asean - incentives in asean 2012 -manufacturing & regional corp support

8/13/2019 ASEAN - Incentives in ASEAN 2012 -Manufacturing & Regional Corp Support

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Inaugural edition:

Incentives in ASEAN

region 2012(Manufacturing and Regional Corporate

Support/Headquarter)


2/204 Incentives in ASEAN region 2012

ContentsOpening 01

Overview of incentives

Indonesia 03

Malaysia 06

Philippines 08

Singapore 10

Thailand 12

Vietnam 14

BIA team and services 17


3/201Incentives in ASEAN region 2012

before making an informed choice on the country that best

suits their needs.

Investors into the ASEAN countries typically focus on

manufacturing operations and / or regional corporate

support headquarter activities. We have therefore focused

this inaugural edition on the incentives for these two

areas1. ASEAN countries are also starting to place more

importance on high technology industries, green activities

and research and development (R&D) activities2to boost

productivity and build capabilities. We will briey discuss

these upcoming trends.

Given the relatively positive outlook on the ASEAN

economy as well as the increasing attractiveness of the

incentive landscape, it is expected that investments into

the region will continue to grow. There is government

competition for FDIs and incentives are continually being

changed, typically enhanced. It is a critical part of an

investment decision to analyse and compare currently

available incentives.

We trust that this inaugural edition will be a good starting

point to help you better understand the key incentives

available in the ASEAN region and evaluate your

investment options.

1 Please note that each country may have a range of incentives available for other activities, and this edition is by no means an exhaustive list.2 Please refer to our 2011 Asia-Pacic R&D incentives publication for an overview of the incentives available to companies engaging in R&D activities in

the key Asia-Pacic countries.

Welcome to our inaugural edition of the ASEAN incentives publication.

OpeningWith a population of almost 600 million (based on the ASEANEconomic Community Scorecard released by the Associationin 2010), the 10 Southeast Asian nations that make upASEAN, are increasingly being viewed as an importanteconomic bloc. According to the World Investment Report2011 issued by the United Nations Conference on Trade

and Development, foreign direct investment (FDI) inows to

ASEAN amounted to US$79 billion in 2010. Compared withChinas US$105.7 billion and Indias US$24.6 billion, this level

of FDIs inow is reective of investors increasing focus in

the ASEAN region.

In the recent Organisation for Economic Co-operation and

Development (OECD) Southeast Asian Economic Outlook

issued in November 2011, it is forecasted that the Gross

Domestic Product (GDP) growth for the six Southeast Asian

economies, Indonesia, Malaysia, the Philippines, Singapore,

Thailand and Vietnam, will remain robust at about 5% to 6%.

With this favourable economic outlook, governments in the

ASEAN countries have been stepping up efforts to enhanceand develop initiatives to continue attracting FDIs. Such

initiatives include investment incentives in the area of tax,

subsidies, relaxation of regulatory requirements as well as

land use concessions.

For example, the introduction of the Tax Holiday incentive

by Indonesia in late 2011, which offers corporate income

tax exemption of up to 10 years followed by an additional

2-year partial tax exemption, has caught the attention

of multinational companies considering the country as a

potential manufacturing location.

In the same year, Malaysia launched the Global Incentivesfor Trading (GIFT) programme that awards, amongst other

benets, an appealing 3% corporate tax rate on chargeable

income. This is a bid to draw the interest of potential global/

regional trading petroleum companies.

Benets aside, it is equally important to factor in the costs of

qualifying for the incentives. All incentives come with specied

conditions and requirements. In a number of the ASEAN

countries, the rules may not necessarily be transparent,

clearly dened or consistently applied. All these present risks

and uncertainties which investors need to consider and weigh

Adrian BallManaging Partner - TaxASEAN Sub-Area

Tel: +65 6309 8787

[email protected]

Tan Bin EngDirector - Business Incentives Advisory

Tel: +65 6309 [email protected]

March 2012



Singapore

Malaysia

Indonesia

Philippines

Thailand

Cambodia

Brunei

LaosMyanmar

Vietnam

ASEAN countries are increasingly

playing a leadership role in theregion. ASEAN itself has thepotential to be a very positiveforce in global affairsBarack Obama

(President of United States)



Overview of incentives in

Introduction

The presence of tax incentives in Indonesia is relatively short,

with the rst Tax Allowance incentive introduced in 2007.

