Doing Business in ASEAN – a cheat sheet

Introduction

ASEAN is the Association of South East Asian Nations comprising

the State/Government of Brunei Darussalam, the Kingdom of

Cambodia, the Republic of Indonesia, the Lao People’s Democratic

Republic, Malaysia, the Union of Myanmar, the Republic of the

Philippines, the Republic of Singapore, the Kingdom of Thailand

and the Socialist Republic of Viet Nam.

In the course of consulting and advising investors internationally,

there has always been reference to the two biggest economies in

Asia – China and India; and a tendency to compare the same. This

leads to critical mistakes. To those who have done business in

India, doing business in ASEAN should indeed be familiar. China,

in spite of its size and provinces (states), are commonly linked by

Mandarin and communist governance. India, on the other hand,

does not really have a common language in Hindi and is

democratic with a quasi-federal system of governance. ASEAN is a

far better example for comparison to India and vice versa.

The ASEAN Economic Community (AEC) was formed to transform

ASEAN into a stable, prosperous, and highly competitive region

with equitable economic development, and reduced poverty and

socio-economic disparities. The AEC is to be established in 2015

and is one of the pre-cursors to the ASEAN Community in 2020.

The AEC aims to establish ASEAN as a single market and

production base which comprise the following:

1. Free flow of goods

2. Free flow of services

3. Free flow of investment

4. Freer flow of capital; and

5. Free flow of skilled labor.

Eyes are focused on ASEAN with many professional firms already

developing direct or indirect presence in these countries.

The benefits and challenges of doing business in each of these

jurisdictions are set out below. The richest nations ranking is

based on GDP (PPP) per capita 2009-2013 from

https://www.gfmag.com/global-data/economic-data/richest-

countries-in-the-world.

All jurisdictions provide for business entry as sole proprietor,

partnership, private limited company, public limited company and

branch/liaison office. Some jurisdictions like Indonesia may permit

only foreign investment limited liability companies and

representative office and have been mentioned separately. Nearly

all ASEAN countries project themselves to be at the heart of South

East Asia.

Understanding of culture and customs cannot be stressed enough

while doing business in South East Asia.

Singapore

It is the best destination to operate business in Asia from. Several

common and oft repeated factors that contribute to this are

business friendliness and integrity, regulatory transparency,

corruption free environment, political legal and financial stability,

infrastructure, business integrity and cosmopolitanism. However,

this is not all. The thrust in the past was on finance. Singapore

has already established its reputation in finance and being a

nation that favors automation and technology, it has now trained

its focus not only on technology and finance, but towards fintech

as well. Three articles have been published on business in

through and around Singapore under LinkedIn Posts under the

headings: “Doing Business in India from Singapore”; “Gateway to

Asia: Singapore | Hong Kong” and “China India Investments: Sino-

Indian ties or see no Indian ties” (contains a para on benefits of

investing through Singapore).

Singapore is the 3rd richest nation in the world according to

Global Finance and is the first in many areas and remains

relevant by constantly reinventing itself. The political system is a

parliamentary representative democratic republic. The legal

system follows common law. Singapore recognizes 4 languages –

English, Mandarin, Malay and Tamil. English is probably most

spoken and used widely.

Investment

As is the case with highly developed economies and countries, the

investment climate in Singapore is open and highly favorable with

a regulatory environment only in the sectors of finance,

professional services, telecom, real property, energy and media.

There are no restrictions on reinvestment or repatriation of

proceeds. Primary reasons for investment into Singapore are

taxation, sophisticated workforce, infrastructure and connectivity

to ASEAN, double taxation avoidance and free trade agreements

with most countries in the world.

Challenges

The challenges of doing business in Singapore is that it is highly

regulated and failure to comply leads to swift implementation of

legal justice. Depending upon the industry or sector, there are

licenses that need to be obtained. Therefore for businesses

seeking to acquire a local company, it is not so much the due

diligence of the target company but the post-integration and post-

acquisition compliance that matter more for success.

Many Singapore companies, as well as foreign owned ones, have

foreign operations. Where local participation is required,

shareholders agreement should be carefully drafted.

Benefits

Tax benefits, safety, ease of doing business. Singapore has DTAAs

signed with over 75 countries and many others pending

ratification. See end of this article for other benefits as well.

