing legal proceedings.
4. Branch: tax requirements
Tax Clearance Certificate from Income Tax Authority.
5. Representative office: legal procedures required for closing office
Same as for branch.
6. Representative office: any tax requirements
Same as for branch.
7. Other information
www.incometaxindia.gov.in
37
INDONESIA
Establishing the business entity
Contact
Munir Ali
ADVISORY PARTNER
munir.ali@
crowehorwath.co.id
Army Djatiprasetya
TAX PARTNER
army.djatiprasetya@
crowehorwath.co.id
Jenly Hendrawan
AUDIT PARTNER
jenly.hendrawan@
crowehorwath.co.id
Center For Investment
And Business Advisory /
Kosasih, Nurdiyaman,
Tjahjo & Rekan
Cyber 2 Tower 21st Floor
JL. HR. Rasuna Said Blok X-5,
Jakarta Selatan 12950
Tel: +62 21 2553 5699
Fax: +62 21 2553 5698
1. Formation
Company
The process to complete the establishment of a company would generally take approximately four
(4) – six (6) months.
For foreign investment company, a business registration should be obtained. In addition to the
business registration, business entities engaging in certain industries (e.g. Banking businesses,
merchant banking, finance companies, credit and charge card operations, money-changing and
remittance businesses, air, land and sea transportation and oil and gas exploration and production)
require special licenses from Regulatory authority.
Branch
It takes approximately three (3) months.
In general, foreign companies may not establish branches in Indonesia, except foreign companies
engaged in certain industries, such as oil and gas and banking. There are certain foreign banks with
licenses to operate through branches in Indonesia.
However, for new investment in banking, a local incorporated company is required. For tax
purposes, branches of foreign companies are considered permanent establishments (PEs).
Representative office
It takes approximately three (3) months to complete establishment of a representative office.
The time for obtaining of the licenses is depending of the competent authority who will issue the license.
Foreign companies may set up representative offices of various types, depending on the issuance of
licenses by competent authorities. The licenses granted for representative offices are typically for
conducting preparatory or auxiliary types of activities, such as acting as an intermediary, assisting
with promotional and marketing activities and gathering information for head offices.
An exception to this is a representative office under the Department of Public Works where the
license allows the representative office to conduct business activities.
2. Investment incentives
Company
Incentives for investment in certain industries and / or region:
a reduction in net income of 30% of the invested amount, which can be claimed within six (6)
years of the initial investment and is prorated at 5% per annum.
acceleration of fiscal depreciation.
a reduced tax rate of 10% on dividends paid to non-residents (or a lower tax treaty rate).
an extension of loss carry forward to more than five (5) years, but not more than ten (10) years
under certain conditions.
Tax holiday for new company in pioneer industry with certain investment criteria in the form of:
corporate income tax exemption of five (5) up to ten (10) years from the start of commercial
production;
50% reduction on corporate income tax payable for the next two period after the exemption
period.
Tax facilities for investment in renewable energy industry in the form of:
a reduction in net income of 30% of the invested amount, which can be claimed within six (6)
years of the initial investment and is prorated at 5% per annum.
acceleration of fiscal depreciation.
a reduced tax rate of 10% on dividends paid to non-residents (or a lower tax treaty rate).
an extension of loss carry forward to more than five (5) years, but not more than ten (10) years
under certain conditions.
exemption of customs duty, income tax and VAT on import of machinery and equipment (not
including spare parts).
Branch
There is no investment incentives for branch.
38
Representative office
Same as for branch.
Crowe Horwath International
Investing in Asia Pacific 2013
3. Foreign ownership restriction
There are certain industry sectors in which foreign investment is either restricted or prohibited.
These are outlined in Indonesia’s “negative list” which provides guidance for foreign investors on:
sectors wholly prohibited for foreign investors, and
sectors open to foreign investors with certain conditions / requirements.
INDONESIA
The conditions included in the “negative list” typically relate to percentage of ownership (at the
maximum of 95%) of a foreign investor in a PMA company.
4. Work permits and visas
Company
Work permits take approximately two (2) months and working visas takes a week to complete.
Branch
Same as for company.
Representative office
Same as for company.
5. Accounting standards and audit requirements
Company
Accounting Standards requirements: Indonesian GAAP is IFRS Convergent starting 1 January 2012.
Audit requirements: Financial Statements to be prepared in conformity with GAAP in Indonesia.
Branch
Same as for company.
Representative office
Same as for company.
6. Residential directors / promoters requirements
Company
Foreigners directors must have:
a. Valid working permit / Visa.
b. KITAS (limited stay permit card) / KITAP (permanent stay permit card).
To establish a Company, there must at least be one (1) Director and one (1) Commissioner.
Representative Office
The appointment of Representative Office Executives shall be based on the letter of appointment
from the foreign company or groups of foreign companies.
7. Foreign ownership over tangible assets
Company
There is no restriction of foreign investment company (treated as a Indonesian resident) to own land
and building.
Branch
Non-resident is not allowed to own land and/or building in Indonesia.
Representative Office
Same as for branch.
8. Country quirks
Not available.
Tax information
1. Tax rates on corporate income
Normal rate is 25% (applicable since 2010 – onwards); or
50% of the normal rate is applicable for company that have annual gross turn over at the
maximum of IDR 50 billion provided other criteria is met; or
5% reduced of normal tax rate is applicable for public listed company meeting certain criteria.
2. Other taxes
Value Added Tax
(VAT)
VAT at a rate of 10% applies to the delivery of goods and/or services in
the Indonesian Customs Area, importation of goods, and utilisation in
the Indonesian Customs Area of intangible goods and/or services
originating from offshore.
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The rate of 10% can be reduced or increased to 5% or 15%. VAT at
a rate of 0% applies to the exportation of tangible goods, intangible
goods and services.
Sales tax on luxury
goods (STLG)
STLG is imposed on:
the transfer of goods categorised as luxuries within the Indonesian
customs area by a firm which produces the goods as part of its
core or usual business activity.
the importation of goods categorised as luxuries.
STLG is only imposed once, at the time of the transfer of goods
categorised as luxuries by the firm producing the goods, or at the
time of import.
The applicable STLG rate ranges from 10% to 200%, depending on
the type of goods transferred or imported.
Motor vehicle taxes
Motor vehicle tax is levied annually in Indonesia on owners of motor
vehicles. Motor vehicle tax is imposed on the basis of a vehicle’s
weight relative to the degree of road damage the vehicle may
potentially cause and / or environmental contamination caused by
the vehicle, and the market value of the vehicle, as determined by
the government.
The applicable motor vehicle tax rates depend on the number of
vehicles owned:
1% to 2% for the first owned motor vehicle, and
2% to 10%, applied progressively, for the second and
subsequently owned motor vehicles.
Stamp duty
The applicable stamp duty rate is either IDR 3,000 or IDR 6,000
IDR 3,000 stamp duty is payable on all documents bearing a sum of
money in amounts between IDR 250,000 and IDR 1 million. IDR
6,000 million stamp duty is payable on all documents bearing a sum
of money in amounts above IDR 1 million.
Land and building tax
(LBT)
The applicable tax rate is 0.3% of the sale value of the land and/or
buildings. The sale value is determined every three years by the
regional/district government, except for certain land and/or buildings
of which the value can be determined on an annual basis by the
regional/district government.
In certain cases, for land and/or buildings used for plantations,
forestry and mining activities, the applicable rate is 0.5% of the sale
value of the land and/or buildings. In this case, the sale value is
either 20% or 40% of the assessed property value, for sale values
up to IDR 1 billion and above IDR 1 billion, respectively. The
assessed property value is determined by the Directorate General
of Taxes (DGT).
Land and/or buildings are exempted from LBT in the following
circumstances:
when used by the central or a regional government
when used merely for public services in relation to religious
affairs, social affairs, health, education and national culture, and
not for profit-oriented purposes
when used for a cemetery, ancient heritage site or similar
purpose
when used as a protected reserve or recreational forest, national
park, grazing land controlled by a village and state land not yet
charged with any right
when used by a diplomatic representation under a reciprocal
arrangement, or
when used by a representation of an international organisation as
determined by the Ministry of Finance.
Tax on land and
building right
transfers (TLBRT)
40
Payable on the transfer of land and / or buildings. The transferor is
the party obliged to settle the TLBRT due. The applicable rate of
TLBRT is 5% of the gross transfer value. The gross transfer value is
the higher of the actual transaction value and the assessed property
value as determined by the regional / district government (except
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INDONESIA
for land used for plantations, forestry and mining where the
assessed value is determined by the DGT). The applicable TLBRT
for a transfer of an ordinary house / apartment / flat made by a real
estate company is 1% of the gross transfer value. TLBRT serves
as a final tax.
Duty on
acquisition of land
and building rights
(DALBR)
Payable on the acquisition of land and building rights at the rate of
5% of the gross transfer value. The gross transfer value is the
higher of the actual transaction value and the assessed property
value as determined by the regional/district government (except for
land used for plantations, forestry and mining where the assessed
value is determined by the DGT). The transferee is the party
obliged to settle the DALBR due.
DALBR is payable on the following qualified land and/or building
transfers:
sale / purchase and trade-in transactions
grants
inheritances
contributions to a corporation
right separation
the buyer designation in an auction
execution of a court decision with full legal force
business mergers, consolidations and expansions
prize deliveries
Tax on sales of high
luxury goods
An income tax of 5% is imposed on the sale of high luxury goods,
which includes the following types of goods:
private aeroplanes valued at more than IDR 20,000,000,000
yachts and other similar vessels valued at more than
IDR 10,000,000,000
houses, including land, valued at more than
IDR 10,000,000,000, and with an area of more than 500m2
apartments, condominiums and other similar dwellings valued at
more than IDR 10,000,000,000 and / or with an area of more
than 400m2
vehicles with four (4) wheels (eg sedan jeeps, sport utility
vehicles (SUVs), multi-purpose vehicles (MPVs), minibuses and
other similar vehicles) with a capacity to carry less than 10
passengers, valued at more than IDR 5,000,000,000 and with a
cylinder capacity of more than 3,000cc.
The applicable tax on the sale of high luxury goods is collected by
the seller, provided the seller is a corporate tax resident. Collected
tax serves as a tax credit for the buyer.
3. Branch income
Subject to 25% income tax plus 20% (or a reduced tax treaty rate) that applies on the after-tax
income of PEs, ie tax on a notional annual net income distribution.
Exemption from tax on a notional annual net income distribution applies if a PE reinvests its annual
net income in Indonesia, subject to the following requirements:
all of its net income is invested in the form of capital participation in a new company which is
domiciled in Indonesia.
the new company stated above must actively conducts its business operation (as stipulated in its
article of association) at the maximum one (1) year after the company is established.
investment takes place in the same tax year as that in which the net income is received or within
one (1) year thereafter.
the investment is maintained for at least two (2) years after commencement of commercial
production of the company in which the investment is made.
4. Income determination
Indonesia adopts a worldwide income concept of taxation for residents. This means that income
received or accrued in whatever name or form and originating from within or outside Indonesia,
which can be used for consumption or to increase the wealth of an Indonesian resident is taxable in
Indonesia.
Capital gains other than sale of listed stock and land and/or building derived by corporate residents
and PEs are treated as normal business income and are combined with other business income for
the purpose of calculating corporate income tax. The total income after considering total combined
income, including capital gains, and allowable costs and/or expenses is subject to tax at the
corporate income tax rate.
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INDONESIA
A dividend is the share of profit received by shareholders, including the sum exceeding the amount
of paid-up capital received or obtained by shareholders on a repurchase of shares. Dividends
received by a limited liability company or a state-owned company are exempted from income tax,
including withholding tax, provided the following conditions are met:
the recipient owns at least 25% of the shares of the Indonesian company distributing the dividend,
and
the dividend is derived from retained earnings.
If these conditions are not met, the dividend income is treated as income and subject to normal
income tax rates.
The recognition of foreign source income is as follows:
business income is recognized when it is received.
other income is recognized when it is paid.
dividend income is recognized when it is paid unless it is derived from a non-listed offshore
company (subject to certain criteria).
5. Deductions
Business expenses are deductible as long as they are incurred to obtain, collect and maintain
business profits. However, there are some expenses that cannot be claimed as a deduction for tax
purposes. Those expenses are:
distribution of profits in whatever name or form, such as dividends, including dividends paid by an
insurance company to policyholders, and any distribution of surplus by a cooperative.
expenses charged or incurred for the personal benefit of shareholders, partners or members.
formation or accumulation of reserves, except for reserves for bad debts in the case of a bank,
finance lease company, consumer finance company, factoring company, reserves in an insurance
business, other companies providing loans, reserves for reclamation costs in mining,
appropriation for the costs of reforestation/replanting undertaken by forestry companies, and the
waste closure or maintenance costs of industrial waste management companies, the terms and
conditions of which are stipulated through a Minister of Finance Decree (MFD).
insurance premiums for health, accident, life, dual purpose and education insurance which are
paid by an individual taxpayer, except those paid by an employer where premiums are treated as
income of the taxpayer.
consideration or remuneration related to employment or services given in the form of benefits in
kind, except in the case of the provision of food and beverages for employees or consideration or
remuneration given in the form of benefits in kind in certain regions and in connection with
employment, as stipulated by an MFD.
excessive compensation paid to shareholders or other associated parties as a consideration for
work performed.
gifts, aid or donations, and inheritances, except “zakat” (Islamic tithe) on income actually paid by
a Muslim individual resident and/or a company owned by Muslim individuals to an “amil zakat”
(charitable) board or other “amil zakat” institutions established or approved by the government, or
other contributions made by individuals which are mandatory for other religions acknowledged in
Indonesia to institutions established or approved by the government.
income tax.
costs incurred for the personal benefit of a taxpayer or their dependants.
salary paid to a member of an association, firm or partnership whose capital does not consist of
stocks.
administrative penalties in the form of interest, fines and surcharges, as well as criminal penalties
in the form of fines imposed pursuant to the tax laws.
6. Group taxation policies
Corporations are taxed on an individual entity basis. No group consolidation is recognised.
7. Tax incentives
Please see our comments under section Establishing the business entity: Investment incentives.
8. Withholding tax
42
Dividends
0% for dividend paid to PT (limited liability company) or a state-owned
company which owns at least 25% of the shares of the Indonesian company
distributing the dividend, and the dividend is derived from retained earnings.
15% for dividend paid to other Indonesian resident company.
10% for dividend paid to Indonesian resident individual.
20% or reduced tax treaty rate for dividend paid to foreign resident.
Interest
15% for interest paid to Indonesian resident.
20% or reduced tax treaty rate for interest paid to foreign resident.
Royalties
15% for royalty paid to Indonesian resident.
20% or reduced tax treaty rate for royalty paid to foreign resident.
Technical fee
2% for technical fee paid to Indonesian resident company, while progressive
tax rate (ranging from 5% - 30%) applies on technical fee paid to Indonesian
resident individual.
20% or reduced tax treaty rate for technical fee paid to foreign resident.
Branch profit
20% or reduced tax treaty rate that can be exempted from tax if a PE
reinvests its annual net income in Indonesia, subject to the following
requirements:
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all of its net income is invested in the form of capital participation in a new
company which is domiciled in Indonesia.
the new company stated above must actively conducts its business
operation (as stipulated in its article of association) at the maximum one
year after the company is established.
investment takes place in the same tax year as that in which the net
income is received or within one year thereafter.
the investment is maintained for at least two years after commencement of
commercial production of the company in which the investment is made.
INDONESIA
9. Tax administration
Monthly
Annual
Type of tax
Payment
deadline
Tax return
deadline
Payment
deadline
Corporate
income tax
15th of the
following month
20th of the
following month
Before deadline
End of the 4th
for submitting the month after tax
return
year end
Individual income 15th of the
tax
following month
20th of the
following month
Before deadline
End of the 3rd
for submitting the month after tax
return
year end
Employee
withholding tax
10th of the
following month
20th of the
following month
N/A
N/A
Other withholding 10th of the
taxes, ie
following month
withholding tax
art 23/26 and
final withholding
tax art 4.2
20th of the
following month
N/A
N/A
VAT and STLG
20th of the
following month
End of the month
following the
month in which
the VAT is due
before the
submission of the
VAT return
End of the
month following
the month in
which the VAT
is due
15th of the
following month
Tax return
deadline
10. Taxable incomes for non-residential companies and individuals
Non-residential companies and individuals are taxed at its gross income unless Indonesian tax
treaty provide limitation/exemption for Indonesia’s right to tax.
IPO quick facts
1. Bourses in the country
Indonesia Stock Exchange (IDX)
2. Admission requirements
Indonesia Stock Exchange (IDX)
a. Company size
Has net tangible assets minimum amounting to IDR 100 billion. Nominal value of the shares at
least IDR 100 per share.
b. Trading record
Having been operating in operating core business at least 36 consecutive months.
c. Public shareholding requirement
The total shares owned by non controlling shareholders (minority shareholders) after the public
offering or a company that has been listed at another stock exchange or an unlisted public
company in the period of five (5) exchange days prior to the listing application are at least
100,000,000 (one hundred million) of shares or at least 35% of the paid in capital, whichever is
lesser.
The total number of shareholders having the securities accounts at the securities exchange is at
least 1,000.
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d. Compliance with any development policy
Capital Market and Financial Institutions Supervisory Agency (“Bapepam-LK”) requirements.
e. Qualitative requirements
A legal entity in the form of Limited Liability Company (PT)
The registration statement submitted to the Bapepam has become effective.
In the event the prospective listed company is a subsidiary or a holding company of the listed
company, then:
i. upon termination of affiliation between the prospective listed company and the listed company,
each company can continue to sufficiently perform its operational activity pursuant to the
appraisal of an independent party; and
ii. pursuant to the proforma financial statement of the listed company, without having
consolidated with the financial statement of the prospective listed company, can fulfill the listing
requirement; or
iii. pursuant to the proforma financial statement of the prospective listed company, without being
consolidated with the financial statement of the listed company, can fulfill the listing
requirement.
The financial statements have been audited at least for the last three (3) years, provided the last
two (2) years and the latest audit interim financial statement obtain unqualified opinion.
Having independent commissioners at least 30% of the composition of the board of
commissioners.
Having at least one (1) unaffiliated director in the composition of the board of directors.
Having an audit committee or for any prospective listed company which has not had an audit
committee must make a statement to form an audit committee within six (6) months after the
company is listed.
Having a corporate secretary.
e. Others
A Listed Company is prohibited to change the nominal value of stock (stock split or reverse stock)
at least twelve (12) months as of the Listed Company’s stocks are traded at the Exchange.
For a Listed Company whose stocks have been traded at the Exchange is prohibited to change
the nominal value of stock (stock split or reverse stock) at least twelve (12) months after the latest
change of its nominal value.
3. Specific requirements for specific industries
Not available.
4. Typical issuance size
Indonesia Stock Exchange (IDX): At least 100,000,000 (one hundred million) of shares or at least
35% of the paid in capital, whichever is lesser.
5. Approving Authorities
Bapepam-LK.
6. Estimated cost involved
Registration fee IDR 15 million
Initial listing cost IDR 10 million - IDR 150 million
Annual listing cost IDR 5 million - IDR 100 million
Additional shares listing cost IDR 10 million - IDR 150 million
7. Language required for:
a. Prospectus: Bahasa Indonesia.
b. Annual reports: Bahasa Indonesia.
c. Audit reports: Bahasa Indonesia.
8. Audit opinion required for :
a. IPO
Unqualified opinion for the last two (2) years and the last interim audit financial statements
consecutively.
b. After IPO
Not available.
9. Requirements of accounting auditors to be appointed
Registered with Bapepam-LK and comply with Bapepam-LK Rule VIII.A.1 concerning Registration
of Accountant Engaging in Capital Market Activities (Decision of The Chairman of Capital Market
and Financial Institutions Supervisory Agency Number: KEP – 41/BL/2008).
44
10. Delisting standards from bourses
Delisting of a share from the list of Stock Securities that is listed at the Exchange may occur if due to:
The share Delisting application which is submitted by the relevant Listed Company;
The delisting of the share is delisted by the Exchange in accordance with provision III.3 of Rule
Number I-I concerning Delisting and Relisting of Securities at the Exchange (Decision Board of
Directors of IDXNo. Kep-308/BEJ/07-2004 concerning Delisting and Relisting of Securities at the
Exchange).
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Human resource requirements
INDONESIA
1. Special labour standards to take heed of
Act No.13 Year 2003 concerning Manpower; chapter VIII: Employment of Foreign Worker.
Ministerial Decision No: KEP-20/MEN/III/2004 concerning Procedures for the Utilization of Foreign
Workers.
Foreign worker can only be employed under limited time of working agreement (PKWT). The
agreement is made based on period of time or period of work. Working agreement has to be made
in Indonesian language and/or other foreign language. But when different interpretation occurs in
between, the Indonesian version that can be use/engage. PKWT based on period of time
maximum of five (5) years.
Basic Requirement of Foreign Employment.
i. Has a suitable educational background to the job in Indonesia.
ii. Has minimum five (5) years suitable/related working experiences.
iii. Willing to make a written agreement of knowledge and ability transfer to designated local
counterpart of the foreign worker.
iv. Able to communicate in Indonesian language.
The Obligation of Employers Based on Indonesian Labour Law.
i. Own a written permit from the Minister of Labor and Transmigration.
ii. Designating a local counterpart for the foreign worker.
iii. Providing training to the local counterpart based on the job qualification of the foreign worker.
iv. Pay the compensation (DPKK) of foreign worker.
v. Send the foreign worker to his/her country after the termination of working agreement.
2. Social welfare: insurance, pension, etc
Government Regulation No. 14 Year of 1993 concerning JAMSOSTEK
Employers are obligated to register their entire employee to JAMSOSTEK program including the
foreign worker unless the foreign worker has already registered in the same insurance program in
his/her country. Jamsostek contains of:
a. Accident Insurance Premium (Jaminan Kecelakaan/JKK):
There are 5 categories based on main business:
i. 0.24% from the basic salary paid by employer
ii. 0.54% from the basic salary paid by employer
iii. 0.89% from the basic salary paid by employer
iv. 1.27% from the basic salary paid by employer
v. 1.74% from the basic salary paid by employer
b. Life Insurance Premium (Jaminan Kematian/JK): 0.3% from the basic salary paid by employer
c. Annuity Insurance Premium (Jaminan Hari Tua/JHT):
2% from basic salary paid by employee
3.7% from basic salary paid by employer
d. Health Insurance Premium (Jaminan Pemeliharaan Kesehatan/JPK):
Paid by employer: 3% from basic salary for single employee
6% from basic salary for married employee
Ministerial Regulation No: PER.02/MEN/XII/2004 concerning JAMSOSTEK Procedures for
Foreign Workers.
3. Requirements for retirement benefits
Retirement Benefits:
Act No.13 Year 2003 concerning Manpower; chapter XII article 167:
a. If the employer does not provide retirement benefit program, the employer is obliged to pay
them: twice the amount of severance pay, one (1) time amount of reward pay, and
compensation pay that stipulated under Act No.13 Year 2003 concerning Manpower article
156.
b. If the retirement benefit program provided by employer is less than obligation mention above,
the employer shall pay the difference.
4. Legal annual leave and public holidays
The annual vacation leaves at least twelve (12) working days after twelve (12) consecutive
months of working. The other details regulated by the Company Rules (Peraturan Perusahaan)
or by the Working Agreement.
Other reasons workers allowed to take a leave:
a. Sick leave (more than a day should be proved by health certificate)
b. Wedding, marry of the children, child circumcision, child baptize, maternity/miscarriage,
family member dies.
c. Carrying out or fulfilling their obligations to the State.
d. Performing religious obligations.
There are 14 Public Holidays annually:
a. New Year;
b. Chinese New Year; c. Maulid of Prophet Mohammed;
d. Saka New Year;
e. Good Friday;
f. Waisak;
g. Accession Day of Jesus Christ; h. Isra Mi’raj;
i. Independence Day;
j. Eidl Fitri (2 days);
k. Eidl Adha;
l. Islamic New Year;
m. Christmas.
