ASEAN Today – Regional Legal and Business News – January 2019

ASEAN Today – Regional Legal and Business News for January 2019 including an overview of the new International Business Center scheme, a look at the new Labor Protection Act, an additional option for submitting the annual report and shareholders list for public limited companies, and an extension for financial statement filing with the Department of Business Development. 


ASEAN Economic Community News

ASEAN Economic Forecast
The ASEAN+3 Macroeconomic Research Office (AMRO) says that while its 2019 growth forecast is similar to the previous 2018 forecast, it does see some uncertainty in the ASEAN economy for the coming year. The risks include inflation produced by recovering global oil prices, further escalation of the US-China trade war, and weaker growth in the economies of the US, Eurozone, and Japan. However, AMRO maintains that fundamentally ASEAN is on a stronger footing compared to other emerging markets, but recommends that regional policy makers prioritize financial stability while supporting growth.

ASEAN Fintech Market
A recent report by a multinational professional services network and a group of companies that issues microloans in Spain, Russia and Kazakhstan, the Philippines, Indonesia, and Vietnam states that ASEAN countries have the highest potential in the financial technology (fintech) market until 2020. The report says that ASEAN has an advanced landscape that facilitates the development of fintech and will keep increasing the inflow of fintech investments. Even though much of ASEAN is still an emerging market, insufficient financial inclusion is driving the region’s fintech industry and advanced expertise and technologies from developed markets are being brought in. Experts believe that the online lending market will be a strong part of ASEAN’s fintech sector.

ASEAN Economic Integration
The EU-ASEAN Business Council believes that the ASEAN economic integration is behind schedule due to the protracted liberalization of the individual markets. In a recent survey, European businesses think ASEAN is not achieving its goal of serving as an integrated market and production hub and that there are too many barriers to the efficient use of regional supply chains. This is particularly hurting ASEAN’s small and medium-sized enterprises (SMEs). However, European businesses still believe that the ASEAN region has the greatest economic potential. In 2017, the EU accounted for 25% of the US$110.4 billion in ASEAN foreign direct investment (FDI) inflows.

Laos Update
Business Registration Time Reduced
The Lao Ministry of Industry and Commerce issued a ministerial agreement that comes into effect on February 1, 2019 that will cut business registration time to 10 days. The purpose of the agreement is to standardize business registration across Laos, reduce the number of steps and time taken to set up a new business, and boost and attract domestic and foreign investment.

Myanmar News
Electrification Challenges
Myanmar’s economy has grown an average of 7.5% a year from 2012 to 2017 and its economic growth is forecast to keep accelerating in coming years. However, experts believe this growth may be in jeopardy due to Myanmar’s electrification challenges. The country’s electricity demand grew 10% year on year from 2000 to 2012 and Myanmar’s largest source of official development assistance places the country’s electricity demand at 15 gigawatts (GW) by 2030. Currently, Myanmar’s existing installed electricity generation capacity is five GW, but only 2.5 GW at peak capacity. The demand for electricity is not only spurred by the country’s industrial growth, but also by Myanmar’s need to bridge its electrification gap. Today, 65% of its citizens have no access to the national grid and per capita electricity usage is the lowest in ASEAN. Myanmar plans on 50% electrification by 2020 and 100% by 2030.

Cambodia News
Rice Tariffs
The European Union (EU) reintroduced import duties on Cambodian rice imported into the EU this month due to a significant increase in rice imports that has caused economic damages to European producers. The import duties will be in place for three years during which the tariff rate will be steadily reduced. This will cost the Cambodian rice sector around US$130 million over the three year period. The new tariffs will not affect Jasmine rice exports, but other white rice varieties will be liable for the import duties.

Singapore Bulletin
Online Business
Singapore has the highest percentage of online businesses selling worldwide according to a recent report by a global banking technology company. However, the surveyed Singaporean online businesses said that it is becoming increasingly more difficult to run an international business in Singapore mostly due to government policies. They believe international operations are more difficult now than 5 years ago with regulatory barriers, increased protectionism, and government tariffs being the biggest challenges. Globally, online businesses report spending between 6-38% of their net profit on compliance and complex regulatory issues and Singaporean businesses say these costs keep rising too.

Indonesia Update
E-commerce Tax
Beginning in April 2019, Indonesia will start taxing e-commerce transactions to capitalize on the country’s booming e-commerce industry. Experts believe that Indonesia’s internet economy will surpass India’s by 2020. Indonesia needs to increase its collection of taxes as it has the lowest tax-to-GDP ratio in the region and only 35% of all offline sales are conducted by registered businesses that file and pay taxes. Under the new e-commerce tax, online retailers must collect, deposit, and report income and value-added taxes. Small and medium-size businesses (SMEs) must pay a 0.5% income tax on revenue and large enterprises are liable for a 25% levy on profits. Indonesia’s e-commerce industry is expected to quadruple to US$53 billion by 2025.

Vietnam Watch
Free Trade Agreements
Vietnam’s ratification of the Comprehensive and Progressive Trans Pacific Partnership became effective this month and it has a free trade deal with the European Union that is expected to be ratified in 2019. These two trade deals will eliminate import tariffs for Vietnam, an export-reliant country, to markets covering 45% of the world economy. However, Vietnam will now have to comply with non-tariff requirements including allowing independent trade unions, standardizing government procurement rules so companies from other partnership countries can make bids, and improving the enforcement of intellectual property rights.


Corporate Law News
International Business Center (IBC)
Thailand’s Regional Operating Headquarters (ROH) and International Headquarters (IHQ) including International Trading Centers (ITC) are being replaced by the new International Business Center (IBC) scheme.

