Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Expansion into Asia Pacific Markets:
...
Proformative is the largest and fastest growing online resource
for senior level corporate finance, treasury, and accounti...
After participating in this event you will be able to:


Understand current and emerging market conditions in key Asia Pa...
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Expansion into Asia Pacific Markets:
...
WHAT ARE THE CURRENT AND EMERGING MARKET
CONDITIONS IN KEY ASIA PACIFIC ECONOMIES?




China’s GDP growth slowed !!! to 7.5 percent in the second
quarter.



US economy grew only by 2.5% in the 2nd quar...


Increasing domestic
consumption due to
demographic advantage

Approximate population of the APAC region is over 4
billi...


Introduction and
Implementation of easier
tax and business laws and
regulations

India has recently revised its Company...


Growing talent in the
APAC region



India does not have any controls for repatriation, except
as regards certain comp...
Many countries in this region offer substantial tax exemptions /
Government incentives:
 Singapore offers tax incentives ...


However…..
Not all is
well………THERE
ARE CHALLENGES

Increasing inflation including wage inflation.
Slowing growth rates...
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Expansion into Asia Pacific Markets:
...
COMPARATIVE ANALYSIS OF ENTITY SET UP AND COSTS
INCLUDING ASSOCIATED TAX AND REPATRIATION
STRATEGIES
LIMITED COMPANY

Features


Generally encouraged by governments in this region.



Commonly followed by foreign investor...
LIMITED COMPANY

Unique aspects:


Avoids PE risk.



Gives more credibility to businesses.



Can have requirements of...
BRANCH

Features


Rarely used for foreign investment in most of the APAC countries.



Local representatives may be req...
BRANCH

Unique aspects:


Can have significant PE risk.



Generally not suitable for foreign investment.



Unavailabl...
REPRESENTATIVE OFFICE (Liaison office in India)

Features


Generally allowed for fixed periods E.g. Singapore – 3 years ...
REPRESENTATIVE OFFICE (Liaison office in India)

Unique aspects:


PE risk exists.



Track record may be required e.g. ...
REGIONAL OR OPERATIONAL HEADQUARTERS / GLOBAL
TRADING COMPANY

Features


A unique concept in this region; available in M...
REGIONAL OR OPERATIONAL HEADQUARTERS / GLOBAL
TRADING COMPANY AND PAYROLL REGISTRATION
Unique aspects:


Operations shoul...
TAX REPATRIATION STRATEGY
INSIGHTS INTO AVOIDING PITFALLS
TAX REPATRIATION STRATEGY – AVOIDING PITFALLS


Having thorough
knowledge of local
requirements is necessary
for profit r...
TAX REPATRIATION STRATEGY – AVOIDING PITFALLS




Considering
documentation and
compliance
requirements is
essential

In...
TAX REPATRIATION STRATEGY – AVOIDING PITFALLS



Knowledge of other
taxes that may apply is
also necessary

China applies...
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Expansion into Asia Pacific Markets:
...
EMPLOYMENT REGULATIONS IN VARIOUS ASIA PACIFIC
MARKETS
RECRUITMENT - SALIENT FEATURES



Unions/ work council for white collar employees is not common.



High registration re...
RECRUITMENT – KEY UNIQUE FEATURES BY COUNTRY

China


With effect from July 1, 2013, law restricts employers’ use of empl...
RECRUITMENT – KEY UNIQUE FEATURES BY COUNTRY

Malaysia / Taiwan


High capital requirements for entities employing foreig...
SOCIAL SECURITY & TAX – SALIENT FEATURES



Social security rates and thresholds are generally lower in APAC countries as...
SOCIAL SECURITY & TAX – KEY UNIQUE FEATURES BY COUNTRY

India


Social security contributions are very low but can be ver...
RETRENCHMENT - SALIENT FEATURES



Easier in APAC countries vis a vis European countries, for white collar employees.


...
RETRENCHMENT – KEY UNIQUE FEATURES BY COUNTRIES

India


Gratuity is payable to all employees serving 5 years of continuo...
OTHER ASPECTS/BENEFITS - SALIENT FEATURES



Labor laws are changing frequently alongside growth.