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5. Brief information on labour unions
Act No.13 Year 2003 concerning Manpower; chapter XI article 104:
Every worker has the right to form and become member of a labour unions.
Workers and their union shall perform the function of performing their jobs as obliged, working
order to ensure production, channeling their aspirations democratically, enhancing their skills
and expertise and helping promote the business of the enterprise and fight for the welfare of
their members and families.
Labour Unions should be registered to the regency labour institution (Ministerial Decision No.
16 Year of 2001) and should be verified by the same institution (Ministerial Regulation No: PER.
06/MEN/IV/2005 concerning Procedure of Labour Union Verification).
6. Country quirks
Working Hours:
Seven (7) hours a day and 40 hours a week for six (6) working days within a week; or
Eight (8) hours a day and 40 hours a week for five (5) working days within a week.
THR (Tunjangan Hari Raya):
Ministerial Regulation No: PER.04/MEN/1994 concerning Tunjangan Hari Raya:
a. Employer should provide THR to each employee that has completed three (3) months of
working.
b. One (1) month salary annually and this shall be pro-rated for any incomplete year of service.
Should the termination of employment take place, the employer is obliged to pay the dismissed
worker severance pay, reward pay, and compensation pay. The amount of the severance and
reward is based on the years of employment which disputed in Act No.13 Year 2003 concerning
Manpower; chapter XII article 156.
Withdrawal procedures
1. Company: legal procedures required for liquidation
Company
Dissolute
Court
Decision
Decision of General Meeting
of Shareholders
Stated in AoA
Report to tax office,
BKPM and P4D Jakarta
Liquidation
Process
Registration in
Company Registrar
Announcement in
State Gazette
Announcement in
two (2) daily newspapers
Acknowlegdement
to Minister
30 days since
Dissolution Effective
Notification to all creditors to submit invoice
within 120 days after the notification
Asset
Settlement
Recording and
gathering
Company’s Assets
Determining the
procedure for
assets distribution
Paying the balance
of the assets
resulting from
liquidation to
shareholders
Paying the
creditors
Liquidation
Done
Liquidator
responsible to GMoS
Registration to
Company Registrar
46
Announcement in
State Gazette
Announcements in
two (2) daily newspapers
Other requires
legal acts
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2. Company: legal procedures required for liquidation
Distribution of capital on the liquidation of a company is normally treated as a payback of capital and
hence not subject to tax. The amount received by shareholders in excess of the paid-up capital in
liquidation is treated as a dividend.
INDONESIA
Distributions out of profits earned before or during liquidation are treated as dividends.
Tax audit will be conducted for tax ID number revocation in relation to the liquidation process.
3. Branch: tax requirements
Tax audit will be conducted for tax ID number revocation in relation to the liquidation process.
4. Representative office: legal procedures required for closing office
Information not available.
5. Representative office: any tax requirements
Tax audit will be conducted for tax ID number revocation in relation to the liquidation process.
47
JAPAN
Establishing the business entity
Contact
Ryoichi Komatsu
SENIOR PARTNER
ryiochi.komatsu@
crowehorwath-japan.jp
+81-3-3517-3421
1. Formation
Company
A. Formation
Approx. four (4) – six (6) weeks.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Determination of company profile.
Examination of similar names at Legal Affair Bureau.
Acquisition of registration certificates.
Notarization of article of corporation.
Application to bank for capital custody and issue of capital custody certificate.
Remittance of capital to specific bank account.
Appointment of directors and other officers.
Registration to the Legal Affairs Bureau.
Acquisition of certificate on registered information and company seal.
Opening bank account under company name.
Notification of stock acquisition to the bank of Japan (Requirement under Foreign Exchange Law).
B. Time Required
Approx. three (3) – four (4) weeks.
C. Costs
1. Preparation of article of corporation
40,000 yen (revenue stamp) , 50,000 yen (notarization fees) , 250 yen per sheet (certification fee).
2. Registration tax is payable at the rate of 7/1,000 of the paid-in capital, with a minimum amount
of 150,000 yen.
3. Commission to the bank is payable at the rate of 2.5/1,000 of the paid-in capital.
Branch
A. Formation
1.
2.
3.
4.
5.
6.
7.
Determination of branch office information to be registered.
Examination of similar names at Legal Affair Bureau.
Establishment of branch office.
Preparation and certification of Affidavit on establishment of the branch office.
Registration to the Legal Affairs Bureau.
Acquisition of certificate on registered information and company seal.
Opening bank account under branch name.
B. Time Required
Approx. 3-4 weeks.
C. Costs
Registration fee 90,000 yen per office.
Representative office
A. Formation
The establishment of representative office does not require registration.
Note that representative offices established by foreign banks, insurance companies, securities
companies or other financial institutions are required to provide prior notice to the Financial
Services Agency.
48
2. Investment incentives
Financing facilities by Development Bank of Japan
Foreign companies are eligible for certain loan program provided by Development Bank of Japan,
provided those loans are used for acquisition of fixed assets such as land, buildings and machinery,
and for research & development, M&A cost for the following “Eligible projects”:
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a. Projects for the promotion of foreign direct investment into Japan likely to contribute to
improving industrial structure or creation of new business/ jobs (At least 1/3 of capital of the
subject company needs to be owned by foreign companies or investors)
Loan is provided up to 50%of investment and official discount rate I is applied for interest.
(For first full-scale investment, official discount rate II is applied for interest)
b. Maintenance of international school facilities
Loan is provided up to 40% of investment and official discount rate I is applied for interest.
JAPAN
Incentives Extended by local Administrative Bodies
Municipal and local governments have enacted various regulations and programs to authorize tax
incentives including reductions of and exemptions from business tax, property tax, and subsidies /
loans to finance the acquisition of fixed assets, operating expenses, and facilities investment.
3. Foreign ownership restrictions
In principle, Foreign Direct Investment is permitted without any restrictions in vast majority of
industries in Japan and only the report of investment is required to submit to Minister of Finance and
the other in-charge regulatory either before or after the investment acquired more than 10% of
issued share of investees.
However, prior notification is required under Foreign Exchange and Foreign Trade Law for
investments in industries which threaten nation’s security, become an obstacle to public order and
hinder public safety.
In addition, Foreign Direct Investment is totally restricted in mining business by mining law and the
other limitations (up to 1/3 or 1/5 of total capital of investee) applied to investments in
telecommunication business, broadcasting business and air transportation business by individual
industrial laws.
4. Work permits and visas
Visas permitting to work (working visas) are for either one (1) year or three (3) years in principle.
This duration is decided by the Immigration Bureau of Ministry of Justice upon examination of the
visa application.
Application of visa is initiated by applying for Certificate of Eligibility for Resident Status to
Immigration Bureau of Japan. The Certificate of Eligibility for Resident Status will be delivered after
three (3) - six (6) weeks from your application. Japanese embassy in your country will issue visa in
response to your application with Certificate of Eligibility for Resident Status presented.
In addition, non-Japanese citizens performing following activities in Japan must acquire an Investor/
Business Manager visa.
1. Those investing in, starting up, and operating a business in Japan.
2. Those operating or managing business in Japan on behalf of a non-Japanese individuals or
company that has invested in or started up a business in Japan.
5. Accounting standards and audit requirements
Statutory audit are mainly composed of audit under Financial Instruments and Exchange Act and
audit under Companies Act.
a. Under the Financial Instruments and Exchange Act, following companies are required to have
an audit on their financial statements:
i. Companies offering or selling marketable securities with issue price or sales price of 100
million yen or more (Securities registration statement is required to submit).
ii. Companies issuing listed securities. (Listed companies).
iii. Companies of which shareholders are more than 500 in current business year or in past
four business years.
b. Under the Companies Act, following companies are required to have an audit on their financial
documents:
i. Large companies (incorporated with capital of 500 million yen or more, or total liabilities of
20 billion yen).
ii. Companies that have appointed committees.
6. Residential directors / promoters requirements
Company (Joint-stock)*1
Three (3) or more directors of which at least one representative director who resides in Japan is
required.
Board of Directors is also required to be established.
Branch
At least one (1) representative who resides in Japan is required.
Representative Office
At least one (1) representative who is either residents or non-residents is required.
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JAPAN
7. Foreign ownership over tangible assets
In principle, non-Japanese individuals and companies are free to own real estate in Japan. Even
aliens who do not have primary residence in Japan or foreign companies do not have subsidiaries
or branch office in Japan may acquire real estate such as land or buildings in Japan.
8. Country quirks
Company
Following companies are obligated to establish company auditor position except for companies
which established audit committee:
a. Large companies.
b. Companies with a board of directors.
c. Companies with an accounting auditors.
*a: Introduced joint stock company because it is most popular type of companies in Japan.
Tax information
1. Tax rates on corporate income
Corporation established in Japan are subject to taxes in Japan on their worldwide income, whether
earned in Japan or other countries.
Corporation taxes consist of 1) corporate tax, 2) inhabitant tax, 3) enterprise tax, 4) special local
corporate tax. Tax rates are depend on taxable income amounts as below:
Brackets of taxable income
Up to
4 million yen
(*)
Over
4 million yen to
8 million yen (*)
Over
8 million yen
1. Corporate tax
16.5%
16.5%
28.05%
2. Inhabitant tax
a. Prefectural
b. Municipal
0.90%
2.21%
0.90%
2.21%
1.50%
3.69%
3. Enterprise tax
2.70%
4.00%
5.30%
4. Special local corporate tax
2.30%
3.30%
4.30%
Total tax rate
24.61%
26.91%
42.84%
Effective tax rate
22.85%
24.55%
38.50%
(*):The above rates apply for business year started on or before March 31, 2015.
Those conditions are applied that the capital of the company is 100 million yen or less (NOT applied to
wholly-owned subsidiaries of large companies with capita of 500 million yen or more.) The rates for local
taxes may vary somewhat depending on the scale of the business and the local government under whose
jurisdiction it is located. The above rates are based on in Tokyo.
2. Other taxes
Consumption tax
Domestic and import transaction other than certain transactions deemed non-taxable (financial
transactions, capital transactions and partial transactions in the areas of medical care, welfare and
education) are subject to consumption tax.
Consumption tax rate is:
5% (national consumption tax rate of 4% and local consumption tax rate of 1%).
Business office tax
Companies in major cities having property exceeding 1,000 square meters in floor space and/or
having more than 100 employees are subject to business office tax of 600 yen per square meter
and 0.25% of the total amount of employees’ salaries.
Enterprise tax on a pro forma basis
Companies whose capital exceeds 100 million yen are subject to a imposition of enterprise tax on a
pro forma bases (plus income levy as mentioned above in 1) using capital and added value as
follows: (standard tax rate)
50
Added value levy
Capital levy
0.48%
0.20%
Crowe Horwath International
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3. Branch income
Foreign companies which have a branch are subject to levy a corporate tax, an inhabitant tax and
an enterprise tax on all domestic-sourced income.
JAPAN
4. Income determination
Transactions giving rise to gross income are as follows:
Sales of assets, transfer of assets, provision of sales, free transfer of assets or provision of
services and other transactions (interest on deposits, interest on loans and others)
Those items of gross taxable income which accrue from transactions by corporations and which are
stipulated to be excluded from gross revenue by special provisions are no included in taxable
income; dividends, increases in the book value of assets, tax refunds and so on.
Dividends received by domestic companies from other domestic companies (less certain interest
paid) are fully excluded taxable income. If a domestic company owns less than 25% shares of this
company, only 50% of the dividends (less certain interest paid) are exempt. 95% of Dividends
received from a foreign subsidiary is exempted from taxable income of its Japanese parent
company. The foreign subsidiary is defined as a foreign company whose 25% or more capital has
been owned by a Japanese company for more than six (6) months.
5. Deductions
Deductions for taxable income consist of:
Costs of sales, costs of completed construction work, and other costs corresponding to the gross
income derived.
Besides those mentioned above, SGA, other expenses accrued.
Loss incurred under review accruing from transactions other than capital transaction, etc.
In addition, those have specifically stipulated by tax laws as deductible expenses as follows:
The amount credited to various kinds of reserve such as allowance for bad debts, seven-year loss
carried forward and so on.
The following samples are not applied as deductible expenses under tax law:
Amounts exceeding a limit for depreciation of depreciable assets, amounts exceeding a limit of
entertainment expenses, loss of assets by unreasonable reevaluations, directors’ bonus,
excessive directors’ salaries and so on.
As to remittances made by a branch of a foreign company to its head foreign office cannot as a
general rule be treated as expense by the payer branch. In case of remittances made by subsidiary
in Japan to its patent arise from business-to business transactions, and so are generally regarded
as payments of costs/expenses, distributions of profits, repayments of loans, and so forth depending
on the nature of the transaction concerned.
6. Group taxation policies
Foreign tax credits
In order to avoid double taxation of income internationally, a domestic company is allowed to credit
foreign taxes to the creditable limit. This foreign tax credit system provides:
a. credit for foreign taxes paid directly by a domestic company on income earned by it outside
Japan (“direct tax credit”),
b. credits for amounts of tax that have been specially reduced or exempted under the provisions
of a tax convention (“tax-sparing credits”); and
c. credits for foreign taxes corresponding to the income of a specified foreign subsidiary or similar
entity that has been combined with the income of a domestic company under so-called anti-tax
haven taxation system.
Dividends from foreign subsidiaries
Domestic companies are allowed to exclude from their taxable income a certain amount of dividend
income from qualifying foreign subsidiaries. For details, please refer to no. 4 above.
7. Tax incentives
A company acquiring a specific asset or making a specific investment may be allowed to apply the
special treatment as follow:
Special tax credit
For business promotion, a company filing a blue form tax return is allowed to deduct a certain
amount of R&D expenses from corporate tax liability amount due.
Special depreciation
For assist of early recovery of invested capital or financing, the special depreciation which is
generally over and above the scope of the corresponding ordinary depreciation is allowed to
deduct from taxable income.
Special reserves for specific items
When a domestic company invests in specified overseas development investment and records
the reserve for overseas investment loss, a certain amount of such reserve may be allowed to
deduct from taxable income.
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JAPAN
Special tax treatments in Okinawa Special Free Trade Zone (FTZ)
For newly established domestic corporation at Okinawa Special FTZ, 35% of the income
earned may be exempt from corporate tax, inhabitant tax and enterprise tax for the first 10
years after the establishment.
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
20%
20%
20%
20%
For foreign companies, the tax base and rate are the same as those for
domestic companies basically. All domestic-sourced income is subject to a
corporate tax, an inhabitant tax and an enterprise tax in Japan.
9. Tax administration
A company is required to file a final return within two (2) months after the end of the business year
and must pay the calculated taxes to the tax office within the period. If a company cannot file a final
return with unavoidable reasons, the time limit for the final return may be postponed for one (1)
month with the approval of the tax authority and pay the calculated taxes plus interest tax.
A company whose taxable year exceeding six (6) months must file an interim return, within two (2)
months from the day marking the end of the first six (6) months of the taxable year.
10. Taxable incomes for non-residential companies and individuals
For non-residential companies, their entire domestic-sourced income is subject to a corporate tax,
an inhabitant tax and an enterprise tax.
Payments made in Japan of the domestic-sourced income to a non-resident or a foreign
corporation, or such payments made overseas by payers with a domicile or business office, etc. in
Japan, will be subject to withholding tax.
IPO quick facts
1. Bourses in the country
Main Market: 1st and 2nd Section
Tokyo Stock Exchange (TSE), Osaka Securities Exchange (OSE), Nagoya Stock Exchange (NSE),
etc.
New Market
Mothers (Tokyo), JASDAQ (Osaka), Centrex (Nagoya), etc.
Market for Professional Investors
Tokyo AIM
2. Admission requirements
Tokyo Stock Exchange (TSE 2nd Sec.)*2
a. Company size
Net assets
1 billion yen or more (Prior to application)
Profit
1. Profits in last two (2) years shall be 100 million yen or more for the 1st year and 400 million yen
or more for the 2nd year.
2. Profits in last three (3) years shall be 100 million yen or more for the 1st year and 400 million
yen or more for the 3rd year of the latest year and total 600 million yen or more for the latest
three (3) years.
3. Market capitalization as of the day of listing is expected to be 100 billion yen (N/A for issuer
who had sales less than 10 billion yen in the most recent business year)
Market Capitalization
20 billion yen or more.
b. Trading record
Three (3) years or more in continuous operation with a board of directors in place.
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c. Public shareholding requirement
1. Number of sharehold
2. Number of tradable shares: 4,000 units or more.
3. Ratio of tradable shares: 30% or more of the shares listed.
Crowe Horwath International
Investing in Asia Pacific 2013
d. Qualitative requirements
1. Corporate continuity and profitability.
2. Sound corporate management.
3. Effectiveness of corporate governance and internal controls.
4. Adequate disclosure of corporate information.
5. Other matters deemed necessary by the Exchange from public interest or investor protection
perspective.
JAPAN
Mothers *2
a. Company size
None required.
b. Trading record
One (1) year or more in continuous operation with a board of directors in place.
c. Public shareholding requirement
Number of shareholders: 300 or more.
Number of tradable shares: 2,000 units or more.
Ratio of tradable shares: 25% or more of the shares listed.
d. Qualitative requirements
1. Corporate continuity and profitability.
2. Sound corporate management.
3. Effectiveness of corporate governance and internal controls.
4. Reasonableness of business plan.
5. Other matters deemed necessary by the Exchange from public interest or investor protection
perspective.
3. Specific requirements for specific Industries
None required.
4. Typical issuance size
TSE:Depends on the authorized share stipulated in article of incorporation and the intention of
issuer.
Mothers: Depends on the authorized share stipulated in article of incorporation, and the intention
of issuer.
5. Requirements for the appointment of a resident / local director and board composition
Pursuant to the Japanese Company Act., at least one (1) representative director who resides in
Japan is required for incorporation of joint stock companies.
6. Restrictions for foreigners
a. Foreign applicants who expect to list their shares in Japanese debt/equity market shall comply
with following requirements:
1. No restriction on transfer of a foreign stock.
2. Its issuance is handled by designated book-entry transfer institution.
3. Where the initial listing is a depositary receipt, the deposit agreement shall be in accordance
with Enforcement rules.
4. The Number of shareholder in Japan is 800 or more (In case of multiple listing).
5. The large number of stock are not held by specific shareholders or depositary receipt
holders.
b. Foreign stock issuers are required to continue adequate disclosure after listing, notifying TSE
of certain specific matters. Foreign companies who issue foreign stock must appoint an
attorney- in-fact residing in the Tokyo area, who will fulfill the continuous disclosure
requirements on their behalf.
7. Methods of offer and restrictions
Newly listing and already listed companies use the book-building method or competitive bid when
they offer their shares to public.
8. Timeline
It will take two (2) - four (4) months from IPO application to IPO admission by Exchange. Offering
(Book building) process will take another approximate 30 days.
9. Approving authorities
Approval for IPO is provided by Stock exchange based on listing examination.
10. Estimated cost involved
The main expenses involved in public offerings are summarized below:
a. Stock listing audit/handling charges: 5 million yen - 15 million yen.
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Crowe Horwath International
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JAPAN
b. Yearly listing fee: 500,000 yen - 2 million yen.
c. Printing charges for stock certificates, marketable securities reports, company prospectus,
printing fee for IR, etc.: 10 million yen - 20 million yen.
e. Expenses for securities representation work: Around 4 million yen
f Accounting auditors fees: 6 million yen - 15 million yen
g. Securities company consulting fees: Around 5 million yen
h. External consulting (commissioned as needed: cost can range widely):
Around 1 million yen - 10 million yen
Total: Around 50 million yen ~ 120 million yen
11. Language required for:
a. Prospectus: Basically Japanese
b. Annual reports: Basically Japanese but English is permitted for Foreign stock issuers.
(Translation should be attached)
c. Basically Japanese but English is permitted for Foreign stock issuers. (Translation should
be attached)
12. Audit opinion required for :
a. IPO
Audit opinion is required on financial statements for two (2) years - three (3) years for issuer
who applied with profit test for three (3) years prior to IPO.
Unqualified opinion for most recent year prior to IPO and Unqualified opinion or qualified
opinion for 2nd recent year in two (2) years prior to IPO.
b. After IPO
Except for adverse opinion or disclaimer of opinion issued by auditor (Delisting requirements)
13. Requirements of accounting auditors to be appointed
All listing applicants are required to have an audit of their financial statements for two (2) years
(three (3) years for issuer who applied with profit test for three (3) years) prior to Initial Public
Offering.
With regard to the foreign auditors, even stock exchange or listing requirement does not designate
auditor’s nationality, generally, Japanese auditors are appointed since financial statements subject
to audit are required to be prepared under Japanese GAAP. (Except for foreign stock issuers)
14. Delisting standards from bourses
Main Market
a. Number of shareholders
Less than 400 and will not reach the number within a year.
b. Number of Tradable shares
Less than 2,000 units and will not reach the number within a year.
c. Market capitalization of tradable shares
Less than 500 million yen and will not reach the amount within a year.
d. Trading volume
Average monthly trading volume in the most recent year is less than ten (10) units, or no
trade made for three (3) month period.
e. Market capitalization
Less than one (1) billion yen and will not reach the amount within nine (9) months, or less
than the amount which is equivalent to twice of listed number of the stock and will not reach
the number within a year.
f. Liabilities exceeded assets and will not recover within a year
g. False reporting and adverse opinion issued by auditor
h. Suspension of bunk transactions, bankruptcy proceedings, or suspension of its business
activities, etc.
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New Market
a. Number of shareholders
Less than 150 and will not reach the number within a year.
b. Number of Tradable shares
Less than 1,000 units and will not reach the number within a year.
c. Market capitalization of tradable shares
Less than 250 million yen and will not reach the amount within a year.
d. Trading volume
Average monthly trading volume in the most recent year is less than ten (10) units, or no
trade made for three (3) month period.
e. Market capitalization
Less than 500 million yen and will not reach the amount within nine (9) months, or less than
the amount which is equivalent to twice of listed number of the stock and will not reach the
number within a year.
Crowe Horwath International
Investing in Asia Pacific 2013
f. Liabilities exceeded assets and will not recover within a year
g False reporting and adverse opinion issued by auditor
h. Sales in the most recent year: less than JPY 100 million
i. Suspension of bunk transactions, bankruptcy proceedings, or suspension of its business
activities, etc.
JAPAN
15. Country quirks
Newly listed stock on Main Market shall be initially assigned to 2nd Section, then transferred to 1st
Sec. only when issuer meets the criteria for designation of 1st Sec. stated below:
Number of shareholders: 2,200 or more.
Number of tradable shares: 20,000 units or more.
Market capitalization of tradable shares: 1 billion yen or more.
Ratio of tradable shares: 35% or more of the share listed.
Note*2: Introduced Tokyo Stock Exchange and Mothers because those have the biggest transaction
volume and market capitalization in respective markets.
Human resource requirements
1. Special labour standards to take heed of
According to the Labor Standards Law in Japan, working hours must, in principle, not exceed 40
hours per week or eight hours per day excluding breaks (“statutory working hours”).
Any employer that requires workers to work in excess of statutory working hours or on statutory
days off must file a formal form to the Local Labor Standards Inspection Office.
2. Social welfare: insurance, pension, etc
Generally Japan has four different kinds of insurance system with companies are legally obliged to
take part in;
i. Workers’ Accident Compensation Insurance which covers any illness or accident incurred by
workers as a result of work or while commuting to or from work.
Premiums are calculated as 0.25% to 8.9% of each works’ total wage. The employer bears the
burden of paying premiums.
ii. Employment insurance which provides for workers that become unemployed and helps to
maintain stable employment such as by providing financial aid and subsidies.
Premiums are calculated as 1.35% of each works’ total wage (the employer paying 0.95% and
the worker paying 0.5%).
iii. Health Insurance and Nursing Care Insurance which cover medical and nursing care expenses
incurred by workers.
