The Southeast Asian region is a constantly growing region that offers numerous opportunities for great investments in Southeast Asia. It stretches over about 3,800 miles between the Bay of Bengal to the West, the Indian Ocean to the South, and the Pacific Ocean to the East – a political reality – constituted by the Association of Southeast Asian Nations (ASEAN), composed of Brunei, Cambodia, the Philippines, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, and Vietnam – an economic reality – shaped by the ASEAN Economic Community – a social reality – with a population of around 666,473,348 inhabitants, with Indonesia as the most populous country (272,249,000 million) and Brunei as the least populous (443,000) – and a strategic reality – where the Strait of Malacca is one of the key points, if not the key point, for global trade.
If these realities are important, so are others that illustrate, complement, or develop them, such as current regulatory frameworks in various areas – new investments In Southeast Asia, new development plans, new investment laws, new company laws – reflecting a growing political, economic, and social openness aimed at attracting investments in Southeast Asia from foreign companies. This openness is still far from being fully utilized by Spanish companies, unlike those from China, Japan, South Korea, or Australia, or even from other countries in our environment such as Germany, France, Italy, or even Belgium, which have competed openly in these markets.
A region like this, where the average GDP growth over the last twenty years is 4.8% and is expected to become the fourth largest economy in the world by 2030, offers multiple business opportunities that our companies should take advantage of. Sectors such as pharmaceuticals, consumer goods, automotive, infrastructure, renewable energy, or e-commerce constitute what some authors called a “virtuous circle of high growth,” which, due to their promising prospects, should receive special attention. For this purpose, exports and especially establishment, enhanced by the Regional Comprehensive Economic Partnership formed by the ten ASEAN countries plus China, South Korea, Japan, Australia, and New Zealand are mechanisms to consider. Exploring these sectors in the context of investments in Southeast Asia can be crucial for sustainable growth.
Regarding establishment, it is worth noting that the member states of this Regional Comprehensive Economic Partnership facilitate preferential tariff access to established companies, progressively reduce non-tariff barriers, and ensure equal treatment between domestic and foreign investors. This highlights its importance for companies established in ASEAN countries and not only concerning ASEAN member countries but also in relation to other countries that are part of this Partnership. Therefore, companies wishing to utilize this mechanism must be aware of its various forms; requirements for their establishment; and scope of activities.
The most common forms of investments In Southeast Asia investments across almost all ASEAN countries are representative offices, branches, and subsidiaries. While a representative office is advisable for contacting potential clients, conducting market studies, or promoting goods and services, it may not be suitable for conducting commercial activities due to existing limitations. In some countries like the Philippines, apart from representative offices, there are regional operating headquarters to coordinate other offices in the area; whereas in countries like Thailand, there is an international business center that replaced regional operating headquarters some years ago to promote the country as a regional business hub with significant incentives in terms of taxation, permit issuance, or real estate ownership.
A branch is an establishment form that, although not subject to the limitations of a representative office, has other drawbacks such as lacking legal personality and being dependent on the head office which ultimately bears the responsibilities of the branch. Nevertheless, its advantages in making investments in Southeast Asia can include providing operational social capital limiting the initial investment compared to establishing a subsidiary which can sometimes require a high capital investment especially when the foreign company intends to own 100% of it. However, when choosing between a branch and a subsidiary, local authorities often recommend or even demand establishing a subsidiary – a local company ultimately – a recommendation or requirement that may be crucial when participating in bids and tenders.
A subsidiary typically takes the form of a limited liability company or its equivalent and may vary among different countries concerning requirements such as minimum subscribed capital (from 1 euro in Singapore or Malaysia to 811 euros in Cambodia or between 190,740 or 95,370 euros depending on the case in the Philippines) or minimum number of shareholders (from 1 in Cambodia, Malaysia, Myanmar, Vietnam or Singapore to 2 in Indonesia and Thailand or between 1 and 15 in the Philippines). It is important to note that foreign capital Investments In Southeast Asia may sometimes be limited to 40%, which can be circumvented if there is a local partner involved who may be essential at times after undergoing due diligence processes. A more detailed analysis of these aspects both in terms of corporate and tax matters can be found in the “ASEAN Business Guide” prepared by our law firm AVCO LEGAL by following the provided link ASEAN BUSINESS GUIDE.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
