09 Aug ASEAN Today – Regional Legal and Business News – July 2018
ASEAN Today – Regional Legal and Business News for July 2018 including an Update on the Digital Work Permit for BOI Companies, Draft Acts of Thailand’s Windfall Tax and Personal Asset Trusts, and Tax News.Download PDF
ASEAN Economic Community News
Regional Economic Growth
In the recent ASEAN Economic Integration Brief (AEIB), ASEAN says the volatile global business environment presents challenges to the region’s economic agenda and that ASEAN needs to reinforce trade and investment linkages in the region to strengthen its resilience to external shocks. However, ASEAN also expects steady regional growth due to its strong fundamentals. Trade and investment in ASEAN bounced back in 2017 and ASEAN trade grew 14% year on year (YoY) to US$2.6 trillion and FDI inflows rose by 12% YoY to US$137 billion. China is still ASEAN’s largest trading partner and the European Union is the largest external source of FDI inflows.
Global Innovation Index
The annual Global Innovation Index (GII) was released this month and Asian economies are rising in the rankings. Singapore rose to 5th place, South Korea dropped to 12th, and Japan, Hong Kong, China and Australian all made it into the top 20. Southeast Asia, East Asia, and Oceania showed the most progress this year and the GII credits this to ASEAN as the AEC progressed in innovation and socio-economic development indicators. Malaysia and Vietnam moved up two positions to 34th and 65th respectively and Thailand jumped seven positions to 44th.
Vietnam continues to attract Japanese investment. Japan was Vietnam’s 4th largest trading partner in 2017 with a total turnover of US$34 billion, up 14% from 2016. Vietnam and Japan signed 36 memorandums of understanding worth US$21 billion in July and 1,800 Japanese businesses have invested in Vietnam in the first half of 2018.
Indonesia is offering 100% corporate income tax reduction for new investments into pioneer industries. The minimum investment amount is IDR500 billion (US$36 million) and only a 4:1 debt to equity ratio is allowed. The company must also be an Indonesian entity. The government defines a pioneer industry as one that has broad relevance, provides added value and high externality, introduces new technology, and has strategic value for the national economy.
Trans Fats Ban Clarified
A new notification from the Ministry of Public Health, which becomes effective on January 9, 2019, bans the use of partially hydrogenated oils (PHOs). Due to overwhelming evidence that trans fats from PHOs are unhealthy and cause heart disease, PHOs and food products containing PHOs can no longer be produced, imported, or sold in Thailand. However, this is not a total ban on trans fats as they occur naturally in many foods such as meat and dairy products and in fully hydrogenated oils. So, it is still legal to produce, import, and sell trans fats and products containing trans fats in Thailand.
QR Code Payment System
The National Bank of Cambodia (NBC) announced that it plans to launch a collaborative QR code payment system with Thailand. The new system will allow Thais and Cambodians to rapidly transfer funds between the two countries without needing to use a costly foreign exchange system. It will make it easy for Cambodians working in Thailand to transfer money to their families at home. The head of the NBC says the system will also allow Cambodians to use their own currency abroad and prove to the public that the Riel is an internationally recognized currency.
THAILAND LEGAL REVIEW
Draft Acts Approved by the Cabinet
The Cabinet approved a draft windfall tax act on properties that benefit from proximity to government transport infrastructure projects. The values of properties in these areas keep rising solely due to their locations, so properties worth more than THB50 million will be taxed on the amount they have appreciated or inflated. The tax will be levied on properties and land located within five kilometers from the infrastructure projects including stations serving high-speed trains and mass transit systems, transportation routes through the areas and expressway on- and off-ramps, and airports and ports. The proposed tax rate is 5% of the appreciated price. During the construction phase of infrastructure projects, both individual and corporate owners of land and condominium projects worth more than THB50 million will be taxed every time ownership is transferred, starting from the time the project commences. For sales of properties in areas where infrastructure projects have already been completed, such as mass transit stations, only a one-time tax payment will be levied.
Personal Asset Management Trust Act
The future Act on the use of private trusts will allow new options for the well-off to manage their wealth and will help prevent their assets from being transferred overseas. This will include increasing the potential for the Thai capital market and financial institutions to compete with international marketing and expanding business transactions with neighboring countries. Private trusts will be new alternative for the efficient management of personal assets for minor entrepreneurs up to large-scale family enterprises. Under the act, a trust is defined as a juristic relationship regarding assets between a trust’s founders, trustees, and beneficiaries, and the term of a trust cannot be more than 100 years. Trusts can only manage private assets and are not allowed to raise public capital or be under control of the Trust for Transaction in Capital Market Act B.E. 2550. Founders, but not trustees, are allowed to be beneficiaries. Individuals and groups can be beneficiaries. Approval and supervision by the Securities and Exchange Commission (SEC) is required for any trustees that manage trust assets for the gains of the beneficiaries.