Insurance premiums rate are depending on each Health Insurance Association. For Nursing
Care Insurance, premiums are 1.55% of standard monthly remuneration (incl. standard bonus).
The insured party and the employer share the premiums paying equally.
iv. Employee’s Pension Insurance which provides for benefits to workers in their old age, or in the
case of death or disability
Insurance premiums are 16.766% of the standard monthly remuneration (incl. standard bonus)
and the insured party and the employer share the premiums equally.
i. and ii are known collectively as “labor insurance,” while iii and iv are referred to collectively as
“social insurance.”
3. Requirements for retirement benefits
Almost all enterprises in Japan have some form of retirement benefit system because the benefit
pay is treated more favorably for tax purposes than ordinary salary pay. The retirement benefit plan
is determined by the company and requirement for that system is depending on its bylaw. Some
public systems such as the Smaller Enterprise Retirement Allowance Mutual Aid (SERAMA) require
certain requirements like eligibility of participation (the limit of the number of employee and the
amount of capital of the company).
4. Legal annual leave and public holidays
Paid leave:
Employers must grant ten (10) days’ paid leave to employees that worked for six (6) months from
the time of hiring and who worked on not less than 80% of all schedule work days. Leave days
granted is depending on a length of years of work service (ten (10) days to twenty (20) days per
year). The right to annual paid leave expires after two (2) years. Settlement of paid leave with
money except for at the time of retirement is not permitted in Japan.
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JAPAN
Public holiday:
1/1, 1/10, 2/11, 3/21, 4/29, 5/3, 5/4, 5/5, 7/18, 9/19, 9/23, 10/10, 11/3, 11/23, 12/23
When public holiday falls on Sunday, the following Monday is an alternative holiday.
5. Brief information on labour unions
The right of its labor unions to carry out their activities is guaranteed by law. No company may
refuse its labor union’s request for collective negotiations without due cause.
6. Country quirks
Dismissal in Japan
An employer is only allowed to dismiss an employee if there are objectively reasonable grounds
for dismissal, and dismissal is deemed to be appropriate in light of socially accepted ideas. All
possible grounds for dismissal must be clearly stated in the internal rules if the dismissal of an
employee is to be valid. Termination of an employment contract by the payment of a certain
amount may not be recognized as a matter of course by law except where an amiable settlement
is reached between the parties concerned.
Withdrawal procedures
1. Company: legal procedures required for liquidation
General procedure for an incorporated company
a. Application to the Legal Affairs Bureau for registration of the dissolution of the company and
the appointment of a liquidator.
b. Notification to tax authorities of the dissolution of the company and the appointment of a
liquidator.
c. Call for creditors with objections to liquidation of the company, on an individual basis and
through notices in official gazettes, to submit claims.
d. Ascertainment and distribution of residual assets.
e. Resolution approving conclusion of liquidation at the general meeting of shareholders or
equivalent (no sooner than two (2) months after the call and placement of notices in three (3)
above).
f. Application for registration of the completion of liquidation of the company with the Legal Affairs
Bureau.
g. Acquisition of certificate on registered closure information (approx. two (2) weeks after
application for registration).
h. Notification of completion to tax authorities, etc.
Should the company have negative net assets, the company cannot independently complete the
liquidation procedures above but instead must follow special liquidation procedures under the
direction of a court.
2. Company: legal procedures required for liquidation
In case of normal dissolution of the company under law, addition to the procedures in one (1) above,
the liquidator is required to file a final return and make a final payment of the tax on liquidation
income immediately before the final distribution of residual assets.
3. Branch: legal procedures required for closing branch
a. Call for creditors with objections to the branch office closure, on an individual basis and
through a notice in official gazettes, to submit claims.
b. Notification of tax agent to tax authorities.
c. Ascertainment of residual property.
d. Branch office closure (no sooner than one month after call/notice in a. above).
e. Preparation of affidavit regarding closure of branch office.
f. Attestation of affidavit by embassy consul.
g. Application for registration of branch office closure with the Legal Affairs Bureau.
h. Acquisition of certificate on registered closure information (about two weeks after registration
application).
i. Notification of branch office closure to tax authorities, etc.
4. Branch: tax requirements
Since tax on liquidation income is not levied on foreign corporations (branch in Japan), the tax on
ordinary income is levied even after liquidation proceedings have commenced. When the foreign
company ceases to be subject to Japanese corporation tax by closing its branch office in Japan, its
business year is deemed to end a that time and it must file a final return accordingly.
56
5. Representative office: legal procedures required for closing office
Representative offices can be freely established without any registration requirements and
notifications need be provided to tax offices. Therefore, the procedures for closing office are just
bank account closure, notification for employees had worked in the office to the Labor Standards
Supervision Office or the Social Insurance Office, the tax office, etc.
KOREA
Establishing the business entity
1. Formation and costs
Company
To establish a company in Korea, a foreign (non-Korean) investor must first report or register its
establishment with the foreign exchange bank, the district court and the district tax office, and it
usually takes two weeks to complete the registration process of a Korean company.
If the Korean company is to engage in financial services or in a restricted business as defined in the
Foreign Investment Promotion Act (FIPA), the foreign investor must obtain a prior approval from the
relevant authority.
The minimum capital requirement is KRW 100 million per each foreign investor. The court
registration tax is 1.44% (0.48% for non-Metropolitan area) of the paid-in capital and other dues are
US$ 1,000 or less.
Contact
Gee-Soo Sim
Hyung-Soo Kim
HORWATH
CHOONGJUNG LLC
post@
crowehorwath.co.kr
+82 2 3166 600
A Korean company is required to file the annual/semi-annual corporate income tax return, the
quarterly VAT return, monthly withholding tax return with the district tax office.
Branch
Similar to a Korean company, a foreign corporation must first report or register its branch
establishment with the foreign exchange bank, the district court and the district tax office, and it
usually takes two (2) weeks to complete the registration process of a Korean branch.
If the Korean branch is to engage in financial services or in a restricted business as defined in the
FIPA, the foreign investor must obtain a prior approval from the relevant authority. As the Korean
branch does not have the paid-in capital, the court registration will cost only around US$ 100.
A Korean branch is also required to file the annual/semi-annual corporate income tax return, the
quarterly VAT return, monthly withholding tax return with the district tax office.
Representative Office
A representative office (RO) is treated as a non-taxable entity, and thus the RO may engage only in
non-revenue generating liaison activities exclusively for its head office. It usually takes a week to
complete the formation process for the RO (reports to the foreign exchange bank and the district tax
office) since it does not need the court registration.
The RO has no obligation to file the corporate income tax return or the VAT return. However, it is
required to file the monthly withholding tax return and submit the information on the input-VAT or the
exempted input-VAT from the purchase transactions to the district tax office.
2. Investment incentives
Company
For foreign investment which meets a set of qualifications, corporate income tax, withholding tax on
dividend, acquisition tax, property tax and customs duties on capital goods are exempted or reduced
in accordance with the Tax Incentives Limitation Law. The foreign invested company must apply for
the tax exemption to the Ministry of Strategy and Finance (MOSF) by the end of the initial business
year. The MOSF usually determines whether the company is eligible for the tax exemption within
twenty (20) days from the application date, however, the period may be extended, if necessary.
3. Foreign ownership restrictions
Company
There is no restriction of foreign ownership except for the specific industries listed in the FIPA (e.g.,
newspaper (less than 30%), fishing (less than 50%), airline company (less than 50%)
telecommunication (49% or less), cable broadcasting (49% or less), etc.)
4. Work permits and visas
Company
Eligible for D-8 visas.
Approximately two (2) weeks (incl. status change process).
Number of applicants per entity may be limited depending upon the amount of investment.
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KOREA
Branch
Eligible for D-7 visas.
Approximately two (2) weeks.
Number of applicants per entity may be limited.
Representative Office
Eligible for D-7 visas.
Approximately two (2) weeks.
Number of applicants per entity may be limited.
5. Accounting standards and audit requirements
Company
From 2011, the Korean IFRS (K-IFRS) applies to listed companies and financial companies (banks,
insurance companies, credit card companies, financial holding companies, etc.).
The following companies are subject to the statutory audit under the Korean Law.
Listed companies.
Company which has the assets of KRW 10 billion or more.
Company which has the assets of KRW 7 billion or more and the liabilities of KRW 7 billion or more.
Company which has the assets of KRW 7 billion or more and 300 employees or more.
Branch
Generally, a Korean branch is not subject to the statutory audit, but in the following cases, the
external audit by CPAs is required.
When the Korean branch remits the profit of more than KRW 100 million or more than 100% of its
operating funds to its head office,
When the Korean branch is closed.
6. Residential directors / promoters requirements
Company
From a theoretical perspective, the representative director of a Korean company must have a place
of residence in Korea. However, the foreigners having no place of residence in Korea, in practice,
have been registered with the district court as a representative director. Please note that there is the
possibility that the district court may reject the registration of the foreigner with no residence in
Korea as a representative director of a Korean company.
7. Foreign ownership over tangible assets
There is no restriction in acquisition of land and building by foreigners. However, under the
Foreigner’s Land Law, foreigners are required to report the acquisition of land to the local
government within sixty (60) days after the contract date of the land acquisition.
The foreigners include the followings:
a foreign individual or a foreign corporation.
a Korean company in which foreigners hold 50% or more of the shares.
a Korean company whose foreign directors are 50% or more of total directors.
a Korean branch or a representative office of a foreign corporation, etc.
Tax information
1. Tax rates on corporate income
Up to KRW 200 million of taxable income: 11% (including local income tax).
Over KRW 200 million and up to KRW 20 billion of taxable income: 22% (including local income tax).
Over KRW 20 billion of taxable income: 24.2% (including local income tax).
2. Other taxes
Value Added Tax (VAT)
10% of supply amount.
3. Branch income
Branch income is calculated in the same manner as that of a company. In the case of certain
country’s branch, the branch profit tax (5%~15%) may be added to the ordinary corporate income
tax in accordance with the relevant tax treaties with the countries concerned. (e.g., Canada, France,
Indonesia, Philippines, Thailand, Brazil, Morocco).
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4. Income determination
The taxable income is calculated by adding/deducting the tax adjustment items to/from the book income.
Gains from inventory valuation, security valuation and other asset valuation are not treated as taxable
income. The capital gain on assets including real properties will be taxed when realized. Intercompany
dividends received from a foreign subsidiary are added to the taxable income but the foreign tax credit
Crowe Horwath International
Investing in Asia Pacific 2013
will be allowed for the dividend income if certain conditions are met. Stock dividends will also be added
to the taxable income. A Korean company is liable to pay the corporate income tax on worldwide
income but a Korean branch is liable to pay the corporate income tax only on the Korean source
income.
KOREA
5. Deductions
Costs and expenses relating to the business are in principle deductible for tax purposes.
Depreciation and depletion are deductible within the tax limit specified in the Corporate Tax Law and
the net operating losses are carried over for ten (10) years. Payments to foreign affiliates such as
management service fees will be deductible only if the company can prove the reasonableness of
the management service fee and actual provision of services by the evidential documents.
6. Group taxation policies
Consolidated tax returns for Korean affiliate companies may be chosen if certain conditions are met.
However, the consolidated tax returns for cross border affiliates are not allowed.
7. Tax incentives
Research and Development (R&D) tax credit is allowed for the expenses incurred in relation to the
R&D activities. In addition, investment in fixed assets such as machinery, R&D facilities will be
eligible for the investment tax credit of 3%~10%.
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
22% (inclusive of local income tax)
22% (15.4% on government bonds or corporate bonds, inclusive of local
income tax)
22% (inclusive of local income tax)
22% (inclusive of local income tax. Technical services which are provided in
Korea are classified as personal service income)
5%~15%. Please see the branch profit tax above.
9. Tax administration
Annual corporate income tax (CIT) must be filed and paid by three (3) months after the end of the
fiscal year to the relevant tax authorities. Interim CIT must be filed and paid by two (2) months after
the first half (six (6) months) of the year.
A company must file and pay the VAT by the 25th day after the end of each quarter. In addition, the
monthly withholding tax return should be filed by the 10th day of the following month.
10. Taxable incomes for non-residential companies and individuals
Any income sourced in Korea received by non-residential companies and individuals are subject to
the Korean withholding tax at a rate of No.8 above. However, in the case of interest, dividends or
royalties, the withholding tax rates may be reduced under the tax treaties with the resident countries.
IPO quick facts
1. Bourses in the country
a. Korea Composite Stock Price Index (KOSPI)
b. Korea Securities Dealers Automated Quotations (KOSDAQ)
2. Admission requirements
KOSPI
a. Company size
Should meet all of the following conditions (1) and (2).
1. Net equity is KRW 10 billion or more, or
Aggregate stock market value is KRW 20 billion or more.
2. The number of outstanding shares is 1 million or more.
b. Trading record
Should meet one of the following conditions (1) ~(3) :
1. Sales and profit
Sales of KRW 30 billion or more for most recent fiscal year,
Average sales of KRW 20 billion or more for the past three (3) years, and
Generate the operating income, net income before tax and current income for most recent
fiscal year, etc.
2. Sales and aggregate stock market value (ASMV)
Sales of KRW 50 billion or more for most recent fiscal year, and
More than KRW 100 billion of ASMV.
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Crowe Horwath International
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KOREA
3. Sales, ASMV and cash flow
Sales of KRW 70 billion or more for most recent fiscal year,
More than KRW 50 billion of ASMV, and
At least KRW 2 billion of operating cash flow for most recent year.
c. Public shareholding requirement
Should meet all of the following conditions (1)~(4)
1. Minority shareholder requirement
Minority shareholding ratio is at least 25%, or
The ratio of public offered shares is at least 25%.
2. Number of minority shareholders is at least 1,000.
3. At least 5% of total shares and at least KRW 1 billion of capital amount should be publicly offered.
4. There should be no restriction of share transfer.
d. Qualitative requirements
1. The past period of business should be more than three (3) years.
2. Audit opinion:
Recent fiscal year: Non-qualified.
Prior two fiscal years: Non-qualified or Qualified (Except for qualified opinion resulting from
restriction of audit scope).
3. There has been no change of majority shareholder for the last one (1) year as of application date
for preliminary examination of listing requirements, etc.
KOSDAQ
a. Company size
Should meet one of the following conditions (1) and (2):
1. Net equity is KRW 3 billion (1.5 billion for venture business and new growth engine business) or
more, or
2. Aggregate stock market value is KRW 9 billion or more.
b. Trading record
Should meet all of the following conditions (1) ~ (3):
1. Generate the net income before tax for most recent fiscal year.
2. No encroachment of capital (There should be no accumulated deficit).
3. Sales, profit and ASMV.
Net income of KRW 2 billion (1 billion for venture business) or more for most recent fiscal year,
At least 10% ROE (5% for venture business), or
Sales of KRW 10 billion (KRW 5 billion for venture business) or more for most recent fiscal year
and more than KRW 30 billion of ASMV.
c. Public shareholding requirement
Should meet one the following conditions (1) ~ (2):
1. Minority shareholder requirement
Minority shareholding ratio is at least 25%, and
Number of minority shareholders is at least 500.
2. At least 25% of total shares should be publicly offered and the number of minority shareholders is
at least 500.
d. Qualitative requirements
1. The past period of business should be more than three (3) years (excluding venture business and
new growth engine business).
2. Audit opinion:
Recent fiscal year: Non-qualified.
3. There has been no change of majority shareholder for the last one (1) year as of application date
for preliminary examination of listing requirements, etc.
3. Typical issuance size
Net equity (KRW billion)
50 ~ 100
100 ~ 250
250 ~
Aggregate stock market
value (KRW billion)
Number of shares to
be issued
100 ~ 200
200 ~ 500
500
1,000,000 shares or more
2,000,000 shares or more
5,000,000 shares or more
4. Restrictions for foreigners
A foreign company may be listed in the Korea stock markets if it meets the listing requirements for a
foreign company which is similar to those for a Korean company.
Foreigners are also allowed to make transactions of the listed stocks in compliance with the relevant
regulations (e.g., Foreign Currency Transaction Law).
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5. Methods of offer and restrictions
Please see section on Public shareholding requirement.
Crowe Horwath International
Investing in Asia Pacific 2013
6. Timeline
It will usually take 99 ~ 105 days from the application date of preliminary examination of the listing
requirements to complete the listing procedures.
KOREA
7. Approving authorities
KOSPI Listing Committee, KOSDAQ Market Division.
8. Estimated cost involved
KOSPI:
1. Examination fee of listing requirements: KRW 5 million.
2. Listing fee: 0.0002% ~ 0.006% of Paid-in capital amount .
KOSDAQ:
1. Examination fee of listing requirements: KRW 1 million.
2. Listing fee: 0.00005% ~ 0.003% of Paid-in capital amount.
9. Language required for:
a. Prospectus: Korean
b. Annual reports: Korean
c. Audit reports: Korean
10. Audit opinion required for
a. IPO
KOSPI:
Recent fiscal year: Non-qualified.
Prior two fiscal years: Non-qualified or Qualified (Except for qualified opinion resulting from
restriction of audit scope).
KOSDAQ
Recent fiscal year: Non-qualified.
b. After IPO
(Please see below No.12.).
11. Requirements of accounting auditors to be appointed
The company which is to be listed in KOSPI and KOSDAQ is required to apply for appointment of
accounting auditors to Securities and Futures Commission. Foreign auditors are not allowed to sign
on the audit reports.
12. Delisting standards from bourses
KOSPI:
Non-submission of quarterly, semi-annual, or annual reports
Audit opinion:
Qualified opinion (restriction of audit scope) for continuous two (2) years, or
Adverse opinion or disclaimer of opinion.
Suspension of business .
Encroachment of capital.
Accumulated deficit is more than 50% of paid in capital for continuous two (2) years.
Accumulated deficit is 100% or more of net equity.
Violation of public notice obligation.
Less than KRW 5 billion of sales amount for continuous two (2)years.
Bankruptcy or suspension of bank transaction, etc.
KOSDAQ:
Non-submission of quarterly, semi-annual, or annual reports
Audit opinion:
Qualified opinion (restriction of audit scope), adverse opinion, or disclaimer of opinion.
Suspension of business .
Encroachment of capital.
Accumulated deficit is more than 50% of net equity .
Net equity amount is less than KRW 1 billion.
Less than KRW 3 billion of sales amount for continuous two (2) years.
Bankruptcy or suspension of bank transaction, etc.
Human resource requirements
1. Special labour standards to take heed of
Labor Standards Act (LSA) of Korea.
2. Social welfare: insurance, pension, etc
There are 4 statutory social security programs in Korea under the employee welfare related laws
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KOREA
and regulations including the Employment (Unemployment) Insurance Act, the Medical Insurance
Act, the National Pension Act, and the Industrial Accident Compensation Insurance Act as below:
National pension
National health insurance
Unemployment/employment insurance
Industrial accident compensation insurance
3. Requirements for retirement benefits
Under the Korean Labor Standards Act (LSA) and the Employee Retirement Benefit Security Law
(ERBSL), an employee with one (1) year or more of service with a company (including a
foreign-invested company) is entitled to receive severance pay from the company in the amount of at
least one (1) month's average salary for each year of service, upon resignation or termination of
employment (regardless of reasons of such termination).
Under the ERBSL, an employer with one (1) or more employees shall be allowed to convert the
current lump-sum severance pay system to retirement pension system where an employee may
receive retirement benefits in the form of pension. Under the retirement pension system, employees
will receive pension benefits when they reach the age of 55 and certain amount of contribution has
been deposited each month in a financial institution for ten (10) or more years.
4. Legal annual leave and public holidays
Under the five (5)-day workweek legislation, fifteen (15) days of annual leave will be given as annual
leave provided that an employee satisfies at least 80% attendance. For an employee who has
worked for a company for more than three (3) years, one (1) additional day of paid leave for every
two (2) years will be vested, but not to exceed twenty five (25) days in aggregate.
5. Brief information on labour unions
There is no limitation in number of union members in a labor union (but to hold initial union members
meeting and maintain union, there should be minimum two (2) or more union members) to be a
legitimate union, such union should be duly registered with the relevant district government
authorities. Multiple unions in one company are also allowed under the laws of Korea.
Withdrawal procedures
1. Company: legal procedures required for liquidation
A company must file or report its de-registration with the foreign exchange bank, the district court and
the district tax office. The legal procedures for liquidation include shareholders’ resolution,
appointment of liquidator, public announcement, settlement of account receivables and payables and
distribution of residual assets, etc. It will take at least four to five months to complete all the steps
necessary to liquidate the Company. However, depending on situation, it may take longer period to
complete the liquidation procedures.
2. Company: tax requirements
The company must file the VAT return for the last period ending the dissolution date by the 25th day
of the following month. In addition, the company must file the annual corporate tax return for the last
fiscal period (ending on the dissolution date and the liquidation completion date).
3. Branch: legal procedures required for closing branch
A branch must file or report its de-registration with the foreign exchange bank, the district court and
the district tax office. The legal procedures for liquidation of a branch is similar to those of a company,
however, the head office and its Korean branch may choose to liquidate the branch office through the
‘simplified liquidation procedure’ allowed under the law at their discretion, which will take less time
than the formal liquidation procedures.
4. Branch: tax requirements
A Korean branch must file the VAT return for the last period ending the closing date by the 25th day
of the following month. In addition, the branch must file the annual corporate tax return for the last
fiscal period ending on the closing date but a liquidation income tax return is not required.
5. Representative office: legal procedures required for closing office
A representative office (RO) must file or report its de-registration with the foreign exchange bank and
the district tax office. As the RO does not need the court registration, it is not required to be
de-registered from the district court.
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6. Representative office: any tax requirements
The RO has no obligation to file the corporate income tax return or the VAT return. However, it is
required to submit the information on the input-VAT or the exempted input-VAT from the purchase
transactions for the period ending the closing date to the district tax office.
MALAYSIA
Establishing the business entity
1. Formation and costs
Company
Company formation takes about a month. There are no special licences or approvals required
except for certain sensitive industries eg telecommunications, etc.
Contact
The cost of forming a company is in the region of MYR 5,000. Annual maintenance fees for
secretarial, tax and audit services for a dormant company are in the region of MYR 5,000.
MANAGING PARTNER/
TAX PARTNER
Branch
Registration of a branch takes about a month. There are no special licences or approvals required
except for certain sensitive industries eg telecommunications,etc.
yewhoe.poon@
crowehorwath.com.my
The cost of registering a representative office is in the region of MYR 5,000. Annual maintenance
fees for secretarial, tax and audit services for a dormant branch are in the region of MYR 5,000.
Poon Yew Hoe
+603 2788 9999
ext 2503
Representative Office
A representative office requires registration with the Malaysian Industrial Development Authority
(MIDA) and takes approximately two (2) months. There are no special licences or approvals
required except for certain sensitive industries.
The cost of registering a representative office is in the region of MYR 5,000. Annual maintenance
fees are minimal as a representative office does not require secretarial, tax or audit services.
2. Investment incentives
Company
Reinvestment allowance – no prior approval required.
Pioneer status or Investment Tax Allowance for promoted products or promoted industries – prior
approval required from the MIDA and takes about three (3) to six (6) months.
Multimedia Super Corridor status – prior approval required from the Multimedia Development
Corporation (MDec) and takes about (3) to six (6) months months.
Branch
Branches are not eligible for tax incentives.
Representative Office
Representative offices are not allowed to do business in Malaysia.
3. Foreign ownership restrictions
Company
Generally, no foreign ownership restriction except for certain industries eg. banks, certain hotels that
enjoy tax incentives, property owning companies that own more than MYR 20 million of properties, etc.
Branch
No restriction on foreign ownership.
Representative Office
No restriction on foreign ownership.
4. Work permits and visas
Company
Work permits are allowed for key posts in companies approved by the MIDA. The application takes
about three (3) months.
Branch
Work permits are only allowed if the foreign company can prove that local staff are not able to
perform the work of the foreigner.
Representative Office
Work permits are only allowed if the foreign company can prove that local staff are not able to
perform the work of the foreigner. For rep office, at least one (1) work permit will usually be allowed.
