Southeast Asia is too big a market to ignore and expansion into this region needs to happen for sustained growth.
Asia is one of the most digitised regions in the world with 2.3 billion internet users, which is around 50.3 per cent of the world’s internet user population.
A potent combination of favourable government regulations, enticing tax rates and a growing talent pool have prompted foreign companies to expand their businesses into Asia.
After almost two years of COVID-19 restrictions on everything from travel to meeting in person, expanding to new markets in Asia may be low on the priority list for many companies. Yet for ambitious firms, Southeast Asia is too big a market to ignore and expansion into this region needs to happen for sustained growth.
Understandably, given the diversity and thicket of different rules and regulations, many business owners may be reluctant to take the plunge. Depending on the country, there are different hiring and human resource policies to take note of. Tax laws and processes to start a company may also vary.
This should not distract from the obvious benefits that Southeast Asia has to offer. Firstly, there are the raw numbers. The region’s gross domestic product (GDP) is worth around USD$31.58 trillion and this is only set to grow, powered by its 4.5 billion people (60 per cent of the world population).
Furthermore, Asia is one of the most digitised regions in the world with 2.3 billion internet users, which is around 50.3 per cent of the world’s internet user population. This has only grown thanks to the pandemic which drove even more people online.
However, numbers do not show the whole story. While the diversity of the region presents great benefits, it also brings about challenges. Singapore is a modern and developed city-state with low tax rates and a business-friendly environment, yet Hong Kong’s location makes it more suitable for accessing the China market.
Japan is highly efficient, competitive and one of the largest free-market economies in the world, yet language barriers and significant amounts of red tape make it a challenging market to crack. Both Malaysia and Thailand are fast-growing nations with a young population, yet have their own unique business cultures that need to be navigated.
This article will provide guidance as to how to understand when and why you should expand, what form it could take, and detail some local rules and regulations to watch out for.
Situated at the heart of Asia, Singapore has been consistently recognised as a global business hub for many international businesses and multinational corporations. In addition to a low corporate tax rate of 17 per cent on taxable income, its business-friendly policies have helped to bring about many investment opportunities.
The country’s tax regime also features concessional rates for the first SGD$200,000 of a foreign company’s income. The tax on dividend income and capital gains is zero per cent, and there is no withholding levied on post-tax dividends paid from there.
According to the World Bank’s Doing Business 2020 annual report, Singapore is one of the world’s best places to do business among 190 countries. Moreover, foreign companies can tap on the city’s highly-skilled, multilingual pool of talent. Due to sound education and attractive immigration policies, the local workers are highly motivated and talented. English being the predominant language in the country has also helped foreign companies incorporate and transit into the local market smoothly.
Widely regarded as one of the leading global financial hubs, Hong Kong provides foreign companies a strategic gateway to mainland China with unlimited market potential.
The country’s corporate tax rate is at 16.5 per cent. The first HKD$2 million of assessable profits earned by foreign companies are taxed at half of the current tax rate (i.e. 8.25 per cent). Businesses can also benefit from the ‘’no’’ capital gains taxes and goods and services taxes (GST). Any gains from investments or capital transactions are also exempt from tax.
Hong Kong also enjoys an ideal location in Asia that enables foreign companies to tap into opportunities found in the other Asian economies. In addition, Hong Kong provides commercial and infrastructural entrance for businesses looking to tap into booming mainland China’s market.
Most people in Hong Kong speak fluent English, and the official languages include English and Chinese. Foreigners can set up a company in Hong Kong and own 100 per cent of it, regardless of residence or nationality. The country is also known to have a skilled and highly educated workforce, while continuously attracting talent from worldwide.
With the second-highest GDP per capita in Southeast Asia (only behind Singapore), Malaysia presents a huge opportunity for companies seeking to expand.
The standard corporate tax rate in Malaysia is at 24 per cent. Small and medium-sized enterprises (SMEs) are entitled to preferential tax treatment if their gross income is not more than RM50 million, where the corporate income tax rate on the first RM600,000 of chargeable income of an SME is taxed at 17 per cent, with the remaining balance taxed at 24 per cent.
The workforce comprises highly educated and driven workers who are multilingual and capable of speaking English, Chinese and Malay. Companies with 100 per cent foreign ownership that wish to venture into the country’s wholesale, retail and distributive business landscape will need to seek approval from the Ministry of Consumerism and Trade’s approval. In industries like education, banking and finance, agriculture or tourism, foreign companies will face more stringent guidelines that may require a local Malay co-ownership.
Known for being one of the world’s fastest growing economies, Thailand has become an attractive destination for foreign companies to set up there.
With a population of 70 million, steady economic growth and business-friendly policies, the country offers convenient trade with China, India and the Association of Southeast Asian Nations (ASEAN). There is also easy access into the Greater Mekong sub-region, in which opportunities may emerge from these new markets.
The standard corporate tax rate in Thailand is at 20 per cent. However, if foreign companies have a paid-in capital of less than THB5 million and an income of less than THB30 million, the first THB300,000 of net profit will be exempted from tax. Companies that earn a net profit of between THB300,000 to 3 million will be subjected to 15 per cent corporate tax.
Any net profit amount that is above THB3 million will be subjected to 20 per cent corporate tax. Foreign companies may face a language barrier if they look to grow their business in Thailand. It is known that only the middle to top management can speak fluent English, while the rest of local workers may only communicate in Thai.
Having the world’s third-largest economy after the United States and China, Japan has become a key market for international business.
A major player in global trade and finance markets, Japan has built ties with many countries through key partnership agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Economic Partnership Agreement (EPA) with the European Union.
The workforce comprises workers who have strong work ethics, and value teamwork and consensus decision-making. This might be linked to their belief in “Kaizen”, a philosophy that promotes continuous improvement in all aspects of one’s life.
The country also enjoys an extensive and well-developed transportation and telecommunications system which facilitates the delivery of goods and services. These include the two major airports that support the capital city, Tokyo, and two other major airports that serve the commercial port of Osaka.
Finding the right market
Asia will continue to dominate as a leading global growth region. A potent combination of favourable government regulations, enticing tax rates and a growing talent pool have prompted foreign companies to expand their businesses into Asia.
Despite the benefits, venturing into Asia will pose some challenges. To be successful, you will need to conduct your market research to understand your goals and target markets. You may want to identify the jurisdiction you want to expand into, such as comparing Thailand’s start-up scene to Singapore’s regional hub. There are different types of company structures — from private limited to partnership — so choose the one that best suits you.
After incorporating your company in a chosen country, the next step is to start your recruitment process and hire the right talent. You need to know how to secure visas and understand local hiring regulations. No matter the industry or company size, all businesses must adhere to certain laws and regulations as part of operations. So, make sure that you understand all relevant regulations and comply with them.
This article was originally published by the Association of Small & Medium Enterprises (ASME).
For more information, and assistance, in growing your business in Asia, contact Alpadis Group.