Catalyzing growth through incentives in Asia-Pacific Welcome to this edition of the EY Asean,...

Catalyzing growth through incentives in Asia-Pacific

Contents

Foreword 1

Australia 2

Indonesia 4

Malaysia 6

Myanmar 8

Philippines 10

Singapore 12

South Korea 14

Thailand 16

Vietnam 18

How we can help 22

For more information and updates, please visit ey.com/sg/incentives

ForewordWelcome to this edition of the EY Asean, Australia and South Korea incentives publication. This new incentives publication has expanded its scope to increase the number of countries of interest to our clients, and also the types of incentives to include those targeted at research and development (R&D) activities. To ensure that the incentives are timely updated, we have also kept this publication to provide a high-level overview. Further details on the incentives mentioned in the publication are available at ey.com/sg/incentives.

The Association of Southeast Asian Nations (ASEAN) has been one of the bright spots of growth in the global economy in the last decade or more. With a population of 629m, Southeast Asia has a combined gross domestic product (GDP) of US$2.4t, making it the sixth largest economy in the world1. In the ASEAN Economic Chartbook 2016, Southeast Asia was also the fourth-biggest recipient of foreign direct investments (FDI) in the world, after the US, Hong Kong and mainland China.

Since our previous editions, the implementation of the ASEAN 2015 Blueprint for the ASEAN Economic Community (AEC) has been substantially achieved. Building on the 2015 agenda of regional economic integration, the AEC Blueprint 2025 (endorsed at the 27th ASEAN Summit), consists of five interrelated and mutually reinforcing characteristics:

• A highly integrated and cohesive economy►

• A competitive, innovative and dynamic ASEAN►

• Enhanced connectivity and sectorial cooperation►

• A resilient, inclusive, people-oriented, and people-centered ASEAN►

• A global ASEAN

As this regional organization embarks on the journey toward AEC 2025 to be a single market in goods and services, incentives continues to be an important fiscal policy tool in attracting FDI into the region. It is also observed that ASEAN is quickly emerging as a main participant in the global value chains,2 further enhancing the role ASEAN plays in the global market. Concrete initiatives, such as rules and regulatory frameworks, have been crucial in propelling ASEAN forward as an economic community.

As ASEAN celebrates its 50th anniversary this year amid the rise of anti-globalization sentiments around the globe, we hope the 10 member states of ASEAN remain resolute in carrying through the implementation of the various AEC initiatives, including continued efforts in attracting FDI into the region.

Beyond Southeast Asia, tax incentives are important to policy-making by other governments in the wider Asia-Pacific (APAC) region. In this edition, we have extended the coverage to key APAC countries, such as Australia and South Korea.

As we progress into the “Fourth Industrial Revolution”3,

innovation and R&D are pertinent in driving growth and ensuring competitiveness. Against this backdrop, we are already observing a strong uptick in the number and scope of incentives offered by various countries — from innovation and patent “boxes” to R&D incentives.4 Based on the respondents from EY Outlook for Global Tax Policy survey for 2017, R&D incentives are also expected to remain in focus — with respondents from 11 of 50 countries and territories foreseeing more generous R&D incentives this year.

Australia, with its long history of administering R&D tax incentives, remains a globally attractive and advanced economy for investors. The diversity and abundance of natural resources and resilient financial system have made the country appealing as a destination for foreign investment. Against weak global economic growth, Australia still experienced a sizeable increase in investment levels, more than doubling to reach US$44b in 2016.5

South Korea has similarly adopted numerous economic reforms and undergone rapid industrialization since the 1960s. It is now one of the world leaders in high-tech manufacturing, with incentives playing an important role in driving economic growth through innovation. Despite the relatively low level of FDI in 2015 (i.e., US$4b), there was a significant rebound in flows to South Korea in 2016 at US$9.4b.5

With the rise of protectionism in the other parts of the world, the openness of the above mentioned economies could be attractive options for multinational corporations (MNCs) making investment decisions.

We hope you enjoy this edition of the publication.

Tan Bin Eng Partner EY Asean Business Incentives Advisory Tax ServicesErnst & Young Solutions LLP

Sources:1 “ASEAN Economic Community Chartbook 2016,” ASEAN website, http://www.aseanstats.org/wp-content/

uploads/2016/11/AEC-Chartbook-2016-1.pdf, accessed on 31 May 2017.2 “2016 Fact Sheet of ASEAN,” ASEAN website, http://asean.org/storage/2012/05/11a.-April-2016-Fact-

Sheet-of-ASEAN-Community.pdf, accessed on 31 May 2017. 3 “The Fourth Industrial Revolution, by Klaus Schwab,” World Economic Forum website, https://www.weforum.

org/about/the-fourth-industrial-revolution-by-klaus-schwab, accessed on 31 May 2017. 4 “2017 EY global tax policy outlook,” EY website, http://www.ey.com/Publication/vwLUAssets/ey-the-

outlook-for-global-tax-policy-in-2017/$FILE/ey-the-outlook-for-global-tax-policy-in-2017.pdf, accessed on 31 May 2017.

