ASEAN Regulatory Brief: Asian Infrastructure Investment Bank, Malaysia-Slovakia DTA, EU-Vietnam FTA Cuts Tariffs on Meats

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In this ASEAN Regulatory Brief, we look at some of the important regulatory changes taking place in ASEAN, Malaysia, and Vietnam during the 2nd half of September.

ASEAN
  • Asian Infrastructure Investment Bank

The progress of the Asian Infrastructure Investment Bank (AIIB) is continuing to move forward, with 57 countries now having agreed to be a part of the new institution. Members of the bank will work together to fund infrastructure projects throughout Asia, particularly targeting the least-developed countries, with the goal of furthering economic growth in the region. The bank is expected to begin operations later this year, and will operate initially with US$100 billion of total authorized capital.

According to the AIIB website, the bank “will focus on the development of infrastructure and other productive sectors in Asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection, urban development and logistics, etc.” Regional members will contribute 75 percent of the shareholding, while non-regional members (such as the United Kingdom and Germany) will contribute 25 percent.

With the introduction of legislation to allow its membership into the AIIB, Australia is set to become the 6th largest shareholder (contributing US$3.7 billion), with 3.7 percent of the overall shares. The country will also be allowed to appoint a Governor to the Board and vote to elect a Director.

The United Kingdom has also recently put forth draft legislation (The Asian Infrastructure Investment Bank {Initial Capital Contribution} Order 2015) which would allow it to make an initial capital contribution into the AIIB of around US$3.05 billion.

Malaysia
  • Malaysia and Slovakia double tax agreement

Recently, Malaysia and Slovakia signed a double tax agreement (DTA). The new agreement will affect a range of financial areas involved with trade between the two countries.

Professional Service_CB icons_2015 RELATED: Dezan Shira & Associates’ Tax and Compliance Services

Specifically, the DTA will have the following affects on withholding tax rates:

  • Dividends – 0% if the beneficial owner is a company directly holding at least 10% of the paying company’s capital for an uninterrupted period of at least 12 months; otherwise 5%
  • Interest – 10%
  • Royalties – 10%
  • Fees for Technical Services (any services of a technical, managerial or consultancy nature) – 5%

In addition, the DTA lays out the conditions wherein the following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State
  • Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State

Under the DTA, the credit method will be applied for the elimination of double taxation.

Vietnam
  • EU-Vietnam FTA to cut tariffs on imported meat

In August, Vietnam and the European Union reached an agreement in principle on a free trade agreement (FTA) that would remove most tariffs on goods, among other benefits; it is expected to go into effect in 2017. This is the first such agreement that the EU has concluded with a developing country, such as Vietnam. In particular, the FTA will gradually lower tariffs on imported meat to zero, thus challenging local counterparts in terms of quality.

Related-Reading-Icon-Asean LinkRELATED: Vietnam and the EU Reach Agreement in Principle on FTA

The low tariffs provided by the FTA are expected to allow Europeans to vastly increase their exports of beef, pork, and chicken to Vietnam. This will mean that, because imported meat can be sold at lower prices, local producers will need to compete in terms of the quality of their product, rather than on price.

Among the specific changes Vietnam will make as part of the FTA are the following:

  • The elimination of tariffs on over 99 percent of all items
  • The removal of almost all import duties over a 10 year period
  • The liberalization of trade in financial services, telecommunications, transport, and postal and courier services
  • The liberalization of EU investment (ex. removing or easing limitations on the manufacturing of food products and beverages)
  • The improvement of its protection of Geographical Indications (GIs) for EU flagship agricultural products (ex. Champagne, Roquefort cheese, and Scotch Whisky)
  • The allowance of EU companies to bid for Vietnamese public contracts


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Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

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