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MALAYSIA
5. Accounting standards and audit requirements
Company
Companies have to follow either one of the two accounting frameworks in Malaysia; Malaysian
Financial Reporting Standards (“MFRSs”) or Private Entity Reporting Standards (“PERSs”) in 2012.
MFRSs are equivalent to IFRSs in all aspects other than the adoption of IFRIC 15 and IAS 41.
All companies require an annual audit.
Branch
Branches have to follow either MFRSs or PERSs.
All branches require an annual audit.
Representative Office
Representative offices are not required by law to be audited.
6. Residential directors / promoters requirements
Company
Minimum of two (2) directors who are residents in Malaysia.
Branch
Same as for companies.
Representative Office
Same as for companies.
7. Foreign ownership over tangible assets
Company
Foreign owned companies are not allowed to own certain properties such as those built on Malay
Reserve Land.
Acquisition of property by foreign interests has to be registered under a local company and will be
subject to conditions pertaining to equity, employment, capital and land redevelopment.
Acquisition of agricultural land is only allowed under certain conditions.
Companies that own properties which are worth more than RM20 mil will be subject to a 30
percent Bumiputera shareholding requirement.
Branch
As for companies.
Representative Office
As for companies.
8. Country quirks
Companies are the most common form of entity for doing business in Malaysia.
Tax information
1. Tax rates on corporate income
25% (20% on first MYR 500,000 for small scale companies with share capital not exceeding
MYR 2.5 million).
2. Other taxes
Good and Services Tax (GST)
Value Added Tax (VAT)
Sales tax
Service tax
Import duties
Real property gains tax
No GST in Malaysia
No VAT in Malaysia
Sales tax on manufactured goods and imported goods - 10%
(certain categories are taxed at 5% or 15%)
Service tax on taxable services - 6%
Import duties on goods imported into Malaysia - various rates
10% on gains from disposal of properties or shares in real
property companies within two (2) years from acquisition (5%
for disposals within two (2) to five (5) years)
3. Branch income
Taxed like normal income applicable to companies.
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4. Income determination
Inventory valuation – weighted average and FIFO are acceptable.
Capital gains – not taxable except for capital gains on disposal of real property or shares in real
property companies in which case, the capital gains are subject to real property gains tax.
Crowe Horwath International
Investing in Asia Pacific 2013
Intercompany dividends from overseas – not taxable.
Intercompany dividends from local companies – taxable if the dividends are franked dividends but
a credit is given for the underlying tax. Single tier dividends and tax exempt dividends are not
taxable.
Foreign income – not taxable if the income is sourced from overseas.
Stock dividends – not taxable.
MALAYSIA
5. Deductions
Depreciation and depletion – depreciation allowances are given in the form of capital
allowances at prescribed rates.
Operating losses may be carried forward indefinitely unless there is a change in shareholding after
the company has become dormant.
Payments to foreign affiliates – transfer pricing rules apply. Some payments are subject to
withholding tax eg technical fees for services rendered in Malaysia, commissions, rentals for hire
of moveable equipment, royalties, etc.
Interest is allowed for tax deduction but subject to restriction if the loans borrowed are used to
invest in non-business assets.
Taxes – not deductible except for indirect taxes eg service tax paid on tax allowable services
purchased.
Entertainment – certain entertainment is not allowed eg entertainment of potential clients and
suppliers.
6. Group taxation policies
Group relief is allowed up to 70% of the income of the surrendering company but subject to conditions.
Group consolidated returns are not allowed.
7. Tax incentives
Reinvestment allowance – tax exemption equivalent to 60% of capital expenditure on qualifying
plant and factory building.
Pioneer status – 100% or 70% tax holiday for five (5) to ten (10) years.
Investment Tax Allowance - tax exemption equivalent to 60% or 100% of capital expenditure on
plant and factory building .
Multimedia Super Corridor status – 100% tax holiday for five (5) or ten (10) years.
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Commission
Branch profit
Nil
15% unless reduced by tax treaty
10% unless reduced by tax treaty
10% unless reduced by tax treaty
10%. Nil if the commission income is treated as the payee’s business income
Nil
9. Tax administration
Tax returns have to be filed annually within seven (7) months from year end.
Payment of tax – companies have to estimate their tax at the beginning of a year and pay the tax
progressively by twelve (12) installments. The balance of tax has to be paid on submission of tax
returns.
10. Taxable incomes for non-residential companies and individuals
Non-resident companies are taxed in the same way as resident companies, and only on income
derived from Malaysia.
Non-resident individuals are taxed at a flat rate of tax (26%) on income derived from Malaysia but
cannot enjoy personal reliefs.
11. Other pertinent information
Malaysia operates a self-assessment system where the taxpayer volunteers his own taxes but may be
subject to field audit by the tax authorities.
IPO quick facts
1. Bourses in the country
a. Bursa Malaysia Securities Berhad – Main Market.
b. Bursa Malaysia Securities Berhad – ACE Market.
2. Admission requirements
Main Market
a. Company Size
No minimum size.
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MALAYSIA
b. Trading record
Uninterrupted profit after tax of three (3) – five (5) full financial years, with an aggregate of at
least MYR 20 million and PAT of at least MYR 6 million for the most recent full financial year.
c. Public shareholding requirement
At least 25% of share capital / minimum 1,000 public shareholders holding not less than 100
shares.
d. Compliance with any development policy
Allocation of 50% of the public spread requirement to Bumiputera investors on best effort basis.
e. Qualitative requirements
If listing is sought based on the strength of its group, at least one (1) corporation within the group
must be able to fulfill the trading record aspect stated above. If not, listing based on the strength
of the group’s pro forma accounts may be considered provided that the corporations within the
group which collectively fulfill the profit requirements are involved in the same core business and
have common controlling shareholders, over the profit track record period.
ACE Market
a. Company Size
No minimum size.
b. Trading record
No minimum operating track record or profit requirement.
c. Public shareholding requirement
At least 25% of share capital / minimum 200 public shareholders holding not less than 100
shares.
d. Compliance with any development policy
No requirement upon initial listing. Allocation on best effort basis of 12.5% of the enlarged issued
and paid up share capital to Bumiputera investors within one (1) year after achieving Main
Market profit track record or five (5) years after being listed on ACE market, whichever is earlier.
e. Qualitative requirements
The core business of an applicant must not be the holding of investments in other listed
corporations.
An applicant must secure and maintain the services of a Sponsor for at least three (3) full
financial years after its admission to the Official List. The applicant’s Sponsor who submitted its
application for admission to the Exchange shall act as its Sponsor for at least one (1) full
financial year following the applicant’s admission to the Official List.
3. Specific requirements for specific Industries
For infrastructure project corporation, a company must have the right to build and operate an
infrastructure project in or outside Malaysia with project costs of not less than MYR 500 million and
for which a concession or licence has been awarded, with remaining concession of licence period of
at least fifteen (15) years.
4. Typical issuance size
Main Market: For Year 2012, ranges from low of MYR 21.5 million to a high of MYR 10,430 million.
ACE Market: For Year 2012, ranges from low of MYR 10.8 million to a high of MYR 27.0 million.
5. Moratorium imposed
Main Market
Promoters are not allowed to sell, transfer or assign their entire shareholdings in the company as at
the date of listing, for six (6) months from the date of listing on Bursa Securities Malaysia Berhad.
ACE Market
a. The moratorium applies to the entire shareholdings of the promoters of an applicant for a period
of six (6) months from the date of admission to the Exchange.
b. Upon the expiry of the six (6)-month period stated above, the listed corporation must ensure
that the promoters’ aggregate shareholdings amounting to at least 45% of the nominal issued
and paid-up ordinary share capital of the listed corporation remain under moratorium, for
another period of six (6) months.
c. Thereafter, subject to a certain sub-rule, the promoters may sell, transfer or assign up to a
maximum of 1/3rd per annum (on a straight-line basis) of the shares held under moratorium.
Please write in for further details.
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6. Securities quoted allowed in foreign currency
An issue of securities by a listed issuer will be quoted in Ringgit or such other foreign currency as
may be allowed by the Exchange. A listed issuer must consult the Exchange and obtain the approval
of the Controller of Foreign Exchange if it prefers the securities to be quoted in foreign currency.
Crowe Horwath International
Investing in Asia Pacific 2013
7. Requirements for the appointment of a resident/local director and board composition
Foreign corporation whose operations are entirely or predominantly Malaysian-based must have a
majority of directors whose principal or only place of residence is within Malaysia; whereas foreign
corporation whose operations are entirely or predominantly foreign-based must have at least one (1)
director whose principal or only place of residence is within Malaysia
MALAYSIA
8. Restrictions for foreigners
None.
9. Timeline
Six (6) to nine (9) months.
10. Approving authorities
Securities Commission of Malaysia / Bursa Securities Malaysia Berhad.
11. Estimated cost involved
Main Market: MYR 2.0 – MYR 3.0 million.
ACE Market: MYR 1.0 – MYR 1.5 million.
12. Restriction on secondary listing or dual listing
None. Approval required nevertheless.
13. Language required for:
a. Prospectus: English
b. Annual reports: English
c. Audit reports: English
14. Audit opinion required for
a. IPO
Non-qualified opinion
b. After IPO
Non-qualified opinion
Accounting auditors of public-interest entities (as prescribed in Schedule 1 of the Securities
Commission Act 1993) must be registered with the Audit Oversight Board, Malaysia.
15. Requirements of accounting auditors to be appointed
Accounting auditors must be a member of the Malaysian Institute of Accountants.
16 Delisting standards from bourses
The exchange may at any time delist a listed issuer from the official list in any of the following
circumstances :a. where the listed issuer fails to comply with the listing requirements of the Exchange subject to
consultation with the Securities Commission;
b. In other circumstances where :
i. the financial condition of the listed issuer on a consolidated basis must, in the opinion of the
exchange, warrant continued trading and / or listing
ii. the number of listed securities in the hands of the public has fallen below the prescribed
minimum of 25%;
iii. the level of operation of a listed issuer must, in the opinion of the exchange, be adequate to
warrant continued trading or listing;
iv. a takeover offer is made for an acquisition of not less than 90% of a company’s listed
securities.
Human resource requirements
1. Special labour standards to take heed of
Hours of Work
An employee shall not be required under his contract of service to work :
a. more than five (5) consecutive hours without a period of leisure of not less than thirty (30) minutes
duration;
b. more than eight (8) hours in one day;
c. in excess of a spread over period of ten (10) hours in one (1) day;
d. more than forty-eight (48) hours in one (1) week:
Children & Young Person Employment
“Young person” means any person who has not completed his sixteenth year of age. Young person is
prohibited:
a. to work between the hours of 8 o’clock in the evening and 7 o’clock in the morning;
b. to work for more than three (3) consecutive hours without a period of rest of at least thirty (30) minutes;
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MALAYSIA
c. to work for more than six (6) hours in a day or,
d. to commence work on any day without having had a period of not less than fourteen (14)
consecutive hours free from work.
2. Social welfare: insurance, pension, etc
Insurance: EMPLOYEES’ SOCIAL SECURITY FUND
Monthly contribution by employer and employee as per Third Schedule.
Pension: EMPLOYEE PROVIDENT FUND.
Monthly contribution by employer and employee at 11% and 12% of wages respectively.
3. Requirements for retirement benefits
It is not mandatory to set retirement benefits.
4. Legal annual leave and public holidays
Public Holiday
Every employee shall be entitled to a paid holiday at the ordinary rate of pay for ten gazette public
holiday in any one calendar year.
Annual Leave
An employee shall be entitled to paid annual leave of:
a. eight (8) days for every twelve months of continuous service with the same employer if he has
been employed by that employer for a period of less than two (2) years;
b. twelve (12) days for every twelve months of continuous service with the same employer if he has
been employed by that employer for a period of two (2) years or more but less than five (5) years; and
c. sixteen (16) days for every twelve (12) months of continuous service with the same employer if he
has been employed by that employer for a period of five (5) years or more.
Medical Leave
An employee shall be entitled to paid medical leave of:
a. fourteen (14) days in the aggregate in each calendar year, if the employee has been employed for
less than two (2) years;
b. eighteen (18) days in the aggregate in each calendar year, if the employee has been employed for
two years or more but less than five (5) years;
c. twenty-two (22) days in the aggregate in each calendar year, if the employee has been employed
for five (5) years or more.
5. Brief information on labour unions
It is not mandatory to set union within a Company.
6. Country quirks
Lawful Deduction
No deduction shall be made by an employer from the wages, other than statutory deductions. If any,
prior approval must be granted from the Director General of Labour.
Withdrawal procedures
1. Company: legal procedures required for liquidation
Voluntary liquidation can be in the form of a member’s liquidation whereby the company must be solvent
(i.e. sufficient assets to pay off the liabilities within a period of twelve (12) months from date of
liquidation). If the company is not solvent, then a creditors’ voluntary liquidation can be subjected to the
company whereby generally majority of the creditors in value need to approve the liquidation.
2. Company: tax requirements
Liquidation proceeds are generally not taxable. However generally, the liquidator needs to obtain the
necessary tax clearances from the local tax authority in relation to the company’s tax matters prior to the
finalisation of the liquidation process.
3. Branch: legal procedures required for closing branch
Same as for company.
4. Branch: tax requirements
Tax clearance is required for branches prior to closure. Branch profits may be remitted back to Head
Office without any tax implications.
5. Representative office: legal procedures required for closing office
Inform the Ministry of International Trade and Industry.
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6. Representative office: any tax requirements
No tax on closure of representative offices. Representative offices are not allowed to do business in
Malaysia and therefore should not have any profits that are subjected to tax.
SINGAPORE
Establishing the business entity
1. Formation and costs
Company
Every company incorporated in Singapore shall have at least one director who is ordinarily resident
in Singapore and at least one member. The number of members in a private limited company is
limited to 50. They could be individuals or corporations, local or foreign. There is also no minimum
share capital imposed. A foreigner, who would like to set up his own company and be present in
Singapore to actively manage its operations, should apply for an EntrePass from the Ministry of
Manpower (MOM).
Contact
Alfred Cheong
EXECUTIVE DIRECTOR
alfred.cheong@
crowehorwath.com.sg
+65 6221 0338
The person intending to incorporate a company is required to engage the services of a professional
firm (e.g. lawyers, accountants, chartered secretaries) or a service bureau to submit the online
application on his behalf if any of the company officers or shareholders does not have SingPass.
It can take a mere fifteen (15) minutes after the payment of the fees for a company to be
incorporated. However, if further review or approval is required for the type of business of the
company, it could take up to two (2) months.
Registration fees:
Name approval fee: S$ 15.
Company with share capital: S$ 300.
Company without share capital: S$ 600.
Branch
A foreign company can establish a place of business or commence business in Singapore by
registering itself (as a Branch) with the Accounting & Corporate Regulatory Authority (ACRA).
The Companies Act requires a foreign company to appoint two local agents from Singapore to act
on behalf of the company. The agents must be “ordinarily resident” (the usual place of stay of a
person) in Singapore.
As in the case of incorporation of companies, it can take a mere fifteen (15) minutes after the
payment of the fees for a branch to be registered. However, if further review or approval is required
for the type of business of the company, it could take up to two (2) months.
Registration fees:
Name approval fee: S$ 15.
Foreign company with share capital: S$ 300.
Foreign company without share capital: S$ 1,200.
Representative Office
To set up ROs in banking, finance and insurance, it must be registered with the Monetary Authority
of Singapore. Foreign law practices applying for a RO must first register with the Attorney-General's
Chambers.
For all other industries, the ROs must be registered with International Enterprise Singapore.
An RO can only carry out the following activities:
market research.
feasibility studies.
liaison work on behalf of parent company.
The RO must not render any direct or indirect revenue generation activities on behalf of its parent
entity or provision of service inclusive of, but not limited to the following:
Engage in any trade (including import & export) or business activities.
Lease warehousing facilities. Any shipment/transhipment or storage of goods must be handled by
a local agent or distributor appointed by its parent entity.
Lease its office to other establishments for a fee.
Enter into business contract, issue invoice/receipt, open/receive letters of credit and contracts on
behalf of its parent entity or provide services for a fee.
Source/procure or identify suppliers / sources of raw materials, component or other industrial
products.
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SINGAPORE
Provide consultancy services/project or systems implementation.
Negotiate sales and contracts.
Engage in promotional activities such as advertising and marketing.
Coordinate orders/activities/businesses between HQ and customers.
Provide service, support and manage distributors, agents, representatives and customers in the
region.
Provide technical supervision, consultations and quality control checks on goods.
Provide technical sales and market assistance to distributors/dealers and end users.
Provide administrative support to related subsidiaries/branches in Singapore and the region.
Provide marketing services.
Application can be made online through https://roms.iesingapore.gov.sg.
All new applications must be accompanied by the following documents:
Softcopy attachment (in English or an official English translation) of the parent company's
Certificate of Incorporation.
Softcopy attachments of the parent company's latest audited accounts.
Registration fees:
S$ 200 per year.
2. Investment incentives
Company
There are several incentives to promote investment activity in Singapore such as:
Pioneer incentive
Application is made through the Economic Development Board.
To encourage the growth of high-tech/high value-added manufacturing and services industries in
Singapore, the eligible company is given full corporate tax exemption on qualifying profits for up
to fifteen (15) years.
Investment allowances
Application is made through the Economic Development Board.
To encourage investment in equipment that contributes to greater efficiency in resource
utilization, the Investment Allowances offers additional allowances of up to 50% on fixed capital
expenditure of new productive equipment.
Productivity and Innovation Credit Scheme
The claim is made in the income tax return for the relevant qualifying year of assessment.
However, for design projects, approval must be obtained from the Design Singapore Council.
The PIC scheme provides tax benefits for investments by businesses in a broad range of
activities along the innovation value chain by providing enhanced deductions for the investments
made.
Angel Investor scheme (for individuals only)
Application is made through Spring Singapore.
The Angel Investor Scheme is a tax incentive which aims to stimulate business angel
investments into Singapore-based start-ups and encourage more angel investors to add value to
these start-ups.
Under the scheme, an approved angel investor who commits a minimum of S$ 100,000 of
qualifying investment in a qualifying start-up within a given year shall enjoy a tax deduction at the
end of a two(2)-year holding period based on 50% of his investment costs, subject to a cap of
S$ 500,000 of investments in each Year of Assessment (YA). The tax deduction will be offset
against total taxable income.
Branch
Branches may selectively qualify for tax incentives.
Representative office
Representative offices are not allowed to do business in Singapore.
3. Foreign ownership restrictions
Generally, Singapore allows for 100% foreign ownership except for certain sectors for national
security purposes.
4. Work permits and visas
There are two (2) types of visas available for foreigners looking to do business in Singapore
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1. Multiple Journey Visa (MJV)
Holders of this visa are permitted to enter Singapore as often as required within the validity
period of the visa. The holder may stay up to thirty (30) days per visit. This is ideal if you
anticipate the need to make frequent trips to and from Singapore. Upon a successful
application, you may be issued a one (1), two (2) or five (5) years MJV, in accordance with
Immigration & Checkpoint’s Authority's existing visa guidelines in Singapore.
Crowe Horwath International
Investing in Asia Pacific 2013
The processing time is quick – less than a week if all the documents are in order.
SINGAPORE
2. Entrepass
Designed to facilitate the entry and stay of entrepreneurs who will be actively involved in the
starting up and operation of the company in Singapore. The EntrePass has an initial validity
period of up to two (2) years and will be issued upon the submission of a sound business
proposal. The EntrePass also allows your immediate family to live in Singapore while you start
and grow your business here. With the EntrePass you may leave and re-enter Singapore
frequently with ease. It is renewable for as long as the business remains viable.
5. Accounting standards and audit requirements
The local standards are IFRS-compliant.
A locally-incorporated company must appoint an auditor within three (3) months from the date of
incorporation, unless it is exempted from audit requirements. A exempt private company (a
company with no more than than 20 shareholders, none of which is a corporate shareholder) with a
turnover not exceeding S$ 5million is exempt from audit requirements.
6. Residential directors / promoters requirements
Company
At least one (1) resident director.
Branch
At least two (2) resident representatives.
Representative Office
Appointed representative must be either a staff from the HQ of the parent company or a Singapore
employee of the parent company.
7. Foreign ownership over tangible assets
There is a restriction imposed on foreigners owning land in Singapore.
Tax Data Table
1. Tax rates on corporate income
17%. For YA 2013, 2014 and 2015, companies will receive a corporate income tax rebate of 30%
that is subject to a cap of S$30,000 per year of assessment.
2. Other taxes
a. In general, for GST purposes, a supply is either taxable or exempt. A taxable supply is one
that is standard-rated or zero-rated. A standard-rated supply is liable to GST at 7%.
b. Besides the GST, there is no other forms of sales tax.
c. Other taxes include casino tax, betting taxes and property tax.
3. Branch income
17%.
4. Income determination (Corporate tax)
a. The Income Tax Act is silent with regard to the basis to be adopted for the valuation of trading
stock on a continuing business. For tax purposes, a method of valuation that conforms to the
generally accepted accounting practice may be acceptable.
b. Capital gains are not taxable. However, capital gains may be construed or deemed to be of an
income nature and subject to income tax if they are derived from activities of a trade or
business carried on in Singapore.
c. Foreign source income is not taxable in Singapore until such income is received or deemed
received in Singapore.
d. Foreign dividends, overseas branch profits and foreign sourced service income are not
taxable if following conditions are met:
the highest corporate tax rate (headline tax rate) of the foreign country from which income is
received is at least 15% in the year the income is received, and
the foreign income had been subjected to tax in the foreign country from which it was received.
the recipient must be a tax resident of Singapore.
e. Intercompany one-tier dividends from local companies are not taxable.
5. Deductions
a. Capital expenditures are not allowed as a deduction. However, capital allowances can be
claimed on certain types of capital expenditures.
b. Operating losses may be carried forward indefinitely unless there is a substantial change in
shareholding.
c. Interest is allowed for tax deduction but subject to restriction if the loans borrowed are used to
invest in non-business or non-income producing assets.
d. Taxes are non-deductible except for indirect taxes in certain cases.
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SINGAPORE
e. Private car expenses are non-deductible.
f. The tax deductibility of medical expenses is restricted to either 1% or 2% of the total payroll
costs depending on certain conditions.
6. Group taxation policies
The losses and unutilised capital allowances of one company may be utilised for tax purposes by
another company in the same group. For group relief purposes, a group refers to a Singapore
incorporated parent and all its Singapore incorporated subsidiaries whereby the parent has a
minimum ownership in its Singapore subsidiaries of at least 75% (based on direct or indirect
effective shareholding). Consolidated returns are not available for those eligible for group relief.
7. Tax incentives
Generally, Singapore allows for 100% foreign ownership except for certain sectors for national
security purposes.
The Singapore government has established a number of incentive programmes to help companies
improve efficiency, strengthen capabilities and explore new opportunities in their business. Some
programmes cater to the needs of startups and local enterprises, while others are designed for
global companies with large-scale needs such as the set up of regional headquarters in Singapore.
Scheme
Benefit
Suitable for
Pioneer (Manufacturing)
Tax exemption on income from
qualifying activities
Manufacturing
Pioneer (Services)
Tax exemption on income from
qualifying activities
Services
Global
Headquarters
Development and Expansion Incentive
Reduced tax 5% or 10% on
incremental income from qualifying
activities
Manufacturing
Services
Regional or
international HQ
IP Hub
Investment Allowance
Allowance of 30% or 50% of
approved fixed capital expenditure
on top of normal 100% capital
allowance
Manufacturing
Finance & Treasury Centre Tax Incentive
Reduced tax 5% or 10% on fees,
interest, dividends and gains from
qualifying services/activities
WHT exemption on interest payments
on loans from banks and network
companies for FTC activities
Finance and
treasury centres
Approved Royalties Incentive
Reduced WHT 0% or 5% on royalty
payments to access advanced
technology and know-how
Manufacturing
IP Hub
Approved Foreign Loan
Reduced WHT 0%, 5% or 10% on
interest payments on loans taken to
purchase productive equipment
Manufacturing
8. Withholding tax
Type of payment
% of withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
No withholding tax
15%
10%
17% if services rendered in Singapore
No withholding tax
9. Tax administration
Companies have to furnish an estimate of the taxable income within three months of the end of the
financial year. The income tax return must be filed by 30 November of the year of assessment.
