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ASEAN Market Watch: Malaysia Manufacturing, Philippines Economic Freedoms, and Singapore SME Digitization

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Malaysia: “Most attractive manufacturing market” status retained

Malaysia retains the top position as the most attractive manufacturing market of choice for future relocations according to the new Cushman & Wakefield “Manufacturing Risk Index 2017” report. The “Manufacturing Risk Index” is an annual survey of the manufacturing sector, which considers investment policies, costs, and risks including political, economic, technological, and environmental risks for their assessment. Malaysia’s ranking is attributed to its infrastructure quality, trade, and logistics performance. 

The report also highlights Asia Pacific’s varying degrees of innovation such as automation and smart manufacturing which offers diversity for manufacturers. Almost half of the top 15 positions in the index are occupied by Asia Pacific countries. ASEAN countries such as Singapore, Thailand, Philippines, and Indonesia are ranked 12th, 14th, 19th, and 20th respectively. Based on the overall assessment, cost remains the most significant criteria for relocation currently, with further changes anticipated as the manufacturing industry moves to Industry 4.0, which incorporates automation and data exchange in manufacturing technologies.

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An Introduction to Doing Business in Singapore 2017 – New Publication from Dezan Shira & Associates

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An Introduction to Doing Business in Singapore 2017, the latest publication from Dezan Shira & Associates, is out now and available for complimentary download through the Asia Briefing Publication Store.

As the Association of Southeast Asian Nations (ASEAN) continues upon its path towards closer economic integration in 2017, Singapore’s role as the de facto financial and commercial capital of Southeast Asia will be unassailable. Having already established its competitive niche as a destination for establishing regional headquarters, branch offices and holding companies in Asia, Singapore’s legal and tax regimes continue to be among the most business-friendly in the world.

Offering foreign investors access to a highly skilled workforce, English-speaking business environment, immense logistics and transportation capacities, and over 70 double taxation avoidance agreements (DTAs), Singapore has firmly established its role as the gateway to ASEAN, China, India, and the whole of emerging Asia for foreign investors. 

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ASEAN Regulatory Brief: Indonesia Transfer Pricing Rules, Singapore-Laos Cooperation, and Thailand 4.0 Strategies for SOEs

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Indonesia: New rules for transfer pricing

The Indonesian government approved a new Minister of Finance regulation, MoF 213/2016, on new rules for transfer pricing documentation, effective January 2017. The new decree stipulates that firms doing cross-border transactions with affiliates must prepare transfer pricing documents detailing their global structure and payments. The move aims to match global standards and curb tax avoidance. Multinationals with annual turnover of at least US$822.74 million (IDR 11 trillion) must prepare a country-by-country (CbC) report with information about their affiliates, revenue, profits, income tax paid in different jurisdictions, retained earnings, and assets. The companies are also required to prepare a master file and a local file, which should include its Indonesian company details, structure, assets, and transactions.

Companies with annual gross revenue of more than US$377,000 (IDR 50 billion) or accumulated transactions of more than US$150,800 (IDR 20 billion) for tangible assets and US$37,700 (IDR 5 billion) for intangible assets need to prepare only the master and local files. Transactions with tax residents in countries with a lower statuary rate than that of Indonesia’s 25 percent are also required to prepare the master and local files. The government is also offering companies to settle previous tax disputes by paying a penalty under an amnesty program until March 2017.

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Singapore and India to Include Limitation of Benefits in DTAA Amendment: Implications for Foreign Investors

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By Mike Vinkenborg 

On December 30, 2016 Singapore and India agreed on amending their Double Taxation Avoidance Agreement (DTAA) for capital gain income. With the new agreement, which will implemented on April 1, 2017, India aims to tackle investments coming into the country through shell companies and prevent tax avoidance. This follows the agreements reached by India and Mauritius in May 2016 and India and Cyprus in November that year, when they similarly amended their respective DTAAs by implementing a Limitation of Benefits (LOB) clause. The India-Singapore DTAA, last amended in 2005, had the provision that any changes in the Mauritius treaty would automatically apply to the Singapore DTAA. All three DTAA amendments will come into effect on April 1, 2017.

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ASEAN Market Watch: Indonesia Seeks Engineers, ASEAN ICT Masterplan, and Singapore-Malaysia High Speed Rail

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Indonesia faces shortage of engineers

Indonesia’s annual shortage of around 30,000 engineers is becoming a key obstacle to its infrastructure development plans. Currently, Indonesia has 57 million skilled workers but it would need 113 million by 2030 to meet the country’s requirements. Around 20 percent of Indonesia’s six million university and postgraduate students pursue Islamic studies, with most students ending up with unrelated jobs.

According to a 2015 national labor force survey, less than ten percent of Indonesia’s 250 million citizens have a university-level education. Of those, only eight percent choose an engineering study and more than half of these graduates work in different fields, such as banking. The government believes that the country needs a more skilled workforce if they are to keep up with other ASEAN countries and meet the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development’s (MP3EI 2025) ambitious targets, which will be difficult to achieve with substantial infrastructure gaps.