Since then, the Indonesian government has continued to

explore and develop new incentives while rening its existing

tax incentives. A number of statutory incentives were introduced

in the 2008 reform of Income Tax Law and reduced corporate

tax regimes were made available to certain companies listed

on the Indonesian stock exchange, as well as small/medium-

scale companies. More recently, the Tax Holiday incentive was

established in 2011 with the objective of attracting foreign

direct investments into Indonesia, in particular manufacturing

industries that have extensive interconnections, high value-add,

introduces new technology, and is of strategic importance for

the nation-wide economy.

Incentive categories and administering bodyIncentives in Indonesia can be broadly categorised into

discretionary and statutory incentives. Discretionary incentives

include the Tax Allowance incentive and Tax Holiday incentive,

which require approvals from the Ministry of Finance.

Administration of these tax incentives are usually carried out

together with other relevant government agencies such as the

Ministry of Industry and the Indonesia Investment Coordinating

Board. Taxpayers who are awarded the Tax Allowance Incentive

are not eligible for the Tax Holiday incentive and vice versa.

Statutory tax incentives include incentives for listed companies

and small/medium scale companies, and the conditions and

requirements are specically dened under the Income Tax Law.

For listed companies, reduction of corporate income tax rate

by ve percentage points is available as long as at least 40% of

their paid-up capital is traded on the Indonesian stock exchange.

For small/medium-scale companies, those having annual gross

turnover of up to IDR 50 billion are entitled to a 50% reduction

of the corporate tax rate on taxable income up to IDR 4.8 billion.

Claims for the benets under such incentives are made through

the annual tax return without the need for a separate application

process and approval from the government authorities.

Indonesia



3 Based on exchange rate of US$1:IDR8,936 as at 14 February 2012.

the request for the Tax Holiday incentive to Ministry

of Finance must be made within three years from the

date of enactment of the Tax Holiday regulation, which is

15 August 2011. There is no requirement under the existingtax regulations for the investment to be made only after

approval for the relevant incentives has been obtained.

However in practice, we typically see applications for tax

incentives being made before the investment or commercial

operation commences.

General application process for discretionary incentives

Key tax incentives

The key available tax incentives in Indonesia are focused on export-oriented industries, manufacturing industries and sophisticated

technology industries, and there have not been any tax incentives to promote headquarter activities to-date.

The table below provides an overview of key available tax incentives for manufacturing industries available through application with

the relevant government agencies and/or the Indonesia Investment Coordinating Board:

Activity Manufacturing

Name of Incentive Tax Allowance Tax Holiday

Corporate tax

benefts

Investment allowance in the form of reduction of net

income by 30% of the actual amount invested in land and

buildings, and plant and equipment. Following the 2011

amendment, the Tax Allowance can only be utilised once

80% of the investment plan is attained. This allowance

may be claimed at a rate of 5% each year over a 6-year

period.

Accelerated tax depreciation and amortisation.

Carry-forward of tax loss up to a period of 10 years,

subject to certain conditions, as compared to 5 years

for non-incentivised companies.

Corporate income tax exemption on income derived from

qualied business activities for a period of ve to ten

years, starting from the commencement of commercial

operations followed by a corporate income tax reduction

of fty percent for two years

Other tax benefts Reduced tax rate of 10% for dividends paid

to nonresidents.

None

Other tax benefts None None

Scope of coverage

of incentive

Companies investing in certain types of businesses or

region (currently 52 categories of business sectors and

77 categories of types of industries in designated areasand provinces, generally outside Java. Please refer to

Annex A for examples of the business sectors.)

Engaged in pioneer industries, which currently include

basic metals, oil renery, communication equipment,

industrial machinery and renewable resources.

Key assessment

parameters

The investment must be a new investment or an

investment for the purpose of expanding a current

business, with certain exceptions.

Have new approved investment plans of at least IDR1

trillion (approx US$112 million3)

Deposit at least 10% of total investment plan in

Indonesian banking system without any withdrawal until

commercial production begins.

Applicable to Indonesian legal entity established after

15 August 2010 (i.e. 12 months before the issuance

of the Regulation)

Businesses applying for the Tax Allowance/Tax Holiday incentives

are required to submit an application to the relevant government

agency and/or the Indonesia Investment Coordinating Board,

which will evaluate the applicants eligibility for the incentiveand submit a recommendation to the Directorate General of

Taxation/Minister for Finance for nal approval.

