ISSUE 1/2014
WWW.BDO.MY/ASEAN
ASEAN INVESTMENT
& TAX NEWS
FEATURE ARTICLES
READ MORE Page 2-3
NEWS
READ MORE Page 4-8
FOREWORD
Welcome to the inaugural issue of BDO’s ASEAN
Investment & Tax News. As the countries in
ASEAN move towards closer co-operation with
the advent of the ASEAN Economic Community
(AEC) in 2015, we thought it timely to introduce
this quarterly newsletter to provide you updates
on the tax and regulatory environment impacting
businesses in the region.
ASEAN, with a combined population of more than
600 million mostly aged 55 and below, presents
huge opportunities and traction for businesses in
terms of consumer base and competitive cost of
doing business. The region enjoys a robust gross
domestic product (GDP) growth of 5.7 per cent at
US$2.31 trillion in 2012, led by the services sector
which contributed between 35 and 60 per cent of
total GDP of the 10 nations.
With presence in all but one ASEAN country, BDO is well positioned to provide you with
seamless services and practical advice to help you tap into opportunities in this region.
We are optimistic of completing the picture with the addition of BDO in Lao PDR by the
first half of 2014. The BDO network in ASEAN provides a full range of services not only
in Tax, but also in Audit and Advisory including outsourcing and setting up of companies.
In this maiden issue of ASEAN Investment & Tax News, my colleagues have put together
news of interest on investments and latest tax developments. My counterpart from BDO
Singapore also shares with you his perspective on factors that have made Singapore an
exemplary economy in ASEAN.
We hope that you enjoy reading this publication. Should you require in-depth advice on
any of the topics covered herein, please do not hesitate to contact us. We look forward
to continuing to provide you with exceptional client service in 2014. Happy New Year.
DATO’ GAN AH TEE
Regional Senior Partner
CONTENTS
P1 FOREWORD
P2 FEATURE ARTICLES
X
ASEAN — Best Prospects
Worldwide for Foreign
Direct Investments (FDIs)
X
The Singapore Perspective
P4 NEWS
X
Introduction of Goods and
Services Tax in Malaysia
X
Singapore Tax Authority
adopts the rights-based
approach for characterising
software and right to use
information payments
X
Vietnam intensifies tax
audits & investigation
X
The draw of Special
Economic Zones in
Cambodia
X
Myanmar to introduce new
investment laws
X
Indonesia implements
strategic measures to attract
investors
2
ASEAN INVESTMENT & TAX NEWS
FEATURE
ASEAN — BEST PROSPECTS WORLDWIDE FOR FOREIGN DIRECT INVESTMENTS (FDIS)
ASEAN is becoming a foremost
destination for FDIs. The 10 nations
constituting ASEAN comprise a market
of more than 600 million people with
a combined annual gross domestic
product (GDP) of US$2.31 trillion, low
manufacturing costs, robust growth and
an expanding middle class.
other trade barriers between members,
effectively creating one of the world’s
largest single market. According to the
“2013 ASEAN-Business Advisory Council
Survey on ASEAN Competitiveness”
released recently, ASEAN offers the best
prospects worldwide for FDIs over the
three year period from 2013-2015.
In 2012, ASEAN received US$ 111 billion
in (FDIs). Singapore stands out among
ASEAN countries in terms of FDIs,
having received US$57 billion, Indonesia
received US$20 billion, Malaysia US$10
billion, Thailand US$9 billion, Philippines
US$2.8 billion, Cambodia US$1.6 billion,
Myanmar US$1.4 billion.
57% of the international businesses
surveyed have voted ASEAN as the most
attractive destination for FDIs. Their
main reasons for investing in ASEAN
countries include “to access a new or
growing market”, “to supply main or
leading customers” and “to profit from
low-cost production facilities”. These
are not surprising in view of the diverse
opportunities offered by ASEAN, both as
a manufacturing base and as a vibrant
market for goods and services. ASEAN
The ASEAN Economic Community (AEC)
is set to come into existence in 2015.