Achieving Indonesia’s infrastructure development goals, which range from sea projects, airports, highways, and power plants, necessitates a technical workforce. The government is taking steps to establish more industry-oriented engineering colleges, technical institutes, and state-funded scholarships. The last few years have seen improvements, with 57 percent of Indonesians completing education after primary school in 2015, compared to 40 percent in 2002. Furthermore, the share of college-age Indonesians attending universities has risen from 20 percent to 25 percent over the last decade. However, economists believe that Indonesia still needs to do more to meet its infrastructure development goals by 2025.

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ASEAN Regulatory Brief: Singapore Financial Information Sharing, Philippines Automobile Tax Hike, and Indonesia Chemical Regulations

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Singapore:  Financial Information Sharing Agreement Signed with Canada, Finland

The Inland Revenue Authority of Singapore (IRAS) has signed an agreement with Canada and Finland on Automatic Exchange of Financial Account Information. As per the agreement, the first reporting year will be 2017 and the first exchange of information will be completed by September 2018. The automatic exchange of information (AEOI) based on the Common Reporting Standard (CRS) refers to regular exchange of financial information between countries for tax purposes to identify tax evasion by taxpayers through the use of offshore bank accounts. Singapore is committed to the CRS. Singapore-based Financial Institutions (SGFIs) will be required to submit financial information of account holders from jurisdictions they have agreements with. Singapore has similar agreements with nine other countries.

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ASEAN Regulatory Brief: Philippines Disaster Coverage, Cambodia Tax Amendments, and Singapore-Laos DTAA

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Philippines: Government Considers Mandatory Disaster Coverage

The Philippines government is considering a mandatory household and business insurance cover against natural disasters. While some individuals take out policies against natural threats, the Philippine Insurers and Reinsurers Association (PIRA) state that a mandatory scheme allows for the significant amount of funds required to meet the large claims that are likely to be made.

The developments come in the context of the Philippines being prone to natural disasters like typhoons and flooding. The Super Typhoon Haiyan, three years ago, cost the economy around US$ 14 billion, out of which only US$ 2 billion was covered by insurance. A study by international insurer Lloyd’s City Risk Index 2015-25 showed that around half of Manila’s GDP of US$ 201 billion is at risk of being lost due to a natural calamity without any insurance coverage. The proposal is backed by private sector insurers as well as the World Bank. If passed, the bill would boost the insurance industry.

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Donald Trump in the White House: Implications for the Future of the TPP and Free Trade in ASEAN

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By Dezan Shira & Associates

US president-elect Donald Trump’s opposition to the Trans-Pacific Partnership (TPP) is well-known and the future of the trade deal is now on tenterhooks. For the supporters of the TPP, Trump’s victory has meant that their worst fears are now going to unfold. Opponents of the trade deal are rejoicing at their expectation that Trump will now move quickly to fulfill one of his most controversial campaign promises – to abandon the TPP. Any prospects of the US renegotiating the TPP are not only bleak but also impractical – the trade deal was seven years in the making, meticulously negotiated and involved compromises from several countries on both sides of the Pacific.

Professional Service_CB icons_2015RELATED: Pre Investment and Market Entry Advisory from Dezan Shira & Associates

Implications for ASEAN

So now if the US does ultimately withdraw from the TPP, what implications will this have for free trade in the ASEAN region? Before analyzing this, it should be kept in mind that TPP’s potential failure is unlikely to have any significant immediate economic impact on the region. It was not a trade deal in force, but only offered prospects of newer free trade rules coming into effect in the near future. Instead of being a step backwards, it is more a lack of further progress as far as development of free trade in the region is concerned.

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ASEAN Regulatory Brief: Singapore GST Audits, Philippines Dormant Bank Accounts, and Malaysia-China Bilateral Ties

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Singapore: Tax Authority to Step Up GST Audits

The Inland Revenue Authority of Singapore (IRAS) stated they will step up GST audits for large businesses in 2016 and 2017. While large businesses form only 2 percent of the GST taxpayer base, they contribute more than 50 percent of revenues from GST. Although large businesses have complex business arrangements and high-value transactions, most of them outsource finance functions to locations outside Singapore, which may not be fully compliant with Singapore’s GST rules, and thereby increasing risks of error.

Companies that are found to have discrepancies during the audit will attract fines of up to two times the tax underpaid and a 5 percent late payment penalty. The IRAS has encouraged GST taxpayers to participate in its Assisted Compliance Assurance Programme (ACAP) to avoid audit exemption and one-off full waiver of penalties. Large companies operating in Singapore, including multinational corporations, should ensure they are compliant with all relevant rules and regulations related to GST.

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ASEAN Regulatory Brief: Singapore-India Tax Treaty, Foreign Ownership of Property in Indonesia, and Malaysia Halal Food Certification

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Singapore: Authorities Seek More Time to Revise Tax-Treaty with India

The Singaporean authorities are asking for more time to revise its 1994 tax treaty with India, citing the need for additional time for its investors to shift to source-based taxation. However, Indian authorities have rejected any further delay in the revision of the treaty, which would help prevent Singapore – the top source of FDI into India – from being used as a shelter to avoid taxes. The development comes in the wake of the recent revision of the India-Mauritius tax treaty, which closed a popular loophole used by investors to avoid taxes on capital gains made in India.

Singapore’s revenue officials have asked for additional time beyond March 31. India, on the other hand, wants to revise the treaty before April 2017 – when its revised tax treaty with Mauritius comes into effect. Singapore is the largest FDI source for India at US$13.69 billion.

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