Regulations relatin...
OTHER ASPECTS/BENEFITS – KEY UNIQUE FEATURES BY
COUNTRY


Privacy/data protection legislations have
Philippines, Singapor...
OTHER ASPECTS/BENEFITS – KEY UNIQUE FEATURES BY
COUNTRY

Vietnam


Vietnam introduced new labor code from 1 May 2013; cha...
AVOID COMMON PITFALLS WHILE EXPANDING INTO THE
ASIA PACIFIC MARKETS?
WHAT ARE THE COMMON PITFALLS FOR COMPANIES
EXPANDING INTO THE ASIA PACIFIC MARKETS?

Is it easy to pay taxes and be
compli...
WHAT ARE THE COMMON PITFALLS FOR COMPANIES
EXPANDING INTO ASIA PACIFIC MARKETS?

Is the required
documentation accurate?

...
WHAT ARE THE COMMON PITFALLS FOR COMPANIES
EXPANDING INTO ASIA PACIFIC MARKETS?




Other factors to
watch out for

Cons...
THANK YOU
Make Note…

Please join us at www.proformative.com to ask any
additional questions and to continue this conversation
with ...
Sponsor

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Expansion into Asia Pacific Markets: Identifying & Leveraging the Right Opportunities

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Do you know how to avoid the major pitfalls that can derail an internal audit function? Too many internal audit departments are held back by focusing on things that don't matter instead of what really counts. In the face of growing regulatory pressure for public and private companies, to become more transparent and disclose material information, the internal audit team will need to elevate their position within the business. Learn how to help and collaborate with your department on how to avoid these traps and make them an advantage in your business.
International expansion done right can lead to sustainable growth and ensure the long terms success of a company. The wrong move into the wrong market at the wrong time can derail company growth. How do companies make educated strategic decisions in understanding the legal and political, as well as the economic implications of expanding into specific Asia Pacific markets?
In this one hour interactive webinar renowned international business experts from Nair & Co. will discuss what companies need to know in terms of legal entity setup, profit repatriation, employment, compliance and taxation issues when considering expansion into Asia Pacific markets.

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Expansion into Asia Pacific Markets: Identifying & Leveraging the Right Opportunities