5 “Global Investment Trends Monitor,” United Nations Conference on Trade and Development website, http://unctad.org/en/PublicationsLibrary/webdiaeia2017d1_en.pdf, accessed on 31 May 2017.

1Catalyzing growth through incentives in Asia-Pacific

Australia

The Australian Government introduced the R&D incentives program to encourage the Australian industry to undertake R&D activities, putting in place an overall environment that supports increased commercialization of new process and product technologies developed by eligible companies. The current R&D tax incentive regime has been in operation since 2011, superseding the previous R&D tax concession regime that was introduced in 1986.

There are a number of other grant programs that small-and-medium enterprises (SMEs) can access in Australia, including the accelerating commercialization grants, export market development grant and a range of investor incentives for early stage innovation companies.

The various Australian state governments also offer a range of grants and government incentives. Many of the Australian state governments offer government incentives to attract companies to incorporate and operate in particular states, and offer payroll tax exemptions that reduce the payroll tax liability of the company.

R&D tax incentive

Export market development grant (EMDG)

Aim: To encourage Australian SMEs to develop export markets

Tax benefits: Reimburses up to 50% of eligible promotional expenses above AU$5,000, and capped at AU$150,000

Accelerating commercialization grant (ACG)

Aim: To provide access to expert guidance and grants to help businesses commercialize their novel products and services

Tax benefits: Up to 50% of the expenditure to a maximum of up to AU$1m

Aim: To support industry to conduct R&D activities that might otherwise not be conducted

Tax benefits: A 43.5% refundable tax offset for certain eligible R&D entities, of which their annual aggregated turnover is less than AU$20m

A 38.5% non-refundable tax offset for all other eligible R&D entities

Australia incentives

R&D

Commerci

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Trading

2 Catalyzing growth through incentives in Asia-Pacific

Case studiesExample 1: A start-up company in Australia was undertaking eligible R&D activities, and EY prepared the R&D application and identified AU$12m of eligible R&D expenditure. As the start-up company was seeing significant tax losses and was eligible to claim the 43.5% refundable tax offset, they received a refund of over AU$5m after lodging their income tax return.

Example 2: An Australia-based entity was undertaking marketing activities in Singapore and China, and had set up overseas representative entities in these countries. EY assisted it with the preparation of the EMDG application and identified over AU$350,000 of eligible promotional expenditure. EY was also able to assist the entity in receiving an EMDG grant from Austrade for AU$150,000.

Example 3: EY assisted an Australian company to access the R&D tax incentive by preparing the R&D tax incentive claims for a number of years and securing refunds of AU$1m. We then assisted the company in being awarded with a successful ACG of AU$500,000. EY will also be assisting it with the EMDG once they commence marketing the product overseas.

Future outlookThe Australian Government’s investment in science, research and innovation has grown considerably in recent years, from AU$6.6b between 2006 and 2007 to AU$10.1b between 2016 and 2017. Key elements of this expenditure between 2016 and 2017 include:

• AU$3.3b to support business innovation, including through R&D tax measures

• AU$1.8b in block grants for universities

• AU$840m for the National Health and Medical Research Council

• AU$744m for the Australian Research Council

• AU$787m for the Commonwealth Scientific and Industrial Research Organization

In addition, the Government has made a number of significant longer-term commitments, including AU$2.3b over 10 years to support research infrastructure through the National Innovation and Science Agenda and the AU$20b Medical Research Future Fund, which will begin disbursing funding in 2017.

Australian business has also played a key role in driving increased investments in science, as it contributes more than half of total investment in R&D. Business investment in R&D (BERD), as a percentage of GDP, grew from around 0.75% in the mid 1990s to over 1.3% at its peak between 2008 and 2009, before declining to 1.2% between 2013 and 2014. Over the same period, government expenditure on R&D (GOVERD) and higher education expenditure on R&D (HERD) have remained steady relative to GDP, with a growing share of public investment occurring through the higher education sector. In recent decades, Australia’s overall gross expenditure on R&D (GERD) as a percentage of GDP has risen steadily, peaking at 2.25% between 2008 and 2009. Recent investment has declined slightly to 2.12%, mostly driven by decreasing business investments since the global financial crisis.


