ASEAN Regulatory Brief: Investment Treaties in Singapore, Digital Tax in Malaysia, and Removal of a US Ban on Indonesian Flights

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Singapore Signs Agreements with Ethiopia, Nigeria and Mozambique

Singapore signed investment related agreements with Ethiopia, Nigeria and Mozambique strengthening its relationship with the countries in the African region. The development comes after the Africa Singapore Business Forum which was held in Singapore on 24 and 25 August. Singapore singed a Double Tax Avoidance Agreement (DTAA) with Ethiopia, a Bilateral Investment Treaty (BIT) with Mozambique and an Air Services Agreement (ASA) with Nigeria.

The Singapore-Ethiopia DTAA will clarify taxing rights between the two countries on all forms of income arising from cross-border activities and minimize double taxation from such income. The DTAA is yet to be ratified. The Singapore-Nigeria ASA will enable air links between both countries. Airlines from both countries will be able to agree on the number of passenger and cargo flights between the two countries as well as beyond Nigeria and Singapore. The Singapore-Mozambique BIT will establish rules on how governments of both countries can treat investors. It will also allow border transfer of capital and returns. The developments bode well for trade between Singapore countries in Africa. Singapore-Africa bilateral trade has grown at a compounded annual rate of 5.2 percent, reaching US$85 billion in 2015.

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Malaysia: Government Proposes Tax on Digital Businesses

Malaysia’s government is considering a tax on digital business to level the field between online and traditional businesses. Officials at the finance ministry stated that such digital businesses generate significant revenue but are not taxed as there is no tax structure. The developments come at the National Tax Conference 2016 held in Kuala Lumpur. Digital businesses would include companies such as Uber, Airbnb, Netflix and Alibaba. Officials stated that they are studying such businesses so that they can find a way to tax them.

However, officials also stated that imposing such a tax would hamper the growth of small online businesses. In addition, authorities would have to put the necessary infrastructure in place in terms of technology, organizational capability and the relevant legal framework to tax such businesses. Such digital businesses may also be required to register in Malaysia. The developments will discourage foreign investors as the government seems keen to tax larger foreign online businesses as compared to smaller domestic digital businesses. Investors should watch this space for further updates.

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Indonesia: US lifts Ban on Indonesian Airlines Entering its Airspace

The US Federal Aviation Administration (FAA) aviation regulator lifted a ban on Indonesian airlines entering US airspace after nearly a decade. The ban was imposed back in 2007 due to safety concerns; however it was lifted on August 15 and Indonesia’s aviation industry was upgraded by one notch to category 1 status. The developments will allow Indonesian airlines to fly to the US as well as codeshare and partner with US airlines. Recently in June, the EU lifted a ban on three Indonesian airlines to the region.

The decision to lift the ban came after the audits by the FAA in Indonesia since early 2015; the audits focused on regulations, operations and airworthiness. The FAA further stated that the country’s Human Resources working in the aviation industry are in line with international standards. Indonesia’s national airline Garuda Indonesia which serves flight to Europe, wants to be the first to launch flights to the US if it can acquire new aircraft. Airline officials have stated that they plan to launch flights to Los Angeles and New York from 2017. Indonesia’s airline industry is one of the fastest growing markets with annual passengers numbers expected to rise to more than 200 million in the next 20 years. The lifting of the ban will encourage airlines to further expand their business among other fast growing aviation markets of Vietnam and India.


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