  1. 1. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Expansion into Asia Pacific Markets: Identifying & Leveraging the Right Opportunities Venkatesh Eswaran, Senior Vice President, Global Services, Nair & Co.
  2. 2. Proformative is the largest and fastest growing online resource for senior level corporate finance, treasury, and accounting professionals. A resource where corporate finance and related professionals excel in their careers through:  Uniquely valuable, online Peer Network  Direct subject-matter-expert advice  Valuable Features and Resources All of it completely noise-free Check it out at www.proformative.com
  3. 3. After participating in this event you will be able to:  Understand current and emerging market conditions in key Asia Pacific Economies including China, Japan, Australia & Vietnam which drive growth opportunities.  Assess the relative costs and benefits of various legal entity structures including the associated tax and repatriation strategies.  Understand key employment regulations in various Asia Pacific markets.  Discover common pitfalls for companies expanding into Asia Pacific markets.
  4. 4. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Expansion into Asia Pacific Markets: Identifying & Leveraging the Right Opportunities Venkatesh Eswaran, Senior Vice President, Global Services, Nair & Co.
  5. 5. WHAT ARE THE CURRENT AND EMERGING MARKET CONDITIONS IN KEY ASIA PACIFIC ECONOMIES?
  6. 6.   China’s GDP growth slowed !!! to 7.5 percent in the second quarter.  US economy grew only by 2.5% in the 2nd quarter .  Have APAC countries been hit by a slow down? Yes, though they are growing much faster than the western economies. Estimates show that 70% of world growth over the next few years will come from emerging markets, with China and India accounting for 40% of that growth.  Some of the fastest growing APAC economies include China, Philippines, Indonesia and Thailand. Can APAC countries be future growth engines?
  7. 7.  Increasing domestic consumption due to demographic advantage Approximate population of the APAC region is over 4 billion people.  Many countries in the APAC are experiencing a “youth bulge”.  Hence domestic consumption is likely to be a key growth driver as compared to mere exports.
  8. 8.  Introduction and Implementation of easier tax and business laws and regulations India has recently revised its Company law, is working to implement a new income tax code and Goods and Services Tax (GST) which will replace a cumbersome VAT and service tax regime.  China has implemented a VAT pilot scheme.  Philippines is revising its entity set up process to simplify it.  Vietnam recently reduced corporate tax rate to 22% with effect from 1st January 2014. (20% in some cases).  Malaysia: a new GST system has been announced.
  9. 9.  Growing talent in the APAC region  India does not have any controls for repatriation, except as regards certain compliance and tax withholding issues. Royalties can be decided freely between parties, as compared to getting a fixed percentage of revenue as in the past (prior to 2009).  Most APAC countries NOW allow unrestricted foreign investments and simpler regulations for profit repatriations. China has recently eased profit repatriation related procedures (from the Tax and Exchange control perspective) effective from 1st September 2013. In Japan, Australia and Vietnam, there are generally no restrictions on repatriation.  Many APAC countries have a young and educated work force at relatively lower costs than western countries.
  10. 10. Many countries in this region offer substantial tax exemptions / Government incentives:  Singapore offers tax incentives for R & D, employment, and New entity set up. Tax Benefits and Government Incentives  Malaysia offers tax exemptions for a period of 10 years to companies operating in the MSC Malaysia Cybercities or Cybercentres.  Vietnam offers tax exemptions for 13 years for setting up operations in Hi-tech Parks.  India provides tax benefits to set ups in Special Economic Zones / backward areas for up to 15 years.  China levies lower taxes on high tech sectors : 10% for software enterprises and integrated circuit design enterprises.
  11. 11.   However….. Not all is well………THERE ARE CHALLENGES Increasing inflation including wage inflation. Slowing growth rates, Impact on APAC economies, due to slower growth in western countries.  Corruption, bureaucracy.  Lack of good Infrastructure in certain countries.  Current scenario of weakening currencies (although advantageous for exports).  Frequently changing laws, high compliance, high number of litigations.  Language.
  12. 12. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Expansion into Asia Pacific Markets: Identifying & Leveraging the Right Opportunities Anup Pendse, Head of R&D, Nair & Co.
  13. 13. COMPARATIVE ANALYSIS OF ENTITY SET UP AND COSTS INCLUDING ASSOCIATED TAX AND REPATRIATION STRATEGIES
  14. 14. LIMITED COMPANY Features  Generally encouraged by governments in this region.  Commonly followed by foreign investors.  Easy to set up in developed APAC countries like Singapore. Difficult in other countries.  Local directors may be required Costs  Capital: Generally low in this region BUT higher capital for foreign investment / employing foreign employees etc. may be required.  Set up costs: Generally high (no “one stop shop” available). Local director requirements will add to the cost