The income tax incentives are granted by the Indonesian Government to meet various economic and social objectives. These include enhancing direct investment activity, encouraging economic growth, creating equitable development and accelerating growth of specific industries in particular geographies.

The Government Regulation Number 9 Year 2016 regarding income tax facility for investment in certain business fields and certain regions stipulates that taxpayers making a new

investment or expanding the current business activity on certain business fields can be granted income tax incentives. There are 145 standard industrial classifications, of which 71 are regulated on the basis of the business fields and 74 are regulated on the basis of business fields and regions or provinces. This year, the Indonesian Government has extended the existing tax holiday from 10 to 15 years, including an expansion to cover more business sectors.

Tax allowance

Aim: To attract local and foreign investments to boost the country’s economy

Tax benefits: • Investment allowance —

reduction of net income by 30% of total investment

• Tax losses may be carried forward for not more than 10 years and an additional two years may be granted subject to conditions

• Accelerated depreciation or amortization on new investment and business expansion

Tax holiday

Aim: To attract local and foreign investments through corporate income tax (CIT) reduction or exemption under prescribed conditions

Tax benefits: CIT reduction or exemption on income (10% to 100% of income) derived from qualifying business activities for a period of 5 to 15 years, and up to 20 years in special cases

Indonesia incentivesM

anuf

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Manufactu

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Indonesia


Future outlookThe Government aims to boost FDI, enhance the country’s competitiveness and achieve the goals set out for the AEC in 2015. The new regulation on tax incentives places an emphasis on labor and level of domestic component utilization, the value of investment and export. By introducing the new regulation, the Indonesian Government is expecting more foreign investments into the country to support and grow the economy as a whole and accelerate the development of certain regions and provinces in Indonesia.


Over the past few decades, Malaysia has transformed into a manufacturing- and service-based, export-driven economy spurred by high-tech, knowledge-based and capital-intensive industries. In 2016, the country attracted MYR207.9b (US$46.9b)1 in total approved investments that will fund 4,972 projects in the manufacturing, services and primary sectors. These are expected to create 153,060 jobs for Malaysia.2

To continue moving the country forward, the Malaysian Government unveiled a game-changer in early 2015, with the new principal hub incentive (PHI) aimed at supporting Malaysia’s continual growth as a preferred regional investment destination in today’s highly competitive environment.

Principal Hub Incentive

Aim: To encourage companies to use Malaysia as a base for conducting regional and global business and key management operations

Tax benefits: Three tiers of concessionary rates (0%, 5% and 10%) depending on the level of criteria to be met by applicants

Manufacturing incentives• Pioneer status (PS)• Investment tax allowance (ITA)

Aim: To encourage companies to invest in manufacturing in selected eligible activities and products

Tax benefits: • For PS: tax exemption of 70% or

100% for up to 10 years

• For ITA: allowance of 60% or 100% of qualifying capital expenditure for up to 10 years

R&D incentive (selected)• Double deduction (DD)► • R&D grants

Malaysia incentives

R&D

Manuf

actu

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Headquarters

Aim: To strengthen Malaysia’s capability in R&D and innovation by encouraging companies to carry out R&D activities

Benefits: • For DD: a 200% deduction of

qualifying R&D expenditure for eligible R&D activities

• For grants: a reimbursable dollar-for-dollar grant on qualifying R&D expenditures

1 Note: Based exchange rate of US$1:MYR4.4290 as at 21 March 2017.

2 Source: “Media Release,” Malaysia Investment Development Authority website, http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20170302154632_Media%20Release%20Malaysia%20Investment%20Performance%202016.pdf, accessed on 29 March 2017.

Malaysia


Case studiesExample 1: A leading US-based manufacturer of chocolate and sugar confectionery planned to set up a manufacturing plant in Malaysia. EY assisted it to secure a special incentive package (SIP) from the Malaysian Investment Development Authority (MIDA) for grants and 100% income tax exemption for a period of 10 years, followed by a two-year extension.

Example 2: A leading manufacturer of protection solutions planned to establish their global procurement hub in Malaysia with global procurement and trading activities, along with the provision of selected services to its related entities. EY assisted it to secure a SIP from MIDA for 100% income tax exemption for five years, as well as an extension for additional five years with a concessionary corporate tax rate of 10% via the PHI scheme.