10. Taxable incomes for non-residential companies and individuals
A company is liable to pay tax on income accrued in or derived from Singapore or income received
in Singapore from outside Singapore in respect of:
gains or profits from any trade or business.
income from investment such as dividends, interest and rental.
royalties, premiums and any other profits from property.
other gains of an income nature.
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An individual (non-resident of Singapore) is however exempt from personal income tax on
foreign-sourced income.
Crowe Horwath International
Investing in Asia Pacific 2013
For the individual, if the individual is here for less than 60 days, his short-term employment income
is exempt from tax. This rule does not apply if the individual is a director of a company, a public
entertainer or exercising a profession in Singapore.
SINGAPORE
If the individual is here for more than 60 days (61 - 182 days), the individual’s employment income
will be taxed at 15% or the progressive resident rates, whichever is the higher. Director's fees and
other income will be taxed at the prevailing rate of 20%. These non-resident individuals will not be
entitled to tax reliefs.
IPO quick facts
1. Bourses in the country
a. Singapore Exchange Mainboard
b. Singapore Exchange Catalist
2. Admission requirements
Effective 10 August 2012, the new Mainboard admission criteria:
a. Companies intending to join SGX’s Mainboard must meet one of the following
quantitative requirements:
An issuer must satisfy at least one (1) of the following qualitative criteria.
Criteria 1: Have minimum consolidated pre-tax profit of at least S$30 million for the latest
financial year and have operating track record of at least three years;
Criteria 2: Have a market capitalisation at IPO of not less than S$150 million if they are
profitable in the last financial year and have an operating track record of at least
three years
Criteria 3: Have a market capitalisation at IPO of not less than S$300 million if they only have
operating revenue in the latest completed financial year.
In addition, the IPO shares issued must be at least S$0.50 each.
b. Trading record
Three (3) years for Criteria 1 and Criteria 2 companies.
At least one (1) year for Criteria 3 companies.
c. Public shareholding requirement
1. An issuer applying for listing of its equity securities on the SGX Mainboard must meet the
following conditions:
Publlic
Float table sets out the shareholding and distribution requirements:
Distribution
1. The
following
Market
Capitalisation
(S$ million)
("M")
Proportion of
post-invitation
share capital in
public hands
Number of
shareholders
Total Offer
Size
(S$ million)
("O")
Distribution
M < 300
25%
500
O< 75
At least 40% of the invitation shares
or $15 million whichever is lower,
must be distributed to investors each
allotted not more than 0.8% of the
invitation shares or $300,000 worth
of shares whichever is lower.
300 ≤ M < 400
20%
500
75 ≤ O < 120
At least 20% of the invitation shares
must be distributed to investors, each
allotted not more than 0.4% of the
invitation shares.
400 ≤ M < 1000
15%
500
O ≥ 120
No requirement applicable.
M ≥ 1000
12%
500
Notes:
1) The shareholdings of an applicant
and his associates must be aggregated
and treated as one single holder.
2) Preferential allotments made pursuant
to Rule 234 must be excluded.
i.
The shareholding spread must not be obtained by artificial means, such as giving
shares away and offering loans to prospective shareholders to buy the shares.
ii. In the computation of the percentage of shares to be held in public hands, existing
public shareholders may be included, subject to an aggregate limit of 5% of the issuer's
post-invitation issued share capital and provided such shares are not under
moratorium. For the purpose of this rule, "existing public shareholders" refer to
shareholders of the issuer immediately before the invitation and who are deemed
"public" as defined in the Manual. This rule is not applicable to an application for listing
by way of introduction.
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SINGAPORE
iii. An overall distribution of shareholdings that is expected to provide an orderly secondary
market in the securities when trading commences, and that will be unlikely to lead to a
corner situation in the securities.
2. For a secondary listing, an issuer must have at least 500 shareholders worldwide. Where
the Exchange and the primary home exchange do not have an established framework and
arrangement to faciliate the movement of shares between the jurisdictions, the issuer should
have at least 500 shareholders in Singapore or 1,000 shareholders worldwide.
d. Qualitative requirements
While the size of an issuer is important, greater emphasis is placed on factors such as the
integrity of the management and controlling shareholders, an issuer's market position and
relative stability, and the disclosure provided in the prospectus, offering memorandum or
introductory document. Other than requiring the issuer to be a going concern or the successor
of a going concern, the Mainboard rules specifically provide the following on financial position
and liquidity and directors and management’s expertise:
1. Financial Position And Liquidity
i. The group must be in a healthy financial position, having regard to whether the Group
has a positive cash flow from operating activities.
ii. Prior to listing, all debts owing to the group by its directors, substantial shareholders,
and companies controlled by the directors and substantial shareholders must be settled.
For the purposes of this paragraph (b), reference to debt includes third party
indebtedness (including contingent liabilities for guarantees and indemnities) incurred
by the group for the benefit of the directors, substantial shareholders and companies
controlled by the directors and substantial shareholders. This rule does not apply to
debts owing by the subsidiaries and associated companies of the issuer to the group.
iii. While the surplus arising from revaluation of plant and equipment can be shown in the
books of the issuer, such surplus should not be capitalised or used for calculating its net
tangible assets per share.
2. Directors And Management
i. The directors and executive officers should have appropriate experience and expertise
to manage the group's business. As a pre-quotation disclosure requirement, an issuer
must release a statement via SGXNET or in the prospectus, offering memorandum or
introductory document identifying for each director, whether the person has prior
experience (and what) or, if the director has no prior experience as a director of a listed
company, whether the person has undertaken training in the roles and responsibilities of
a director of a listed company.
ii. The character and integrity of the directors, management and controlling shareholders
of the issuer will be a relevant factor for consideration. In considering whether the
directors, management and controlling shareholders have the character and integrity
expected of a listed issuer, the Exchange will take into account the disclosure made in
compliance with Rule 246(5)(a).
iii. The issuer's board must have at least two (2) non-executive directors who are
independent and free of any material business or financial connection with the issuer.
Singapore Exchange Catalist
a. Sponsorship
A listing applicant must be sponsored by an approved Sponsor of Catalist. Catalist companies
are listed based on the Sponsor's assessment that they are suitable. SGX does not set any
minimum quantitative entry criteria, but Sponsors will need to be satisfied on the listing
applicants’ listing suitability having made reasonable due diligence and enquiries.
b. Company Size
No minimum profit or share capital requirement.
c. Trading record
No minimum operating track record requirement. However, the Sponsor and directors of the
company must include a statement in the Offer Document that the company has sufficient
working capital for the present requirements and for at least twelve (12) months after IPO.
d. Public shareholding requirement
To promote healthy post-IPO trading activity, the shareholding spread requirement is set at
15% of issued capital in public hands with a minimum of 200 shareholders.
e. Qualitative requirements
Rulebook specifies minimum standards of quality, operations, management experience and
expertise. Specific rule regarding listing of equity securities however specifies the following:
1. Directors and Management
i. The directors and executive officers should have appropriate experience and expertise
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to manage the group's business. As a pre-quotation disclosure requirement, a listing
applicant must release a statement (via SGXNET or in the offer document) identifying
for each director, whether the person has prior experience (and what) or, if the director
has no prior experience as a director of a listed company, whether the person has
undertaken training in the roles and responsibilities of a director of a listed company.
ii. The character and integrity of the directors, management and controlling shareholders
of the listing applicant will be a relevant factor for consideration. In considering whether
the directors, management and controlling shareholders have the character and
integrity expected of a listed issuer, the sponsor must take into account the disclosures
made in the declaration by each director, executive officer, controlling shareholder, and
officer occupying a managerial position and above who is a relative of any director or
controlling shareholder, in the form set out in paragraph 8, Part VII of the Fifth
Schedule, Securities and Futures (Offers of Investments) (Shares and Debentures)
Regulations 2005 submitted to the sponsor.
iii. The listing applicant's board must have at least two (2) non-executive directors who are
independent and free of any material business or financial connection with the listing
applicant. If the listing applicant is a foreign listing applicant, at least one (1) of these
directors must be resident in Singapore.
SINGAPORE
2. Financial Position And Liquidity
i. Prior to listing, all debts owing to the group by its directors, substantial shareholders,
and companies controlled by the directors and substantial shareholders must be
settled. For the purposes of this paragraph (a), reference to debt includes third party
indebtedness (including contingent liabilities for guarantees and indemnities) incurred
by the group for the benefit of the directors, substantial shareholders and companies
controlled by the directors and substantial shareholders. This Rule does not apply to
debts owing by subsidiaries and associated companies of the issuer to the group.
ii. While the surplus arising from revaluation of plant and equipment can be shown in the
books of the listing applicant, such surplus should not be capitalised or used for
calculating its net tangible assets per share.
3. Specific requirements for specific industries
1. Property investment/development
In addition to the requirements for listing on the SGX Mainboard or Catalist, property
investment/development companies have the following additional requirements which must
be met are:
i.
Minimum Leasehold Period.
Properties that have remaining leases of less than 30 years must not, in aggregate,
account for more than 50% of the group's operating profits for the past three (3) years.
If the property is located in a jurisdiction outside Singapore, the Exchange may require
or accept a different remaining length of lease as a basis for this rule.
ii. Independence Of Valuer.
An issuer must appoint a valuer to conduct a valuation of all its principal freehold and
leasehold properties. The valuer must be an independent external valuer, unless
otherwise approved by the Exchange. The valuer must not be a substantial
shareholder, director or employee of the issuer or any of its subsidiaries, or in
partnership with or employed by a substantial shareholder, director or employee. The
Exchange may require an issuer to appoint a second valuer to conduct a valuation on
the properties.
iii. Valuation Report.
The valuation report must state the effective date at which the properties are valued,
which should not be more than six (6) months from the date of the application for listing.
2. Life sciences
A prospectus or an offering memorandum or introductory document issued by a life science
company in connection with a listing on the Exchange, must contain additional disclosure
requirements stipulated under the listing rules.
3. Investment funds
Listing of investment funds denominated in Singapore Dollars or in foreign currency also
have specific listing requirements applicable only to investment funds.
4. Mineral, Oil and Gas Companies listed on Catalist
There are additional listing requirements that must be complied with by mineral, oil and gas
companies listed on Catalist.
4. Typical issuance size
Singapore Exchange Mainboard: above S$ 100m.
Singapore Exchange Catalist: under S$ 50m.
5. Moratorium imposed
Usually, there is a moratorium of at least six (6) months. Please write in for further details.
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SINGAPORE
6. Securities quoted allowed in foreign currency
All securities will be quoted in Singapore Dollars, unless the Exchange agrees to a quotation in a
foreign currency, or unless the Monetary Authority of Singapore's policy on the internationalisation of
the Singapore dollar requires otherwise. Listing applicants are encouraged to consult the Exchange
if they prefer a quotation in a foreign currency.
7. Requirements for the appointment of a resident / local director and board composition
At least two (2) of its independent directors must be resident in Singapore.
8. Timeline
The decision to list often entails preparation to be made to get a company ready for listing.
Therefore, while the average timeline for listing from the time when a company engages SGX on
pre-submission consultation to IPO is about 12 - 18 weeks, the preparation to get a company to a
stage where it is ready for listing can take much longer, depending on the readiness of a company.
Commonly, from the moment a company contemplates listing to IPO can take about 1.5 to 3 years.
9. Approving authorities
Singapore Exchange.
10. Estimated cost involved
Two (2) fees are payable to the Singapore Exchange - processing fees and listing fees. Listing Fees
are classified as initial, additional or annual listing fees. These fees do not include professional fees
by the various professionals involved in an IPO exercise.
For initial listing applications, the listing and processing fees must be paid upon submission of the
application.
Annual listing fee and other charges are spelled out in the credit terms as indicated on tax invoice
issued in relation to such fees or charges.
2.1 Initial Listing Fee
The initial listing fee payable, which should be based on the maximum number of securities that
may be listed if the actual number is not known at the time of application, is calculated as follows:
a. Mainboard listed equity securities are subject to a minimum fee of S$ 50,000 (S$ 53,500
inclusive of GST) and a maximum fee of S$ 200,000 (S$ 214,000 inclusive of GST), based on
S$100 per million dollars or part thereof of the market value at admission.
b. There will be a fixed non-refundable processing fee of S$ 20,000 (S$ 21,400 inclusive of GST)
for an application for admission to the Mainboard.
2.2 Additional Listing Fee
Where an issuer issues additional securities of a class already listed on SGX, an additional listing
fee shall be payable as follows:
a. Mainboard listed equity securities are subject to a minimum fee of S$ 5,000 (S$ 5,350 inclusive
of GST) and a maximum fee of S$ 100,000 (S$ 107,000 inclusive of GST), based on S$ 100
per million dollars or part thereof of the market value, of the additional equity securities.
b. Catalist NS listed equity securities are subject to a fixed fee of S$ 3,000 (S$ 3,210 inclusive of
GST) per class of securities.
c. In the case of an issue of additional equity securities arising from corporate actions where
there is no change in the total market value of that class of securities, such as a share split,
share consolidation, bonus share issue or capital reduction, no additional listing fee is payable.
d. In the case of an issue of additional equity securities arising from an exercise of employee
share options, no listing fee is payable.
2.3 Annual Listing Fee
For each class of securities listed, an annual listing fee is payable as follows:
a. Mainboard listed equity securities are subject to a minimum fee of S$ 25,000 (S$ 26,750
inclusive of GST) and a maximum fee of S$ 100,000 (S$ 107,000 inclusive of GST) based on
S$ 25 per million dollars or part thereof of the market value.
b. Catalist NS issuers,
i. with a market capitalisation of S$ 50 million and more at the point of billing are subject to a
fixed fee of S$ 25,000 (S$ 26,750 inclusive of GST).
ii. with a market capitalisation of less than S$ 50 million at the point of billingare subject to a
fixed fee of S$ 5,000 (S$ 5,350 inclusive of GST).
c. Annual fee will be billed bi-annually in June and December each year, or during any other
billing cycle to be determined by SGX. If an issuer withdraws its listing or is delisted from the
official list of Mainboard or Catalist, any upfront payment of the annual listing fee shall be
refunded based on a prorated monthly basis for the period remaining, following delisting.
d. For transfer from Catalist to Mainboard, the issuer shall pay the annual listing fee applicable to
Mainboard issuers upon its transfer to the Mainboard. Where the transfer to the Mainboard
takes place during the year, the fee payable shall be based on the prorated amount for the
unexpired period. Any annual listing fee paid for any unexpired period based on rates
applicable to Catalist issuers will be deducted from the annual listing fee payable.
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2.4 Processing Fee
On top of the listing fees, a processing fee is also payable for the processing of documents such as
circulars, information memorandum, introductory document, Articles of Association and Trust Deed.
As a general guide, the fee charged range from S$ 3,000 to S$ 8,000 for documents, depending
on the nature and complexity of the case.
SINGAPORE
11. Language required for:
a. Prospectus: English
b. Annual reports : English
c. Audit reports: English
12. Audit opinion required for
a. IPO
non-qualified opinion
b. After IPO
non-qualified opinion
13. Requirements of accounting auditors to be appointed
An issuer must appoint a suitable auditing firm to meet its audit obligations, having regard to the
adequacy of the resources and experience of the auditing firm and the audit engagement partner
assigned to the audit, the firm's other audit engagements, the size and complexity of the listed
group being audited, and the number and experience of supervisory and professional staff assigned
to the particular audit.
The auditing firm appointed by the issuer must be:
a. registered with the Accounting and Corporate Regulatory Authority (“ACRA”);
b. registered with and/or regulated by an independent audit oversight body acceptable to the
Exchange. Such oversight bodies should be members of the International Forum of
Independent Audit Regulators, independent of the accounting profession and directly
responsible for the system of recurring inspection of accounting firms or are able to exercise
oversight of inspections undertaken by professional bodies; or
c. any other auditing firm acceptable by the Exchange.
14. Delisting standards from bourses
The Exchange may remove an issuer from its Official List (without the agreement of the issuer) if:
1. the issuer is unable or unwilling to comply with, or contravenes, a listing rule;
2. in the opinion of the Exchange, it is necessary or expedient in the interest of maintaining a fair,
orderly and transparent market;
3. in the opinion of the Exchange, it is appropriate to do so; or
4. the issuer has no listed securities.
In addition, the Exchange may agree to an application by an issuer to delist from the Exchange if:
i. the issuer convenes a general meeting to obtain shareholder approval for the delisting;
ii. the resolution to delist the issuer has been approved by a majority of at least 75% of the
total number of issued shares excluding treasury shares held by the shareholders present
and voting, on a poll, either in person or by proxy at the meeting (the issuer's directors and
controlling shareholder need not abstain from voting on the resolution); and
iii. the resolution has not been voted against by 10% or more of the total number of issued
shares excluding treasury shares held by the shareholders present and voting, on a poll,
either in person or by proxy at the meeting.
Human resource requirements
1. Special labour standards to take heed of
The Employment Act covers every employee (regardless of nationality) who is under a contract of
service with an employer, except:
any person employed in a managerial or executive position
any seaman;
any domestic worker; and
any person employed by a Statutory Board or the Government.
Part IV of the Act, which provides for rest days, hours of work and other conditions of service,
applies only to:
workmen earning not more than S$ 4,500 basic monthly salaries and
employees earning not more than S$ 2,000 basic monthly salaries.
Junior managers and executives earning S$ 4,500 basic monthly salary and below are only
covered partially on the basic payment of salary. All other provisions do not apply to them.
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SINGAPORE
2. Social welfare: insurance, pension, etc
Contribution to the Central Provident Fund is compulsory for Singapore Citizens and Permanent
Residents.
3. Requirements for retirement benefits
Singapore is actively promoting the re-employment of older workers. Retirement and
Re-employment Act became effective 1 January 2012 and applies to eligible employees who attain
the specified age on or after 1 January 2012. The specified age is defined in Section 2 of the Act as
the minimum statutory retirement age of 62, or contractual retirement age if it is higher.
Singapore Workplace Safety & Health Act covers all workplaces from 1 September 2011.
4. Legal annual leave and public holidays
An employee’s annual leave entitlement under the Employment Act stretches from 7 days in their
first year of service to a maximum of 14 days from their eighth year of service.
In addition to annual leave and public holidays, employees who are parents of young children are
also entitled to children leave under the Employment Act and the Child Development Co-Savings
Act. Pregnant employees are also accorded protection and maternity leave benefits under the
Employment Act and the Child Development Co-Savings Act. From 1 May 2013, working fathers are
also entitled to paternity leave.
5. Brief information on labour unions
One (1) federal union.
Three (3) employers union.
Sixty six (66) employee unions.
6. Country quirks
Strikes are illegal in Singapore.
Withdrawal procedures
1. Company: procedures to close a company:
a. Striking off the company
A company can apply to ACRA to strike its name off the register. ACRA may approve the
application if there is reasonable cause to believe that the company is not carrying on business
and the striking off criteria are met.
b. Winding up a company: legal procedures required for liquidation
In terms of winding up, there are two (2) forms of winding up - members or creditors voluntary
winding up and compulsory winding up.
2. Company: legal procedures required for liquidation
In terms of winding up, there are two (2) forms of winding up - members or creditors voluntary
winding up and compulsory winding up.
For voluntary winding up, the company will have to start the process by calling for a company
meeting to pass a special resolution to wind up the company.
For compulsory winding up, the process is begun with a winding up petition presented in court by
persons entitled to do so under the Companies Act.
Thereafter, a liquidator will need to be appointed to call in and convert the assets of the company to
pay off the creditors in order of priority before paying the members in order of priority before finally
attending to the dissolution of the company.
3. Branch: legal procedures required for closing branch
Lodgement of “A Notification by A Foreign Company of the Cessation of Business” with the
authorities; or "A Notification by the Agent of a Foreign Company of the Liquidation or Dissolution of
a Company" as the case may be.
4. Representative office: legal procedures required for closing office
The Chief Representative or the parent company may either submit 'Upgrade/Cease RO Status'
online at http://roms.iesingapore.gov.sg or send a fax/letter to IE Singapore stating the date and
reason of the closure/de-registration of the RO.
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TAIWAN
Establishing the business entity
1. Formation and costs
Company
a. Formation
Four (4) corporate forms are available: an unlimited liability company, an unlimited company with
limited liability shareholders, a limited liability company, or a company limited by shares. In practice,
a company limited by shares and a limited liability company are the favorable two forms for foreign
investors. To incorporate a company in Taiwan, notarization of the foreign investor’s identification
documents is necessary.
If the manufacturing function is considered required, it might take at least two (2) months to
complete the registration; if not, it might take 45 days in average to complete the whole process after
having notarized documents from the investor.
Contact
Robert Wang
INTERNATIONAL
LIAISON OFFICER
robert@hitaichung.com.tw
+886423296111 ext. 500
+886987555009
Certain sectors such as banking are regulated with minimum capital; and in such areas, special
operating-approvals are required. Otherwise, there’s no statutory minimum capital requirement;
generally, the capital shall be sufficient to cover the preparation costs of setting up the company. In
addition, office shall be registered at qualified office-locations or areas only.
b. Cost
One-time administration fee is stipulated for incorporating a company; however, no administration
charge is stipulated after establishment unless an amendment or update towards company
registration info is made thereafter.
Branch
a. Formation
Same as for company.
Representative Office
a. Formation
A representative shall be designated to perform the concerned legal actions (such as price
negotiation, quotation-offering, tender-participation and signing procurement agreement) within
Taiwan, and if the representative needs to be stationed in the R.O.C., he shall establish a
representative office by filing the after-notarization foreign company registration documents to the
Authority. In such a form, no income-generating business activities would be allowed. Normally, it
would take ten (10) working days to complete the filing after having notarized documents from the
investor (only business recognized by the Authority as legally established foreign companies may
set up a representative office in Taiwan).
No specific requirement for the office address.
Cost
No administration fee is stipulated for establishing a representative office.
2. Investment incentives
Company
Ten (10)-year loss carry-forward (tax certification or audit is required).
Investment credit for specific or approved research & development projects/activities.
Branch
Ten (10)-year loss carry-forward (tax certification or audit is required).
3. Foreign ownership restrictions
Company
Foreigners are prohibited from running the business stated in the Forbidden List (Negative List); for
example, activities relating to public utilities such as water supply and electricity.
Branch
Same as for company
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4. Work permits and visas
Company
The permits of work visa would be given to expatriates and the manager-in-register based on the
minimum revenue threshold stipulated for every industry or business; and also, few qualifications of
the expatriate should be met to get the permission.
Besides, if a company wants to hire foreign expatriates to work in Taiwan in its first year of
operation, the minimum capital to be registered is TWD 5 million.
Branch
Same as for company
Representative office
The permission would be given to the representative only.
5. Accounting standards and audit requirements
Company
Accounting standards
PIEs are required to fully adopt IFRSs in either 2013 or 2015; and non-public entities would either
follow Taiwan GAAP directly or adopt IFRS-SMEs; which has not been determined yet.
Audit requirements
a. Tax audit
Net sales and non-operating income are in excess of TWD 100 million.
Banks, credit cooperatives, insurance, investment trust companies, short-term bill and
finance companies, capital leasing companies and companies engaged in securities and
futures Public companies.
Have filed a consolidated income tax return.
b. Financial audit
Capital-in-Register over TWD 30,000,000.
Bank-loan amounting over TWD 30,000,000.
Branch
Same as for company.
6. Residential directors / promoters requirements
Company
If limited company is incorporated:
shareholder: one (1), either individual or legal entity
director: one (1), no residential requirement
If (share) limited liability company is incorporated,
shareholder: one (1) legal entity or two (2) individuals
director & supervisor: three (3) directors and one (1) supervisor, no residential requirement
Branch
One individual is required to be registered as branch-representative and manager.