  15. 15. LIMITED COMPANY Unique aspects:  Avoids PE risk.  Gives more credibility to businesses.  Can have requirements of more than a single shareholder in many countries.  Can have special benefits for US companies, due to existing trade treaties e.g. US Thailand Treaty of Amity.  Process can be very complex in many countries…can take a few months.  Most countries accept documents in local language only and require an apostille for foreign country documents.
  16. 16. BRANCH Features  Rarely used for foreign investment in most of the APAC countries.  Local representatives may be required. Costs  Capital: uniquely countries may require a minimum working capital for Branch offices e.g. Thailand.  Set up costs: Can be equal to setting up a company. Local representative requirements will add to the cost
  17. 17. BRANCH Unique aspects:  Can have significant PE risk.  Generally not suitable for foreign investment.  Unavailable / Restricted for use in many countries e.g. China, India.
  18. 18. REPRESENTATIVE OFFICE (Liaison office in India) Features  Generally allowed for fixed periods E.g. Singapore – 3 years from 1 January 2012 (needs to be renewed annually).  Serious restrictions on activities.  Easy to set up and low compliances.  Local representative may be required. Costs  Capital: In rare instances, minimum working capital for ROs may apply.  Set up costs and compliances can be less compared to Companies. Local representative will add to the cost.
  19. 19. REPRESENTATIVE OFFICE (Liaison office in India) Unique aspects:  PE risk exists.  Track record may be required e.g. Profit track record required in India.  ROs generally can undertake only specified activities such as liaison, promotional work; exceptions - Taiwan .  In China, number of foreign representatives (including chief representative) is restricted.
  20. 20. REGIONAL OR OPERATIONAL HEADQUARTERS / GLOBAL TRADING COMPANY Features  A unique concept in this region; available in Malaysia, Singapore etc.  Unique tax benefits are provided to such offices.  Local representative may be required. Costs  Capital requirements can be higher than normal company e.g. Malaysia.  Set up cost: Same as company for set up and compliances. Local representative will add to the cost.
  21. 21. REGIONAL OR OPERATIONAL HEADQUARTERS / GLOBAL TRADING COMPANY AND PAYROLL REGISTRATION Unique aspects:  Operations should justify existence of such entity like carrying out certain qualifying services.  Tax benefits PAYROLL REGISTRATION  Generally this concept does not exist in the APAC region.
  22. 22. TAX REPATRIATION STRATEGY INSIGHTS INTO AVOIDING PITFALLS
  23. 23. TAX REPATRIATION STRATEGY – AVOIDING PITFALLS  Having thorough knowledge of local requirements is necessary for profit repatriation. Merely knowing tax benefits is not enough. Other regulations like foreign exchange / company law requirements are essential There can be unique tax regulations in various countries. India does not have a withholding tax on dividends, though it has a dividend distribution tax of 15% (effective rate 16.995% from 1 April 2013).  Singapore does not have a tax treaty with the US, hence this may result in higher taxes in order to repatriate profits.  In India, a LLP does not have a dividend distribution tax where as a LLC will have it (effective rate 16.995% from 1 April 2013)? Does this make LLP a better investment option in India?  Requirements to create reserves before declaring dividends in China / India.
  24. 24. TAX REPATRIATION STRATEGY – AVOIDING PITFALLS   Considering documentation and compliance requirements is essential In many countries repatriation is not as simple as declaring dividends and applying for a wire transfer to the parent. In spite of recent exemptions, in many countries like China a company will have to provide a good number of documents, including:  A certificate of tax residence of home country  Foreign Exchange Registration certificates  Board resolutions – for dividends  Tax documents  Audited and other reports  Relevant supporting documents Complete details will take a separate presentation!!!
  25. 25. TAX REPATRIATION STRATEGY – AVOIDING PITFALLS  Knowledge of other taxes that may apply is also necessary China applies business tax or VAT in certain provinces (5-6%) on Royalties and fees, are dividends a better option for repatriations from China?  What are the cost implications of service tax in India or Malaysia?
  26. 26. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Expansion into Asia Pacific Markets: Identifying & Leveraging the Right Opportunities Venkatesh Eswaran, Senior Vice President, Global Services, Nair & Co.
  27. 27. EMPLOYMENT REGULATIONS IN VARIOUS ASIA PACIFIC MARKETS
  28. 28. RECRUITMENT - SALIENT FEATURES  Unions/ work council for white collar employees is not common.  High registration requirements and generally not centralized e.g. social security, municipal authorities.  Data protection regulations exist in only a few countries and are less stringent compared to the EU.  Requirements relating to Fair work policies are less stringent compared to the EU.
  29. 29. RECRUITMENT – KEY UNIQUE FEATURES BY COUNTRY China  With effect from July 1, 2013, law restricts employers’ use of employees on Secondment.  An approval from the local labour authority is required for hiring a foreigner. India  Several registrations are required at federal, state and municipal level. The requirements vary with each state. Australia  A foreign worker may be employed if the position is made available first to an Australian resident and pay and conditions offered are not inferior.
  30. 30. RECRUITMENT – KEY UNIQUE FEATURES BY COUNTRY Malaysia / Taiwan  High capital requirements for entities employing foreigners. Vietnam  Companies hiring foreign employees need to have a training agenda for locals.  Foreign employee work permit duration reduced to 2 years (effective 1 May 2013).