Example 3: A government-linked entity focusing on attracting large global multinational companies to set up businesses in Asia required EY’s assistance to conduct a market assessment with a view to develop a “go-to-market” strategy. EY assisted it in conducting a benchmarking study of Malaysia’s existing incentives against similar incentives offered by various countries. Using the benchmarking study, EY assisted with the development of new incentive guidelines and associated justifications for the new incentives.

Future outlookThe Malaysian Government remains committed to introducing new tax incentives and extending selected existing tax incentives that will steer investment into specific sectors and regions in Malaysia. For example, to further strengthen and develop the green technology industry, the Government has introduced tax incentives for the purchase of green technology assets and the use of green technology services and systems.

The current incentives regime, which includes the PHI that was introduced in 2015, represents the Government’s pragmatic approach toward Malaysia’s aim of achieving a developed nation status by 2020. Going forward, it is expected that the Government will lay down specific measures to assess the long-term qualitative and quantitative costs and benefits of the various types of projects that are eligible for incentives. This is to provide a holistic and realistic assessment of the net worth of a project’s contribution toward the Malaysian economy.


With the transition of a new government in August 2011, Myanmar has been undergoing a series of political, social, and economic reforms. In October 2016, the Myanmar Investment Law (MIL) was introduced to replace the Myanmar Foreign Investment Law and the Myanmar Citizens Investment Law to be in line with the ASEAN guideline and international practice, which do not grant exemption and relief to some industries such as those producing alcohol and cigarettes etc.

Myanmar Investment LawAim: To promote the country’s economic growth by attracting investments, creating jobs, developing selected industry sectors and high-value skills

Tax benefits:• CIT exemption between three

to seven years based on development level of regions

• CIT exemption on profits reinvested within one year

• Deductions of accelerated depreciation and certain R&D expenditure

Special economic zones law (SEZ)Aim: To support national economic development plan by attracting investments and promoting balanced development of industrial, economic and social sectors, thereby improving the people’s quality of life

Tax benefits:• CIT exemption for five years

for activities conducted in promotion zone

• CIT exemption for seven years for activities conducted in free zone

• CIT reduction of 50% for the second five-year period

• CIT reduction of 50% for the third five-year period on profits reinvested within one year

• Five-year loss carry forward

Myanmar incentives

Inves

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Myanmar


Case studiesExample 1: A Hong Kong-based corporation in the garment industry planned to establish a big garment factory in Myanmar for a business unit with a cutting, making and packaging (CMP) system similar to “contract manufacturing” in manufacturing service activities. EY assisted it to secure an incentive package from the Myanmar Investment Commission (MIC). The incentive package was a tax exemption at a corporate tax rate of 25% for five years and exemption on import tax and custom duties for import material during the construction period.

Example 2: A Japan-based corporation in the real estate industry planned to establish a luxury service apartment in Myanmar for hospitality service activities. EY assisted it to secure an incentive package from the MIC. The incentive package was a tax exemption at a corporate tax rate of 25% for five years, starting from official commercial operation. The incentive package also included an exemption on import tax and custom duties for import material during the construction period.

Future outlookMyanmar is the world’s fastest-growing economy and last frontier of investment. The Government of Myanmar has been making efforts to make doing business in Myanmar easier. Political and economic reforms, which have made headlines around the world, have supported this economic growth. Increased consumer and investor confidence, and rising exports have boosted the economy. However, inequality and poverty remain a significant problem across the country. This is true for many of the world’s fast-expanding economies, which are typically not the biggest or most developed. As the Government seeks to make doing business in Myanmar easier, Myanmar is expected to continue to be a growth hot spot for foreign investors.


Source: 1 “Total approved foreign investments down by 9.3 percent in Q4 2016,” Philippine Statistics Authority website,

https://www.psa.gov.ph/foreign-investments-press-releases, accessed on 27 March 2017.

Fiscal and non-fiscal incentives are granted to encourage the entry of FDIs in Philippines’s priority areas of development, such as manufacturing, services and infrastructure sectors. Incentives are provided to accelerate development in less developed regions, channel investments into locations with strong potential for economic growth (i.e., ecozones and rural areas) and provide significant employment opportunities in the country. In line with this, the 2017 investment priorities plan (IPP) has broadened its coverage with the inclusion of more micro-, small-and-medium-sized enterprises and innovation-driven and health- and environment-conscious activities to

expand job opportunities to larger segments of the population and bring more firms into global and local value chains.

