Inaugural edition:

Incentives in ASEAN region 2012

(Manufacturing and Regional Corporate Support/Headquarter)

Contents

Opening Overview of incentives

Indonesia Malaysia Philippines Singapore Thailand Vietnam

01

03 06 08 10 12 14 17

BIA team and services

Incentives in ASEAN region 2012

Opening
Welcome to our inaugural edition of the ASEAN incentives publication.
With a population of almost 600 million (based on the ASEAN Economic Community Scorecard released by the Association in 2010), the 10 Southeast Asian nations that make up ASEAN, are increasingly being viewed as an important economic bloc. According to the World Investment Report 2011 issued by the United Nations Conference on Trade and Development, foreign direct investment (FDI) inflows to ASEAN amounted to US$79 billion in 2010. Compared with Chinas US$105.7 billion and Indias US$24.6 billion, this level of FDIs inflow is reflective 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 enhance and 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 Incentives for Trading (GIFT) programme that awards, amongst other benefits, an appealing 3% corporate tax rate on chargeable income. This is a bid to draw the interest of potential global/ regional trading petroleum companies. Benefits aside, it is equally important to factor in the costs of qualifying for the incentives. All incentives come with specified conditions and requirements. In a number of the ASEAN countries, the rules may not necessarily be transparent, clearly defined or consistently applied. All these present risks and uncertainties which investors need to consider and weigh 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) activities2 to boost productivity and build capabilities. We will briefly 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.

Adrian Ball Managing Partner - Tax ASEAN Sub-Area Tel: +65 6309 8787 adrian.r.ball@sg.ey.com

Tan Bin Eng Director - Business Incentives Advisory Tel: +65 6309 8738 bin-eng.tan@sg.ey.com

March 2012

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-Pacific R&D incentives publication for an overview of the incentives available to companies engaging in R&D activities in the key Asia-Pacific countries.

Incentives in ASEAN region 2012

Myanmar

Laos Vietnam Philippines

Thailand

Cambodia

Brunei Malaysia Singapore

Indonesia

ASEAN countries are increasingly playing a leadership role in the region. ASEAN itself has the potential to be a very positive force in global affairs
Barack Obama (President of United States)

Incentives in ASEAN region 2012

Indonesia
Introduction
The presence of tax incentives in Indonesia is relatively short, with the first Tax Allowance incentive introduced in 2007. Since then, the Indonesian government has continued to explore and develop new incentives while refining 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/mediumscale 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.

Overview of incentives in

Incentive categories and administering body

Incentives 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 specifically defined under the Income Tax Law. For listed companies, reduction of corporate income tax rate by five 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 benefits under such incentives are made through the annual tax return without the need for a separate application process and approval from the government authorities.

Incentives in ASEAN region 2012

General application process for discretionary incentives

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 incentive and submit a recommendation to the Directorate General of Taxation/Minister for Finance for final 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 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 existing tax 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.

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 Name of Incentive Tax Allowance Manufacturing Tax Holiday

Corporate tax benefits

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. Reduced tax rate of 10% for dividends paid to nonresidents. None Companies investing in certain types of businesses or region (currently 52 categories of business sectors and 77 categories of types of industries in designated areas and provinces, generally outside Java. Please refer to Annex A for examples of the business sectors.) The investment must be a new investment or an investment for the purpose of expanding a current business, with certain exceptions.

Corporate income tax exemption on income derived from qualified business activities for a period of five to ten years, starting from the commencement of commercial operations followed by a corporate income tax reduction of fifty percent for two years

Other tax benefits Other tax benefits Scope of coverage of incentive

None None Engaged in pioneer industries, which currently include basic metals, oil refinery, communication equipment, industrial machinery and renewable resources.

Key assessment parameters

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)

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

Incentives in ASEAN region 2012

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 the Tax Holiday incentive and Tax Allowance incentive to keep up its efforts in attracting inbound investments into Indonesia.

Ben Koesmoeljana Partner Tel: +62 21 5289 5030 ben.koesmoeljana@id.ey.com

Annex A4
1. 2. 3. 4. 5. 6. 7. 8. 9. Plantations, livestock, hunting, and related activities Forestry and logging Coal and Lignite mining Geothermal Food industry Textile industry Oil and natural gas refinement and purification Chemicals industry Rubber 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

10. Cosmetics ingredients industry 11. Pharmaceuticals industry 12. Base metals industry 13. Metal goods industry

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

Incentives in ASEAN region 2012

Malaysia
Overview of incentives in
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 activities that the Malaysian government has identified 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, scientific and measuring devices / parts, etc, and manufacturing related services such as operational headquarters, regional distribution centres, international procurement centres, etc.

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

Incentives in ASEAN region 2012

There are also additional incentives available for projects that the Malaysian government considers to be of national and strategic importance, beyond what is currently specified 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 employment of 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.

