Developing business in the Asian market: why Asia is better than Europe

The general market situation in Europe, the volatility of business. How the international business model has changed in recent years

Over the last 10 years, the international business model has evolved due to changes in the global economic situation, political and legal changes in various countries and global trends.

One significant change in international business has to do with the move away from the offshore company model. They were created to take advantage of tax incentives and more flexible legal conditions in jurisdictions where tax-free zones were in operation. However, in recent years this model has become less popular due to a number of reasons:

1. Changing tax laws. Many countries have introduced legal restrictions on the use of offshore companies and reduced the scope for tax relief.
2. Increased international tax transparency: The OECD's financial account information exchange (CRS) initiative, which provides for the exchange of information on the income and assets of citizens between tax authorities in different countries, thus preventing income concealment.
3. The use of offshore companies can be associated with reputational risks for companies and investors, especially if these companies are established in countries with low corporate transparency or questionable reputations.

Why the instability and threat to international business has arisen

Instead of offshore companies, businessmen chose jurisdictions with more transparent tax and legal conditions - onshore companies, or they considered the venture capital model or set up subsidiaries in different countries to reduce their tax burden.

It should be noted that changes in the international business model do not mean a complete abandonment of offshore companies. 

After a strong wave of offshoring, businesses went to the EU, they saw a lot of advantages there:

1. Transparency and legality, it is possible to operate in accordance with the law and avoid tax problems.
2. High level of infrastructure and professional services: legal, financial and accounting services, as well as access to highly skilled professionals who can help companies grow.
3. European jurisdictions have advanced financial markets, providing easy access to capital and financing for companies.
4. Convenient location.

In the last few years, a number of new laws and regulations, such as GDPR (General Data Protection Regulation), FATCA (Foreign Account Tax Act) and others, have introduced additional requirements for international business. In general, these controls and regulations have the aim of combating corruption, financial fraud and money laundering, but for international businesses they can pose significant obstacles and costs to compliance with all these requirements.

European economic factors impacting negatively on business development

1. No progress in the economy - companies have fewer opportunities to grow and expand.
2. The tax burden in Europe can be very high, especially for companies that plan to operate domestically.
3. In Europe, competition in the market is high and this reduces profits and makes it difficult for companies to grow in the long term.
4. Regulation and bureaucratic processes can be very complex and costly for businesses in Europe.
5. Europe is experiencing instability due to political and economic changes such as Brexit, the migration crisis and others.

Why more and more businessmen are moving their business to Asia (Indonesia, China, Thailand)

Low cost of labour

1. In some Asian countries like India, China and Vietnam, employee salaries can be much lower than in developed countries. Companies thereby reduce personnel costs and increase profits.
2. There are many qualified people in Asia who are willing to work for less. 
3. Flexibility in human resource management. There are many outsourcing companies in Asia, companies can outsource some functions such as accounting, HR or IT development so that they do not have to employ a full-time employee.
4. There is a wide choice of contractors and suppliers. Asia hosts a host of manufacturing companies that offer a wide range of services and products. 

Removing bureaucratic hurdles

Countries in Asia have recently been actively developing their economies and creating conditions to attract foreign investment, which includes simplifying procedures for registering companies, opening accounts and running non-resident businesses.

Accessing new markets and developing foreign trade

The Asian region is considered one of the most dynamic and fastest-growing markets in the world. For example, China is the world's leading commodity producer. Indonesia, with a population of over 270 million, is one of the largest markets in Southeast Asia. With advanced maritime transport and more than 17,000 islands, Indonesia provides export opportunities for goods and services in the region. Thailand is favourable for business development in the sectors: tourism, manufacturing and exports and access to various markets, including Indonesia, Malaysia, Vietnam and Cambodia.

Foreign trade development in Asia is also supported by a number of free trade agreements between countries in the region, such as the Regional Economic Partnership or the Trans-Pacific Partnership Agreement. These agreements simplify trade between countries and allow companies to produce and export to other markets in the region.

