ASEAN Regulatory Brief: ASEAN Economic Ministers Meeting, Upcoming DTA, and Expanded Tax Incentives

In this ASEAN Regulatory Brief, we look at some of the important outcomes from the recent Meeting of the ASEAN Economic Ministers, as well as highlighting regulatory changes taking place in Singapore and Indonesia.

ASEAN

• 47^th Meeting of the ASEAN Economic Ministers

On August 22, the 47^th Meeting of the ASEAN Economic Ministers (AEM) was held in Kuala Lumpur, Malaysia. The recent AEM also included meetings with the 29^th ASEAN Free Trade Area (AFTA) Council and the 18^th ASEAN Investment Area (AIA) Council.

The ministers expressed significant optimism as to the progress of ASEAN integration and of the ASEAN Economic Community (AEC), scheduled for implementation at the end of this year. Additionally, the meeting also highlighted the trade bloc’s strong export growth, which increased by more than 50 percent from 2007, reaching US$1.3 trillion in 2014. China is the top export destination for ASEAN exports; this relationship is expected to grow even stronger with the expansion of the FTA between China and ASEAN.

RELATED: ASEAN and China Continue Negotiations on Expanded FTA

Foreign direct investment is also growing at a healthy clip, amounting to US$136.2 billion in 2014. The top sources of ASEAN FDI are as follows:

• 5% from the European Union (EU-28)
• 8% from Japan
• 6% from the United States
• 5% from China

Additional highlights of the event were the progress on the establishment of the ASEAN Trade Repository (ATR) (which is set to be implemented in November by the ASEAN Summit) and the signing of the ASEAN-India Trade in Services and Investment Agreements, as well as the enhancement of existing FTAs.

Singapore

• Singapore-Luxembourg double tax agreement

The Singapore-Luxembourg double tax agreement (DTA) appears to be edging closer to ratification and implementation. The DTA, which was originally signed in 2013, has not entered into force as it has been awaiting ratification in the Luxembourg Parliament; this now looks to be occurring soon.

Once the DTA is implemented, there are a number of important regulations that will impact individuals and businesses, these include:

• Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State shall, if the recipient is the beneficial owner of the dividends, be taxable only in that other State.
• Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State will be taxable only in that other State.
• Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax charged shall not exceed seven percent of the gross amount of the royalties.

To view Singapore’s DTA with Luxembourg, as well as the country’s other trade agreements, please see here.

Indonesia

• Indonesia expands tax incentives for “pioneering” industries

Indonesia has announced that it will be further expanding the tax incentives available for “pioneering” industries, such as oil refinery and infrastructure. The government is hoping these moves will attract more foreign investment and help jumpstart the country’s lackluster economy, which is seeing its slowest growth in over six years.

 RELATED: Dezan Shira & Associates’ Tax and Compliance Services

According to the Indonesian government, pioneering industries are those that “have wide relevance, give added-value and high externality, introduce new technology and have strategic value for the national economy”. These industries include: maritime transport, telecommunications, downstream metal production, and agricultural processing.

Specifically, Indonesia is offering the following tax incentives: a tax reduction of between 10 and 100 percent for up to 15 years to firms investing a minimum of 1 trillion rupiah (US$71.5 million) in certain industries. Additionally, this tax break may be extended for an additional five years if a company obtains permission from the country’s Finance Minister.

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