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 inflows 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 Available tax incentives Manufacturing Pioneer status (PS) Investment tax allowance6 (ITA)
6

Provision of corporate support /Headquarter services Operational Headquarters (OHQ) International Procurement Centres (IPC) Regional Distribution Centres (RDC)

Note that the PS and ITA are mutually exclusive for the same project Corporate tax benefits Partial (50%/70%) / full (100%) income tax exemption for a period of up to 10 years (PS) An allowance of 60% to 100% of qualifying capital expenditure available for offset against 70% to 100% of statutory income (ITA) Import duty exemptions [For information, a company may also enjoy the import duty exemptions on a standalone basis, i.e. without PS/ITA] Approval of expatriate positions Whether the product / activity is on the promoted list Investment value Whether new technology is being introduced Number of knowledge workers Level of value-added activities (such as research and development)

Full income tax exemption on qualifying income streams for 10 years

Other tax benefits Non-tax benefits Key assessment parameters

Expatriates are taxed only on the number of days they are physically in Malaysia Approval of expatriate positions Flexibility on Foreign Exchange Administration rules 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

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, financial 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.
6 Also available for activities beyond manufacturing such as services.

Amarjeet Singh Partner Tel: +60 3 7495 8383 amarjeet.singh@my.ey.com

Incentives in ASEAN region 2012

Philippines
Overview of incentives in
Introduction
The Philippines has had a long history of using fiscal incentives in pursuit of the countrys industrial, sectoral and regional development strategy. Specifically, 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.

Incentive categories and administering body

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 fishery, 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 qualified enterprises that are located in an Ecozone. As at 31 December 2011, there were 252 operating economic zones identified, comprising 15 Agro-Industrial Economic Zones, 159 IT Parks / Centres, 64 Manufacturing Economic Zones, 2 Medical Tourism Parks / Centres, and 12 Tourism Economic Zones.

Incentives in ASEAN region 2012

General application process

Depending on the incentive law to be invoked, an applicant will file 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 site visits. Depending on the completeness of the documentary requirements submitted by the applicant, the application may take from one to six months.

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 Name of Incentive Corporate tax benefits Manufacturing PEZA/BOI privileges Full tax exemption for 4 to 6 years (Income Tax Holiday [ITH]) Preferential tax rate of 5% of gross income in lieu of all national and local taxes after ITH period (for PEZA-registered enterprises) Tax exemption on remittance of branch profits (for PEZA-registered enterprises) Tax credit on raw materials, supplies and semimanufactured products used for the manufacture of export products and forming part thereof (For BOI-registered enterprises) Exemption from wharfage dues, export taxes, imposts or fees Tax and duty free importation of imported spare parts Other non-fiscal benefits such as importation and unrestricted use of consigned equipment, privilege to operate bonded warehouse Type of business conducted Technology involved in manufacturing process Paid-up capital Job generation Provision of corporate support / Headquarter services Regional Operating Headquarters (ROHQ) Preferential income tax rate of 10% while the branch is registered as an ROHQ Preferential tax rate of 15% on remittance of branch profits Exemption from local taxes, fees or charges imposed by a local government unit, except real property tax on land improvements and equipment

Other tax benefits

15% withholding tax on compensations, remunerations received by expatriates employed by ROHQ holding managerial or technical positions Importation of brand new motor vehicle but subject to payment of taxes and duties Type of business activities conducted: qualifying services (e.g. general administration and planning, sourcing / procurement, corporate finance advisory, research and development, etc.) provided to overseas affiliates, branches or subsidiaries

Non-tax benefits Key assessment parameters

Future outlook
There is presently a move to consolidate all the incentives laws into one law to rationalise the granting and administration of fiscal and non-fiscal incentives given by the various incentive bodies. The Philippines government is seeking to create a uniform policy on the issuance of fiscal 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 envisaged streamlining of the application and registration process, investors could expect a higher level of efficiency and increased transparency when applying for incentives.

Fidela I. Reyes Partner Tel: +63 2 894 8204 fidela.t.Isip-reyes@ph.ey.com

Incentives in ASEAN region 2012

Singapore
Overview of incentives in
Introduction
Since its independence, the Singapore government has used fiscal incentives to promote economic development in the country. In order to create a robust and diversified 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) were introduced to attract foreign direct investments in manufacturing and headquarters activities into Singapore. The success of this targeted approach is evident from the strong flow of investments into Singapore over the past few years. Based on the World Investment Report 2011, FDI inflows to Singapore more than doubled from US$15.5 billion in 2005 to US$38.6 billion in 2010.

Incentive categories and administering body

The incentives in Singapore can be divided into two broad categories, i.e. discretionary and statutory incentives. Conditions and requirements for statutory incentives are defined 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 financial 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 specific conditions, level of support and duration of the incentive(s) are typically based on a negotiated outcome with the designated government statutory board.

General application process

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 finally agreement on incentive conditions. Generally, the incentive negotiations should commence before companies embark on the projects.