For the Tax Allowance incentive, the Minister for Finance is

required to accept or reject the request within ten working days

from the receipt of a complete and valid request. Submission of



Future outlook

While the Indonesian government has been proactively

expanding the list of business sectors qualifying for the

Tax Allowance incentive, it is expected that the government

will continue to develop the qualifying list for both theTax Holiday incentive and Tax Allowance incentive to keep up

its efforts in attracting inbound investments into Indonesia.

Annex A4

1. Plantations, livestock, hunting, and related activities

2. Forestry and logging

3. Coal and Lignite mining

4. Geothermal

5. Food industry

6. Textile industry

7. Oil and natural gas renement and purication

8. Chemicals industry

9. Rubber industry

10. Cosmetics ingredients industry

11. Pharmaceuticals industry

12. Base metals industry

13. Metal goods industry

14. Electronics industry

15. Electrical equipment industry

16. Machinery industry

17. Vehicle industry

18. Other transport equipment industry

19. Machinery and equipment installation and repair services

20. Power supply, supply of natural gas

21. Water supply

22. Waste treatment and recycling

23. Civil building construction

24. Land transportation and pipeline transportation

25. Computer programming activities

26. Real estate

Ben Koesmoeljana

PartnerTel: +62 21 5289 5030

[email protected]

4 Source: News article on Indonesia Infrastructure Initiative website (http://www.indii.co.id/news_daily_detail.php?id=2780)




5 Source: 2010 Media Statement on MIDA website (http://www.mida.gov.my/env3/uploads/PerformanceReport/2010/MediaStatement.pdf)

Introduction

Malaysia has developed and offered incentives to attract

investments and spur economic activity in key sectors for over

20 years. Historically, these incentives were aimed at attracting

investments for the manufacturing sector; however, there is a

growing focus towards developing the services sector. In 2010,

over 900 manufacturing projects were granted incentives.

In comparison, more than double the number of projects in

the services sector were awarded incentives during the

same period5.

Incentive categories and administering body

There are two broad categories of incentives in Malaysia

discretionary and statutory.

Statutory incentives, such as the Reinvestment Allowance (RA)

incentive for manufacturing or agricultural projects that reinvest

capital for expansion, modernisation or automation purposes,

are available under the Income Tax Act. Such incentives do not

require prior approval and are claimed through the submission

of the annual corporate tax return.

Discretionary incentives require negotiations and applications

to the relevant authorities. The principal agency that administers

discretionary incentives and promotes key manufacturing

and service sectors is the Malaysian Investment Development

Authority (MIDA).

Discretionary incentives are available for products and activitiesthat the Malaysian government has identied a need to

encourage. A list of promoted products and activities and their

standard qualifying conditions for different manufacturing and

service sectors are available at the MIDA website. Based on the

latest list published on the MIDA website in 2011, the promoted

products and activities includes manufacture of rubber

products, petrochemicals, electrical and electronic products and

components, professional, medical, scientic and measuring

devices / parts, etc, and manufacturing related services such

as operational headquarters, regional distribution centres,

international procurement centres, etc.

Malaysia



There are also additional incentives available for projects that

the Malaysian government considers to be of national and

strategic importance, beyond what is currently specied in the

legislation. There are no standard eligibility criteria for such

additional incentives, although factors such as investment value,

introduction of new technology, development and employmentof highly skilled staff (often referred to as knowledge workers),

and introduction or increase in level of value-added activities

(such as research and development) are typically taken into

consideration in the negotiations with the authorities.

Future outlook

During the 2011 Budget speech, there was special mention

on the importance of the services sector and it is currently the

largest contributor to Malaysias GDP (almost 58%). In the same

Budget, the Malaysian government announced a number of new

tax incentives for the services sector covering tourism, nancial

services and education. With the objective set under the 10th

Malaysia Plan to grow the services sectors GDP contribution to

60% by 2015, the trend towards incentivising and developing the

services sector is expected to continue.

General application process

The application process generally takes between three to six

months from preparing the application submission package,

clarifying information with the authorities to the tabling of the

report to the National Committee on Investments, a central body

for facilitating foreign capital inows set up by MIDA in 2010,

for approval.

