Knowing Tax Rates in ASEAN Countries for Potential Business Expansion
It is vital to understand the tax structures in the country you invest in for running a business profitably. Each nation has a tax structure that is based on factors specific to that country. If you are planning to start a company in more than one ASEAN nation, then a comparison of Tax Rates in ASEAN Countries would be helpful.
These are the key points of difference between the tax rates in ASEAN countries:
GST or VAT
In ASEAN countries, the VAT and GST, which are indirect taxes, are more prevalent. Out of the total ASEAN nations, five of them levy VAT at a flat rate. It is 7% in Thailand and 12% in the Philippines. Vietnam levies a two-tier tax rate – 10% is the standard rate, while 5% is for particular essential goods and services. Thailand had planned to increase its rate to 10% in September 2018. The government in Brunei does not impose VAT or equal composition tax, while Myanmar levies a commercial tax rate between 5% and 120%. Both Singapore and Malaysia collect GST, which is similar to VAT.
|Type of Indirect Tax
|Indirect Tax Rate
|Commercial Sales Tax
|VAT (2-tier system)
|10% and 5%
CIT (Corporate Income Tax)
In ASEAN nations, the average CIT rate has come down in the last decade. The governments have lowered the rates to promote long-term expansion and also to be different from the other tariff structures in other countries. The governments usually lower CIT rates to lure foreign investors. They also offer tax and non-tax incentives like accelerated investment or depreciation credits and tax holidays, thus further reducing taxes for specific sectors.
Each nation targets specific goals that are based on its economic structure. The objective behind attracting FDI could be to attract foreign investment for technological advancement or some other reason. The CIT rates in most of the ASEAN nations are within the average of 23% and are much lower than what it was a decade ago. Philippines levies the highest CIT rate at 30% while Singapore is the lowest with 17%. Singapore even offers new firms low tax rates under its partial tax exemption scheme.
As per the scheme, firms with a chargeable income of $3,00,000 have to pay only 8.36%, which is less than 50% of the actual CIT rate. Doing business becomes very cost-effective because of a low CIT rate and other benefits. Countries like Vietnam, Cambodia, Brunei, and Thailand levy CIT rate lower than the average ASEAN rate on the profits of local and overseas firms.
PIT (Personal Income Tax)
In most ASEAN nations, PIT has a progressive tax structure, and there are many brackets involved. Malaysia has the highest tax brackets at eleven, Indonesia four, and Cambodia five. A majority of the ASEAN countries levy minimum PIT rates, and certain levels of income are exempted. Indonesia and Vietnam levy a minimum rate of 5% on PIT. Cambodia and Singapore levy 20% as their maximum rate while the Philippines, Vietnam, and Thailand impose the maximum rate of 35%.
Another significant factor is the residency status, and each ASEAN nation determines residency status in its own way as per their tax laws. The tax levied depends on how the residency status is defined.
Foreign investors in Malaysia who are working there for less than 60 days are given tax exemption. Investors working in Malaysia for more than 60 days but less than 182 days are given ‘non-resident’ status and have to pay a flat rate of 28%. Those working for more than 180 days are given ‘tax-resident’ status and are charged the standard PIT rate. To determine their tax liability, foreigners in ASEAN nations must find their residential status from tax experts.
International Withholding Tax in ASEAN Countries
The tax rate in a region is determined by factors like the receiver’s residential status, the type of payment made, or whether the person is a company or an individual. Double Tax Avoidance (DTA) agreements between two nations are also a deciding factor for tax rates. As an investor, if you study the tax rates, you will be able to predict the costs of running a business in a chosen ASEAN country. You may find the costs lower in Myanmar and Vietnam, which charge a zero percent withholding dividend rate, while in the Philippines, the rate is high at 15%.
Double Taxation Avoidance (DTA) Agreements Between ASEAN Nations
Countries, which have signed a DTA, could enjoy the privileges of low withholding rates based on the country to which profits are remitted. In Thailand, a standard 15% rate on all royalties remitted abroad is withheld, but due to the Thailand-Singapore DTA, the royalties remitted to Singapore have applied a concessional rate of 5 to 10 %.
You can run a business cost-effectively and profitably in any ASEAN country of your choice if you study their taxation structure carefully and compare their different tax rates. Your business could also benefit from some of the special tax incentives offered to lure foreign investors.
3E Accounting is one of the top accounting firms in Singapore. Over the years, we have helped many firms register their business and complete all legal formalities like documentation, getting licenses, and other related services. Our team of experienced accountants and tax experts provide professional Singapore Tax services to help you run your business smoothly and profitably.