A trade war between the world’s two largest economies and an uncertain global economic situation has prompted countries across Asia to take numerous steps to entice foreign investment and businesses. In fact, a total of 33 reforms were implemented in Asia in 2020, making it easier to do business in the region.
The region’s economies focused their reform efforts on improvements in the areas of dealing with construction permits and starting a business. China is among this year’s top 10 improvers with the greatest number of reforms in the region and second most globally. Other notable reformers include Indonesia, Myanmar, and the Philippines.
China 🇨🇳
China’s ranking in the World Bank Group’s Doing Business climbed to 31st in terms of ease of doing business, up from 46th a year earlier, and 78th in 2017. The business reforms span various areas, such as market access, tax, intellectual property protection, as well as the processing of permits and licenses.
Highlights of China’s reforms include:
Starting a business
When starting a business in Beijing, applicants can now request company seals free of charge using the online platform of the Beijing Administration Administration of Industry and Commerce. The seal can be collected together with the business license at the single window at the State Administration of Industry and Commerce (SAIC). A set of four seals will be provided (company, contract, invoice, and financial seal). Business founders also have the option of making a company seal directly at a seal-maker, but these will be charged for an average cost of CNY 200-500.
Protecting minority investors
A new amendment in the Company Law imposes liability on shareholders who cause damage to the company through unfair related-party transactions.
Related party transactions that compromise the interests of the company are prohibited even if such transaction has gone through the procedures stipulated by law, administrative regulations or the company’s articles of association, and has been approved by a shareholders’ meeting or shareholder’s general meeting. If the company does not file a lawsuit, minority shareholders can file a lawsuit with a Chinese People’s Court and thus rescind the contract.
China’s strengthening of minority investor protection mechanisms moved the economy to the 28th spot worldwide in the ranking of this category in the Doing Business report, above the regional average of 99th and the OECD high-income economies’ average of 46th.
Paying taxes
China introduced a number of reforms in its tax regulations which made paying taxes easier. Some of the reforms include:
- Introduction of preferential corporate income tax rate for small enterprises,
- Reduction of VAT for certain industries, and
- The enhancement of the tax electronic filing and payment system.
Trading across borders
Import & export businesses have benefited from the introduction of advance cargo declarations, upgrading of ports infrastructure, optimization of customs administration and more clarity in fee structures with the publishing of fee schedules.
Due to the Covid-19 pandemic, from March 1 to June 30, 2020, cargo dues and port facilities fees are reduced by 20%, and emergency response services and charges for non-tanker cargo ships are removed.
Enforcing contracts
China made enforcing contracts easier by limiting the maximum number of adjournments that can be granted in a civil case and limited adjournments to only unforeseen and exceptional circumstances. In addition, courts will now be required to publish performance measurement and progress reports.
Foreign investors
China introduced its Foreign Investment Law in March 2019, which came into effect on 1 January 2020. The new law promotes fair competition and equal policies application, and keeps in place restrictions of doing business in certain sectors by foreigners.
The government’s ability to expropriate investments made by foreign investors is being limited. Sending money in and out of the country is now easier. The new law champions stronger intellectual property rights protection and takes measures against forced technology transfers and trade secrets sharing.
Under the new Foreign Investment Law, Wholly Foreign-Owned Entities (WFOEs) which until the implementation of the new law were limited to be registered only as limited liability companies, can now be established as a joint-stock company under the Company Law.
As the new Foreign Investment Law will be replacing the Laws of the People’s Republic of China on Sino-Foreign Equity Joint Ventures (EJV), Sino-Foreign Cooperative Joint Ventures (CJV) and Wholly Foreign-owned Enterprises (WFOE), entities organized and registered under these laws will be given a five-year transition period to adjust their structure in accordance with the new Foreign Investment Law.
Indonesia 🇮🇩
Indonesia’s ranking in the World Bank’s Ease of Doing Business (EODB) index has remained stagnant for 2020 at 73rd rank despite efforts by the government to attract investment by removing unpopular regulations and introducing reforms. Some of the major reforms introduced this year are related to online business licensing and online tax filing and payments.
Starting a business
Indonesia introduced an online platform for business licensing and replaced certified hard copies with electronic ones. In addition, Indonesia’s Investment Coordinating Board (Badan Koordinasi Penamanan Modal – BKPM) issued Regulation 1 of 2020 (BKPM Reg 1/2020) on April 1, 2020, which provides guidelines for the implementation of the Online Single Submission (OSS).
The OSS system is an online-based licensing system developed to reduce lengthy application procedures and cut bureaucracy.
Before applying for a business license, businesses need to register for an OSS account and obtain a business identification number (NIB).
Paying taxes
Indonesia introduced an online filing and payment system for the majority of taxes. In order to file and pay taxes electronically, businesses and individuals need to obtain an Electronic Identification Number (EFIN).
A. For legal entities – the company director needs to go physically to the tax office, or, through a power of attorney, authorise a third party to submit the application (note that the authorisation letter must have the so-called ‘materai‘ or stamp duty).
B. For individuals – the individual must submit the application – note that it is not allowed for an individual to authorise a third person to apply on their behalf.
If all documents are complete, then the tax officer will immediately issue the EFIN code for you or your company.
Judicial system
Indonesia introduced an electronic case management system for judges aiming to reduce paperwork and making the judicial system more effective.
Myanmar 🇲🇲
The reforms helped Myanmar boost its ranking to 165th out of 190 countries in the World Bank 2020 ease of doing business index, up six places from 171st in 2019.
Starting a business
An online platform for company registration was introduced in the country and incorporation fees were decreased to K 150,000 from K 250,000.
Using MyCO investors can register their company and find information on other companies registered in Myanmar. MyCO allows to:
- Search and access details of companies registered in Myanmar;
- Register a company; and
- Purchase official company documents and extracts.
Protecting minority investors
New laws in Myanmar require greater disclosure of transactions with interested parties, increased directors’ liability and greater corporate transparency.
Minority investors can file lawsuits against companies and persons who are involved in unfair activities against their powers and rights to remedy.
However, the insufficient protection afforded to minority investors is particularly problematic in light of the recently passed Companies Law, which allows up to 35% foreign equity investment in domestic firms while still considering them local entities. In fact, Myanmar still ranks poorly in protecting minority investors (176th).
Philippines 🇵🇭
The country’s ranking rose to 95th place from 124th last year in the World Bank 2020 ease of doing business index.
Starting a business
The Philippines made starting a business easier by abolishing the minimum capital requirement for domestic companies.
Protecting minority investors
The Philippines strengthened minority investor protections by requiring greater disclosure of transactions with interested parties and enhancing directors’ liability for transactions with interested parties.
Taxes
Due to the Covid-19 outbreak, the Philippines is accelerating the reform on the county’s corporate tax system. In fact, the government is preparing to issue CREATE, a new act under which the corporate income tax rate will be reduced from 30% to 25%, and then by 1% increments until 2027. The government hopes this will benefit more than 90,000 small businesses in the country as well as attract high-value foreign investments.
Conclusion
Recent forecasts predict Asian economies will be larger than the rest of the world combined in 2020. The accelerated economic growth and stability are one of the many reasons why investors continue to invest in Asia and governments in the region continue to improve their business environment by implementing valuable reforms. We at Acclime can guide you through the steps of doing business in Asia and will keep you up to date on all the latest reforms.