Representative Office
One individual is required to be registered as representative.
7. Foreign ownership over tangible assets
Company
The restriction is set by country individually and is normally limited to business-purpose acquisition;
that is, residential-purpose acquisition is prohibited.
Each acquisition should be investigated and approved by the Authority individually.
Branch
Same as for company.
8. Country quirks
Company
PRC investors were permitted to make direct investments in Taiwan since 2009 July after having
adequate approval from the Authority; which is subject to different documentation and requirements
case by case.
Branch
Same as for company.
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Representative office
Same as for company.
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Investing in Asia Pacific 2013
TAIWAN
Tax information
1. Tax rates on corporate income
17%.
2. Other taxes
Value Added Tax (VAT)
5% in sales and purchases occurred within the territory of Taiwan.
Other taxes
10% surtax on undistributed earnings (not applicable to branch).
20% withholding on distributed earnings (not applicable to branch).
3. Branch income
Not subject to withholding tax while distributing earnings to head office; however, subject to 17%
corporate income tax; and also, 5% VAT would incur when generating sales.
4. Income determination
Except for certain exempt items, income from all sources (business income, interest, royalties, and
capital gains realized from property sales) is subject to income tax. A company’s taxable income is
derived by adjusting non-taxable income, non-deductible expenses, allowable provisions, losses
carried forward and so on from accounting income.
5. Deductions
Except for certain non-deductible expenses (normally non-qualified (not substantiated by adequate
and acceptable documents) expenses and costs, corporate income taxes paid, certain costs
incurred with the income taxed on a final withholding tax basis and allowable provisions), all the
costs and expenses are deductible.
6. Group taxation policies
Transfer pricing documentation is required.
7. Tax incentives
Inward investment:
Merge and acquisition transactions that meet certain criteria qualify for tax benefit including
exemption from deed tax, stamp duty, securities transaction tax, VAT and deferral of land value
increment tax.
Capital investment:
Companies can claim tax credits for up to 15% of qualified research & development (R&D)
expenses, with the maximum amount of tax credit capped at 30% of the tax payable in the year the
expenses are incurred. Any unutilized R&D credit will be forfeited and cannot be carried back or
carried forward.
Investors located in prescribed areas:
Export processing zones, science-based industrial parks and free-trade zones.
Establishing operation headquarters, logistic and distribution centers within Taiwan:
For headquarters, few types of income (headquarters’ management income, royalty income, gain
from disposal of investment) are exempt from corporate income tax; while for logistic and
distribution centers, income generated from qualified sales and delivery are exempt from corporate
income tax.
8. Withholding tax
Dividends
Rental
Interest
Commissions
Royalties
Technical fee
Professional fees
Resident company(%)
Resident individual(%)
Non resident company /
individual(%)
N/A
N/A(1)
10
N/A(1)
N/A(1)
N/A(1)
N/A(1)
N/A
10
10
10
10
10
10
20
20
15,20
20
20
0, 2, 3, 20
20
N/A(1): statutory invoice is required
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TAIWAN
9. Tax administration
1. VAT filing and payment: a bi-monthly VAT filing shall be completed by the 15th day of the odd
month for the two (2) preceding months; while the tax payment shall be made before VAT filing
2. Withholding processing: withholding tax shall be submitted to the Authority and the withholding
certificate shall be issued within ten (10) days after the payment is made if the receiver is a
non-resident; whereas the tax withheld is due in the 10th day of next month and the issuance
of annual withholding certificate is due on January 31 of the following year.
3. Corporate income tax return: annually filing is stipulated and is due in the fifth month after the
end of tax year; however, tax is paid on a self-assessment basis in two (2) installments: income
tax equal to either 50% of the tax liability declared for the previous year or taxable income
generated during the first six (6) months of the current year during 1 September and 30
September, while the second payment is due upon the filing of annual tax return.
10. Taxable incomes for non-residential companies and individuals
Taiwan-sourced income only for non-residential companies.
Taiwan-sourced income only for non-residential individual stays in Taiwan less than 90 days during a
tax year; Taiwan-sourced income and proportional non-Taiwan sourced income for non-residential
individual stays in Taiwan within 183 days.
IPO quick facts
1. Bourses in the country
a. Taiwan Stock Exchange (TWSE)
b. Over-the-counter GreTai Securities Market (GTSM)
2. Admission requirements
A. Primary listing
Taiwan Stock Exchange (TWSE)
a. Company size
Paid-in capital or shareholder’s equity of at lease TWD 600 million or market capitalization over
TWD 1,600 million.
b. Trading record
The applying foreign users or any of its controlled companies shall have three (3) years or
more of trading records; where the applying foreign issuer is an investment holding company,
the trading record may be based on the actual number of years of operation of its subsidiaries.
c. Public shareholding requirement
At least 1,000 shareholders, and where insiders of the foreign issuer and juristic persons own
over 50% of the shareholding, no less than 500 shareholders other than such insider own at
least 20% of the total issued shares (or not less than 10 million shares).
d. Qualitative requirements
1. Either an audit committee( which shall comprise all the independent directors and shall not
less than three (3) persons) or supervisors (at least three (3) persons).
2. Cumulative pre-tax earnings of at least TWD 250 million over the last three (3) fiscal years,
with at least TWD 120 million in the latest fiscal year, and no cumulative loss.
e. Others
At least six (6)-month after filing a consultancy contract with underwriters, or registering as an
emerging stock on the GTSM.
Over-the-counter GreTai Securities Market (GTSM)
a. Company size
Shareholder’s equity of at lease TWD 600 million.
b. Trading record
Two (2) years or more; where the applying foreign issuer is an investment holding company,
the trading record may be based on the actual number of years of operation of its subsidiaries.
c. Public shareholding requirement
Where insiders of the foreign issuer and juristic persons own over 50% of the shareholding, no
less than 300 shareholders other than such insider own at least 20% of the total issued shares
(or not less than 10 million shares).
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d. Qualitative requirements
Consolidated income before tax of at least TWD 4 million in the latest fiscal year, not taking
into account the effects if net minority interest income (or loss). Furthermore, the ratio of
income before tax to shareholders’ equity must meet one (1) of the following requirements:
at least 4% and no accumulated deficit in the latest fiscal year.
at least 3% for the latest two (2) fiscal years.
at least 3% for the average of the most recent two (2) fiscal years, and profitability in the
most recent fiscal year is higher that of the preceding fiscal year.
TAIWAN
e. Others
At least six (6) months after filing a consultancy contract with underwriters, or registering as an
emerging stock on the GTSM.
B. Secondary listing
Taiwan Stock Exchange (TWSE)
a. Company size
Shareholders’ equity of at least TWD 600 million.
b. Trading record
The registered shares, or securities representing its shares, issued by the foreign issuer in
accordance with the laws of its home country, have been listed on one of the stock exchanges
or securities markets (only those approved by Taiwan competent authority) for at least six (6)
months.
c. Public shareholding requirement
Excluding insiders and juristic persons who hold over 50% of total shares:
The number of registered holders of TDRs in Taiwan must be at least 300 persons or more;
The total number of shares held by these holders must be at least 20% of the total number
of issued shares or at least TWD 10 million shares
d. Qualitative requirements
No cumulative loss for the most recent fiscal year and meet one of the following criteria,
The income before tax for the most recent fiscal year represents not less than 6% of the
shareholders’ equity as shown in the issuer’s final accounts; or
The ratio of income before tax to shareholder’s equity for each of the past two (2) fiscal
years is 3% or higher, or the average is 3% or higher, and the profitability in the most recent
fiscal year is better year-on-year than in the preceding year; or
The income before tax for the most recent two (2) fiscal years is TWD 250 million or more.
e. Others
Local holders of the stock are not restricted from selling the stock on foreign stock
exchanges or securities markets.
The rights and obligations of stockholders are identical to those for the same class of stock
listed on other stock exchanges or securities markets.
Over-the-counter GreTai Securities Market (GTSM)
a. Company size
Shareholders’ equity of at least TWD 200 million.
b. Trading record
Same as TWSE TDR.
c. Public shareholding requirement
Same as TWSE TDR.
d. Qualitative requirements
No cumulative loss for the most recent fiscal year and meet one (1) of the following criteria,
The income before tax for the most recent fiscal year represents not less than 4% of the
shareholders’ equity as shown in the issuer’s final accounts; or
The ratio of income before tax to shareholder’s equity for each of the past two (2) fiscal
years is 2% or higher, or the average is 2% or higher, and the profitability in the most recent
fiscal year is better year-on-year than in the preceding year; or
The income before tax for the most recent two (2) fiscal years is TWD 4 million or more.
e. Others
Same as TWSE TDR
3. Specific requirements for specific industries
For those TDRs categorized as technology, profitability threshold is set differently:
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TAIWAN
TWSE TDRs
1. Shareholders’ equity shall not be less than (Paid-in-capital plus Capital Surplus) multiplying
second (2nd) of third (3rd);
2. Issuers must have sufficient working capital for twelve (12) months after listing (More than 50%
of abovementioned working capital must be generated from operating cash flow)
Furthermore, shareholders’ equity for the most recent period must be TWD 300 million or more.
GTSM TDRs
A foreign issuer that has obtained an appraisal opinion from a professional institution engaged by
the Industrial Development Bureau of the Ministry of Economic Affairs, or engaged by the GTSM,
stating that such an issuer is a technology enterprise and that is has successfully developed a
product or technology with market potential may be exempted from the profitability restrictions.
4. Typical issuance size
Primary listing:
At least meet the public shareholding requirement.
Secondary listing (TDRs):
TWSE TDR:20 million units or more, or total with a market value of TWD 300 million or more GTSM
TDR:10 million units or more, or total with a market value of TWD 100 million or more.
5. Moratorium imposed
Evaluated as not qualified for listing application by underwriter; or listing application is rejected by
Review Committee of TWSE/GTSM or is then rejected by the Competent Authority.
6. Requirements for the appointment of a resident / local director and board composition
Requirement for directors(primary listing only)
TWSE
At least five (5) board members and at least two (2) independent non-executive directors, at least
one (1) of whom must be domiciled in Taiwan.
GTSM
At least three (3) independent directors, which must account for at least 1/5 of the total number of
director seats. At least one (1) of the independent directors shall be domiciled in Taiwan.
7. Methods of offer and restrictions
It’s mandatory that the foreign issuers being under consultation contract with underwriters.
8. Timeline
Primary listing:
Self-assessment of internal control system and/ or restructure plan conducted by the company
Contract an underwriter for consultancy
(three (3) months (additional three (3)-month extension
is allowed) Conduct Public Issuance
Fill in the listing application form
(at least six (6) weeks)
Reviewed by Review Committee of TWSE/GTSM
one month)approved by the Board of
TWSE/GTSM
(two (2) to three (3) weeks) Approval from the Competent Authority or Financial
Supervisor Commission
(two (2) weeks) Get approval for capital-incremental plan
(one (1)
week) Listing.
Secondary listing:
Fill in the listing application form
(ten (10) business days) Approval letter from TWSE/GTSM &
(12 business days)Approval letter from Central Bank
(within seven (7) business days)File an
effective registration with the Competent Authority or Financial Supervisor Commission
(three (3)
months (additional three (3)-month extension is allowed) Conduct Public Issuance
(within three
(3) days) Submit the chart of dispersion of shareholding and schedule the listing date
(three (3)
days prior to listing) Apply for Listing.
9. Approving authorities
Primary listing:
Review Committee of TWSE or GTSM.
Financial Supervisory Commission.
Secondary listing:
Central Bank (approval letter for the foreign currency).
Review Committee of TWSE or GTSM.
Financial Supervisory Commission.
10. Estimated cost involved
Contract an underwriter/investment bank for consultancy; engage an auditor/ lawyer.
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11. Restriction on secondary listing or dual listing
The registered shares, or securities representing its shares, issued by the foreign issuer in
accordance with the laws of its home country, shall have been listed on one of the stock exchanges
or securities markets approved by Taiwan competent authority:
TAIWAN
NYSE Euronext(US); American Stock Exchange(US); NASDAQ(US); London Stock Exchange(UK); Deutsche Borse AG
(Germany); Italian Stock Exchange(Italy); Toronto Stock Exchange(Canada); Australian Securities Exchanges (Australia);
Tokyo Stock Exchange(Japan); Osaka Securities Exchange(Japan); Stock Exchange of Singapore(Singapore); Kuala
Lumpur Stock Exchange(Malaysia); Stock Exchange of Thailand(Thailand); Johnnesburg Stock Exchange(South Africa);
Hong Kong Exchanges and Clearing Limited(HK); Korea Exchange(Korea); others with special approval.
12. Language required for:
a. Prospectus: Chinese
b. Annual reports: Chinese
c. Audit reports: Chinese
13. Audit opinion required for
a. IPO
Primary listing: Two (2) qualified CPAs from qualified firm to sign the audit opinion; and also,
an unqualified opinion on internal control system shall be issued within three (3) months after
the balance sheet date / most recent three (3) fiscal years audited consolidated financial
report (if the application date is within the 4th, 7th and 10th month after the balance sheet
date, the audit report for Q1, half-year and Q3 shall be submitted additionally). Secondary
listing: Two (2) qualified CPAs from qualified firm to sign the review opinion for the GAAP
differences / most recent three (3) fiscal years consolidated financial report (if the application
date is after August 31, half-year consolidated report for the current year is required).
b. After IPO
Two (2) qualified CPAs from qualified firm to sign the audit (or review) opinion.
14. Requirements of accounting auditors to be appointed
Foreign auditors are not allowed.
15. Delisting standards from bourses
Extraordinary resolution of shareholders
Supervisor Committee).
(Approval from the Competent Authority (Financial
Human resource requirements
1. Special labor standards to take heed of
Statutory minimum level of pay:
Currently set at TWD 17,880 per month / TWD 98 per hour and shall be equal pay for man and woman;
reviewed periodically.
Working hours:
Generally, may not exceed eight (8) hours a day and 84 hours within any 2-week period; 30-minute
break shall entitle to worker for every 4-hour working period; overtime is limited to four (4) working
hours a day and 46 hours a month. In addition, children under 15 year-old is not allowed to work, while
those between 16 and 17 are allowed to work eight (8) hours a day without overtime.
Other topics regarding sex discrimination and harassment as well as labor’s health and safety
are addressed in the labor standards as well.
2. Social welfare: insurance, pension, etc
Labor and health insurance:
mandatory contribution based on every employee’s filed salary and dependents.
Pension:
mandatory: 6% contribution of every employee’s filed salary.
3. Requirements for retirement benefits
Companies are free to establish a retirement system for employees other than the mandatory
defined contribution plan set by the government. Otherwise, the benefit would be paid through
every employee’s individual pension account via government’s mandatory system upon his
retirement.
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TAIWAN
4. Legal annual leave and public holidays
Public holidays:
Employees are allowed time off on public holidays; and normally, most companies follow the official
government holiday schedule issued annually directly.
Leaves:
holiday and annual leave (7-day paid vacation after 1-2 year(s) continuous service, 10-day paid
Vacation after 3-5 years continuous service, 14-day paid vacation for employees work over five (5)
years; up to 30-day paid vacation for those work over ten (10) years); marriage (up to 8-day paid
vacation) and funeral leave (depends on the relationship to the deceased); maternity leave and
childcare.
5. Brief information on labour unions
It’s not mandatory to set a labor union within a company; normally, labor union is set at
industrial-level; for example, CPA union.
6. Country quirks
If it’s normal in the industry to work overtime, the employer may require a written agreement or
consent letter from the employees while recruitment.
Withdrawal procedures
1. Company: legal procedures required for liquidation
1. Cancel company registration to clear company data maintained by the Authority.
2. Apply to court for the cancellation of Taiwan legal identification to avoid any contingent
liabilities (or lawsuit filed by someone) incurred thereafter; few mandatory criteria have to be
met in the process of court’s investigation.
2. Company: tax requirements
Complete liquidation tax filing to cancel the Company’s tax identification number.
3. Branch: legal procedures required for closing branch
Cancel company registration to clear company data maintained by the Authority.
4. Branch: tax requirements
Complete liquidation tax filing to cancel the Company’s tax identification number.
5. Representative office: legal procedures required for closing office
File office-closing documents to the Authority, which may take ten (10) business days or so.
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THAILAND
Establishing the business entity
1. Formation and costs
Company
The Civil and Commercial Code governs private limited companies. The Code defines “limited
company” as a company which has a capital divided into equal shares and the liability of the
shareholder is limited to the amount of payment remains unpaid on the shareholder’s shares. A
company may be incorporated by at least three (3) promoters filing a memorandum of association,
holding a statutory meeting, and registering the company with the Department of Business
Development, and all incorporation / registration procedures may be completed in one (1) day.
A company may be required to obtain a license to do business under a particular law, depending on
the nature of the business. The Civil and Commercial Code requires a company to hold an annual
general meeting of shareholders once a year and one (1) of the meeting agenda is to approve the
audited financial statements. The government fee for registering a company is THB 5,000 for every
one (1) million Baht registered capital with a maximum fee of THB 250,000. Other government fees
are nominal.
Contact
Atipong
AtipongSakul
AUDIT PARTNER
ANS AUDIT CO., LTD.
BANGKOK
atipong@ans.co.th
Sathien Vongsnan
Branch
There is no law which defines the term “branch”. A branch is commonly known as a branch office of
a company incorporated in Thailand and / or a branch office of a foreign company incorporated
outside Thailand (the parent company) and seeking to do business in Thailand in the form of a
branch office. The first case is straight forward and only registering a branch office with the
Department of Business Development under the Civil and Commercial Code is sufficient.
AUDIT PARTNER
The branch office of a foreign company may be established in Thailand in the form of a private
limited company whose majority shares are held by the parent company, or alternatively, the parent
company is present in Thailand and proceeds to apply / obtain a license to do business in its own
name, and in such case, the parent company is considered by law as doing business in Thailand
(however, such entity is commonly referred to as branch office).
+662 645 0109
In both alternatives, the branch office is regarded as “foreigner” under the Foreign Business Act (ie.
the law which governs foreigner doing business in Thailand); as a result, it may be required to obtain
permission before it commences the business under the Foreign Business Act. The processing time
to apply / obtain the license is 60 days. The license fee is calculated based on the amount of the
applicant’s registered capital and the fee is in the range between THB 20,000 to THB 250,000.
FIRM FOUNDER
Representative Office
There is no law which defines the term representative office. A representative office (RO) is
commonly referred to as a representative office of a foreign company registered outside Thailand
and seeking to do business in Thailand in the form of a representative office. The Foreign Business
Act (FBA) is the law which governs the establishment of a representative office. The FBA allows a
representative office to carry on “non-trading businesses” only and the scope of businesses must be
limited to those provided for the head office’s benefit, not other persons, as follows:
1.
2.
3.
4.
5.
ANS AUDIT CO., LTD.
BANGKOK
sathien@ans.co.th
Thanapat Pupat
ATTORNEY-AT-LAW
TAX ADVISOR
MAGNUS & PARTNERS
BANGKOK
thanapat@
magnuspartners.com
+662 652 5160
reporting business movements in Thailand to the head office;
giving advice relating to the head office’s goods to the head office’s customer;
finding the source of the goods in Thailand for the head office;
performing quality control on the head office’s goods; and
distributing information regarding the head office’s goods to potential customers in Thailand.
The services in these items one (1) to five (5) are considered as FBA regulated businesses;
therefore, a representative office is required to apply / obtain a license to carry on these businesses
from the Department of Business Development under the FBA. The processing time to obtain the
license is 60 days. The license fee is calculated based on the amount of the applicant’s registered
capital and the fee is in the range of THB 20,000 to THB 250,000.
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2. Investment incentives
Company
The Investment Promotion Act is the law which promotes local and/or foreign investments in
Thailand. The Office of the Board of Investment (BOI) is the authority which administers the
Investment Promotion Act. The Act provides tax and non-tax incentives to a successful applicant
seeking to do business in Thailand. The non-tax incentives are; for example, permission to bring
foreigner to stay and work in a project, permission for foreign investor to own land for use as the site
of the business, permission to remit foreign currency out of Thailand, etc.
The tax incentives are; for example, corporate income tax exemption, import duty exemption or
reduction on machinery or raw materials brought into the country for manufacturing, etc. The tax
incentive period is varied, depending on the location of the business (referred to by the BOI as
“investment promotion zone”), and the maximum corporate income tax exemption may be up to
eight (8) years. The BOI announces the lists of the businesses eligible for investment promotion
from time to time. Interested applicants may apply for the investment promotion at the BOI, which
will be reviewed and approved in about 45 days.
Branch
Same as for company.
Representative Office
Representative offices are not eligible to investment incentives under the Investment Promotion Act.
3. Foreign ownership restrictions
Company
The FBA is the main law which governs foreigner doing business in Thailand. The FBA defines
“foreigner” as a person without Thai nationality, a company registered outside Thailand, and a
company registered in Thailand and having the foreigner(s) holding the shares at 50% or more of
the total shares of the company. The FBA provides the lists of businesses, known as List One, List
Two, and List Three, in which the foreigner may not engage.
List One Businesses are prohibited to foreigners without exceptions. A foreigner may carry on a List
Two Business only if he has obtained permission from the Minister of Commerce with the approval
of the Cabinet. A foreigner may carry on a List Three Business only if he has obtained permission
from the Department of Business Development with the approval of the Foreign Business
Committee whose members consist of the representatives from the public and private sectors.
For the business which is not classified in Lists One, Two, or Three, it is permissible to foreigner; for
example, manufacturing own products for local or export sales. A foreigner which receives an
investment promotion to carry on a business under the Investment Promotion Act, but such business
is a business restricted to the foreigner under the FBA, in such case, the foreigner must first proceed
to obtain a written confirmation from the Department of Business Development confirming that he is
allowed to carry on that business throughout the period of his investment promotion.
Branch
Same as for company.
Representative Office
Same as for company.
4. Work permits and visas
Company
The Foreigner Employment Act is the law which governs foreigner working in Thailand. The Act
defines “work” as performing a work, whether by using knowledge or otherwise, in return for
consideration. The Act requires foreigner to apply, obtain, and carry a work permit before he starts to
work. The Act provides the list of work, which is not permissible to foreigner; for example, legal
service, civil works engineering.
A foreigner who wishes to apply for a work permit must file a work permit application with the Labor
Department and it takes about 14 days to review and approve the application. A foreigner should be
employed, not self-employed, and his employer (i.e., company) may sponsor a work permit
application for him, and in such case, according to the practice of the Labor Department, the
company (i.e., his employer) must have a registered and fully paid-up capital at 2 million Baht in
order to sponsor one work permit application.
Branch
Same as for company.
Representative office
Same as for company.
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5. Accounting standards and audit requirements
Company
The local standards in compliance with IFRS has been announced in 2011 and a full IFRS
convergence is aimed by 2013 for all Publicly Accountable Entities (PAEs).
THAILAND
However, the accounting standards for Non-Publicly Accountable Entities (NPAEs) are already
effective in 2011. Hence, NPAEs can consider to transition their FS reporting to either accounting
for NPAE or Thai Financial Reporting Standard (TFRS).
Branch
Can consider to transition their FS reporting to either accounting for NPAE or TFRS.
Representative office
Same as for branch.
6. Residential directors / promoters requirements
Company
The Civil and Commercial Code provides that a company must be managed by a board of directors.
Only a shareholders’ meeting has a right to appoint and / or remove a director. A company may
have a number of directors as wished. The director may be Thai or non-Thai national, as wished.
The day-to-day business operation is managed by a Managing Director, who is appointed by a
shareholders’ meeting from time to time. A company must also have authorized director(s), i.e., the
director(s) whose signature(s) binds the company. Only a shareholders’ meeting appoints the
authorized director(s).
The Civil and Commercial Code provides that at least one-third of the number of directors must
retire at an annual general meeting of shareholders every year; however, these directors may be
re-elected for another term. For the director’s fee, it is only fixed by a shareholders’ meeting.