Investment promotion agencies (IPA), including the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA), facilitate the grant of incentives to qualified entities. In the fourth quarter of 2016, PHP125.7b of additional foreign investments were approved by different IPAs. Foreign and Filipino ventures approved by the seven major IPAs during the same period are also expected to generate 49,054 jobs, with 66.7% coming from projects with foreign interests.1

BOI incentives Aim: To promote investment in IPP-listed industries that increase economic activity in Philippines

Tax benefits: • Income tax exemption for four years

for non-pioneer and six years for pioneer enterprises

• Exemptions from taxes, duties andfees on certain import and export activities

R&D incentivesAim: To encourage investment in research and development

Tax benefits: • A 100% deduction of

R&D related expenses from gross income

• Donor’s tax exemption for donations to accredited research institutions

PEZA incentivesAim: To promote foreign investment in selected industries that will increase economic activity in Philippines

Tax benefits: • Income tax exemption for four years

for non-pioneer and six years for pioneer enterprises

• Five percent tax rate on gross income earned in lieu of national and local taxes, with certain exceptions

• Exemptions from taxes, duties and fees on certain import and export activities

R&

D

Inves

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Headquarters

Philippines incentives

Regional operating headquarters (ROHQ)Aim: To encourage MNCs to establish regional headquarters in Philippines to manage and control their operations of their group of companies

Tax benefits: • Preferential income tax rate of 10%

• Preferential tax rate of 15% on remittance of branch profits

• Exemption from local taxes, fees or charges imposed by local governments, with certain exceptions

Philippines


Case studiesExample 1: An MNC in mobile device protection and support services planned to establish a branch office in Philippines to perform general administration, business planning and coordination for its affiliates. EY assisted it to register as an ROHQ, which entitled the company to avail of the preferential income tax rate of 10%.

Example 2: An MNC in the automotive industry proposed to establish a subsidiary in Philippines to expand its manufacturing business in the APAC region. EY assisted it to secure a four-year income tax holiday (ITH) from the BOI.

Example 3: A foreign company engaged in financial services planned to establish a branch office in Philippines to perform business process outsourcing operations and other IT—enabled services to support the global business operations of its ultimate parent company and affiliates. EY assisted it to register with the PEZA as an Ecozone Information Technology Enterprise and it was granted an ITH for four years. After the ITH period, a preferential tax rate of 5% of gross income was earned in lieu of all national and local taxes.

Future outlookThe recently approved 2017 IPP prioritizes the continuing industrial policy to develop the competitive advantage of the manufacturing and agriculture sectors, considering their great potential to provide employment for unskilled workers, especially in rural areas. There is also a deliberate policy to provide incentives on investments in areas outside of Metro Manila to facilitate the dispersal of industries and promotion of micro-, small-and-medium-sized enterprises across the country. In particular, contact centers and non-voice business processing activities located in Metro Manila may no longer be qualified for incentives by 2020. Business process outsourcing companies are encouraged to expand their operations and create jobs in the provinces to continue to reap incentives available. There is a strong preference for new market players in the telecom sector to encourage competition and servicing of fast, reliable and stable internet at affordable prices.

Currently, the BOI is finalizing the General Policies and Specific Guidelines for the implementation of the 2017 IPP. The BOI is set to conduct roadshows in key cities all over the country to promote the salient features of the new IPP to various stakeholders.

In 2016, the Republic Act No. 10708, otherwise known as the Tax Incentives Management and Transparency Act (TIMTA), was enacted to promote transparency and accountability in the grant and administration of tax incentives to business entities, private individuals and corporations. Apart from this, lawmakers are also pushing to pass the Rationalization of Fiscal Incentives (RFI) Bill, which aims to provide transparent, targeted, performance-based and time-bound incentives pursuant to the government’s tax reform initiatives, including placing sunset provision to existing incentives and replacing the 5% gross income tax rate to a reduced CIT rate of 15%. The Government of Philippines is seeking to create a uniform policy on the issuance of fiscal incentives to avoid redundancies that could lead to revenue leakages.

Although several challenges persist in the implementation of the 2017 IPP, it is hoped that the broadened coverage of the priority list of investments will drive progress across regions, especially in provinces to strengthen various industry sectors, improve unemployment levels, and achieve sustainable and inclusive growth that can directly impact all participants in the administration’s industrial and economic strategy.


The Singaporean Government offers a wide range of incentive programs, both tax and non-tax, to businesses conducting specified activities ascertained as beneficial to Singapore’s economic development. Tax incentives are targeted at getting companies to anchor substantive high value-added activities and strengthen capabilities, such as innovation and know-hows in Singapore.

Complementing Singapore’s attractive overall business environment, tax incentives have been an effective fiscal policy tool in strengthening Singapore’s value proposition as a compelling global hub for business and investments. In the Global Investment Trends Monitor released by the United Nations Conference on Trade and Development in February 2017, Singapore remains among the top 10 FDI destinations globally, with FDI inflows of more than US$50b in 2016.