It is established to eliminate tariffs and
spans the spectrum from Singapore,
a financial and hi-tech industrial hub
with a higher GDP per capita than
Switzerland, through the manufacturing
bases of Malaysia and Thailand, the newly
industrialised economies of Vietnam
and Cambodia, to the natural resources
of Indonesia and Brunei and the raw
potential of Myanmar. Almost half of the
businesses planning to invest in ASEAN
consider the investment attractiveness
of the region as a whole rather than of
individual countries in the bloc.
With the ongoing progressive dismantling
of trade and regulatory barriers among
the ASEAN countries envisaged by the
AEC, investors will not want to miss
the opportunities to realize the massive
business potential that will be unleashed
in the region in the coming years.
ASEAN INVESTMENT & TAX NEWS
3
FEATURE
THE SINGAPORE PERSPECTIVE
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We have witnessed in recent years the
shift of business frontiers from the West
to the East. Multinational corporations
and industry leaders are fast finding ripe
opportunities in the Asia Pacific markets
to internationalise and regionalise their
businesses. As India and China grow
into economic giants, so too are ASEAN
countries gaining recognition within
the region following intensive structural
reform and infrastructure development.
By 2015, ASEAN countries are expected
to form the ASEAN Economic Community
(AEC), a significant step toward regional
economic integration. Singapore, one
of ASEAN’s key players and strongest
economies, has established itself as an
economic gateway for foreign trade and
investments. Its strategic location in
the heart of Asia Pacific as well as an
emphasis on fostering a pro-business
environment have solidified its position
as one of the world’s most significant
financial hubs. Singapore therefore serves
as an exemplary business model for its
peers in the region.
As most of the ASEAN countries are still
developing economies, the obstacles
they currently face are somewhat similar
to Singapore’s to a certain extent.
However, most of these countries possess
an advantage we did not have – vast
potential by way of natural resources
and labour. These emerging countries
can learn from and work with their more
developed counterparts as geographical
borders and trade barriers are lifted.
That is the aim of the AEC– to foster
strong economic relationships between
the ASEAN countries in order to achieve
prosperity for the region.
There are a multitude of reasons why
Singapore is an ideal site for investment
and business opportunities: favourable
tax rates, a skilled workforce, low start-up
costs and a stable political environment
are crucial factors credited for turning
Singapore into ‘a home away from home’
for businesses of various industries. These
factors were essential to overcoming the
lack of natural resources, technology
and infrastructure faced by Singapore’s
economy in its early years.
Today, Singapore continues to maintain
its competitive edge and is arguably one
of the leading economies in the region.
As 2015 approaches, I look forward to the
results of an intensifying collective effort
in economic integration. We should not
take our strong position for granted, for
there is always much to gain from working
with our neighbours in the region.
4
ASEAN INVESTMENT & TAX NEWS
NEWS
MALAYSIA
INTRODUCTION OF GOODS AND SERVICES TAX
their business transactions and remit the
net amount payable to the Royal Customs
on a pre-determined basis. A business
only need to register for GST once it
reaches the threshold of RM500,000 in
a 12 month moving or rolling basis or
where it is expected that it will reach the
threshold soon.
GST WILL REPLACE EXISTING TAXES
GST will replace the existing sales tax of
5%/10% and service tax of 6% once it is
implemented.
MEASURES ANNOUNCED BY THE
GOVERNMENT TO CUSHION iMPACT
ON BUSINESSES AND iNDIVIDUALS
ON THE iNTRODUCTION OF GST
Effective from year of assessment (YA)
2015
Malaysia has announced it will introduce
the Goods and Services Tax (GST) at a rate
of 6% with effect from 1 April 2015.
there are provisions to apply different
rates to certain specific goods and
services.
FEATURES OF GST
GST is a broad based consumption tax
applicable at each stage of the supply
chain. Once a business is registered
for GST, it can claim GST input tax paid
against the GST output tax it charges on
the supplies it make. The input tax and
output tax credit mechanism of the GST
system ensure that the tax is levied on
the value-added component or services
at each stage of the production, hence
it is cost neutral to business with the tax
ultimately borne by the end consumer.