  31. 31. SOCIAL SECURITY & TAX – SALIENT FEATURES  Social security rates and thresholds are generally lower in APAC countries as compared to Europe and other developed countries.  Withholding tax requirements can be very stringent and litigative (especially in India).  Many countries only have 1-2 components of social security.  Social security rates can be very low for Expats in some APAC countries.
  32. 32. SOCIAL SECURITY & TAX – KEY UNIQUE FEATURES BY COUNTRY India  Social security contributions are very low but can be very high for Expats. South Korea  Withholding tax requirements vary with employers’ residence (previously known as Category A and B employees). China  Social security costs vary with City; is high compared to many APAC countries.
  33. 33. RETRENCHMENT - SALIENT FEATURES  Easier in APAC countries vis a vis European countries, for white collar employees.  Retrenchment process differs widely across the region.  Cost of retrenchment needs to be carefully ascertained.  Retirement age varies: In Japan it is at 60 years (to be 61 soon); In China, for females it is at 50 or 55 years.
  34. 34. RETRENCHMENT – KEY UNIQUE FEATURES BY COUNTRIES India  Gratuity is payable to all employees serving 5 years of continuous service. Can have significant cost implications.  Easier for white collar employees, nightmare for blue collar employees. Japan  Termination is not a very common process. Usually, the employer explains the situation to the employee who seemingly resigns voluntarily. Vietnam  Vietnam introduced new labor code from 1 May 2013; changes are made to termination and retrenchment of employment.
  35. 35. OTHER ASPECTS/BENEFITS - SALIENT FEATURES  Labor laws are changing frequently alongside growth.  Regulations relating to Fair work, anti-discrimination, health and safety and data privacy are new to many countries in this region .  Many countries do not have well evolved rules / court judgment precedence for non-compete, non-disclosure clauses, IP clauses.  Benefits relating to maternity leave and paternity leave are increasing.  Immigration rules / processes are evolving for foreign employees in many countries.
  36. 36. OTHER ASPECTS/BENEFITS – KEY UNIQUE FEATURES BY COUNTRY  Privacy/data protection legislations have Philippines, Singapore, India and Taiwan.  Paternity leave entitlements have been introduced or extended in various jurisdictions including Hong Kong, Korea and Singapore. been recently introduced in South Korea  Employee-inventor initially owns a work-for-hire invention. This is an invention made by an employee during work relating to his employer's business.  New legislation as regards to age discrimination and aged employment promotion has been enacted in Korea.
  37. 37. OTHER ASPECTS/BENEFITS – KEY UNIQUE FEATURES BY COUNTRY Vietnam  Vietnam introduced new labor code from 1 May 2013; changes are made to probationary periods of employees, technology or business secrets and overtime entitlements. India  Non-compete agreements are generally void in India.  IP related clauses are not commonly understood in India.
  38. 38. AVOID COMMON PITFALLS WHILE EXPANDING INTO THE ASIA PACIFIC MARKETS?
  39. 39. WHAT ARE THE COMMON PITFALLS FOR COMPANIES EXPANDING INTO THE ASIA PACIFIC MARKETS? Is it easy to pay taxes and be compliant in the chosen country? State levies and special taxes can have significant tax costs.  Never ignore compliance and litigation costs.  These may be subject to certain terms and conditions. Do these conditions fit with the business model?  Are tax benefits and exemptions while repatriating automatic?   Knowing simply the “federal tax rates” is not sufficient Australia, Hong Kong, Singapore and Malaysia rank amongst the highest in ease of tax administration.  Low rankers include India, China, Vietnam, Philippines, Thailand and Indonesia. This can affect overall tax costs. 
  40. 40. WHAT ARE THE COMMON PITFALLS FOR COMPANIES EXPANDING INTO ASIA PACIFIC MARKETS? Is the required documentation accurate? Be on guard as regards to country specific anti-avoidance provisions.  Improper documentation like Tax Residency Certificates, profit repatriation documents, foreign tax credit related documents, etc. can add to tax costs, interest and penalties.  Non compliance / violations of Controlled Foreign Corporation (CFC), General anti-avoidance rules (GAAR) and Transfer Pricing provisions can lead to serious consequences.
  41. 41. WHAT ARE THE COMMON PITFALLS FOR COMPANIES EXPANDING INTO ASIA PACIFIC MARKETS?   Other factors to watch out for Constant changes to laws – India has changed the company law and is changing tax law soon. China has changed the VAT system, and its dividend repatriation system in the last few months. Wrong JV partners / hires at the top level.  Underestimating the bureaucracy.  Considering the region or country as one market.  Compliance requirements.  Uncertain Tax, Political, Judicial Environment: Vodafone case in India.  Corruption: Amongst the worst faring in this region are China, India, Vietnam, Philippines, and Indonesia. Low on corruption are Singapore, Australia and HK.
  42. 42. THANK YOU
  43. 43. Make Note… Please join us at www.proformative.com to ask any additional questions and to continue this conversation with your peers. If you have questions about CPE Credit, please send an email to cpe@proformative.com
  44. 44. Sponsor Leader in International Business Expansion

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