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Incentives in ASEAN region 2012

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:
Activity Name of Incentive Manufacturing Pioneer Development & Expansion Incentive (DEI) Investment Allowance (IA) Note that the IA and the concessionary tax rate under the Pioneer/DEI are typically mutually exclusive for the same project 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) against taxable profits None Incremental headcount Incremental local business spending Incremental fixed asset investment Technology involved in manufacturing process Other qualitative factors Provision of corporate support / Headquarter services Headquarters Programmes: International HQ (IHQ) Regional HQ (RHQ)

Tax benefits

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 benefits Key assessment parameters

None Incremental headcount Profile 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 of headquarter functions, type of R&D activities carried out, ownership of intellectual property, etc.

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 and jobs 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 financial crisis of 2008/2009. In this respect, 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.

Tan Bin Eng Director Tel: +65 6309 8738 bin-eng.tan@sg.ey.com

7 Qualifying income includes sales, royalties and service/management fees. Note that under the DEI and RHQ programs (as well as in specified 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 corresponding income for the 3 years immediately preceding the commencement date of the incentive (unless specified otherwise by the authority) and is subject to the normal corporate tax rate.

Incentives in ASEAN region 2012

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Thailand
Overview of incentives in
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.

Incentive categories and administering body

Generally, incentives in Thailand are provided by two organisations; the BOI and the Revenue Department (RD). The BOI provides tax and non-tax benefits 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.

General application process

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 final 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.

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Incentives in ASEAN region 2012

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:
Activity Name of Incentive Corporate tax benefits Manufacturing BOI privileges8 Exemption of corporate income tax for up to 8 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 in certain provinces in Zone 3). Double deductions for costs of transportation, electricity, and water supply Import duty exemption/reduction on machinery and raw material Withholding tax exemption on dividend distributed out of BOI profits during the tax exemption period Provision of corporate support / Headquarter services ROH incentive Exemption of corporate income tax on qualifying income from overseas for 15 years 10% corporate income tax rate on qualifying income from Thailand, certain interest income and royalty income Tax exemption on certain dividends paid to overseas corporate shareholders and dividends received from associated enterprise

Other tax benefits

Personal Income Tax rate reduction for qualified expatriates

Non-tax benefits

Opportunity of 100% foreign equity ownership Permission of land ownership rights for foreign-majority-owned companies Permission of unlimited number of expatriates hired 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 not mentioned above Investment amount Debt-to-equity ratio Qualifying services Business management and administration Sourcing of raw materials, parts and finished 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 Profile of headcount Minimum salary for key employees

Key assessment parameters

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 promotion policies 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 benefits depending on the specific circumstances. Additional measures have been implemented to encourage companies to reduce energy consumption or use renewable energy. The BOI also grants additional incentives to support companies 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.

Yupa Wichitkraisorn Partner Tel: +66 2 264 0777 Ext. 55003 yupa.wichitkraisorn@th.ey.com

Pathira Lam-ubol Associate Director Tel: +66 2 264 0777 ext. 21015 pathira.lam-ubol@th.ey.com

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

Incentives in ASEAN region 2012

13

Vietnam
Overview of incentives in
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.

Incentive categories and administering body

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 difficult or especially difficult 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 first 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.

General application process

In order to avail of tax incentives, the company will need to apply for the Investment Certificate 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 Certificate, being registration route or evaluation route. By law, the registration

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Incentives in ASEAN region 2012

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 Certificate, 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 Certificate to the investor. Depending on the local licensing authority, the Investment Certificate may or may not specifically state the applicable incentive. More often than not, the Investment Certificate 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 tax filing 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 specified regulations and the Investment Certificate 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 specified 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:
Activity Tax incentives9 Corporate tax exemption for first 4 years 50% corporate tax reduction for next 5 to 9 years 10% reduced corporate tax rate for remaining incentive period Manufacturing Corporate tax exemption for first 2 years 50% corporate tax reduction for next 4 years 20% reduced corporate tax rate for remaining incentive period 20% reduced corporate tax rate for remaining incentive period

Non-tax benefits9

Exemption of import duty on equipment, raw materials, supplies and semi-finished products Exemption on repatriation of profits 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 Certificate Key evaluation parameters

Specified location Or

Newly established enterprises in difficult socio-economic conditions, Economic Zones, High Tech Zone established under the Prime Ministers decision. At the time of this publication, 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 enterprise in areas of difficult socioeconomic conditions

NA

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

Incentives in ASEAN region 2012

15

Activity

Manufacturing Key evaluation parameters

Specified sector

Newly established enterprises in high technology, scientific research and technology development, investment in development of specially important infrastructure facilities of the State, production of software products Enterprise operating in the field of socialisation (i.e. education training, occupational training, health care, culture, sport and the environment). Different incentive duration applies if located in difficult or special difficult socio-economic conditions.

NA

Agricultural service cooperatives and peoples credit 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, efficiency 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 continue to 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 the.gia.tran@vn.ey.com

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Incentives in ASEAN region 2012

Business Incentives Advisory (BIA) team and services

The 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 financial benefits. Our services include the following: Evaluation and identification of possible incentive packages based on specific 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 identification 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 bin-eng.tan@sg.ey.com Tel: +65 6309 8738

Incentives in ASEAN region 2012

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Ernst & Young

Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. 2012 EYGM Limited. All Rights Reserved. FEA no. 00000091
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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