Zero rated
Under the zero rated taxable supply, GST
input tax paid is recoverable and the
onward GST output tax is levied at 0%. If
most of the goods and services supplied
by a registrant business are mostly zero
rated, it may end up in a refundable
position with the Royal Customs.
GST is charged on any taxable supply
of goods and services made in the
course of any GST registrant business in
Malaysia. GST is also applicable to goods
and services imported into the country.
There are four (4) categories of GST rates
applicable to goods and services under the
GST system in Malaysia.
Standard rated
This is the default rate applicable to goods
and services under the GST system unless
Exempt
Under this category, no GST will be levied
on the supply of goods and services.
Business supplying goods and services
under this category will not be able to
recover GST input tax paid in making
those exempt supplies.
Out of scope
These are supplies that are outside the
GST system.
GST IS APPLICABLE TO EVERYONE
GST will affect everyone who consumes
goods and services once the system takes
effect on 1 April 2015. GST registrant
business will need to account for GST in
Individual
̐ Individual income tax rate will be
reduced by 1%-3%;
̐ Top individual tax rate to apply to
chargeable income exceeding
RM400,000 (previously RM100,000);
and
̐ One-off cash assistance of RM300 to
eligible households under the Bantuan
Raykat 1Malaysia Scheme (BRIM).
Businesses
̐ Reduction in income tax rate for
corporations from 25% to 24% and for
small medium enterprises (SMEs) from
20% to 19% - both effective from
YA2016;
̐ Income tax rate for cooperatives
reduced from 1% to 2% from YA2015;
̐ Tax deductions of up to RM5,000 for
secretarial fee and up to RM10,000 for
tax filing fee from YA2015;
̐ Extension of accelerated capital
allowance (ACA) on capital
expenditures incurred on information
and communication equipment (ICT)
till YA2016;
̐ Double deductions on GST-related
training expenses on accounting and
ICT for YA2014 and YA2015; and
̐ Grants for training of employees in
preparation for GST in 2013 and
financial assistance to SMEs on
purchase of accounting software in
2014 and 2015.
ASEAN INVESTMENT & TAX NEWS
5
NEWS
SINGAPORE
TAX AUTHORITY ADOPTS THE RIGHTS-BASED APPROACH FOR CHARACTERISING
SOFTWARE AND RIGHT TO USE INFORMATION PAYMENTS
The Singapore tax authority has
announced that, with effect from
28 February 2013, the rights-based
approach will be used to characterise
a payment based on the nature of
the rights transferred in consideration
for the payment. This payment is
characteristically associated with
payment of software and payment for
the use of or the right to use information
and digitised goods. A distinction is drawn
between the transfer of a “copyright right”
and the transfer of a “copyrighted article”
from the owner to the payer.
A transaction involves a copyright right
if the payer is allowed to commercially
exploit the copyright. The term
“commercially exploit” means to be able
to (i) reproduce, modify or adapt and
distribute the software, information or
digitised goods; or (ii) prepare derivative
works based on the copyrighted software
program, information or digitised goods
for distribution. A payment of this nature
will be treated as a royalty and will be
subject to withholding tax if it is made to
a non-resident person.
A copyrighted article is transferred if the
rights are limited to those necessary to
enable the payer to operate the software
or to use the information or digitised
goods, for personal consumption or for
use within his business operations. In
many instances, the user is provided with
a copy of a product which is downloaded
to a device for use. Any right obtained to
enable the end-user to copy the digital
signal onto a media is incidental to the
process in which the content is captured
and stored and does not constitute a
transfer of the copyright right. In contrast,
this will not fall within the withholding tax
provisions. Such transaction will not be
taxable in the hands of the non-resident
unless the payment constitutes income
derived from a trade, business, profession
or vocation carried on by the permanent
establishment of the non-resident person
in Singapore.