It is important to note that incentive applications should be

submitted before the project commences.

Key tax incentives

The table below provides an overview of key available tax incentives in Malaysia available through application with the relevant

government agencies:

Activity Manufacturing Provision of corporate support /Headquarter services

Available taxincentives

Pioneer status6(PS) Investment tax allowance6(ITA)

Note that the PS and ITA are mutually exclusive forthe same project

Operational Headquarters (OHQ) International Procurement Centres (IPC) Regional Distribution Centres (RDC)

Corporatetax benefts

Partial (50%/70%) / full (100%) income tax exemptionfor a period of up to 10 years (PS)

An allowance of 60% to 100% of qualifying capitalexpenditure available for offset against 70% to 100%of statutory income (ITA)

Full income tax exemption on qualifying income streams for10 years

Other taxbenefts

Import duty exemptions [For information, a companymay also enjoy the import duty exemptions on astandalone basis, i.e. without PS/ITA]

Expatriates are taxed only on the number of days they arephysically in Malaysia

Non-taxbenefts

Approval of expatriate positions Approval of expatriate positions Flexibility on Foreign Exchange Administration rules

Keyassessmentparameters

Whether the product / activity is on the promotedlist

Investment value Whether new technology is being introduced Number of knowledge workers Level of value-added activities (such as research and

development)

All Qualifying services/activities Minimum annual operating expenditure

IPC/RDC only Minimum annual sales turnover Incremental usage of local ports and airports

OHQ only Headcount Minimum number of entities being served

Amarjeet Singh

Partner

Tel: +60 3 7495 [email protected]

6 Also available for activities beyond manufacturing such as services.




Introduction

The Philippines has had a long history of using scal incentives

in pursuit of the countrys industrial, sectoral and regional

development strategy. Specically, the Philippines government

has enacted a number of incentive laws to encourage the

placement of investments in the country. The major incentive

laws are implemented by the Board of Investments (BOI) and

the Philippine Economic Zone Authority (PEZA). As a result of

the incentive laws in place, investments committed to the

BOI and PEZA amounted to P657.24 billion (approximately

US$15 billion) in 2011, a 30% rise from 2010.


Business incentives may be applied for and granted under

the various incentive laws, the more popular of which are the

Omnibus Investments Code of 1987 and the Special Economic

Zone Act of 1995.

The Omnibus Investments Code of 1987 is administered by

the BOI. It provides for a comprehensive set of incentives for

local and foreign enterprises engaged in activities considered

by the government as high priority for national development,

as set forth in an annual Investment Priorities Plan (IPP).

The activities listed in the latest IPP recently released in late

2011 include agriculture/agribusiness and shery, creative

industries/knowledge-based services, shipbuilding, energy,

infrastructure, research & development, green projects, etc.

The Special Economic Zone Act of 1995, on the other hand,

is administered by the PEZA and was passed to encourage

economic growth through the development of special economic

zones in the Philippines called Ecozones. It grants incentives to

qualied enterprises that are located in an Ecozone. As at

31 December 2011, there were 252 operating economic zones

identied, comprising 15 Agro-Industrial Economic Zones,

159 IT Parks / Centres, 64 Manufacturing Economic Zones,

2 Medical Tourism Parks / Centres, and 12 Tourism

Economic Zones.

Philippines




Depending on the incentive law to be invoked, an applicant

will le its application with the BOI, PEZA or other incentive

administering body, as the case may be. The application will

then be evaluated, with the authorities potentially conducting

Future outlook

There is presently a move to consolidate all the incentives laws

into one law to rationalise the granting and administration of

scal and non-scal incentives given by the various incentive

bodies. The Philippines government is seeking to create a

uniform policy on the issuance of scal incentives to avoid

redundancies that could lead to revenue leakages. This is the

subject of House Bill No. 4935, the proposed Investments and

Incentives Code of the Philippines, which is currently pending

in the Philippine Senate. The authorities are hopeful that this

measure will be passed into law in 2012. Through this bill,

investors will only need to apply with one government agency

for incentives that they may enjoy in the Philippines. With the

Key tax incentives

The table below provides an overview of key available tax incentives in Philippines available through application with the relevant

government agencies:

Activity Manufacturing Provision of corporate support / Headquarter services

Name ofIncentive

PEZA/BOI privileges Regional Operating Headquarters (ROHQ)

Corporatetax benefts

Full tax exemption for 4 to 6 years (Income TaxHoliday [ITH])

Preferential tax rate of 5% of gross income in lieuof all national and local taxes after ITH period (forPEZA-registered enterprises)

Tax exemption on remittance of branch prots (forPEZA-registered enterprises)

Tax credit on raw materials, supplies and semi-manufactured products used for the manufactureof export products and forming part thereof(For BOI-registered enterprises)

Preferential income tax rate of 10% while the branch isregistered as an ROHQ

Preferential tax rate of 15% on remittance ofbranch prots

Exemption from local taxes, fees or charges imposed bya local government unit, except real property tax on landimprovements and equipment

Other taxbenefts

Exemption from wharfage dues, export taxes,imposts or fees

Tax and duty free importation of imported spareparts

15% withholding tax on compensations, remunerationsreceived by expatriates employed by ROHQ holdingmanagerial or technical positions

Non-taxbenefts

Other non-scal benets such as importationand unrestricted use of consigned equipment,privilege to operate bonded warehouse

Importation of brand new motor vehicle but subject topayment of taxes and duties

Keyassessmentparameters

Type of business conducted Technology involved in manufacturing process Paid-up capital Job generation

Type of business activities conducted: qualifyingservices (e.g. general administration and planning,sourcing / procurement, corporate nance advisory,research and development, etc.) provided to overseasafliates, branches or subsidiaries

Fidela I. Reyes

Partner

Tel: +63 2 894 8204

[email protected]

site visits. Depending on the completeness of the documentary

requirements submitted by the applicant, the application may

take from one to six months.

envisaged streamlining of the application and registrationprocess, investors could expect a higher level of efciency and

increased transparency when applying for incentives.




Introduction

Since its independence, the Singapore government has used

scal incentives to promote economic development in the

country. In order to create a robust and diversied economy,

consisting manufacturing and services sectors, a number of

key tax incentives under both the Income Tax Act (ITA) and the

Economic Expansion Incentives (Relief from Income Tax) wereintroduced to attract foreign direct investments in manufacturing

and headquarters activities into Singapore.

The success of this targeted approach is evident from the strong

ow of investments into Singapore over the past few years.

Based on the World Investment Report 2011, FDI inows to

Singapore more than doubled from US$15.5 billion in 2005 to

US$38.6 billion in 2010.


The incentives in Singapore can be divided into two broad

categories, i.e. discretionary and statutory incentives. Conditionsand requirements for statutory incentives are dened in the ITA.

They are available to all taxpayers to claim, typically through

their annual tax returns. The administration and compliance

of the statutory incentives are typically carried out by the tax

revenue authority of Singapore, sometimes in collaboration with

associated government agencies.

The discretionary incentives are administered by various

government statutory boards based on industry segmentation.

This includes the Monetary Authority of Singapore for the

nancial sector, the Maritime Port Authority of Singapore for the

shipping sector and the Singapore Economic Development Board

and International Enterprise Singapore for the rest. The specicconditions, level of support and duration of the incentive(s) are

typically based on a negotiated outcome with the designated

government statutory board.


For the application of discretionary incentives, the typical

engagement process with the authorities can last between

three to six months, starting from early contact, business plan

presentation and review, negotiations, and nally agreement

on incentive conditions.

Generally, the incentive negotiations should commence before

companies embark on the projects.

Singapore



Future outlook

Going forward, two key trends are expected to dominate the

incentive landscape in Singapore for the next couple of years.

Firstly, on the back of strong growth in 2010 and 2011 and

the governments focus in improving the productivity of the

Singapore workforce, it is anticipated that the application of

existing incentive programmes and introduction of new ones will

be more targeted to attract higher value-added activities andjobs into Singapore. Secondly, the government is expected to

take on a cautious outlook coming into 2012 as the uncertainties

in the global economy due to the European debt crisis lingers

and it prepares itself for the need of a stimulus programme

to preserve jobs and support the economy as it previously did

during the global nancial crisis of 2008/2009. In this respect,

Key tax incentives

The table below provides an overview of key tax incentives in Singapore that are available for manufacturing activities and

provision of headquarter functions. These are all discretionary incentives that are available through application and negotiations

with the relevant government agencies:


Name of

Incentive

Pioneer

Development & Expansion Incentive (DEI)

Investment Allowance (IA)

Note that the IA and the concessionary tax rateunder the Pioneer/DEI are typically mutuallyexclusive for the same project

Headquarters Programmes:

International HQ (IHQ)

Regional HQ (RHQ)

Tax benefts 0% up to 15 years on qualifying income7(Pioneer)

Not less than 5% (typically 5% or 10%) on

qualifying income up to 20 years (DEI) Typically, additional 30% or 50% allowance

on qualifying capital expenditure (IA) againsttaxable prots

Customised incentive packages with lower concessionary

tax rates (typically 0%, 5% or 10) for IHQ

15% (up to 5 years) on qualifying income for RHQ

Non-tax

benefts

None None

Key

assessment

parameters

Incremental headcount

Incremental local business spending

Incremental xed asset investment

Technology involved in manufacturing process

Other qualitative factors

Incremental headcount

Prole of headcount

Incremental local business spending

Types of activities conducted, include:

Strategic business planning and development

General management and administration

Marketing control, planning and brand management

Intellectual property management

Sourcing, procurement and distribution

Research, development and test bedding of new concepts

Other qualitative factors such as geographical coverage ofheadquarter functions, type of R&D activities carried out,ownership of intellectual property, etc.

Tan Bin Eng

Director

Tel: +65 6309 8738

[email protected]

we should expect enhancements to or introduction of incentives

to be even more targeted in stimulating certain aspects of the

Singapore economy which are likely to be hardest hit.

7 Qualifying income includes sales, royalties and service/management fees. Note that under the DEI and RHQ programs (as well as in specied IHQ situations),the qualifying income that exceeds the base income would be eligible for the concessionary tax rate. The base income refers to the average correspondingincome for the 3 years immediately preceding the commencement date of the incentive (unless specied otherwise by the authority) and is subject to thenormal corporate tax rate.




Introduction

To stay competitive in the ever-changing business landscape,

the Thai government has issued various incentives to attract

foreign investments into Thailand. Major incentives include

the Board of Investment (BOI) incentives for manufacturing

companies, and the Regional Operating Headquarter (ROH)

for service companies.


Generally, incentives in Thailand are provided by two

organisations; the BOI and the Revenue Department

(RD). The BOI provides tax and non-tax benets mostly

to manufacturing companies in certain industries,

while the RD offers tax incentives to the ROH which is

a Thai-incorporated company providing managerial,

administrative, and technical services as well as other

supporting services to its associated enterprises.


An application process for BOI incentives usually takes

2 to 6 months depending on project size, starting from

early contact, business plan presentation and review, and

nal approval on incentive conditions. For the ROH incentives,

eligible companies will typically self-assess that they have

met the assessment criteria and proceed to collate the

requisite documents for submission to the RD to register

for the ROH status. Approval of the ROH status can be

completed within a week upon complete submission of all

required documents to the RD.

Thailand



Key tax incentives

The table below provides an overview of key available tax incentives in Thailand for manufacturing and headquarter services,available through application and approval from the relevant government agencies:


Name of Incentive BOI privileges8 ROH incentive

Corporate taxbenefts

Exemption of corporate income tax for up to8 years (depending on activity or zone) Zone 1: 3 years Zone 2: 3years but extendable to 7 years if located

within promoted industrial zones Zone 3: 8 years exemption (50% reduced rate for

additional 5 years given to companies located incertain provinces in Zone 3).

Double deductions for costs of transportation,electricity, and water supply

Exemption of corporate income tax on qualifying incomefrom overseas for 15 years

10% corporate income tax rate on qualifying income fromThailand, certain interest income and royalty income

Tax exemption on certain dividends paid to overseascorporate shareholders and dividends received fromassociated enterprise

Other tax benefts Import duty exemption/reduction on machineryand raw material

Withholding tax exemption on dividend distributedout of BOI prots during the tax exemption period

Personal Income Tax rate reduction forqualied expatriates

Non-tax benefts Opportunity of 100% foreign equity ownership Permission of land ownership rights for foreign-majority-owned companies Permission of unlimited number of expatriates hired

