By Harry Handley
2016 was a challenging year for Thailand, both economically and socially. The death of the much-loved King, His Majesty Bhumibol Adulyadej, clouded a year also blighted by political instability, water shortages, and bearish domestic business sentiment. Although official figures have yet to be released, Thailand’s GDP growth for 2016 is expected to be 3.2 percent, the third lowest in the ASEAN bloc (after Brunei and Singapore).
Despite low business confidence from locals, foreign businesses continue to be attracted by Thailand’s strategic position between China and India, access to the ASEAN free trade area, and the incentives offered by the Board of Investment (BOI). 2017 has been touted by some as a pivotal year for the Thai economy and ‘the year of concrete national reform’, with a major election on the horizon, either at the end of 2017 or the beginning of 2018 dependent of the progress of the royal succession. As such, it is important to review the state of the market at present and identify the key factors that may affect foreign businesses, both incumbents and potential entrants, in Thailand in 2017.
Thailand: Strong growth expected in e-commerce market
Analysts say that Thailand’s e-commerce market is expected to grow around 20 percent this year as more consumers shop online. At present, only three percent of consumers shop online, underlining the significant growth potential for the online market. Thai retailer Central Group only had one percent of its revenue come from online sales. The increased online sales expected this year are attributed to growing internet and smartphone use as well as improved logistics and e-payment systems. Quality and reliability of online shopping services will further help the sector.
The Electronic Transactions Development Agency predicted that the e-commerce market in Thailand will be worth US$7.1 billion (THB 2.52 trillion) this year. Thailand has around 41 million internet users, and 41 million Facebook, 33 million Line, 7.8 million Instagram, and 5.3 million Twitter users. Analysts have further stated that omni-channel strategies, meaning a balance between physical retail stores and online shops, would benefit the country.
By Dezan Shira & Associates
Editor: Harry Handley
Following Thailand’s 2014 coup, there were suggestions that the incoming military-led government would implement protectionist policies that would restrict investment into the country by foreign firms. However, in the years that followed there was a significant shift in the outlook of Thailand’s leaders. Barriers were lowered and restrictions reduced in a number of industries; this resulted in over US$9 billion of inward foreign direct investment (FDI) in 2015.
Research from the Economist Intelligence Unit suggests that Thailand will continue to encourage inward investment over the next few years in order to push the economy towards high income status. This is highlighted by recent amendments made (and further amendments scheduled for 2017) to the Foreign Business Act – the predominant legislation governing foreign investment in Thailand. This article will outline the key points of the Foreign Business Act, including the recent update, and what this means for potential entrants.
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.
Indonesia: Foreign ownership in digital payment companies reduced
Indonesia’s central bank, Bank Indonesia, has reduced foreign ownership in local companies that offer electronic payment services. As per Regulation No. 18/40/PBI/2016, effective on November 9, foreign ownership in such companies has been reduced to a 20 percent stake on the Operation of Payment Transaction Processing. This applies to companies that operate as card providers or offer switching, clearing, or settlement services for electronic payments.
The regulation does not retroactively apply to existing companies. Rather, companies in the digital payments sector, existing companies that expand into the sector, and existing companies in the sector that change ownership will have to abide by the new rules. Apart from this, other rules apply, such as e-wallet service providers that have 300,000 users will need to obtain a Service Provider license from Bank Indonesia.
By Dezan Shira & Associates
Editor: Harry Handley
Since the implementation of the Foreign Business Act of 1999, foreign businesses set up in a range of industries in Thailand must have a Thai majority shareholder. One line of business that is exempt from this is import/export trading. This exemption, along with developed infrastructure and a solid legal framework, have made Thailand a hub for cross-border traders. In 2015, US$212 billion of goods were exported from Thailand, the 22nd highest value in the world. Imports in the same year totaled US$177 billion, making Thailand the world’s 25th largest importer.