R&D incentives• Statutory enhanced tax deduction• Research incentive scheme for

companies (RISC)

Aim: To promote innovation and encourage businesses to build up R&D capabilities in Singapore

Tax benefits: • Fifty percent enhanced tax deduction

on qualifying expenditure

• Cash grant: typically co-funding of 30% or 50% of qualifying cost categories

Global Trader program (GTP)Aim: Facilitates and develops international trading and distribution activities

Tax benefits: Concessionary tax rate of 5% or 10%

Finance and Treasury Center (FTC) incentiveAim: To encourage companies to grow their treasury management capabilities in Singapore and conduct such activities for the region

Tax benefits: Concessionary tax rate of 8%

Trad

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Treasu

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Headquarters

Singapore incentives

Headquarters (HQ) program• International HQ• Regional HQ

Aim: To encourage companies to use Singapore as a base for conducting HQ management activities

Tax benefits: Concessionary tax rate of 5%, 10% or 15%

Singapore


Case studiesExample 1: An MNC in the oil and gas industry has plans to establish its global headquarters in Singapore for a particular business unit with global marketing and trading activities based in Singapore. It was able to secure an incentive package from the Economic Development Board (EDB). The incentive package was a concessionary corporate tax rate of 5% for more than 10 years and a reduced withholding tax on royalty payments. In return, the substantive investments in terms of employment and other value-added activities will be conducted in Singapore.

Example 2: A multinational conglomerate established an FTC in Singapore to carry out cash management, project financing and hedging activities. It was able to secure an incentive package from the EDB for a concessionary corporate tax rate of 10% for five years.

Example 3: A leading US-based resource company had plans to expand its existing APAC hub for the group’s marketing and trading of finished goods. It was able to secure a 5% concessionary tax rate for five years under the GTP from International Enterprise Singapore.

Future outlookIn a global environment defined by anemic growth, rapid technological disruptions and increasing anti-globalization sentiments, the Singaporean Government in February 2017 outlined seven strategies, which will shape Singapore’s economic roadmap for the next 5 to 10 years. Also known as the recommendations put forth by the Committee on the Future Economy, one notable suggestion is the call for a review of the Singapore tax system so that it remains broad-based, progressive and fair, and is pro-growth and competitive at the same time. It is therefore expected that the use of the tax incentive regime as a fiscal tool to attract substantive activities to be based in Singapore will continue to remain relevant to drive Singapore’s long-term economic success.

Singapore has also joined the inclusive framework for implementing measures against base erosion and profit shifting (BEPS). As a BEPS associate, Singapore is committed to implementing four minimum standards under BEPS, one of which is BEPS Action 5 — countering harmful tax practices. Already we are seeing measures taken to enforce and scrutinize the adherence to substance requirements of incentive recipients. We can expect further tax refinements as a signal of Singapore’s commitment to maintaining and improving transparency and its proactive support of the BEPS initiative.


Since South Korea’s economy was hit by the financial crisis in 1997, the South Korean Government has introduced various incentives aimed at attracting FDI. In response to such efforts, FDI into the country has shown steady growth throughout the last two decades. Foreign-invested companies are now one of the major players participating in the national economy, accounting for 20% of exports and 6% of employment. Amid a grim outlook for the country’s future because of a stagnated growth rate, FDI has garnered an increasing level of attention from policy-makers hoping to boost the economy and create more jobs.

High-tech tax incentiveAim: Encourage foreign investors to create and expand workplaces for high-tech plants and R&D centers

Tax benefits: • A 100% exemption of national

CIT for the first five years and 50% exemption for the following two years

• A 100% exemption of local tax for the first five years, which can be extended up to 15 years, subject to negotiations with the local Government

Cash grantAim: Attracts foreign investment to create more jobs and expand workplaces for high-tech plants, R&D centers and others

Benefits: Certain percent of the investment amount subject to negotiations with authorities

South Korea incentives

High-tech

and

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South Korea


Case studiesExample 1: An MNC engaged in the chemical industry planned to incorporate an Asian regional manufacturing entity. EY assisted it in the preparation of various documents and in communicating with the authorities in the evaluation and negotiation process to obtain a cash grant and high-tech tax incentives.

Example 2: A manufacturer of semiconductor devices planned to establish its manufacturing site in South Korea. EY assisted it in securing a high-tech tax incentive from the Ministry of Strategy and Finance, which allowed a five-year 100% exemption from CIT on high-tech business.