Malaysia

Malaysia ranks fifty fifth amongst the richest nations. The

dominant religion is Islam. The political system in the country is a

constitutional monarchy under the Westminster parliamentary

system and is categorized as a representative democracy. The

law of Malaysia is mainly based on the common law legal system.

The constitution of Malaysia also provides for state laws, secular

laws (criminal and civil) and Sharia laws. The national and official

language is Bahasa Malaysia or Malay. Local language in court

proceedings is a requirement for Courts, at least lower courts,

though they may waive it. Contracts may be in English though

government contracts may contain both languages.

Investment

Economic growth of Malaysia is driven by agriculture, mineral

resource, electrical and electronics, forestry, oil and gas. Malaysia

ranks highly in ease of doing business and its strengths lie in

getting credit and protecting investors. Infrastructure is well

developed and Malaysia even exports related services. 100%

foreign equity participation in permitted in certain healthcare and

educational services, department and specialty stores,

telecommunications Application Service Providers (ASP),

accounting and taxation services, courier services.

Many companies take full advantage of setting up company in

Singapore and working in Malaysia where they gain from cheaper

labour, land and costs. This is mutually beneficial as smarter

companies can continue benefit from projecting its Asia-Pac HQ in

Singapore as it main base. While engaging in contracts in

Malaysia, it may be useful to note that dealing with decision-

makers or senior management result in efficacious and

expeditious business.

Malaysia has extensive and progressive legislation in the field of

intellectual property rights protection. There are monetary

threshold restrictions on real property ownership and approval

would be required. There are exceptions as well.

Challenges

Incorporation as well as approval process and permits can take

time. Local equity participation apply for various permits and

licenses. On internal front, its airline industry has not received the

best of attention or feedback. The recent issues of proprietary and

political imbroglio has also not helped in the presenting the best

side of Malaysia.

Tax

Malaysia provides tax incentives for private limited companies

and public limited companies. Malaysia has DTAAs with over 70

countries. Capital gains are taxed on real property gains and on

exercise of employee stock options.

Vietnam

Vietnam ranks 132 amongst the richest nations. It is the only

other communist state in SEA. The law in Vietnam is based on

communist legal theory and French civil law. Vietnamese is the

official language and official documentation are in Vietnamese.

English is not commonly used as a language for business

communication. Lawyers play an important role.

Investment

Vietnam is an important manufacturing hub for many

international companies. Agriculture and seafood produce form

major part of the economy along with mineral wealth and oil and

gas reserves, making it attractive for global investors. 100% FDI is

permitted along with investment through Joint Stock Company or

a business cooperation contract with a local partner. However, FDI

requires an investment certificate that sets out the scope that the

firm is allowed to cover. Time taken for registering a business in

Vietnam can vary substantially from two to eight months

depending on the complexity of the industry and the number of

licenses required. Investors can apply directly to the authorities or

through a lawyer.

Though Vietnam has comprehensive legislation relating to

protection of IP, enforcement is an issue. On real property,

foreign-owned entities are not allowed to own land, but can enter

into leases.

Challenges

Local experts are a must while doing business in Vietnam.

Documentation is in Vietnamese and multiple authorities/agencies

may be involved for various licenses. Registering local entity

procedures and obtaining of approvals are cumbersome. Due

diligence reports may return many documents unfound or

unfounded. Foreign ownership are capped at 30% (banking), 49%

(public company), may not exceed 51% for some restricted

industries, or is even prohibited altogether for some sectors.

Tax

Vietnam has DTAAs with about 38 countries. Capital gains tax is

levied.

Indonesia

Indonesia ranks 122 amongst the richest nations. The dominant

religion is Islam. The political system in the country is a republic

with a presidential system. Law of Indonesia is based on a civil

law system, intermixed with customary law (known as adat law)

and the Roman Dutch law. These three systems co-exist along

with new laws. The main language is Bahasa Indonesia, a variant

of Malay which also functions as an official language for

transactions and commercial documents. Local language in

contract is a requirement for Courts.

Investment

Economic growth of Indonesia is driven by performances in

agriculture, mineral resources, coal, oil and gas. Nearly every

sector has restrictions on foreign investment and participation.

High priority economic sectors may be entitled to income tax

benefits or tax holidays. There are Forex controls on repatriation

of amounts. Infrastructure is a major target sector for investment.

