Video & Slides: http://www.proformative.com/events/expansion-asia-pacific-markets-identifying-leveraging-right-opportunities 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.

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.

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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. 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. WHAT ARE THE CURRENT AND EMERGING MARKET
CONDITIONS IN KEY ASIA PACIFIC ECONOMIES?

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. 
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. 
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. 
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. 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. 

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. 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. COMPARATIVE ANALYSIS OF ENTITY SET UP AND COSTS
INCLUDING ASSOCIATED TAX AND REPATRIATION
STRATEGIES

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. 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. 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. 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. 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. 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. 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. 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. TAX REPATRIATION STRATEGY
INSIGHTS INTO AVOIDING PITFALLS

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. 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. 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. 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. EMPLOYMENT REGULATIONS IN VARIOUS ASIA PACIFIC
MARKETS

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. AVOID COMMON PITFALLS WHILE EXPANDING INTO THE
ASIA PACIFIC MARKETS?

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. 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. 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. THANK YOU

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