Key assessmentparameters

Types of activities Agriculture and agricultural products Mining, ceramics, basic metals Light industries Metal Products, machinery, transport equipment Electronics Industry and Electric Appliances Chemicals, paper, plastics Services and Public Utilities

Zone (business location) Zone 1: Bangkok, Samut Prakan, Samut Sakhon,

Pathum Thani, Nonthaburi and Nakhon Pathom Zone 2: Samut Songkhram, Ratchaburi,

Kanchanaburi, Suphanburi, Ang Thong,Ayutthaya, Saraburi, Nakhon Nayok,Chachoengsao, Chon Buri, Rayong and Phuket

Zone 3: All other Thailand provinces notmentioned above

Investment amount Debt-to-equity ratio

Qualifying services Business management and administration Sourcing of raw materials, parts and nished products Research & development Technical assistance Marketing and sales promotion Regional human resources training Business advisory services Investment feasibility studies and analyses Credit management and control Other services, subject to approval, on a

case-by-case basis Minimum number of associated enterprises being

serviced by the headquarter company Minimum paid-up capital At least 50% of total income must be derived from

qualifying services income Minimum amount of operating expense or capital

expenditure paid to Thai recipients Prole of headcount Minimum salary for key employees

Future outlook

A recent key trend for incentives lies in the governments

attempt to promote adoption of green technologies and

innovations. In 2010, the BOI issued investment promotionpolicies for sustainable development and offered special

tax incentives to attract investment in activities related to

manufacturing of eco-friendly products, alternative energy

(e.g., solar farm), and high-tech industries. The features of such

special tax incentives are generally similar to that under the BOI

privilege for Zone 3; however, there may be certain variations

in the benets depending on the specic circumstances.

Pathira Lam-ubol

Associate DirectorTel: +66 2 264 0777 ext. 21015

[email protected]

Yupa Wichitkraisorn

PartnerTel: +66 2 264 0777 Ext. 55003

[email protected]

Additional measures have been implemented to encourage

companies to reduce energy consumption or use renewable

energy. The BOI also grants additional incentives to supportcompanies in investing in reducing environmental impacts

or alleviating environmental problems. Therefore, it can be

anticipated that going forward, one of the key trends for

investment incentives in Thailand would continue to revolve

around boosting sustainable environmentally friendly projects.

8 Also available for other activities beyond manufacturing. Refer to Key Assessment Parameters for the list of activities which are eligible for BOI privileges.




Introduction

In 1986, Vietnam started economic reforms aimed at moving

from a planned to a market economy. Since then, there has been

tremendous progress on the economic development front, and

the country has become one of the fastest growing economies

in the world. As part of its efforts to attract investment activities

and mobilise capital in Vietnam, incentives were introduced since

2005 under the relevant tax laws and such incentives include

full/partial exemption from corporate tax, import duty exemption

and land use concessions. As a result of the economic reform

initiatives put in place, registered foreign direct investments

have increased annually and are expected to reach about

US$ 15 billion in 2012.


Current available incentives are in the form of tax incentives such

as reduced corporate tax rates, tax-free periods or tax reductions

during the start-up phase, and import duty exemptions as well as

non-tax incentives such as the right to rent land.

Tax incentives are granted based on the location of the

investment (i.e. in difcult or especially difcult social-economic

locations, economic zones, and high-tech zones) or regulated

encouraged sectors (such as high-technology and infrastructure).

Before incentives can be availed of, investment projects must

rst be registered and approved by the relevant licensing

authority such as the local Peoples Committees or Industrial

Management Authorities depending on where the project

is located.


In order to avail of tax incentives, the company will need

to apply for the Investment Certicate with the relevant

licensing authority.

Depending on the business sector that the project relates to or

the volume of investment capital involved, there are two routes

in which one can apply for the Investment Certicate, beingregistration route or evaluation route. By law, the registration

Vietnam



route will take 15 working days, while the evaluation route

will take 45 workings days due to additional information

and approval required.

In order to apply for the Investment Certicate, the foreign

investor has to submit an application dossier with prescribed

forms to the licensing authority. Based on information to be

provided in the application dossier i.e. business sector that the

project will relate to and the location that the project will be

located in, the licensing authority will determine the incentive

applicable to such project (if any). If all conditions are met and

the project is approved, the licensing authority will issue an

Investment Certicate to the investor. Depending on the local

licensing authority, the Investment Certicate may or may

not specically state the applicable incentive. More often than

not, the Investment Certicate would refer to the relevant tax

regulations in which the tax incentive is applicable and the

investor will make a self-assessment in its annual corporate taxling on this basis.