Foreign investment can own up to 100% of their business only in

certain and very limited sectors.

Though Indonesia provides for intellectual property protection,

the process of enforcement and defense is slow. Foreigners

cannot own land in Indonesia. Many use convertible lease

agreements or try to obtain strata title. These are however not

established means.

Challenges

There are limits and investment caps across a variety of

industries which range from 0% to 100%. Limited infrastructure

increases the cost of doing business. However, Indonesia may

have separate agreements with different countries, such as China

on Chinese products, on taxation of products imported. Indonesia

ranks 128th out of 185 countries in the World Bank’s Doing

Business rankings. Contract enforcement and legislative

transparency are major issues along with poor access to credit

and high taxation. Incorporation process is protracted requiring at

least 2 shareholders for companies. Transparency is an issue.

Extensive due diligence is recommended.

Tax

Indonesia has DTAAs with over 50 countries. Capital gains are

taxable as ordinary income and capital losses, deductible. Process

of paying tax is rather onerous.

Thailand

Thailand formerly known as Siam ranks 85 amongst the richest

nations. The religion followed by Thais is Buddhism. As of 2015,

the Kingdom of Thailand continues to be under military rule. The

law of Thailand is civil law with some sources of common law.

General contracts can be in English and government contracts in

Thai.

Investment

Thailand is the second largest economy in SEA and considered an

emerging economy. It is ranked the 5th easiest place to do

business in Asia. Tourism industry is substantial. Thai government

incentives for FDI focuses on research and development,

innovation and value creation investment. List of promoted

sectors are - agriculture and agricultural products, mining,

ceramics and basic metals, light industry, metal products,

machinery and transport equipment, electronic industry and

electric appliances, chemicals, paper and plastics, services and

public utilities.

Thailand has progressive legislation in the field of intellectual

property rights protection though enforcement used to be an

issue. On real property, foreign-owned entities are not allowed to

own land unless special conditions are met. Foreign nationals may

buy condominiums units in Thai condos (shares in condominium

corporations) subject to a cap of 40% of the units acquired by

foreigners.

Challenges

Political stability and world markets affect Thailand investment

outlook. Thailand is also subject to many a political unrest, strikes

and bombings. Corruption remains an issue.

Tax

Income in Thailand from capital gains is taxed the same as

regular income. If an individual earns capital gain from security in

the Stock Exchange of Thailand, it is exempted from personal

income tax.

The Philippines

The Philippines ranks 127 amongst the richest nations and is the

only Christian nation in Asia. The Philippines is a unitary

presidential constitutional republic, with the President of the

Philippines acting as both the head of state and the head of

government. The Philippine legal system is a blend of customary

usage, civil law and common law systems. Constitutional law,

procedure, corporation law, negotiable instruments, taxation,

insurance, labour relations, banking and currency follow common

law. English and Filipino are the official languages.

Investment

Agriculture constitutes the largest part of the economy. The

Philippines is known for its workforce export. Investment by

public-private participation in aviation, infrastructure, transport,

water, healthcare and education is highly encouraged. Investment

in to the Philippines is controlled with no FDI in certain sectors

such as mass media, practice of professions, retail trade, and with

local participation in others such as recruitment, construction,

advertising, natural resources, gambling, finance. 100% FDI is

permitted subject to stringent conditions.

The Philippines has made substantial progress in protection of IP

and taken steps to bolster IPR by passing laws to improve and

streamline enforcement.

Foreign-owned entities are not allowed to own land, but can enter

into leases. Foreign nationals may buy condominiums units in

Philippine condos (shares in condominium corporations) subject to

a cap of 40% of the units acquired by foreigners.

Challenges

Local experts are a must while doing business in the Philippines.

Registering local entity procedures and obtaining of approvals are

cumbersome. There are many limitations to investing in the

Philippines. Contract enforcement is slow. Business is conducted

in a hierarchical structure and on consensual basis. Due diligence

reports may return many documents unfound or unfounded.

Tax

The Philippines has DTAAs with about 36 countries. Capital gains

tax is levied and there are various withholding tax rates.

Myanmar

Myanmar, erstwhile Burma, ranks 162 amongst the richest

nations, but this means little and is considered by many as the

last bastion of FDI. There is no official religion but Buddhism is

followed by majority of the population. Though the country is

making overtures towards democracy, the political system is

currently in the hands of the military. The opposition does not

appear to have a succession or continuing plan. The legal system

is based on English common law, with many systems outdated

and in the process of overhaul. The official language is Burmese.

