17/04/24

ASIA: Singapore faces competition from Thailand and Malaysia as regional hub for multinationals

As published on: thailand-business-news.com, Wednesday 17 April, 2024. 

While Singapore still holds advantages in location, language proficiency, and financial services, rising costs are prompting Japanese and European companies to consider relocating specific functions, such as sales, to other Southeast Asian countries like Thailand.

Multinational corporations, including Japanese companies, are increasingly relocating some Southeast Asian regional headquarters functions out of Singapore to save costs and seize new opportunities.

Japanese companies are increasingly relocating some of their Southeast Asian regional headquarters functions out of Singapore to countries like Malaysia and Thailand in order to save costs and take advantage of tax incentives.

Malaysia’s tax advantages, including preferential income tax rates for regional headquarters, have attracted companies like Sakata Inx to establish their regional head offices in the country.

While Singapore still holds advantages in location, language proficiency, and financial services, rising costs are prompting Japanese and European companies to consider relocating specific functions, such as sales, to other Southeast Asian countries like Thailand.

While Singapore remains a leading hub, companies like Sakata Inx have established regional head offices in countries like Malaysia, drawn by tax incentives and cost advantages. Similarly, Thailand is attracting companies for production and sales functions.

Concerns about rising costs in Singapore have led to partial relocations, with some companies considering moving personnel elsewhere.

31% of Japanese companies with regional headquarters in Singapore had either partially relocated their functions to another country or were considering doing so, according to a poll released in March by the Japan External Trade Organization, as reported by Nikkei.

Despite this, Singapore still holds advantages in location, language proficiency, and financial services, retaining its position as a prime spot for regional headquarters.

Singapore’s strategic location in the heart of Southeast Asia, coupled with its high level of language proficiency and well-established financial services sector, has long been a draw for Japanese and European companies looking to establish a presence in the region.

However, the increasing costs of doing business in Singapore are causing these companies to reassess their options. As a result, they are now considering relocating certain functions, particularly sales operations, to neighboring countries like Thailand.

This shift is driven by the desire to mitigate operational expenses and take advantage of the lower cost of doing business in other Southeast Asian nations. While Singapore continues to offer numerous advantages, the trend of relocating specific functions to other countries in the region reflects a strategic response to rising costs and competitive pressures.

Thailand has been making significant strides in attracting multinational companies. Here are some key factors contributing to its appeal:

Tax Measures: Thailand has implemented tax measures to prevent Base Erosion and Profit Shifting (BEPS), which is a global framework developed by the OECD/G20 to tackle international tax avoidance. This includes the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), which Thailand signed in February 2022. The MLI allows Thailand to modify its existing bilateral tax treaties to prevent tax treaty abuse and improve treaty dispute resolution.

Global Minimum Tax Plan: The Thailand Cabinet has given in-principle approval of measures to support the implementation of a Global Minimum Tax Plan in line with the OECD BEPS 2.0 Pillar Two Rules. This plan applies to multinational enterprises (MNEs) with a turnover above 750 million Euros and allocates a minimum tax rate of 15% for each jurisdiction where an MNE operates.

Operational Costs: Compared to other countries like Singapore, Thailand offers lower operational costs, making it an attractive base for multinationals.
These factors, among others, are contributing to Thailand’s growing appeal to multinational companies.

Tags

Asia Thailand Malaysia Multinationals Singapore