Considering the tax rates and how much tax a business might rack up is a critical step while analysing how profitable a potential business might be, especially for international businesses. For, each country has a unique tax structure designed to best serve that specific nation. This is something to consider if you are looking to tap into one or more ASEAN nations.
While you may get similar benefits due to regional similarities, tax rates will differ from one ASEAN country to another. The total amount you will pay for a Singapore-based business will vary from the amount you will pay as tax for a business with Brunei, Laos, or Cambodia. Therefore, you must gain a good understanding of how the Tax Rates differ in ASEAN countries.
Indirect Tax Rates: VAT, GST, Commercial Tax
ASEAN countries like Indonesia, the Philippines, and Singapore commonly charge indirect taxes in the form of VAT or GST. Five of the ASEAN countries impose a flat VAT rate. If you want to do business in the Philippines you will have to pay a 12% VAT while VAT in Indonesia, Laos, and Cambodia is 10%. In Thailand, the standard VAT is 10%. However, it has been reduced to 7% until 30 September 2021.
Vietnam follows a two-tier tax system. All taxable goods and services impose a 10% standard VAT. Specific food items and essential goods only hold a 5% tax rate. Businesses in Singapore and Malaysia pay Goods and Services Tax (GST), which is quite similar to a VAT.
You might want to take into account that a 7% GST may be applied to your bill when you spend in Singapore. The GST system in Malaysia is 6%. However, International services, exported goods, specific books, and basic food items hold 0% GST. The government of Myanmar imposes a commercial tax rate that might vary from 5% to 120%. On the other hand, Brunei does not charge any VAT at all!
Corporate Income Tax (CIT)
The Corporate Income Tax is another expense to consider when conducting business is ASEAN countries. Even though the overall CIT rate in this region has lowered over the years, it is still something to compare.
Governments usually lower Corporate Income Taxes to lure foreign investors. The capital inflow can aid various sectors such as technological advancement. Moreover, they provide tax and non-tax benefits such as depreciated credits, accelerated investment, and tax holidays, which further reduce tax for certain sectors. ASEAN governments have reduced CIT rates to facilitate long-term expansion, thus offering a tariff structure that stands out against other countries.
In most ASEAN nations, the CIT rate is 23%, which has lowered over the decade. The Philippines charges 30%, the highest Corporate Income Tax in ASEAN countries, while Brunei, Cambodia, Thailand, and Vietnam, levy CIT rate lower that is lower than the average.
Singapore charges the lowest CIT of 17%. Furthermore, Singapore has a partial tax exemption scheme to encourage new firms by enabling cost-effectiveness. This guide provides more information on Singapore corporate income tax. According to this scheme, companies with $3,00,000 or more chargeable income can enjoy an 8.36% CIT, which is only about half of the actual Corporate Tax Rate.
Personal Income Tax (PIT)
Another factor you must take into account is the Personal Income Tax (PIT). Most ASEAN countries have a very progressive structure and numerous brackets for PIT. Malaysia has 11 brackets while Cambodia has five, and Indonesia has four. Some of the ASEAN nations levy a very minimum PIT and exempt certain income categories.
Vietnam and Indonesia offer the lowest PIT rate of 5%. Thailand, Vietnam, and Philippines charge the maximum PIT rate of 35%. The maximum PIT imposed by Singapore and Cambodia is 20%. Apart from income, residency status is a determining factor. Every ASEAN country will analyse residency status differently according to the tax laws. Tax imposed on businesses will vary based on what their residency status is.
Foreign investors who work for less than 60 days in Malaysia can apply for a tax exemption. Investors who work in the country for less than 180 days but more than 60 days are granted a ‘non-resident’ status. Non-residents are expected to pay a flat PIT of 28%. Those working in Malaysia for 180 days or more have a ‘tax-resident’ status and must pay the standard PIT rate. Therefore, if you want to correctly assess your tax liability as a foreign investor in ASEAN countries, you need to consult a tax expert and find out about your residential status.
International Withholding Tax
The tax rate may vary based on not only the investor’s residential status, but also payment type and whether the investor is an individual or a company. You may also want to consider whether any Double Tax Avoidance (DTA) agreements are in place between nations.
Of course, the only way to predict the costs of conducting business in your ASEAN country of choice is to thoroughly study the tax rates. For example, you might find that the cost will be lower in Vietnam and Myanmar as they charge a 0% withholding dividend rate. The Philippines, on the other hand, charges a very high withholding dividend rate of 15%.
ASEAN countries that have a DTA agreement in place generally enjoy the perks of low withholding rates. In general, this depends on the nation to which your profits will be remitted to. For instance, all royalties remitted abroad from Thailand are subject to a standard 15% withholding dividend rate, except when the remittance is sent to Singapore. Thanks to the Thailand-Singapore DTA, royalty remitting from Thailand to Singapore only hold a concessional rate of 5% to 10%.
There is no doubt that ASEAN countries make a very lucrative market to invest in. Yet, a proper analysis of tax structures and rates is essential to run a business profitably and cost-effectively. On top of that, it might help to look out for tax incentives specific nations offer to attract foreign investors.