Attracting regional headquarters 'needs more than tax incentives'

Warrick Cleine, head of tax at KPMG Asia Pacific, said physical infrastructure was equally important in attracting companies to set up these centres. This includes the availability of quality office buildings, but also important are matters such as modern airports and transport infrastructure.

Immigration procedures, including visas and work permits, are also an important consideration, as these centres need an international workforce, and are frequently used to host visitors from their home headquarters or across the region.

The quality and cost of talent in the workforce of the host country is also important, as a regional operating headquarters will generally need experts in areas such as management, marketing, finance, human resources, logistics and information technology. These people need to be able and willing to work across borders, with different cultures, which are diverse even within Asean.

"All of these factors will influence a decision on where to locate a regional operating headquarters," he said.

The junta last month brushed up its tax package for the second time. It is the third government to do so, as previous incentives have proved inadequate. Primarily, only national income would be subject to taxation, not worldwide income as the previous laws proposed. The benefits would also be extended to foreign talents working for units here.

Thailand is facing strong competition from Singapore, which has been home to thousands of foreign companies’ regional HQs.

According to multinational law firm Baker & McKenzie, more than 2,000 foreign companies have set up international or regional headquarters in Singapore, compared with fewer than 200 in Thailand.

Crestron, a US-based manufacturer of home and building automation systems, announced a plan in August to set up an office complex in Singapore. It will serve as the company’s headquarters for the Southeast Asia region, enabling Crestron to focus on and strengthen its relationships in Malaysia, Thailand and Singapore itself.

Malaysia is also vying for the same market. According to The Star, InvestKL, set up in August 2011 to woo multinational companies’ investments, managed to get 27 global companies to set up their regional headquarters in the Greater Kuala Lumpur area in 2012 and 2013, with total investment so far at 800 million ringgit (Bt6.6 billion).

Quoting sources, the Malaysian daily said the companies had created more than 2,200 new jobs, of which 80 per cent are held by Malaysians.

Kitipong Urapeepatanapong, chairman of Baker & McKenzie’s Bangkok office, said earlier that the tax package was good for Thai companies doing more business outside Thailand. However, it may not be enough to attract US companies like Google, which are also concerned about physical infrastructure and talent.

Fighting for the same market, Asean nations also impose differing tax rates.

Cleine noted that as taxation remains a national consideration, this introduces an element of risk and uncertainty to those businesses operating across the region, which need to ensure that costs and profits are properly determined and allocated and to comply with the complex tax rules and administrative practices across Asean. tax rates and deductibility rules in the region were different, and personal tax systems were wildly divergent. "Understanding the differences is key to ensuring a business remains compliant with the laws in each Asean country, and also key to making important business decisions. As was the experience in the EU [European Union], we believe there will be pressure over time to harmonise Asean’s tax regimes to ease doing business, but in the meantime this is a challenge that business has to handle," he said.

The diversity of tax systems gave rise to different challenges for the different countries.

While Singapore has a well-developed and internationally integrated system to support its role as an international financial centre, emerging Asean markets face challenges. These range from capacity constraints in the tax administration to outdated tax laws and regulations. "We expect the governments across emerging Asean to continue to invest in their tax-administration systems to help them cope with the demands of regional integration, and growth in cross-border investment and trade," Cleine said.