Business documentation may be in Burmese.

Investment

The economy is one of the least developed in the world. The

major investors have been China, South Korea and India. Tourism

is an area for foreign investment. Myanmar is rich in semi-

precious stones, natural resources, oil and gas. The key FDI

sectors are infrastructure (roads, power, telecommunications and

logistics), oil and gas, manufacturing, mining, real estate, hotel

and tourism. Business proceedings could be protracted and

impeded by bureaucracy. Due diligence and definition of risk

should be indigenised. Up to 100% foreign investment can be

received in private limited companies. Some of the prohibited

sectors relate to teak, forest plantations, petroleum and natural

gas pearls, jade and precious stones, postal and

telecommunications services, air and railway transport services,

banking and insurance services, broadcasting and television

services, metals, security and defense.

Intellectual property laws do not exist. Alternate protection may

be sought in other laws. Foreign-owned entities are not allowed to

own land, condos, apartments or any type of property in Myanmar

under the current law, but can enter into leases.

Challenges

As is the case with many underdeveloped and developing

countries, cost of stay in luxury hotels are comparable to

developed countries. Cost of experienced and skilled

professionals are also at a premium. Infrastructure and skilled

workforce is an issue. Justice meted may be ambiguous and not

necessarily independent of the Government.

Tax

Myanmar has DTAAs with about 10 countries and 8 of them have

been notified. Capital gains tax is levied and there are various

withholding tax rates.

Brunei Darussalam

Brunei is the fifth richest nation owing to its petroleum and

natural gas fields. The official religion is Islam. The political

system in the country is governed by the constitution and the

national tradition of the Malay Islamic Monarchy. It has a mixed

legal system based on English common law and Islamic Shariah

law; the latter supersedes the former some cases, for instance,

the sharia-based penal codes applies to Muslims and non-Muslims

and exists in parallel to the existing common law-based code.

Malay is the standard language, but English is widely used as a

business and official language.

Investment

The investment climate in Brunei is open and highly favorable

with limitations in the sectors of certain fields. The Government

has been making an effort to diversify the economy and turn

Brunei into a banking center as well as an international offshore

financial center. National food security and those based on local

resources require local participation. Industries for the local

market not related to national food security and industries for

total export can be totally foreign owned. Intellectual property

protection is consistent with international norms. Areas of

investment promoted by Brunei are: agri-food; downstream oil

and gas and energy intensive industries; information and

communication technology; life sciences (pharmaceutical,

cosmetics, and functional health food and health supplements);

light manufacturing; services, such as financial services and

tourism; and other activities that may be technology driven.

Though there are IP laws, enforcement is an issue. Local partners

are required for land purchase.

Challenges

The challenges of doing business in Brunei are relatively high cost

of doing business; shortage of skilled and unskilled workers and

lack of competitiveness of local products. Increase in institutional

capacity of the government, including service delivery, and

finance sector development need to be more effective. Other

areas that need addressing are investor protection, ease of

obtaining credit, and ease of doing business.

Tax

Brunei has DTAAs with about 20 countries. There is no capital

gains tax. However, where the Collector of Income Tax can

establish that the gains form part of the normal trading activities,

they become taxable as revenue gains. The Government of Brunei

Darussalam has also signed the Tax Information Exchange

Agreement (TIEA). Unlike DTAAs, the objective of TIEA is to

promote cooperation in tax matters through exchange of

information between the signatory countries especially

cooperation in countering abuses of the financial system.

Cambodia

Cambodia ranks 142 amongst the richest nations though the UN

has classified Cambodia as a least developed country. It is

arguably the fastest growing economy in Asia. The official religion

is Buddhism and the political system in the country is

constitutional monarchy where the governing powers of the

monarch are contained by the Constitution. The legal system is

primarily based on civil law system (influenced by the UN

Transitional Authority in Cambodia), customary law, Communist

legal theory, and common law. Khmer or Cambodian is the

standard language as well as the official language.