Social Enterprise Act
The draft Social Enterprises Act will offer tax incentives for companies that conduct their businesses under the social enterprises concept. Companies will need to focus on social responsibility to reduce inequality. They can do this by promoting local employment in the production of goods or services or by developing communities and environments without maximizing profits for shareholders or partners. A certain percentage of profits must be reinvested into the business itself or into other ventures that would promote self-reliance for the underprivileged. The government also plans to set up a revolving fund to support social entrepreneurs. However, to acquire any investment promotions under this Act, a social enterprise, whether it be a company or partnership established under Thai law, will be required to register with the Thai Social Enterprise Office (TSEO).
Digital Work Permit for BOI Companies
The Thailand Board of Investment (BOI) Single Window for Visa and Work Permits is now mandatory for BOI promoted companies as of July 31, 2018, instead of the originally-announced date of October 2018. The previous E-Expert System has been cancelled and BOI companies must now electronically file work permit and long-term visa applications and renewals for expatriates when applying at the Bangkok One-Stop Service Center (OSSC) or in Chiang Mai and Phuket. Foreign national employees will receive a Thailand Digital Work Permit (TDWP) instead of the hardcopy work permit booklet currently issued. Expatriate employees will have to use a smartphone to register and download their TDWP and any change in an employee’s work status will automatically be updated and shown on their TDWP. When filing in all other provinces, employers must still file hard copy applications and regular work permit booklets will be issued. For current work permit booklet holders, no conversion is required. When the current work permit holder files for renewal, they must surrender their booklet and then obtain a TDWP. It is mandatory for all BOI companies to use this new system, even if they have not attended a BOI training session. We recommend that employers attend a training session prior to filing an application as the process is complicated. Training sessions are available on a weekly basis and companies can check for open training sessions on the BOI website. A manual in Thai language will be available for employers who are unable to participate in the in-person training. Processing times are expected to stay the same, but the new system should reduce the amount of needed paperwork. During the transition period, employers should expect the online process to be slower than the old application process. Service interruptions and technical difficulties may also arise and cause delays during the early implementation stages.
VAT on Foreign E-commerce Operators
On July, 17, 2018, the Cabinet approved a Revenue Code Amendment on the collection of Value Added Tax (VAT) from foreign e-commerce operators without a physical presence in Thailand, but who earn income in the Kingdom. The Revenue Department expects around 100 of the world’s largest foreign-based digital platforms, who make up 80-90% of Thailand e-business service value, to register for VAT when the tax comes into force. The online business operators are required to register for VAT within 30 days of the law taking effect if their Thailand income exceeds THB1.8 million a year. The Revenue Department expects the VAT on foreign operator to generate THB3 billion a year.
Personal Income Tax and VAT Exemptions on Gold Futures Trading
Royal Decree (No. 661) grants a personal income tax reduction and exemption from the capital gains from trading gold bars with a purity of 99.99% under futures contracts. Effective July 28, 2018, taxpayers who derive revenue from the trading of gold futures on the Thailand Futures Exchange (TFEX), as long as the gold bars are transferred between seller and buyer using book entry, are exempt from income tax subject to the following conditions: 1) The taxpayer allows the payer to deduct 15% withholding tax from the gains between the price of gold futures on TFEX and the delivery price on the date of the tender notification request and matching the delivery or delivery prices on the expiry date of future contract, as the case may be; and 2) Claimants of income tax exemption under this scheme must not claim tax refund or credit of such withholding tax, in whole or in part. Royal Decree on Exemption of VAT (No. 662) grants VAT exemption on the trading of gold futures on the Thailand Futures Exchange (TFEX) as prescribed under item 20 of Section 3 of the Royal Decree re: VAT Exemption (No. 239) B.E. 2534. Effective from July 28, 2018, the trading of gold bars with a purity of 99.99%, excluding gold ornaments, under gold futures contracts on the TFEX, according to the law governing forward contracts, is exempt from VAT.
Specific Business Tax Exemption
The Royal Decree on the Exemption of Specific Business Tax (SBT) No. (660) was issued to grant SBT exemption for certain transactions of the Land Bank Administration Institute (Public Organization) as prescribed under item 37 of Section 3 of the Royal Decree re: SBT Exemption (No. 240) B.E. 2534 effective from July 28, 2018. Hence, granting credit facility for acquisition and development or supporting distribution of land possession according to the regulation prescribed by the Land Bank Administration Institute Committee and trading of immovable properties executed by the Land Bank Administration Institute (Public Organization) since July 15, 2016 are eligible for SBT exemption.
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.