The application of the rights-based
approach does not require prior
approval from IRAS. However, proper
documentation such as agreements and
invoices should be maintained so as to
be available for submission to IRAS upon
request.
The following table outlines broadly
the tax implications on the payment for
copyright right versus copyrighted article.
Tax Treatment of Copyright Right versus Copyrighted Article
Description
Copyright
Right
̐ Š•†žŠ—Ž˜†‘‘”œŠ‰™”ˆ”’’Š—ˆŽ†‘‘žŠ•‘”Ž™™Šˆ”•ž—ŽŒ™†“‰†‡‘Š™”˪
(i) reproduce, modify or adapt and distribute the software,
information or digitised goods;
(ii) prepare derivative works based on the copyrighted software
program, information or digitised goods for distribution
̐ Š™—†“˜‹Š—”‹•†—™Ž†‘—ŽŒ™˜Ž“™Šˆ”•ž—ŽŒ™†˜Ž“™Šˆ†˜Š”‹
licensing of the copyright for exploitation by the payer
̐ †ž’Š“™˜’†‰Š™”†ˆ”•ž—ŽŒ™”œ“Š—‹”—†ˆ”’•‘Š™Š†‘ŽŠ“†™Ž”“”‹Ž˜
copyright in the software, information or digitised goods.
Copyrighted
Article
̐ ˆ”•ž—ŽŒ™Š‰†—™Žˆ‘ŠŽ˜™—†“˜‹Š——Š‰Ž‹™Š—ŽŒ™˜†—Š‘Ž’Ž™Š‰™”™”˜Š necessary to operate the software or to use the information or
digitised goods, for personal consumption or for use within his business
operations.
Nature of payment
Withholding Tax
Implication (WHT)
Royalty
10% on payment
to non-resident
unless reduced by
tax treaty
Any gains derived by the
copyright owner constitutes
either business income or
capital gain.
No WHT (*)
Business income to the
recipient
No WHT (*)
(*) unless the payments constitute income derived from a trade or business carried on by the recipient in Singapore or income effectively connected with any permanent
establishment of that person in Singapore.
6
ASEAN INVESTMENT & TAX NEWS
NEWS
VIETNAM
INTENSIFIED ACTIONS ON
TAX AUDITS AND
INVESTIGATIONS
Vietnam’s General Department of
Taxation (GDT) has announced that it will
intensify tax audits on more companies
to recover lost revenue and penalties.
Taxpayers are not allowed to amend
their tax returns once GDT identifies
a particular tax period for tax audit.
Additional tax payable as a result of tax
adjustments arising from tax audit is
subject to late payment interest rate of
0.05% per day. The rate will increase to
0.07% per day commencing from the 91st
day effective 1 July 2013. For tax evasion
cases, the increased penalty of 100% to
300% will be imposed.
A special focus of GDT is transfer pricing
audits and investigations. The GDT has
recently stepped up its enforcement
activity on transfer pricing and
require submission of transfer pricing
documentation.
CAMBODIA
THE DRAW OF SPECIAL
ECONOMIC ZONES
A report by the Cambodian government
in October 2013 indicates that since their
inception in 2006, the country’s Special
Economic Zones (SEZs) have attracted a
total investment of US$1.65 billion.
SEZs are mainly situated along the
borders with Thailand and Vietnam, and
the outskirts of Preah Sihanouk province
and Phnom Penh. Out of the 21 SEZs in
Cambodia, 11 have received investments
from local and foreign investors, mostly
from China, South Korea and Japan.
105,000 jobs have been created in the
SEZs and the investments there include
production of vehicles and spare parts,
bikes, garments, shoes, drinking water,
food and beverages, electric products,
sugar and agro products. Investors in
SEZs generally get to enjoy incentives on
income tax, customs and VAT.
“The Government sees the SEZs as an
important part to boost the country’s
economic development as they bring
infrastructure, jobs, skills and enhanced
productivity,” said the report of the
Council for the Development of
Cambodia.
