Issue 12 November & December 2014

From Dezan Shira & Associates

The 2015 Asia Tax Comparator

p.

An Introduction
to Taxation
in Asia

p.

Analysis of
Asias Tax
Rates

p.

10

Individual
Income Tax
Across Asia

p.

11

Handling Cross
Border Tax
& Finance in Asia

www.asiabriefing.com

An Introduction to Taxation
in Asia
By Edward Barbour-Lacey, Samuel Wrest and Matthew Zito, Dezan Shira & Associates

As the economies of emerging Asia continue to develop, the

regions tax rates are becoming increasingly influential. From the
perspective of Asias governments, taxes can be used to either
ensure that investments flow in to their own jurisdiction, or as a
means to subsidize government spending. Conversely, from the
standpoint of companies and individual wage earners, they can
help determine whether a particular jurisdiction suits their business
model and occupation.
There are numerous taxes which will be applicable for foreign
businesses and wage earners in Asia, including corporate income
tax (CIT), individual income tax (IIT), withholding tax, and indirect
taxes such as value added tax (VAT) and goods and services tax
(GST). Understanding how these various taxes function is integral
both for companies wishing to access Asias emerging markets, and
individuals looking to work in the region.
In this section, we provide an introduction to all of the rates of
taxation covered in this magazine. We explain what these taxes
are, briefly discuss how they apply to Asias various countries, and
conclude by taking a look at how Asias countries compare in the
World Banks latest ease of paying taxes rankings

CIT

Corporate Income Tax

A corporate income tax (CIT) is a tax levied on the profits of a

company, most commonly by a given countrys state government
but also occasionally by its provincial governments.
In Asia, the rate of CIT varies considerably from nation to nation,
with some jurisdictions fixing it at as little as 17 percent and others
at a massive 40 percent. The rate of CIT that a country enforces
can be informed by a myriad of factors, including the priorities of
government (whether more emphasis is placed on state revenue or
investment), the nature of its economy (how reliant it is on foreign
investment), the countrys size, and its level of development.
The definition of what a corporation is and whether it is subject
to CIT tax varies from country to country, with several jurisdictions
in Asia imposing CIT on legal entities that others would not.
For example, Malaysias CIT hinges on an entitys residence on

4 - ASIA BRIEFING | November and December 2014

whether control and management of the corporation is actually

within Malaysia but this concept has almost no bearing in Hong
Kong, where CIT is often imposed regardless of residence. For more
details on a companys eligibility for CIT in a given Asian jurisdiction,
see our CIT chart on page 7.

VAT

& GST Indirect Tax

In essence, an indirect tax adds to the price of a purchasable product

or a payable service, thereby increasing the cost of that product or
service and causing consumers to indirectly pay its rate of taxation.
This differentiates indirect tax from other forms of taxation, such as
corporate income and individual income tax; both of which require
a business or an individual to pay the applicable amount directly
to a government.
Indirect taxes differ from other taxes in several other ways. For
instance, because they are attached to purchasable items and
services generally, they are not reduced or increased according to
an individuals income or a corporations profits.
In Asia, countries employ either a value added tax (VAT) or goods
and services tax (GST) as their system of indirect taxation, although
some do not have an indirect tax at all. Several countries have
either reformed or only just introduced their indirect tax systems
in the past ten years, including both India and China. The tax
revenue generated is commonly shared between central and local
governments

WT

Withholding Tax

A withholding tax is a tax that is kept back from an employees salary

and subsequently paid directly to the government. Withholding
taxes are commonly employed by countries throughout the world
to help combat tax evasion.
Countries in Asia typically divide withholding tax into dividends,
interest and royalties payments, with the amount of each varying
considerably in each country. India, for instance, does not have any
withholding tax on dividends, but has a 30 percent tax on royalties.

IIT

Ease of Paying Tax Rankings

Individual Income Tax

An individual income tax (IIT) is a tax levied on all wage earners

within a given jurisdiction. With the exception of Brunei and
Cambodia, the former having no IIT in place and the latter a fixed
20 percent rate, the Asian countries highlighted in this magazine
all employ a progressive IIT system wherein an individual is taxed
according to how much they earn. This results in individuals with a
higher salary being taxed at a greater rate than those with a lower
one. Rates vary wildly across Asia, with some countries capping
their maximum IIT at as much as 45 percent and others at as little
as 17 percent.

4
5

HONG KONG

SINGAPORE

30

-10

32

MALAYSIA

BRUNEI

47

U.S.

+4

+17

Ease of Paying Taxes 2015

One of the key contributing factors to the World Banks Doing
Business rankings is the ease of paying taxes, which takes into
account the time, total tax rate and number of payments necessary
for a company to pay off all of its tax obligations. Here we provide
the rankings for the 13 countries highlighted in this magazine, as
well as the U.S., Germany, and Italy.

62
64

+8

+21

GERMANY

90

-25

Compared to 2014s rankings, there have been several significant

changes to the ease of paying taxes in Asia. India has moved up
two ranks, and Indonesia and Vietnam have dropped 23 and 24
ranks respectively. In the context of the 13 countries highlighted
in this magazine, this means that India has moved from being the
worst ranked country last year to 11th position, whilst Indonesia
and Vietnam have dropped to be the two worst ranked.

116

CAMBODIA

MYANMAR

+9

120
127

CHINA

The top five positions have also seen a slight change. Thailand has
moved up eight ranks overall and Cambodia has dropped 25. As a
result, Thailand is now the fifth ranked country out of the 13 and
Cambodia the sixth.

PHILIPPINES

+4

129
-3

+10

156

-23

For additional business intelligence on taxation in Asia, please

visit www.asiabriefing.com to browse our full selection of Asia
Briefing tax guides:

LAOS

141
ITALY

Related Reading

THAILAND

INDIA

160

+2

INDONESIA

173

-24

VIETNAM

189

Key

Same
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Decliners

Tax, Accounting, and

Audlt in China 2015

Tax, Accounting, and

Audlt in India
2014 - 2015

Tax, Accounting, and

Audlt in Vietnam
2014 - 2015

Country
Gainers
Country

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November and December 2014 | ASIA BRIEFING - 5

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