According to the World Bank, the time and cost of both importing and exporting in Thailand is significantly lower than the average for neighboring countries in the East Asia and Pacific region. In recent years, import/export procedures have been streamlined further through the implementation of the online e-Customs system. This electronic system provides a one-stop service for all stakeholders in cross-border trade. Procedures such as issuing licenses and paying duties and taxes have been made paperless and can be completed using the central e-Customs system.
Once a company has been set up in Thailand, including Value Added Tax (VAT) registration and corporate bank account establishment, the import and export processes can begin. This article will outline the procedures required when trading goods to and from Thailand.
By Zolzaya Erdenebileg
The Thai cabinet on November 22, 2016 approved the recommendations of the Central Wage Committee to increase the daily minimum wage rates by an additional five to 10 Thai Baht (THB) for 69 provinces with effect from January 1, 2017.
This will be the first adjustment in the country’s minimum wage rates since January 1, 2013. Currently, the minimum wage is THB 300 (US$8.39) per day across the country. The current minimum wage rate will be maintained in the eight provinces of Sing Buri, Chumphon, Nakhon Si Thammarat, Trang, Ranong, Narathiwat, Pattani and Yala.
Malaysia: Incentives on Offer to Attract More Chinese Tourists
After the Philippines, Malaysia is all set to lure Chinese tourists with a raft of initiatives. Earlier this year, Malaysia signed a Memorandum of Understanding (MoU) with Chinese e-commerce company Alibaba, which allows Chinese consumers to access Malaysian tourism and services on its website. In addition, the Malaysian government launched an e-visa programme to ease entry restriction for Chinese tourists. At present, the government allows visa-free entry for Chinese tourists staying for 15 days or less.
China currently has the largest outbound tourism market. In 2015, around 120 million Chinese nationals traveled abroad, with Malaysia a key destination. Chinese tourists to Malaysia were 1.68 million in 2015, a 4 percent increase from the previous year. In 2016, inbound traffic from China continued to increase. This is shown by an upsurge in the number of flights. For example, AirAsia has increased weekly flights from Beijing and Shanghai to Kuala Lumpur. The government has set a target of bringing 30.5 million visitors by the end of 2016. Other initiatives include investing in transport infrastructure. A high-speed rail service between Malaysia and Singapore is expected to be completed in 2026. An integrated transport system is also planned in Penang which is expected to increase tourist activity.
Thailand: New KYC Guidelines Issued
Thailand’s central Bank of Thailand (BOT) has introduced new regulations to ease the Know Your Customer (KYC) process using the electronic process (e-KYC) to open accounts on deposit acceptance of funds accepted from the public. Financial institutions globally are increasingly being required to comply with KYC guidelines under the anti-money laundering law (AML). As per the BOT Notification No. SorNOrSor. 7/2559 the following guidelines have been issued.
- E-KYC procedures must have the same standards as KYC procedures and available only for individual customers using electronic means such as computers, mobile phones, other electronic devices etc. Financial institutions however, must get prior approval from the BOT.
- Electronic signatures are acceptable.
- Verification of customers must be done using ID cards or a smart card reader
- Financial institutions must retain all information including KYC documents or their copies as per the AML law.
The regulation went into effect in August.
By: Dezan Shira & Associates
Among a myriad of factors which determine competitiveness within ASEAN member states, rates of taxation are a particularly salient judge of character for the treatment of foreign investment. In recent years, corporate income tax (CIT) has become the standard bearer for tax benchmarking, however, foreign investors will be faced with a variety of different taxes in the event that capital is committed. For those importing and exporting, indirect taxation, including value added taxation (VAT) and goods and services tax (GST) are significant forms of tax that should not be disregarded.
In essence, an indirect tax adds to the price of a purchasable product or a payable service, thereby increasing the cost of that product or service and causing consumers to indirectly pay its rate of taxation. Indirect taxes thus differ from other forms of taxation, such as corporate income and individual income tax; both of which require a business or an individual to pay the applicable amount directly to a government.