Branch
Same as for company.
Representative office
A person who manages a representative office is commonly referred to as “representative”. Such
person is appointed by the representative office’s parent company and his particulars must be
lodged with the Department of Business Development. Representative offices are only allowed to
have one representative.
7. Foreign ownership over tangible assets
Company
The Land Code prohibits foreigner from owning land. The Code defines “foreigner” as a person
without Thai nationality or a company which has foreigner(s) holding the shares from 51% of the
total shares in the company. A foreigner may receive exemption under a specific law to own land.
For example, the Investment Promotion Act allows a foreigner who receives an investment
promotion to own land for use as the site of the business. A foreigner is not only not allowed to own
land, but also other property, such as building, house, vehicle, etc.
Branch
Same as for company.
Representative office
Representative offices are not allowed to own land.
Tax information
1. Tax rates on corporate income
For SME:
The income tax reduction grants corporate which have paid-up share capital on the last date of
accounting period not exceeding Baht 5 million and revenue from sales of goods and rendering of
services for the accounting period not exceeding Baht 30 million by exemption corporate income
tax for net profit not exceeding Baht 150,000 and at the corporate income tax rate of 15% for net
profit exceeding Baht 150,000 but not exceeding Baht 1 million and at the corporate income tax rate
of 23% for net profit exceeding Baht 1 million for the accounting period beginning or after January
1, 2012 and at the corporate income tax rate of 20% for net profit exceeding Baht 1 million for the
accounting period beginning or after January 1, 2013 onwards.
For other entity:
There is a reduction in the corporate income tax rate from 30% to 23% on net profit for the
accounting period 2012 beginning on or after January 1, 2012, and will be reduced to 20% on net
profit for the two consecutive accounting periods beginning on or after January 1, 2013 onwards.
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2. Other taxes
Good and Services Tax (GST)
Not applicable.
Value Added Tax (VAT)
Value Added Tax is collected from:
a. sale of goods; and
b. provision of services.
Sale means to include high purchase, delivery of the goods to
the agent to sell, etc. Service means performing a service in
return for consideration. Value Added Tax liability on a sale of
goods arises on certain circumstances; for example, transfer
of the ownership in the goods, or receive the price of the
goods, or issue a tax invoice.
Value Added Tax on a provision of services arises on certain
circumstance; for example, receive the service fee. Currently,
the value added tax rate is 7%. A service provider who
provides services to his employer abroad is not required to
charge value added tax on the service fee, instead he is
required to remit the value added tax on the service fee to the
revenue office.
Other taxes
For example, specific business tax which is collected from
certain transactions provided in the Revenue Code; such as
money lending, buying and selling of land; or land and house
taxes, etc.
3. Branch income
The branch office of a foreign company which does business in Thailand must pay a corporate
income tax on net profits at the rate of 30%. However, the representative office need not because it
does not carry on (and is not allowed to carry on) trading business.
4. Income determination
Capital gains and dividends are considered as assessable income under the Revenue Code;
therefore, a tax payer must include these income items in his other assessable income so that the
whole amount is taxed. For the capital gains and dividends which are remitted to investors abroad, it
must be subjected to a deduction of withholding tax at the rate of 10%.
5. Deductions
Not applicable.
6. Group taxation policies
Not applicable.
7. Tax incentives
There is no legal requirement to register inward foreign currency remittance; for example, capital
funds. However, the foreign currency must be converted by a commercial bank in Thailand into Thai
Baht and must be recorded with the Bank of Thailand for outward remittance in the future; for
example, capital return.
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
10%
1%
10%
3%, if paid locally.
10%, if distributed to a parent company abroad.
9. Tax administration
The tax payer must file a corporate income tax return every half year of each year, including filing
another tax return within one month after approval of the audited financial statements in the
following year. For VAT, it must be filed once a month, on every 15th day of the following month,
regardless that there is VAT transaction in the preceding month.
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10. Taxable incomes for non-residential companies and individuals
Depending on the relevant tax treaty between Thailand and a particular country, income in the form
of business profits; such as service fee, consulting fee, etc., is considered as “business profits”
under the tax treaty; therefore, it may be exempted from a withholding tax if it is paid to a person not
do business in Thailand in the form of a permanent establishment as defined in such tax treaty.
Notwithstanding the tax treaty provisions, income in the form of dividends and royalty fees are
subject to a withholding tax at the rate of 10% and 15%, respectively.
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IPO quick facts
THAILAND
1. Bourses in the country
a. The Stock Exchange of Thailand (SET).
b. Market for Alternative Investment (MAI)
2. Admission requirements
The Stock Exchange of Thailand (SET)
a. Company size (Paid-up Capital)
≥ THB 300 million after IPO
b. Trading record
Must have been in operation for at least three (3) years;
Must have the same company management for at least one (1) year prior to the application date;
Must have had net profit all of the followings:
i. Combined minimum net profits from operations of THB 50 million over the past two (2) or
three (3) years;
ii. Net profit from operations of THB 30 million for the latest full year, and
iii. Net profits from operations in the year of filing the listing application, as shown by
combining all quarterly results for that year.
For a privatized state enterprise, operations prior to privatization will be considered as a
continuation of operations.
c. Public shareholding requirement
1. Number of minor shareholders / Non-strategic shareholders:
≥ 1,000 shareholders.
2. Strategic shareholders:
Hold ≥ 25% of paid-up capital for companies with THB 300 million ≥ paid-up capital <
THB 3,000 million.
Hold ≥ 20% of paid-up capital for companies with paid-up > THB 3,000 million.
3. Number of shares cumulatively offered for sale:
paid-up capital < THB 500 million.
≥ 15% of paid-up capital.
paid-up capital ≥ THB 500 million.
≥ 10% of paid-up capital or THB 75 million in shares, whichever is higher.
d. Qualitative requirements
Have a stable and healthy financial condition and have sufficient working capital.
Have a minimum total shareholders’ equity of THB 300 million.
Qualifications for management and control persons should be in line with SEC regulations
and they should not possess any characteristics as prohibited by the SEC.
Duties and responsibilities must be clearly defined as specified by the SEC.
Have good corporate governance practices and a qualified audit committee as specified by
the SET.
Have effective auditing and internal control systems as specified by the SEC.
Have no existing or potential conflicts of interest as defined by the SEC.
Market for Alternative Investment (MAI)
a. Company size
≥ THB 20 million but lower than THB 300 million.
b. Trading record
The operation under the management of most executives in the same group must have
been continued for not less than one (1) year prior to the submission of an application.
There shall be the shareholders’ equity not less than THB 20 million.
The operational results must have existed for net profit in the latest year and there shall not
be less than two (2) years prior to the submission of an application, and there shall be
accumulated net profit in the period prior to the submission of an application; or
The operational results must have existed for not less than one (1) year prior to the
submission of an application, and the total value of ordinary shares based on market
capitalization must not be less than THB 1,000 million.
c. Public shareholding requirement
≥ 300 shareholders. The aggregate number must not be less than 20% of the paid-up
capital, and each of must hold not less than one (1) board lot of shares as prescribed by the
Exchange for the trading of ordinary shares.
Public offering:
1. The accumulated number of shares already offered for sale must not be less than 15% of
the paid-up capital.
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2. The shares must be offered for sale through underwriters.
3. For the shares to be offered for sale, application for approval must have been made and
approval have already been granted by SEC except where the applicant is a juristic
person established under a specific law.
d. Qualitative requirements
The management and any persons who have controlling power shall not being a person who
possesses any prohibited characteristics and violates any regulations.
There shall be procured good corporate governance system by having qualified independent
directors and members of the audit committee to supervise the application’s operations in order
to meet the standards and ensure pursuit of proper direction and there shall be an established
internal control system under the rules prescribed by the Notification of the SEC.
There shall be no conflict of interest according to the criteria specified in the Notifications of the
Capital Market Supervisory Board.
3. Specific requirements for specific industries
Criteria for companies engaged in infrastructure projects
In its bid to encourage companies engaged in infrastructure projects, the SET has provided special
listing requirements for securities in this category. The requirements which apply to such companies are
the same as those that apply to a general company, except there is no requirement for a three-year
track record. Furthermore, business operations and market capitalization are not required for these
companies. The applicant must comply with additional requirements as follows:
Additional Requirements
Nature of Business
Have a concession period of > 20 years with > 15 years remaining as of the
application date, or obtain specific permission from a government agency / state
enterprise, or possess a contract to sell products/services which can generate
stable revenues.
Sources of Finance
Possess confirmed and sufficient sources of finance.
Criteria for holding companies
i. The applicant must comply with all criteria applying to listed companies in general, except for the
track record and market capitalization criteria.
ii. The applicant must also hold shares in a core subsidiary in one of the following ways:
At least 75% of the core subsidiary’s paid-up capital;
At least 51% of the core subsidiary’s paid-up capital if the core subsidiary is involved in an
infrastructure project; and
At least the minimum percentage defined by the SEC if the core subsidiary’s operation is in a
foreign country.
iii. The majority of the applicant’s management team has also been management of the core
subsidiary for at least one (1) year before the application date, except for an applicant that is a
financial institution that is required by a government agency or the core company that engaged in
infrastructure project.
iv. The applicant must have control over the core subsidiary.
v. Once listed, the applicant must maintain its shareholding in the core subsidiary for at least the three
(3) following years during which any change of shareholding in the core subsidiary will be allowed
only if a qualified substitute is provided.
4. Typical issuance size
SET: No. of shares cumulatively offered for sale
Paid-up cap < THB 500M: > 15% of paid-up capital
Paid-up cap > THB 500M: > 10% of paid-up capital or THB 75 million, whichever is higher
MAI: >15%of the paid-up capital.
5. Moratorium imposed
A silent period is required for one year after listing. This means strategic shareholders, who hold at least
55% of the firm’s paid-up capital after the IPO, are prohibited from selling their shares and securities
during the first six (6) months after listing. They will be permitted to sell a maximum of 25% of the
locked-up shares every six (6) months thereafter.
Strategic shareholders are:
Directors, managers, and executive management, including related persons and associated persons
Shareholders who have a holding above 5%, including related persons.
6. Securities quoted allowed in foreign currency
No.
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7. Requirements for the appointment of a resident / local director and board composition
Board of Directors must consist of at least five directors with at least 50% of the Board members having
their residence in Thailand.
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To be listed on the Stock Exchange of Thailand, the issuer is required to set up an audit committee
to monitor good corporate governance. The composition of the committee and qualifications of audit
committee members are listed below. The committee must:
Consist of at least three directors, with at least one member having financial and accounting
knowledge;
Be appointed by the board of directors and shareholders;
Not have as members a non-executive director, an executive officer, an employee or an advisor
who receives a regular salary from the applicant;
Be free of any financial or other interest in the company’s management and business;
THAILAND
8. Restrictions for foreigners
No specific restriction.
9. Methods of offer and restrictions
None.
10. Timeline
Description
Three (3) to six (6)
months before
listing application
filing
Study relevant rules and regulations such as the Public Company Act, SEC
rules and regulations governing the issue and the offering of securities to
the public, and SET listing rules and regulations.
Appoint a financial advisor approved by the SEC.
Discuss company information with a financial advisor in order to examine
the applicant’s qualifications and make appropriate adjustment as needed in
accordance with relevant requirements.
Plan for information preparation and make schedules.
Restructure shareholding of the applicant and the other companies in the
group, eliminate existing or potential conflict of interest, and establish a
good corporate governance.
Prepare financial statements and other accounting reports in line with
acceptable accounting standards.
Establish an audit committee and appoint independent directors.
Two (2) to five (5)
months before
listing application
filing
Transform into a public limited company.
Prepare an initial public offering (IPO) application and relevant documents.
Plan for and study pricing and distribution of securities.
Prepare public relations plan.
One (1) to two (2)
months before
listing application
filing
Establish provident fund.
Appoint share registrar.
Submit IPO application to the SEC.
Prepare for company visit and management interview by the SEC.
Prepare listing application and relevant documents.
11. Approving authorities
The Stock Exchange of Thailand and Securities and Exchange Commission of Thailand
12. Estimated cost involved
Application Fee
Initial Fee
Annual Fee
SET
THB 50,000
0.05% of paid-up capital
Min. THB 100,000
Max. THB 3,000,000
Regressive rate varies by the
level of paid-up capital as follows:
(capital: million baht)
rate
< 200
0.035%
200 < capital < 1,000
0.030%
1,000 < capital < 5,000 0.025%
5,000 < capital < 10,000 0.020%
> 10,000
0.010%
Min. THB 50,000
Max. THB 3,000,000
MAI
THB 25,000
0.025% of paid-up capital
Min. THB 50,000
Max. THB 1,500,000
0.02% of paid-up capital
Min. THB 25,000
Max. THB 1,500,000
Notes: 1. Annual fees will be calculated based on listing duration.
2. Paid-up capital includes all listed paid-up shares of common and preferred stocks
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13. Restriction on secondary listing or dual listing
None.
14. Language required for:
a. Prospectus: Thai
b. Annual reports: Thai
c. Audit reports: Thai
15. Audit opinion required for
a. IPO
Non qualified.
b. After IPO
Not specific.
16. Requirements of accounting auditors to be appointed
Locally approved by SEC.
17. Delisting standards from bourses
Ordinary shares may be delisted upon occurrence of any of the following events:
a. The ordinary shares do not meet all the qualifications pursuant to the part of qualifications of
listed securities in the regulations of the Exchange governing listing of securities.
b. The listed company has paid-up capital specifically for the ordinary shares in an amount not
less than 60 million baht (only for SET).
c. The listed company violates or fails to comply with the laws governing securities and
exchange, regulations of the Exchange, listing agreement executed with the Exchange as well
as any circulars required by the Exchange for compliance, which may seriously and adversely
affect the rights, interests or decision of the investors or the change of price of the securities.
d. The listed company discloses false information in the application, financial statements or
report submitted to the Exchange or revealed to the general public, which may seriously and
adversely affect the rights, interests or decision of the investors or the change of price of the
securities.
e. The listed company fails to disclose material information or makes a mistake in disclosing
material information, which may seriously and adversely affect the rights, interests or decision
of the investors or the change of price of the securities.
f. The listed company’s operation or financial condition falls within any of the following cases:
1. The assets used in the operation of the listed company has significantly lessened or are
going to significantly lessen as a result of the sale, disposition, letting, separation, operation
suspension, abandonment, destruction, deterioration, seizure, expropriation or any other
case resulting in the same effect;
2. The operation is halted entirely or almost entirely for any reason whatsoever, regardless of
whether such halting of operation is due to the act of the listed company or any other
person;
3. The auditor issues a disclaimer or an adverse opinion on the financial statements of the
listed company for three (3) consecutive years;
4. The financial condition disclosed in the latest audited financial statements or consolidated
financial statements shows that the shareholders’ equity is lower than zero (0).
In case that the financial condition under the first paragraph does not show that the shareholders’
equity of the listed company is lower than zero (0), but the auditor has issued a qualified opinion, or
a disclaimer, or an adverse opinion on the financial statements or consolidated financial statements,
and the Exchange is of the opinion that it may substantially affect the financial condition of the listed
company, the Exchange may consider the financial condition of the listed company by adjusting the
condition from the report issued by the auditor and apply the rules prescribed in the first paragraph
as it deems appropriate.
Consideration of the financial statements or consolidated financial statements under the first
paragraph and the second paragraph shall be made from the audited financial statements for the
period ended June 30, 1998 onwards.
g. The listed company enters into liquidation to dissolve its business.
h. The listed company is under receivership by a court order or under any similar circumstances.
i. The listed company does any act which may seriously damage the interests of the
shareholders.
j. The nature of business operation of the listed company is not suitable for it to remain a listed
company.
k. There is a change in the listed company’s shareholding in its subsidiary companies or
associated companies and such change in shareholding seriously and adversely affects the
results of operations, financial condition and liquidity of the listed company.
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Human resource requirements
THAILAND
1. Special labour standards to take heed of
The Act on Safety, Health, and Environment in Work 2011 is a new law which governs safety,
health, and environment in a work place. The Act became effective in 2011. The purpose of the Act
is to establish, manage, and control the safety standard, including health, and environment in a
work place with intent to protect human resource. The Act is administered by the Ministry of Labor.
The Act requires the employer to establish certain safety standard, health, and environment in his
work place in order to ensure that there is no injury to the life, body, mental, and health of his
employee; and likewise, his employee is required by the Act to co-operate and assist him in such
arrangement. Safety standard is announced in a Ministerial Regulation from time to time and on a
case-by-case basis, depending on the nature of the business. All expenses in making the safety
standard available at the work place is borne by the employer.
2. Social welfare: insurance, pension, etc
The Social Security Act 1990 is a law which governs the employee social security. The Act is
administered by the Ministry of Interior. The Act considers the employee as “insured person”
whereby he (or his heir) receives certain compensation in the case of his disability, death, or others
during his employment. The Act requires the employer to deduct a sum of money from the
employee’s wage at each payment and remit it to a social security funds account, including for the
employer to remit another funds from the employer’s own account to such social security funds
accounts.
The Act also requires the government to remit another fund to such account. These funds are
intended for use as the employee’s expenses in the case of his disability, giving birth (for women
employee), child support, or death during his employment or termination of employment. The social
security funds account is established by the Act and monitored by the Office of the Social Security,
Ministry of Interior. The amount of the contribution is fixed from time to time by a Ministerial
Regulation on a case-by-case basis, depending on the nature of the business. For the employee
pension and/or insurance, there is no law which requires the employer to make them available for
the employee.
3. Requirements for retirement benefits
The Provident Funds Act 1987 is a law which intends to provide “savings money” to the employee
when his employment is terminated for any reason. The Act is administered by the Ministry of
Finance. The Act provides an option to both the employer and the employee to agree whether or
not they wish to enter into a provident funds; that is to say: the provident fund is optional, not legal
mandatory.
In the event that there is such agreement, the employer is required to deduct a sum of money from
the employee’s wage at each payment and remit to a provident funds account, including to
contribute another funds from the employer’s own account and remit to such provident account
where the total funds may not be withdraw by either the employer or the employee throughout the
period of employment. The provident fund account is administered by a licensed provident fund
company approved by the Ministry of Finance. When the employee’s employment is terminated for
any reason, the employer is required to instruct such provident fund company to return the
provident funds in full amount to the employee.
4. Legal annual leave and public holidays
The Labor Protection Act 1998 is a law which provides legal annual leave and public holidays. The
Act is administered by the Ministry of Labor. The Act requires the employer to fix the national /
traditional holidays of not be less than thirteen (13) days including the Labor Day and announce
them to the employee for information in advance.
The Act also provides that the employee who has worked for one (1) year is entitled to an annual
leave of not less than six (6) days. For the employee who has worked for more than one (1) year,
he is entitled to an annual leave holiday which may be more than six (6) days as may be agreed
with his employer in advance. In addition, the Act allows the employee to take personal leave, or
military training leave, or motherhood leave for the number of days as may be agreed with his (her)
employer in advance. These leave days are in addition to the statutory national traditional holidays.
5. Brief information on labour unions
The Labor Relation Act 1975 is a law which governs a labor union. The Act is administered by the
Ministry of Interior. The Act provides that a labor union may be established solely by the provisions
of the Act. A labor union may be established by at least ten (10) employees acting as the promoters
and it must be registered so that it is valid by law. The purpose of the labor union is to enhance the
benefits of both the employer and the employee and promote their relations.
The labor union is required to take actions for the benefits of the employees, as follows:
demand, negotiate, and agree on the employment terms with the employer;
manage and proceed to obtain benefits for the employees;
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provide information on employment recruitment to the employees;
provide consultation when there is a labor dispute;
provide fringe benefits to the employees; and
collect the membership fee in the amount provided in the labor union’s regulation. The business
of the labor union is managed by a Chairman of the Labor Union appointed by a General Meeting
of the labor union from time to time. The labor union must prepare, maintain, and keep its
financial accounts and books and have them audited once a year by auditor.
Withdrawal procedures
1. Company: legal procedures required for liquidation
The Civil and Commercial Code provides that a company may only be dissolved by a resolution of a
shareholders’ meeting. The shareholders’ meeting also appoints liquidator(s), who may be the
company’s existing director(s) or anybody else to liquidate the company. The liquidator has a duty to
collect the company’s assets in order to pay the company’s debts, including to hold a shareholders’
meeting to report the facts of the liquidation to the shareholders from time to time. During the liquidation,
the company is allowed to continue pending business transactions and complete them only, but not to
start new business transactions, and these pending businesses must be carried-out by the liquidator.
The liquidator may return capital to the shareholders only if and after he has paid the company’s debts.
The Civil and Commercial Code provides that during the liquidation process, if the liquidator finds that
the company’s assets are not sufficient to cover the company’s debts, the liquidator must (i.e.,
mandatory, not optional) apply to the court for an order declaring the company bankrupted. When the
liquidation is completed, the liquidator is required to file an application with the Department of Business
Development in order to confirm such completion. The liquidator must also inform the Revenue
Department, which will inspect the company’s tax returns to see whether or not all taxes were paid
correctly, before the company is allowed to close the business.
2. Company: tax requirements
While the company is still under liquidation, the liquidator is still required to file a corporate income tax
return, including value added tax return, if any, and when the liquidation process is completed, the
liquidator must also file a corporate income tax return as of the date of completion of the liquidation with
the Revenue Department.
3. Branch: legal procedures required for closing branch
The same procedures in the case of “company” also apply to a branch office of a foreign company if it is
established in the form of a private limited company.
4. Branch: tax requirements
The same procedures in the case of “company” also apply to a branch office of a foreign company if it is
established in the form of a private limited company.
5. Representative office: legal procedures required for closing office
The same procedures in the case of "company" also apply to a branch office of a foreign company if it is
established in the form of a private limited company.
6. Representative office: any tax requirements
Not applicable.
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VIETNAM
Establishing the business entity
1. Formation and costs
Company
Contact
A. Forms of enterprises
Limited liability company:
a With one (1) member or with two (2) or more than two (2) members.
b. Joint stock company.
c. Partnership.
d. Private enterprise.
Nguyen
Quynh Nam
B. Forms of direct investment
a. 100% foreign-owned enterprise.
b. Joint venture.
c. Investment in contractual forms of Business Cooperation Contract (BCC), Build Operate
Transfer (BOT), Build Transfer Operate (BTO), Build Transfer (BT) agreements.
nam.nguyen@
iglaudit.com
C. Investment procedures
Depending on the size and the sector of investment:
a. Business registration:
i. Domestic investment projects of less than VND 15 billion, not included in conditional
sectors.
b. Investment registration:
i. Domestic investment projects of between VND 15 billion to below VND 300 billion.
ii. Foreign investment projects of less than VND 300 billion and are not included in
conditional sectors.
c. Investment evaluation:
i. Investment projects of VND 300 billion or more; or
ii. Investment projects in conditional sectors.
INTERNATIONAL
TAX AND ADVISORY
PARTNER
Vu Lam
LIAISON PARTNER
lam.vu@
iglaudit.com
+84 04 2220 8334
fax
+ 84 04 2220 8335
D. Timing
15 - 45 days from the date of receipt of a complete and valid dossier depends on investment
procedures.
Branch
A. Conditions
A foreign businesses shall be granted permit to establish branches in Vietnam when fully
satisfying the following conditions:
i. Being recognized as legal businesses by countries or territories (jointly known as countries)
of business registration.
ii. Having been operating for at least five years after its lawful establishment or business
registration.
B. Timing
15 days after receiving complete and valid dossiers.
Representative office
Almost the as for branch.
2. Investment incentives
Criteria
Investment incentives are normally granted to projects investing in encouraged investment sectors
and/or areas.
Types of incentives
Incentives include: tax-free period, reduced tax rates, land rental and water surface rental fee
reduction, import duty exemption.
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VIETNAM
Timing and approval authorities
Investment incentives on each project will be granted by the relevant authority based on where to
invest and in which sector. Authorities, therefore, can be the authority from central, provincial,
municipal or industrial zone level. Investment incentives, if any, will normally be stated in the
respective Business Registration or Investment License.