Future outlookThe South Korean Government is redirecting its efforts to develop economic policies that will strengthen the competitiveness of South Korea’s industry in the long run for sustainable growth. In line with such strategy, the incentive regime is expected to be refined so that it can secure FDI, thereby creating more jobs for the talented youth and cultivating the ground for technological advances. Examples of activities that are favored by the Government include establishing a global hub, R&D center or regional headquarters. These activities warrant greater chances of companies being awarded incentives.

Another big change in South Korea’s incentive regime points to stricter compliance requirements for incentive awardees throughout its operation. Currently, foreign-affiliated companies that have received cash grant are required to make periodic reports regarding their compliance status, such as the actual investment amounts and number of new hires. As a way to ensure that incentive award contribute to the economy, a think tank has suggested the setup of a monitoring body that constantly reviews how the business plans set forth are being implemented.


With the aim of enhancing the country’s competitiveness and maintaining Thailand’s position as one of the most preferred investment destinations in Southeast Asia, the Thai Government has announced and improved various investment incentives to attract FDI into Thailand.

The Thai Government is currently taking serious steps to move Thailand toward a new economic model known as “Thailand 4.0”, focusing on moving the Thai economy from a manufacturing-based economy to a value-based and innovation-

driven one, with an emphasis on R&D, science and technology, creativity and innovation. Several investment incentives have been continually refined and modified to reflect the transformation and development of the investment promotion under the Thailand 4.0 policy. The revised Investment Promotion Act and the Competitiveness Enhancement Act have recently been enforced mainly to extend the CIT exemption period from the maximum of 8 to 15 years for targeted industries, including cash grant for investment in R&D and innovation activities.

R&D incentivesAim: To move Thailand toward a value-based and innovation-driven economy

Tax benefits: • Exemption of CIT (up to 15 years)

on qualifying R&D expenses without a capped amount

• Additional 50% tax reduction for a further five years if a company qualifies for merit-based incentives

• Exemption or reduced tax and duties on certain activities or costs

International trading center (ITC) incentiveAim: To promote Thailand as a trading hub

Tax benefits: • Exemption of CIT (up to 15

years) on qualifying trading income and ITC-related services fee from “out-out” trading transactions


Manufacturing incentiveAim: To attract FDI into Thailand and enhance the country’s competitiveness of target industries

Tax benefits: • Exemption of income tax (up to 15 years)

depending on industry, activities and merits


Trad

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Manufactu

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R&D

Headquarters

Thailand incentives

Headquarters (HQ) incentiveAim: To promote Thailand as a headquarter hub

Tax benefits: • Exemption of 10% CIT (up

to 15 years) on qualifying income earned from associated enterprises located overseas and in Thailand respectively


Thailand


Case studiesExample 1: A leading food production corporation in Asia planned to establish a headquarter hub in Thailand. EY successfully obtained the HQ tax incentive and other non-tax incentives for the company.

Example 2: A US-based corporation in the business of trading of sportswear apparel and accessories planned to set up a trading hub in Thailand. EY successfully obtained ITC tax incentives for the company.

Future outlookWith the recent enforcement of the revised Investment Promotion Act and the Competitiveness Enhancement Act, additional incentives will be granted to the targeted industries. This is mainly to promote investments in core technologies and high-impact investments to be in line with the Thailand 4.0 policy, enabling Thailand to become the hub of trade and investment in Southeast Asia and the world’s investment destination in targeted industries.

To support the above, the BOI has recently increased the BOI sectors from seven to eight sectors, with the latest BOI sector targeting technology and innovation development, e.g., biotechnology, nanotechnology, advanced material technology and digital technology. Additional tax incentives will be provided to the targeted industries. The list of targeted industries are gradually being announced.

Additionally, the incentives for area-based development will also be introduced under the Eastern Economic Corridor Act. It is currently in a draft version and expected to be enforced by end 2017. The target locations include Chachoengsao, Chonburi and Rayong provinces. These locations are considered as the center of the east-west economic corridor, boasting connectivity with the Indian Ocean, Pacific Ocean, CLMV1 countries and South China.1. Cambodia, Lao People’s Democratic Republic, Myanmar and Vietnam


Tax incentives have played an important role in attracting FDI into Vietnam over the past decades. These incentives have been continually updated and refined with the aim of sustaining and spurring economic growth. The effectiveness of the tax incentives policy is evident from the amount of foreign investment capital influx into the country.