As tax incentives are provided under the relevant tax regulations,

the investor may enjoy the applicable tax incentive as long as the

project meets the requirements under the specied regulations

and the Investment Certicate has been obtained in this regard.

Key tax incentives

The key available tax incentives in Vietnam are mainly focused on industries in the areas of technology, socialisation and agricultural

activities or projects which are based in certain specied locations. Currently, headquarter activities are not incentivised.

The table below provides an overview of key available tax incentives for manufacturing industries available through application with

the relevant licensing authority:


Tax incentives9 Corporate tax exemption forrst 4 years

50% corporate tax reduction fornext 5 to 9 years

10% reduced corporate tax ratefor remaining incentive period

Corporate tax exemption forrst 2 years

50% corporate tax reduction fornext 4 years



Non-tax benets9 Exemption of import duty on equipment, raw materials, supplies and semi-nished products

Exemption on repatriation of prots Able to rent land No or reduced rent payable Exemption from land use fees

Coverage of incentive Income generated from business activities licensed under the Investment Certicate

Key evaluation parameters

Specied locationOr

Newly established enterprisesin difcult socio-economicconditions, Economic Zones,High Tech Zone establishedunder the Prime Ministersdecision. At the time of thispublication, Economic Zones

include the following: Chu Lai Dung Quat Nhon Hoi Chan May Lang Co Phu Quoc Nam An Thoi Vung Ang Van Phong Nghi Son Van Don Dong Nam Nghe An Dinh Vu Cat Hai Nam Phu Yen Hon La Dinh Anh

Nam Can

Newly established enterprisein areas of difcult socio-economic conditions

NA

9 Incentives also available beyond manufacturing. Refer to key evaluation parameters.9 Incentives also available beyond manufacturing. Refer to key evaluation parameters.




Key evaluation parameters

Specied sector Newly established enterprisesin high technology, scienticresearch and technology

development, investmentin development of speciallyimportant infrastructurefacilities of the State,production of software products

Enterprise operating in the eldof socialisation (i.e. education training, occupationaltraining, health care, culture,sport and the environment).Different incentive durationapplies if located in difcult orspecial difcult socio-economicconditions.

NA Agricultural servicecooperatives and peoplescredit fund

Future outlook

Recently, the Vietnam government expressed its ambition

to restructure the economy and shift its model of growth to

ensure rapid but sustainable development. Its goal is to enhance

productivity, product quality, efciency and competency on

both domestic and international markets to allow Vietnams

economy to participate in high value-added stages of regional

and global production supply chains. In line with these goals,

the government introduced high-tech incentives involving

the renewal of technology by enterprises and will continueto focus on the development of the science and technology

market through strong incentives to projects that apply new

technologies or facilitate the establishment of research and

development centres.

The Gia Tran

Director

Tel: +84 4 3831 5100

[email protected]



Business Incentives

Advisory (BIA) teamand servicesThe Business Incentives Advisory (BIA) team in Ernst & Young Solutions LLP

is dedicated to assisting clients across all industries in relation to their

incentive matters.

The BIA team has extensive experience dealing in areas relating to taxation

and incentive negotiations with the Singapore government. With a network of

highly experienced incentive professionals in the ASEAN region, the BIA team

will work with you to evaluate the appropriate incentives as well as advise you

in the negotiations with and applications to the relevant authorities in the

ASEAN countries to optimise your nancial benets.

Our services include the following:

Evaluation and identication of possible incentive packages based on specic

project parameters

Comparative analyses of incentives across jurisdictions for purposes of site

location studies / competitive benchmarking

Assisting companies in strategising on approach, negotiations and

applications for relevant incentives with the governments in the respective

countries

Assisting companies in identifying and maximising their R&D claims

Assisting companies with health-checks e.g. incentive reporting obligations

and identication of risk areas in incentive compliance

Assisting companies in areas of process design on incentive maintenance,tracking and reporting obligations

Tan Bin Eng

Director, Business Incentives Advisory

[email protected]

Tel: +65 6309 8738


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