3. Foreign ownership restrictions
Foreign ownership can be 100%, except for certain conditional sectors where the foreign investor
must meet certain conditions. E.g., exploitation and processing of mineral resources.
4. Work permits and visas
Company
Requirements
Foreigner working in Vietnam is required to obtain a work permit, except for certain cases, e.g.,
length of working period is less than three (3) months; being member in the Board of
members/Board of management of a limited liability company/Joint stock company or the owner of a
limited liability company.
Timing and extension
Work permits shall be granted within 15 days since date of receipt of complete and valid dossiers.
Work permit is allowed to extend, but extension period is no longer than 36 month/each extension.
Visa
Entry visa is required for foreigner, except for those entering Vietnam with diplomatic, official and
special passport enjoy the exemption for up to 90 days in accordance with Bilateral Treaties.
Visa is allowable to extend after entering Vietnam.
Temporary Resident Card
Temporary Resident Card is required for foreigner who stays in a long-term period in Vietnam. Its
period will depend on the period of work permit. It replaces the need for a visa.
Branch
Same as for company.
Representative office
Same as for company.
5. Accounting standards and audit requirements
Company
Accounting standards and regulations
Vietnamese Accounting Standards and related regulations issued by the Ministry of Finance have
been used for accounting recognition and financial statements preparation.
Audit requirements
The following enterprises, organizations are required annual statutory audit:
Foreign invested enterprise;
Credit institution;
Financial organizations, insurance/re-insurance company, insurance broker company;
Public company, Security issuing/trading organization;
State-owned enterprise.
Filing requirements
Annual audited financial statements must be submitted to relevant competent authorities within 90
days from the end of each fiscal year.
Branch
Same as for company.
6. Residential directors / promoters requirements
Legal representative
Legal representative of the company can be the Director, the Chairman of the members’ council.
Requirements
The legal representative must have permanent residence in Vietnam; where he or she is away from
Vietnam for over 30 days, he or she must authorize another person in writing in accordance with the
Charter of the company to perform the rights and obligations of the legal representative of the
company.
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7. Foreign ownership over tangible assets
Currently the acquisition of land by foreigners is not permitted. However, foreigners, foreign invested
enterprise are permitted to have land use rights, house ownership rights for maximum 50 years.
Crowe Horwath International
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8. Country quirks
Representative office
In Vietnam, a representative office is not a fully legal entity, generally established to seek and
promote opportunities for commercial activities and is not allowed to engage directly in profit
making activities. Its legal existence is limited to five years, except when the parent company’s
corporate existence under foreign law is shorter than five years.
VIETNAM
If representative office wishes to continue its operations after the expiry of the registration
certificate, it must renew its registration by submitting an annual report of its business operations
and application for renewal is thirty days prior to the expiry of the existing registration of certificate.
Tax information
1. Tax rates on corporate income
Standard rate: 25%;
Oil and gas industry: 32% - 50% depending on the location;
Preferential tax rates: 10% and 20% for whole life of project or number of years depending on
investments in which encouraged investment sector and/or area.
2. Other taxes
Value Added
Tax (VAT)
In general, for VAT purpose, a supply is either taxable (goods and/or
services used for production, trading and consumption in Vietnam) or
exempt or not subject to declare and pay VAT.
VAT rates: 10%, 5%, 0%
Personal Income
Tax (PIT)
Residents are those individuals residing in Vietnam for 183 days or
more in a calendar year, or in 12 consecutive months from the first date
of arrival; or those having a permanent residence in Vietnam (including
a registered residence or house lease in Vietnam where the lease
contract has a term of 90 days or more within a tax year).
Where an individual stays in Vietnam for more than 90 days but less
than 183 days in a tax year, the individual will be treated as a tax
non-resident if he/she can prove tax residency status of another country
Tax residents are subject to Vietnamese PIT on their worldwide taxable
income regardless of where income is paid. Employment income is
taxed on a progressive tax rate basis. Non-employment income is taxed
at a variety of different rates;
Tax non-residents are those who do not satisfy the above conditions.
They are subject to Vietnamese PIT at a flat rate of 20% on
Vietnam-sourced income in a tax year, and at various other rates on
their non-employment incomes. Default of tax year is calendar year;
however, first year of arrival will be the first 12 consecutive months from
the date of entry into Vietnam if that individual is present in Vietnam for
less than 183 days in first calendar year. Subsequently, tax year is the
calendar year.
Special Sales
Tax (SST)
SST is a form of excise tax that applies to the production or import of
certain goods and the provision of certain services. Goods and services
that are subject to SST are also subject to VAT.
Objects subject to SST include:
Goods and commodities: cigarettes, alcohol, beer, car with less than
24 seat, air conditioners up to 90,000 BTU,… with tax rates ranging
from 10% to 70%;
Services activities: discotheque, massage, karaoke, casino,
gambling, golf, clubs, and entertainment with betting and lotteries with
tax rates ranging from 15% to 40%.
Natural Resources
Tax
Natural resource tax applies to natural resources which are exploited in
Vietnam, including petroleum, minerals, natural forest resources, natural
marine and natural water.
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The tax rates vary depending on the natural resource being exploited
and are applied to the
production output at a specific taxable value per unit.
Property Taxes
The rental of land use rights by foreign investors (if not contributed as
capital) is in effect a form of property tax. It is usually known as land
rental and the range of rates is wide depending upon the location,
infrastructure and the industrial sector in which the business is
operating.
From 2012, under the law on non-agricultural land tax, owners of
houses and apartments have to pay land tax . The tax is charged on a
square meter basis with progressive tax rates ranging from 0.03% to
0.15%.
Environment
protection tax
Environment protection tax is an indirect tax which is applicable to the
production and importation of certain goods including petroleum
products.
Environment protection tax effectives from 01 January 2012.
3. Branch income
Where the branch can conduct independent accounting, it shall submit dossiers of declaration of
income tax arising to tax agencies directly managing it.
Where the enterprise has dependent branches in different provinces, a single CIT return is required.
However, for a manufacturing enterprise, it is required to allocate tax payments to the various
provincial tax authorities in the locations where it has manufacturing branches. The basis for
allocation is the proportion of expenditure spent by each branch over the total expenditure of the
enterprise.
4. Income determination
Taxable income
In a tax year, taxable income, whether domestic or foreign sourced, is
the difference between turnover and deductible expenses, plus other
taxable income.
Inventory
valuation
Current tax regulations do not provide any method for the valuation of
inventory. The principles of inventory accounting under Vietnamese
Accounting Standard No. 02 are generally accepted for the CIT
purpose.
Capital gains
Gains from assignments of capital and/or sales of shares in the
enterprises are treated as other taxable income. Other taxable income
is taxed at 25%.
For individuals, gains from assignments of capital and/or sales of
shares are subject to 0.1% tax on gross sale or 20% of net profit.
Dividends
Dividends received from domestic shareholdings after payment of CIT
are tax exempt income of the corporate shareholders (however,
dividends paid to the individual shareholders are subject to PIT at tax
rate of 5%).
Foreign income
Taxable income from foreign investment income will be the income prior
to payment of the associated CIT in foreign country.
In respect of the enterprise having the foreign investment income, CIT
paid in a foreign country is creditable but it must be determined based
on pre-tax income and it is limited to the amount of Vietnamese tax rate
payable on the foreign income.
5. Deductions
Deductible expenses are expenses that they are expenses that are
i. related to revenue generation
ii. supported by proper invoices/documentation; and
iii. are not in the list of non-deductible expenses as stipulated by the Law.
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Losses carried forward:
Tax loss may be carried forward fully and consecutively for a maximum of five (5) years.
Crowe Horwath International
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Losses of incentivized activities can be offset against profit from non-incentivized activities, and
vice versa. But it is not applicable to losses/gains from the transfer of real estate;
Loss carried backward is not allowed.
VIETNAM
6. Group taxation policies
Not applicable in Vietnam.
7. Tax incentives
CIT incentives:
Granted based on regulated encouraged investment sectors and/or areas;
Preferential tax rates: 10% and 20%, which are available for 15 years and 10 years respectively;
i. Starting from the commencement of operating activities;
ii. Reverting to the standard rate when the preferential rate expires;
Tax exemption, tax reduction: a tax holiday of up to four (4) years and a 50% tax reduction
period up to nine (9) years are available, whichever comes first, from:
i. First profit making year; or
ii. The fourth revenue generation year.
Additional reduction may be available for engaging in manufacturing, construction and
transportation activities which employ many female staff, or employ ethnic minorities;
CIT incentives do not apply to other income.
8. Withholding tax
Industry
Effective VAT
rate
Deemed CIT
rate
Exempt
1%
Services
5%
5%
Petroleum drilling services
7%
5%
Services together with provision of goods (cannot separate
value of machinery and equipment and value of service)
3%
2%
Restaurant, hotel, casino management services
5%
10%
Construction, installation without supply of materials or
machinery, equipment
5%
2%
Construction, installation with supply of materials or machinery,
equipment
3%
2%
Leasing of machinery and equipment
5%
2%
Not Specified
2%
Transportation
3%
2%
Interest
NA
5%
Royalty
NA
10%
Re-insurance, commision fr re-insurance
NA
0.1%
Transfer of securities
NA
0.1%
Derivative financial services
NA
2%
Other production and business
3%
2%
Trading: distribution, supply of goods, materials, machinery and
equipment attached to services in Vietnam, supply of goods
under DDP, DAT, DAP conditions (Incoterms)
Leasing of aircraft, vessels (including components)
9. Tax administration
CIT:
Tax registration is required after incorporation;
Provisional quarterly CIT returns must be filed and taxes must be paid by the 30th day of the first
month of the subsequent quarter;
Separate tax declaration for transfer of real estate;
Final CIT returns are filed annually. Outstanding tax must be paid within 90 days of the tax year
Tax payment location: generally at the locality of the head office. If the company has dependent
production establishment in other provinces, it must pay CIT at both.
VAT:
All organizations and individuals carrying on the production or trading of taxable goods and
services in Vietnam must register for VAT purposes;
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Each branch or outlet of an enterprise must register separately and declare tax on its own
activities;
VAT return must be filed monthly, by the 20th day of the following month;
No annual VAT reconciliation or finalization is required under the deduction method.
PIT:
Tax code registration: Each individual has his/her own tax code
i. A compulsory procedure for income paying bodies and individuals having income subject to PIT;
ii. Tax registration file is submitted to the district tax office of the locality where individuals reside;
Provisional PIT is required to filed and paid on a monthly basis by the 20th day of the following
month;
An annual final tax return must be submitted and any additional tax paid within 90 days of the
year end;
Tax refunds due to excess tax payments are only available to those who have a tax code;
A foreign resident individual is required to submit the final tax return upon termination of his/her
employment contract in Vietnam before departure;
Non-employment income is required to be declared and paid by the individual in relation to each
type of taxable income, often each time income is received.
10. Taxable incomes for non-residential companies and individuals
Non-residential companies
Non-residential companies shall be subjected to withholding tax upon their receiving the payment
from Vietnam-based company for their supplying of goods or services in Vietnam. Taxable income
will be total value from the supply of goods or services in Vietnam.
Non-residential individuals
Taxable incomes for non-residential individuals mean the entire earnings which a non-residential
individual receives from doing work in Vietnam, irrespective of the location where the income
11. Other information
Transfer pricing:
There is transfer pricing regulation which outlines various situations where transactions
among/between related parties must be conducted on arm’s length basis. For compliance purpose,
an annual declaration of related party transactions and transfer pricing methodologies used is
required to be filed together with CIT return.
Double tax reliefs and tax treaties:
Vietnam has signed a Double Tax Treaty with more than 60 countries. Of which, some treaties have
not been enforceable yet.
Foreign exchange control
VND must be used in transactions, quotation, contract within Vietnam territory unless specifically
allowed;
A foreign currency can be used as the functional currency for accounting and reporting purposes
but VND translation is required for submitted statutory financial statements;
Medium and long-term loan has to be reported with and periodically reported to the State Bank of
Vietnam;
Residents and non-residents can hold bank accounts in any currencies;
Foreign currency can be remitted overseas upon satisfaction of certain registration and/or tax
requirements.
IPO quick facts
1. Bourses in the country
a. Hanoi Stock Exchange (HNX).
b. Hochiminh Stock Exchange ((HOSE)
2. Admission requirements
Hanoi Stock Exchange
a. Company size
Required minimum amount of paid-up charter capital is VND 30 billion at the time of listing
registration.
b. Trading record
At least one (1) years under the form of joint stock company.
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The applicant company must achieve the ROE at least 5% in the most recent year; have no
overdue debts more than one year; and have no accumulated losses up to the year of listing.
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c. Public shareholding requirement
A minimum of 15% of the voting shares of the applicant company must be owned by at least
100 shareholders who are not big shareholders, except in the case of a State enterprise
converting into a shareholding company in accordance with regulations of the Prime Minister.
VIETNAM
d. Compliance with any development policy
The applicant company must comply with accounting and financial report legislation.
e. Qualitative requirements
A shareholder who is a board member, supervisory board member, director, deputy director
and chief accountant must commit to not sell:
i. any of their shares for the first six (6) months after listing;
ii. 50% of its shares for six (6) months after the expiry of the time in (i).
The shares above exclude shares which the shareholder holds on behalf of the State.
f. Others
Financial statements in last two years are audited by an auditing firm who is approved by
State Securities Commission.
Hochiminh Stock Exchange
a. Company size
Required minimum amount of paid-up charter capital is VND 120 billion at the time of listing
registration.
b. Trading record
At least two (2) years under the form of joint stock company and the applicant company must
have profitable for the last two (2) consecutive years and no accumulated losses up to the
year of listing.
The applicant company must achieve the ROE at least 5% in the most recent year and have
no overdue debts more than one (1) year.
c. Public shareholding requirement
A minimum of 20% of the voting shares of the applicant company must be owned by at least
300 shareholders who are not big shareholders, except in the case of a State enterprise
converting into a shareholding company in accordance with regulations of the Prime Minister.
d. Compliance with any development policy
The applicant company must comply with accounting and financial report legislation.
e. Qualitative requirements
Disclosure must be made in relation to any debts owned to the applicant company by any
board member, supervisory board member, director, deputy director, chief accountant, major
shareholder or an affiliate of any of these persons.
A shareholder who is a board member, supervisory board member, director, deputy director
and chief accountant must commit to not sell:
i. any of their shares for the first six (6) months after listing;
ii. 50% of its shares for six (6) months after the expiry of the time in (i).
The shares above exclude shares which the shareholder holds on behalf of the State.
f. Others
Financial statements in last two years are audited by an auditing firm who is approved by
State Securities Commission.
3. Typical issuance size
Hanoi Stock Exchange: minimum paid-up charter capital of VND 30 billion
Hochiminh Stock Exchange: minimum paid-up charter capital of VND 120 billion
4. Moratorium imposed
The State Securities Commission shall have the right to suspend the public securities offering for a
maximum period of 60 days in the following cases:
a. When the public securities offering registration dossier is discovered to have inaccurate
information or omission of any important contents that may affect the investment decision and
cause damages to investors;
b. The distribution of securities is not conducted in compliance with Law on Security regarding
securities distribution.
Within seven (7) days from date of the public securities offering suspension, the issuer must
announce the suspension of the public securities offering in a manner stipulated in three (3)
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consecutives issues of one electronic newspaper or written newspaper and must revoke the
securities which have been issued at the investors’ request and at the same time refund the money
to investors within 15 days upon receipt of the request.
When the causes leading to the suspension of the securities offering have been overcome, the State
Securities Commission shall issue a written notice on cancellation of the suspension and the
securities shall continue to be offered.
Within seven (7) days upon receipt of the notice on cancellation of the suspension, the issuer must
announce the cancellation of the suspension.
5. Securities quoted allowed in foreign currency
No.
6. Requirements for the appointment of a resident / local director and board composition
Must not have a criminal record for a national security offence; and must not currently be subjected
to criminal prosecution or any criminal sentence in accordance with the law of Vietnam and foreign
laws.
7. Methods of offer and restrictions
Initial public offering
Additional shares offering
The right to buy shares
8. Timeline
Due diligence and counseling.
(Two (2) - three (3) months).
Submitting documents for registration of share listing.
(One (1) month).
Completing the procedure of transaction registration.
(Three (3) months).
Issuance and listing.
9. Approving Authorities
Vietnam State Securities Commission.
10. Estimated cost involved
Initial listing registration fee: VND 10 million/ listing company
Next supplemental listing fee: VND 5 million/ supplemental listing.
Annual listing administration fee: VND 15 million for listing value below VND 100 billion; VND 20
million for listing value is between VND 100 and VND 500 billion; VND 20 million plus 0.001%
listing value for listing value is more than VND 500 billion but no more than VND 50 million.
Trading fee: 0.03%/trading value for listed shares and 0.02%/trading value for non-listed shares
Annual member depository fee: VND 40 million/year/member.
11. Language required for:
a. Prospectus: Vietnamese
b. Annual reports: Vietnamese
c. Audit reports: Vietnamese
In case foreign language is used, financial statements should be represented bilingually.
12. Audit opinion required for
Unqualified auditors’ opinion is expected. Therefore, if there is a qualified one (1), adverse one (1) or
disclaimer opinion, the proper explanation shall be required. Within 24 hours, the company has to
disclose such event if it is happened.
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13. Requirements of accounting auditors to be appointed
In order to provide audit service for listed companies, the auditing firm must be approved by the
State Securities Commission. There are some requirements:
Minimum legal capital of VND 2 billion (VND 3 billion from 1 January 2014, VND 5 billion from 1
January 2015). For foreign invested auditing firm, the minimum legal capital is USD 300,000.
At least seven (7) full-time practicing auditors with more than two (2) years of experience from the
date of qualification.
At least three (3) operation years from the establishment date. If the operation period is more than
six (6) months but less than three (3) years, at least seven (7) full-time practicing auditors with
more than three (3) years of experience from the date of qualification will be required.
Minimum number of clients annually in last two years is 30 audit clients
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14. Delisting standards from Bourses
Securities shall be delisted on the occurrence of any one of the following:
The institution listing the securities on the Stock Exchange failed for a one (1) year period to
satisfy the conditions for listing.
The listing institution itself suspends its main business and production activities, or such activities
are suspended, for a one (1) year period or longer.
The business registration certificate is revoked
There is no share trading on the Stock Exchange for a period of twelve (12) months.
Business and production suffers a loss for three (3) consecutive years, or total accumulated
losses in the most recent audited financial statements exceed paid-up charter capital.
The listing institution no longer exists as the result of a merger, consolidation, division,
dissolution or bankruptcy; or the securities investment fund terminates its operation.
In case that the approved auditing company gives qualified opinion or disclaimer opinion for the
latest financial statement of listed companies.
An institution receives approval for listing but fails to conduct listing procedures at the Stock
Exchange within three (3) months from the approval date.
The listing institution is in breach in that it was late in lodging annual financial statements for a
period of three (3) consecutive years;
The State Securities Commission or the Stock Exchange discovers that the listing institution
falsified its application file for listing, or such file contained seriously incorrect information which
affects investors' decisions;
The listing institution is in serious breach of its obligation to disclose information, or there are
other circumstances in which the Stock Exchange or State Securities Commission considers it
necessary to require delisting to protect investors' interests.
Securities shall also be delisted when listing institution has the request to delist upon the approval
from at least 50% shareholders who are not big shareholders.
VIETNAM
Human resource requirements
1. Special labor standards to take heed of
Laborer’s age is from from 15 years old and over
Probation period must be not over than 60 days for skilled workers and 30 days for other
workers.
There is new Labor Code which will take effect since 1st May 2013
2. Social welfare: insurance, pension, etc
Social Insurance contribution: 17% by the employer and 7% by the employee, are required with
respect to Vietnamese employees (this rate will be changed to 18% by the employer and 8% by
the employee since 01 January 2014).
Health Insurance contribution: 3% by the employer and 1.5% by the employee, are required with
respect for both Vietnamese employees and foreign employees.
Unemployment insurance contribution: 1% by the employer and 1% by the employee, are
required with respect to Vietnamese employees. It is compulsorily required for the employer who
has 10 employees or more.
These contributions are calculated based on the contracted basic salary but capped at 20 times
of the minimum salary given by the Government, VND 1,050,000 from 01 May 2012). Minimum
salary will be increased to VND 1,150,000 from 1st July 2013.
3. Requirements for retirement benefits
Vietnamese employees who have paid social insurance contribution for full 20 years or more are
entitled to retirement pension when being 60 year-old for men or 55 year-old for women.
4. Legal annual leave and public holidays
Normally, 12 annual leave pear year;
Public holidays include: calendar New Year holiday (1), Lunar New Year holiday (4), Hung Kings
Commemoration Day (1), Liberation Day 30 April (1), International Labor Day 01 May (1),
National Holiday 02 September (1).
5. Brief information on labour unions
Trade union organization in the company is to represent and protect the lawful rights and interests
of the employees and the labour collective.
From 01 January 2013, under new Trade Union Law No 12/2012/QH13, the company has to
contribute trade union fee with amount of 2% of basic wage fund which is the base for social
insurance contribution regardless trade union organization has been set up at the company or not
(the current rates are 1% of basic wage fund for Vietnamese labourers and 2% of basic wage fund
for the company)
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Withdrawal procedures
1. Company: legal procedures required for liquidation
a. Preparing and Approving the decision on dissolution of the company.
b. Organizing and implementing the liquidation of the company’s assets.
c. Announcing publicly within seven (7) working days upon the dissolution decision is passed:
i. publicly posted at the company’s head office and its branches.
ii. sent the dissolution decision to the business registration body.
iii. all creditors, it is sent together with a notice of the settlement of the debt, including the
creditor’s name and address, debt amount, time-limit, location and method of payment of
such debt, method and time-limit for dealing with creditors’ complaints.
iv. persons having related rights, obligations or interests.
v. employees in the enterprises.
d. Setting the company’s debts in accordance with orders: unpaid wages, severance allowances,
social insurance, tax liabilities and other debts.
e. Submitting the dissolution application documents by the legal representative to business
registration body within seven (7) working days upon the completion of full payment of all the
company’s debts and following up.
Within seven (7) working days from the date of receipt of all valid documents, the business
registration body shall remove the name of the enterprise from the business register.
2. Company: tax requirements
a. Within two (2) working days from receipt date of notice of the business registration body for the
company’s dissolution, tax authorities shall implement to inform the stop of operation of the
company and the end of tax code in process;
b. The company shall submit tax dossiers and conduct tax finalization with in-charge tax authority;
c. Within 10 working days from receipt date of tax dossiers for tax finalization, tax authority shall
implement tax finalization.
3. Branch: legal procedures required for closing branch
a. Within at least 30 days before the tentative day when branch ends operation, the foreign
business send announcement on the event to the licencing agency, lenders, workers in the
branch and other relevant individuals.
b. The announcement must specify tentative time for ending operation of the branch and be
posted publicly at the branch and syndicated in three (3) consecutive issues of newspapers or
online newspapers, which are allowed for distribution in Vietnam.
c. Within 15 days since foreign business and branch fully complete all obligations, the licencing
agency erases name of the branch in the register book.
d. Within 15 days since name of branch is abolished, the Ministry of Trade informs ending of
operation of branch to provincial People’s Committee, Department of Trade, taxation
authorities, statistics office and public security authorities of the province/city where the branch
is located.
4. Branch: tax requirements
At least 15 days before the branch ends its operation, the branch has to complete its obligation to
tax authority.
5. Representative office: legal procedures required for closing office
Same as for branch
6. Representative office: any tax requirements
Same as for branch
106
Contact Crowe Horwath in Australia
Tel 1300 856 065
www.crowehorwath.com.au
www.crowehorwath.net
www.crowehorwath.net
CroweHorwath
Horwath
International
a leading
international
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Crowe
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Horwath”
“Crowe
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or “Horwath”
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