Investment

Economic growth of Cambodia is driven by performances in

garment manufacture, tourism, paddy and milled rice, and

construction. Infrastructure is a major target sector for

investment. Foreign investment can own up to 100% of their

business or enter into joint ventures except in except in the

sectors of cigarette manufacturing, movie production, rice milling,

gemstone mining and processing, publishing and printing, radio

and television, wood and stone carving production, and silk

weaving. Investors invest in Cambodia for its low wages, liberal

government policy on business, access to larger markets, and a

country that offers extensive opportunities for tourism.

Intellectual property protection is consistent with international

norms and Cambodia is a member of the World Intellectual

Property Organization and the Paris Convention for the Protection

of Industrial Property, and is a party to the ASEAN Framework

Agreement on Intellectual Property Cooperation.

Land in Cambodia must be registered under a local person and

locals are needed to oversee the development.

Challenges

Cambodians working in export sectors are typically recruited from

among the rural poor. Trade, employment and poverty reduction

are tightly linked in Cambodia. As a small and open economy that

is highly dollarized, Cambodian economy is immediately affected

by any changes in oil prices. Though the political environment

appears stable, corruption and controversies are major factors.

The administrative process for acquisitions can be highly complex

and time consuming. Health care, limited infrastructure, low

government salaries are some of the challenges of doing business

in Cambodia.

Tax

Dividends, royalties (including rent and other payments

connected with the use of property) and interest paid to a non-

resident are subject to withholding tax. Other non-resident

payments include withholding tax on compensation for

management or technical services. Cambodia is not a party to

any double tax agreements. Accordingly, no tax treaty relief from

withholding tax is available.

Laos

Laos or the Lao People’s Democratic Republic is one of the

poorest countries in SEA and featured as a developing nation. It is

a communist state with a civil law system. The religion is

Buddhism. Economy is mainly agrarian and natural resource

exports. The legal system is based rule of the only party in Laos,

the Lao People’s Revolutionary Party. The official and dominant

language of Laos is Lao and laws are in Lao language. French is

also used for communication.

Investment

Economic growth of Laos is driven by agriculture which accounts

for 85% and tourism. Infrastructure is a major target sector for

investment. The scope of investment lies in natural resources,

tourism and agri-business from fertile agricultural land. It is a

substantial supplier of hydroelectricity to China, Vietnam and

Thailand. Legal entities take the form of partnerships, private and

public limited companies.

Comprehensive IP law is much needed. There is a Prime Minister

Decree on trademarks and patents for protection, but no

copyright protection in Laos. IPR is still under development. On

real property, land in Laos cannot be owned by non-residents but

can be leased.

Challenges

There are many challenges to doing business in Laos. Human

rights and corruption are major issues. The infrastructure in Laos

is underdeveloped and more so in the rural areas. Legal recourse

and enforcement could be arbitrary. Work force is unskilled,

though low cost.

Tax

Laos has DTAAs with 8 countries: 5 ASEAN countries, N & S Korea

and China and is in negotiations with Singapore and India.

Advantages of accessing ASEAN from Singapore

Some of the main benefits for foreign entities and individuals

doing business in through and around Singapore are:

Strategic location.

Long term business success due to stability of DTAA

implementation and limitation of benefits giving high credibility.

Investing in Singapore for accessing international Stock

Exchanges as well as reinvestment into ASEAN (as holding

company).

Access Singapore and international funds with representative in

the Singapore company to invest in ASEAN.

Investor comfort, confidence and safety towards ASEAN-

incorporated, Singapore-promoted companies doing business in

ASEAN.

Easier to raise global funds.

Governance premium by Singapore based entities.

High quality and sophisticated work force and service.

Intellectual property assets maintained in Singapore for worldwide

deployment and centralized portfolio management.

First point of protection of investor value into ASEAN.

A second listing in SGX, a more conservative markets, after US,

Europe and/or Australian markets provides excellent hedging and

safer market. SGX is also an advantage to investors and

promoters who wish to keep their investments voluntarily locked

in for longer periods.

Home for family offices (private wealth).

Tax:

For profits up to $S300,000 Singapore corporate tax rate is below

9% and capped at 17%

5 year tax holiday subject to qualifiers

India corporate tax rate is 30% for residents and 40% for non-

residents (goes up beyond 60%)

Annual turnover of less than S$5 million are exempt from audit

requirements

Dividends distributed by the Indian Subsidiary to the Singapore

Holding is not subjected to withholding tax in India, subject to

conditions.