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Insights: International Turnkey Contracting in ASEAN

How to successfully structure your EPC-projects

The number of turnkey or „engineering, procurement and construction”-projects (short: EPC-projects) in Southeast Asia has strongly increased over the past two decades. That is not least due to the increasing liberalisation of various economic sectors. In international business, EPC-projects are commonly understood as the construction of complete, operational plants. The majority of these EPC-projects are carried out in the field of industrial equipment manufacturing and construction and require very specific expertise in order to successfully assemble and commission the often highly complex plants. In Southeast Asia, a high volume of projects can be observed in the electricity sector in particular, where increasing national deregulation has enabled independent power producers to enter the market. Concessions for investments in certain infrastructures such as power plants or water treatment plants also allow for projects by non-state actors.

The scope of EPC-services usually includes design, supply, construction, installation and commissioning of the plant at the client's site. Most contractors are well aware of the need to consider both local and international fiscal implications, which, depending on the duration of the project, can lead, for example, to the establishment of a permanent establishment with very specific cost risks. However, due to their complexity, EPC projects require not only certain tax planning, but also careful consideration and evaluation of local investment, labor and immigration regulations.

In our „Themenspecial” we take a comparative look at the key aspects for contractors operating in Southeast Asia. Our international experts provide insights into the tax, investment and labour law particularities in Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam.

Indonesia

Based on Indonesian Income Tax Law, on-site works related to construction projects, installation and assembly automatically trigger a Permanent Establishment without any time limitation. However, based on the DTA, a building site or construction or installation project constitutes a permanent establishment only if it lasts more than six months. Read more »

Malaysia

Generally, a permanent establishment is triggered where the foreign company establishes a fixed place of business in Malaysia through which they carry, wholly or in part, their business operations. The term permanent establishment especially includes a place of management, a branch, an office, a factory, a workshop and a mine, an oil or gas well, a quarry or any other place for the extraction of natural resources. Read more »

Myanmar

Under the Myanmar Companies Law, every foreign natural person or legal entity that conducts any business activity in Myanmar for more than 30 days and/or with more than one transaction being involved, will have to register a legal entity with the Directorate of Investment and Company Registration in Myanmar. Read more »

Singapore

Under the Singapore domestic tax law, a PE is triggered in Singapore where, among others, a person (which includes corporations) carries on supervisory activities in connection with a building or work site or a construction, installation or assembly project. Do note that there is no minimum time threshold stipulated for PE exclusion. Read more »

Thailand

In general, the Thai Revenue Code defines Permanent Establishment rather widely. The law assumes a permanent establishment if a foreign company has an employee, an agent or a go-between for carrying on business in Thailand and receives income in Thailand. Read more »

Vietnam

According to the DTA, a building site-, construction- or installation-project constitutes a PE only if it lasts more than six months. It should be noted that under the Vietnamese guidance on DTAs, the period of six months is calculated from the date the contractor commences the preparation for the construction in Vietnam, such as establishing its office and planning the construction design. Read more »

published on 16 March 2022

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