By participating in the Base Erosion and Profit Shifting (BEPS) scheme established by the Organization for Economic Cooperation and Development (OECD), member countries must comply with the Comprehensive BEPS Package. This has resulted in Thailand revising its domestic tax incentives by enacting Royal Decree Nos. 671, 672, 673 and 674 which came into force on December 29, 2018. A summary of the significant points:
1. From October 10, 2018 onward, the establishment of new Regional Operating Headquarters, International Headquarters including International Trading Centers for related tax incentives will not be allowed by the Revenue Department. However, prior beneficiaries shall remain in force until the accounting period ends in 2020 for ROHs or when 15 accounting periods end for IHQs or ITCs.
2. Any existing ROH1, ROH2, and IHQ as mentioned above may transform itself into an International Business Center (IBC) which is the replacement scheme. However, in order for the transformed company to receive tax privileges under IBC, it must comply with all IBC requirements.
3. An IBC is defined as a company established under Thai law with the purpose to conduct business in providing administrative services, technical services, support services, and financial management services for associated enterprises, or international trade.
4. The required qualifications for an IBC under the new rules:
(1) Paid-up capital on the last day of each accounting period starting from 10 million Baht.
(2) At least 10 employees that have the necessary knowledgeability and skills to work for the IBC, or at least 5 employees in the case of providing financial management services for associated enterprises only.
(3) IBC expenditures paid to any receiver in Thailand shall be at a minimum of 60 million Baht in each accounting period.
5. Tax privileges under the IBC scheme include:
 Reduction of corporate income tax derived from providing services or administration to internal or external associated enterprises to 8%, 5%, or            3%, based on expenditures occurring in Thailand in the amount of 60 million Baht, 300 million Baht, or 600 million Baht respectively.
 Exemption on corporate income tax for dividends derived from internal or external associated enterprises.
 Exemption on specific business tax derived from financial management to internal or external associated enterprises.
 Reduction of personal income tax for expatriates who work for the IBC to 15%
 Exemption on corporate income tax to a company or juristic partnership established under foreign laws and conducting no business in Thailand           for dividends or interest received from an IBC

For more information:

Additional Option for Submitting the Annual Report and Shareholders List for Public Limited Companies
A public limited company has the obligation to file an annual report approved by the shareholders to the registrar within one month from the date of the shareholders meeting together with a list of the shareholders existing on the said meeting date. The Director-General of the Department of Business Development (DBD) announced that an additional option for such submission is now available. At this time, the annual report and shareholders list and cover letter can be filed in the form of a URL and QR Code (if any) as per the format set by the DBD. Please note that the former method of document submission in compact disc form with a cover letter remains unchanged.

Extension for Financial Statement Filing
According to the notification on the rules and procedures for financial statement filing dated 23 November 2018, the filing of financial statements via Department of Business Development (DBD) e-filing shall be extended for up to 7 days from 31 May 2019 to 7 June 2019. Such extension will apply to registered partnerships, juristic persons established under foreign laws and carrying out business in Thailand, joint ventures pursuant to the Revenue Code, and private limited companies and public limited companies, all with an accounting period ending on December 31, 2018 and a filing financial statement due date on 31 May 2019.

Increase of Child Benefit Rates to Employees
The monthly allowance for an employee who has children less than six years old, whether born before or after the employee registered with the Social Security Fund, has now increased from 400 Baht to 600 Baht a month per a child. However, the number of children shall not exceed three children. Such employee will receive a retroactive allowance commencing from January 1, 2018 in the amount of 200 baht monthly from the Social Security Office starting from January 1, 2019 onward.

Employment Law Update
New Draft of the Labor Protection Act
The National Legislative Assembly (NLA) approved the new draft of the Labor Protection Act and it will become immediately effective after being published in the Royal Gazette in the near future. The protections for employees under the new Act include:
• Employees are entitled to 3 days of paid leave a year to attend to personal business.
• Regarding maternity leave, a pregnant employee is entitled to a total of 98 days of paid leave both before and after giving birth.
• If the company or corporation of the employer changes hands and results in the employees having a new employer, any employee opposed to it shall receive special compensation. The employee is entitled to all the existing rights and obligations of the preceding employer. If the employee has been working for the employer for 20 years or over, the employee shall be paid four hundred days at the most recent wage rate received by him/her as compensation. For an employee who has worked less than 20 years, severance pay shall be paid at the same rates prescribed under the old Act.
• Under the new severance pay rules, the maximum rate employers must pay in severance pay to employees whose employment is terminated and who have worked for twenty years or over is four hundred days at the most recent wage rate received. Employees who have worked for less than 20 years shall receive compensation in accordance with section 118 of the old law, the Labor Protection Act B.E. 2541
• In the case of a company moving to another location, if the employee does not agree to move, the employee can terminate the contract and has the right to compensation. The employees must notify the employers in writing within 30 days from the announcement date.
• For employees who work at jobs without overtime pay such as security guards, delivery drivers, etc., if employees are not paid wages for working more than their work hours; the employee may submit a motion to the court for compensation plus interest 15% per year
• Equal rights between men and women are mandated by the new Act. Employees have equal rights on wages and compensation which was not prescribed by the old law. Under the new Act, male and female employees have the same rights to equal jobs and must receive equal remuneration which is consistent with the International Labor Convention (ILO) no. 100.

The material contained herein is only provided for information purposes. No part thereof may be deemed to constitute legal advice or the opinions of this law firm or any of its attorneys. Whilst every effort has been made to verify the contents of the material contained herein, we do not represent, warrant, undertake, or guarantee that the information contained in this newsletter is correct, accurate, or complete. Legal advice must be sought before acting on any information contained herein.

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