CIT incentivesAim: To sustain and spur the country’s economic growth by attracting local and foreign investments

Tax benefits:• Preferential tax rates of

10%, 15% or 17% for 10 years, 15 years or for the entire investment project duration

• Two or four years of CIT exemption, followed by four, five or nine years of 50% CIT reduction

Other investment incentivesAim: To encourage investments in qualified and promoted industry sectors and locations

Tax benefits: • Exemption of import duty on certain kinds

of equipment, raw materials, supplies and semi-finished products

• ►Exemption on repatriation of profits

• ►Exemption from land use fees

These benefits are either given one-off or on an individual transaction basis

Vietnam incentives

Inves

tmen

t

Inve

stment

Vietnam


Case studiesExample 1: A Korean company planned to establish an entity in Saigon Hi-Tech Park in Vietnam for the wholesale of machines, equipment and spare parts, and to provide management consultancy activities. EY assisted it to secure an incentive package from Saigon Hi-Tech Park Management Authority for a preferential CIT rate of 10% for 15 years and a four-year CIT exemption followed by nine subsequent years of CIT reductions of 50%. In addition, import duty exemption was also obtained on goods imported by the company for the purpose of fixed assets acquisition.

Example 2: EY successfully defended the tax incentives of a Japanese-owned company (with establishment in Saigon Hi-Tech Park) against the state auditors’ challenges, thereby avoiding a substantial amount of clawback, penalty and tax payable.

Example 3: EY successfully assisted Dutch-owned companies (with establishment in Vietnam-Singapore Industrial Park) in the application of granted tax incentives for their existing investment project. This resulted in the Binh Duong Tax Department granting preferential CIT rate of 15% for the entire duration of the companies’ investment projects.

Future outlookTax regulations of Vietnam are regularly reviewed and revised for the purpose of stimulating the economy and maintaining a rapid and sustainable development. Generally, the revision is to align with the Government’s goal in enhancing productivity, product quality, efficiency and competency of Vietnam in both domestic and international markets. The overarching aim is to propel Vietnam’s economy forward by participating in high-value activities of regional and global production supply chains.

Going forward, it can be expected that tax incentives, especially incentives to encourage the application of new technology or establishment of R&D centers, will continue to play an important role in the Government’s economic growth plans for the country.


Are you optimizing the returns on your investments in the region? Availability of incentives is one of the key location criteria for investments. Have you assessed them?

Are you aware of all the incentives available to your company in the region?


How we can help

App

roval

Approac

h

Facilitation

Discuss

Up to six months

1

23

4Explore

incentive opportunities

based on business plans

Finalization of incentive terms with authorities

Identify the appropriate

strategy and approach

Assist in application and negotiation of incentives

Eva

luate

Prepare

Identify

Three to nine months

1

23

4Identify

potentially qualifying

R&D projects

Assist with queries raised by authorities

Review documentation

and evaluate eligibility

of projects

Prepare R&D claim form with project description and tax schedules

We understand the challenges your company faces in negotiating for and securing discretionary incentives. Our highly customizable approach is designed and tailored to suit your company’s unique requirements.

In addition, for statutory incentives (e.g., R&D), the in-depth experience we have enables us to evaluate your business and efficiently help to prepare applications that will stand up to regulatory scrutiny. De

fend

R&D


APAC business incentives network

Tan Bin Eng EY Asean Business Incentives Advisory Tax Services Singapore

+65 6309 [email protected]

Jamie MundayBusiness Tax Advisory Australia

+61 2 9276 9087 [email protected]

Shi ChuanBusiness Tax Advisory China


Benjamin KoesmoeljanaTransaction Tax Services Indonesia

+62 21 5289 [email protected]

Koichi SekiyaBusiness Tax Advisory Japan


Amarjeet SinghBusiness Tax Services Malaysia


At EY, we have a strong and closely linked network of business incentives advisory professionals in the APAC region who are ready to assist you with your needs.

For more information, please visit ey.com/sg/incentives.

Naing Naing San Audit Services Myanmar

+951 [email protected]

U Tin WinAudit Services Myanmar

+951 [email protected]

Fidela I. Reyes International Tax Services Philippines


Nam Wun JangInternational Tax Services South Korea


Pathira Lam-ubol International Tax Services Thailand

+66 2264 9090 ext. 77052 [email protected]

Thinh Xuan ThanBusiness Tax Advisory Vietnam



Will the speed of the digital tax revolution propel you forward?ey.com/digitaltax #BetterQuestions

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

The views of third parties set out in this publication are not necessarily the views of the global EY organisation or its member firms. Moreover, they should be seen in the context of the time they were made.

Catalyzing growth through incentives in Asia-Pacific Welcome to this edition of the EY Asean,...

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