ASEAN INVESTMENT & TAX NEWS
7
NEWS
MYANMAR
NEW INVESTMENT LAWS
TO BE INTRODUCED
The International Finance Corporation
(IFC), a member of the World Bank Group,
has recently signed a memorandum of
understanding with Myanmar’s Ministry
of National Planning and Economic
Development to work on a new set
of investment law and regulations to
improve protection for both foreign
and domestic investors and streamline
investment approval procedures to
promote a business friendly environment.
The new law aims to replace the two
existing separate laws for domestic and
foreign investors.
The IFC is providing advisory services to
Myanmar’s government in undertaking
market oriented reforms to strengthen
the private sector. The IFC is also
collaborating with the government and
financial sector to introduce microfinance
to enhance access to finance for small and
medium-sized enterprises.
“The cooperation with IFC will help
accelerate our continued efforts to create
a more business friendly environment for
both domestic and foreign investors,” said
Aung Naing Oo, Director-General of the
Ministry’s Directorate of Investment and
Company Administration.
“Improving Myanmar’s investment
policy and strengthening the regulatory
framework will encourage private sector
investment and increased competition
within Myanmar as the country becomes
more integrated with ASEAN and the rest
of the world”, said Vikram Kumar, IFC’s
resident representative for Myanmar.
8
ASEAN INVESTMENT & TAX NEWS
NEWS
INDONESIA
STRATEGIC MEASURES TO
ATTRACT INVESTORS
The Indonesian government will allow
greater foreign ownership in the operation
of airports (49%) and seaports and
railways (95%), announced Mahendra
Siregar, Chairman of Indonesian
Investment Coordination Agency in
October, 2013.
The Chairman said that the policy is
aimed at diminishing current account
deficit following the capital outflows
ahead of implementation of US tapering
off policy.
He also said that as of the third quarter
of 2013, total domestic and foreign
investments have reached US$ 26.7
billion, about 75% of the target (US$
35.5 billion) this year. To achieve this
year’s investment target, the government
will implement strategic measures to
attract more investors, including speeding
up investment and business licensing
processes, swift installation of electricity,
telephone and clean water in investment
sites, faster procedure for building
construction permit and land certification.
Mahendra, who was previously Indonesia’s
deputy finance minister, said his office has
set a target to achieve a total investment
of about US$ 41 billion for Indonesia in
2014, 15% higher than the investment
target for 2013.
Indonesia received a total of US$20 billion
in 2012 and was ranked the fourth of the
top five countries to receive the most FDI
in east and Southeast Asian region last
year, based on the 2013 World Investment
Report released by the United Nations
Conference on Trade and Development
(UNCTAD).
CONTACTS
BRUNEI
Tel: +673 333 6589
Fax: +673 334 0010
E-mail: info@bdo-bn.com
www.bdo.com.bn
CAMBODIA
Tel: +855 23 218 128
Fax: +855 23 993 225
E-mail: info@bdo.com.kh
www.bdo.com.kh
INDONESIA
Tel: +62 21 5795 7300
Fax: +62 21 5795 7301
www.bdo.co.id
MALAYSIA
Tel: +603 2616 2888
Fax: +603 2616 2970
E-mail: bdo@bdo.my
www.bdo.com.my
PHILIPPINES
Tel: +632 844 2016
Fax: +632 844 2045
E-mail: cpas@bdo.net.ph
www.bdo.net.ph
SINGAPORE
Tel: +65 6828 9118
Fax: +65 6828 9111
E-mail: info@bdo.com.sg
www.bdo.com.sg
THAILAND
Tel: 0-2261-1251-4
Fax: 0-2261-1255
E-mail: bdo@bdo.co.th
www.bdo.co.th
VIETNAM
Tel: +84 (0)8 3911 0033
Fax: +84 (0)8 3911 7439
E-mail: bdo@bdo.vn
www.bdo.vn
MYANMAR
Tel: +95(0)1-229023 /
+95(0)1-377822
E-mail: myanmar@bdo.my
www.bdo.my/myanmar
.....................................................................................................................................................................................................
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