For foreign companies operating in ASEAN, developing a coherent profit remittance strategy is essential to maximize revenue. In part two of this three part series, ASEAN Briefing investigates remittance protocols in Thailand and Indonesia. While the policies found in this pair of countries are not quite as welcoming as in more developed ASEAN members such as Malaysia and Singapore, they remain attractive destinations for foreign investors looking to operate in ASEAN.
Thailand has long been considered an inviting country for foreign investment. When remitting profits, investors need not concern themselves with loss prevention requirements, timing requirements, or pre-remittance compliance. Further, Thailand has double taxation agreements (DTAs) with 60 countries, which reduce withholding taxes below standard rates under certain conditions. However, the country does have foreign exchange controls in place to incentivize domestic reinvestment.
When earnings are remitted to a nonresident company or individual, taxes must be withheld by the payer and submitted to the Revenue Department by the seventh day of the following month. Upon remittance, Thailand levies the following withholding taxes:
Dividends: Governed by a 10 percent withholding tax. Besides Taiwan, no DTA lowers the withholding tax on dividends below 10 percent.
Interest: Thailand has a 15 percent withholding tax on interest payments. However, this amount can be reduced under a DTA. For example, the withholding tax on interest paid on loans from a bank, financial institution, or insurance agency is reduced to 10 percent if based in a country that has signed a DTA with Thailand. Certain countries, including Germany, Italy, and Japan, enjoy a rate of zero if the loan is paid to a financial institution wholly-owned by the government.
Royalties: Subject to a withholding tax of 15 percent. A reduced rate is applied to specific industries under many DTAs, such as for the use of industrial equipment and artistic work.
Branch Remittance Tax: An additional 10 percent branch remittance tax is levied on after-tax profits paid to a foreign head office. This amount is fixed regardless of the presence of a DTA.
Foreign Exchange Controls: Remittances cannot be made in Thai Baht (THB), but are allowed in any other currency. Baht can only be used for repatriation if it is for the purpose of investments or loans in Thailand’s neighboring countries or Vietnam.
In comparison to Singapore, Malaysia, and Thailand, Indonesia is more prohibitive to foreign businesses. Not only does Indonesia generally demand higher taxation, but it also has more bureaucratic red tape. Still, many investors are intrigued by the country’s enormous potential.
Like Thailand, loss prevention requirements, timing requirements, and pre-remittance compliance are not required. In addition, Over 60 countries hold DTAs with Indonesia, reducing the relatively high withholding taxes the country levies. In order for investors to qualify for DTA benefits, recipients of remittances must confirm their tax residency by providing the Indonesian Tax Office with a certificate of domicile certified by their home country’s tax authority.
Foreign entities operating through Permanent Establishments (PEs) generally have the same tax commitments as resident companies. PEs have a relatively broad definition in Indonesia and are subject to particular government regulations and tax rates. As such, investors should be certain whether or not their businesses accidentally qualify as PEs.
Dividends: Remittance of dividends is liable to a 20 percent withholding tax. This amount can be reduced through a DTA. Even with a DTA, however, the rate is generally still between 10 and 15 percent. If the nonresident recipient has a PE in Indonesia, domestic rates of 10 to 15 percent apply.
Interest: Indonesia withholds 20 percent on interest payments. DTAs offer lower rates and several opportunities for exemptions. Payments to banks or other financial institutions are generally accompanied by lowered tax rates. If paid to a government, a bank connected to a government loan agreement, or specified banks and financial institutions, the withholding tax may be completely exempt. There are also lower rates and exemptions if the profits paid are derived from specified industrial undertakings. A domestic rate of 15 percent is administered for recipients with a PE.
Royalties: As with dividends and interest, royalties are subject to a 20 percent withholding tax. Lower rates are available for many sectors in most DTAs, including for artistic copyrights and industrial, commercial, or scientific equipment and experience. For recipients with a PE, the standard 15 percent domestic rate is used.
Branch Profits Tax: Indonesia charges PEs a 20 percent branch profit tax on after-tax profits, even if funds are not remitted to the home country. This amount can be lowered through a DTA or exempted if profits are reinvested in Indonesia.
Foreign Exchange Restrictions: Indonesia does not have foreign exchange controls over the inflow and outflow of money. However, companies must provide Bank Indonesia with a record of all transfers to foreign countries, including the amount transferred in Indonesian Rupiah (IDR), annual balance sheets, and profit and loss statements. In most cases, payments within the country must be made in IDR.
This article was first published on www.aseanbriefing.com.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia's complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.Back to Articles
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
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