Stability and reliability of government 

Political stability plays an important role for business. Asian countries do not back down from their principles: they have openness policies and support foreign investment. 

Predictability of the business environment

The predictability of the business environment over the long term in Asia is another advantage to registering a business in this region. This in turn helps companies to plan their future investments and expansions and increases their confidence in the government.

In China, for example, measures are being taken to improve the predictability of the business environment, such as reducing the number of regulatory restrictions, improving infrastructure and reducing the cost of production. In South Korea, the government has reduced the number of permits, which has greatly simplified business registration procedures and reduced the time it takes to obtain documentation.

Prospects for starting a business in Asia

The geographical size of Thailand is 513,000 km², while China has a geographical area of 9.6 million km² and Indonesia has a geographical area of 1.9 million km². Thailand's market size is US$505 billion, which is 3.6 times smaller than that of China (US$1.4 trillion) and 0.19 times smaller than that of Indonesia (US$272.1 billion).

Thailand offers tax zones and tax incentives for investors, China provides special economic zones and industrial parks, and Indonesia has free trade zones. 

Thailand has a developed startup ecosystem including co-working spaces, incubators, accelerators, and events for entrepreneurs; China and Indonesia also have startup ecosystems, but they are less popular than in Thailand. 

Description of the benefits of doing business in Asia

Bank loyalty

A comparative overview of the loyalty of banks in Asia and Europe to international non-resident business:

1. Compliance: in general, banks in Europe are more regulated and more strictly enforced. In Asia, compliance is also important, but is sometimes more flexible and can be tailored to clients' needs.
2. Reporting: in Europe, banks' reporting is more transparent and straightforward, with strict reporting and content requirements. In Asia, reporting by banks is required but may be less detailed and perceived as less formal.
3. KYC (Know Your Customer): A mandatory knowledge of the customer, their characteristics and the risks associated with them is an important aspect in the work of banks in both Europe and Asia. In Europe, the KYC process is more detailed and the requirements for documents and their verification are more in-depth. In Asia, KYC can be lenient.

In general, it can be said that banks in Europe are demanding and formalised, which reduces flexibility in dealing with clients. 

Citizenship opportunities for business owners 

In China, business owners who have invested a significant amount in the Chinese economy may be given preferential treatment in obtaining a residence permit in the country. There is also a program that allows you to get Chinese citizenship if you have invested at least 10 million RMB (about $1.5 million) in China's economy and have worked in China for at least 3 years.

In Thailand, there is an "Elite Card" programme which allows foreign investors to obtain a residence permit in Thailand for 5, 10 or 20 years, subject to a minimum investment of 500,000 baht (about US$16,000) and payment of a government fee. However, this programme does not confer the right to obtain Thai citizenship.

In Indonesia, the possibility of obtaining citizenship through investment in businesses is only available to investors who make substantial investments in projects that have the potential to create jobs in Indonesia. In addition, business owners can obtain a residence permit in Indonesia if they own a share of at least 10% in an Indonesian company and invest at least USD 1 million in the Indonesian economy.

It is worth noting that the process of obtaining citizenship in these countries can be quite complicated and costly, and many conditions and requirements may change over time. Therefore, before making a decision to invest in business and obtain residency or citizenship in these countries, it is necessary to carefully study the legislation and seek advice from legal experts.

Tax comparisons and other benefits

Tax rates may vary depending on a number of factors including company size, sector, geographical location etc. 

Great opportunities for business development

All in all, we can conclude that non-resident businesses in Asia are promising and can provide great opportunities for development. Countries such as China, Thailand and Indonesia offer not only comfortable taxation, but also a relatively high valuation on infrastructure and ecosystem for start-ups. Moreover, in many cases there are citizenship opportunities for non-resident business owners, which sounds like an added benefit.

Naturally, when relocating to another country and launching a business, it is important to consider local rules and laws, as well as the specifics of the national culture and business ethics. However, if done correctly, a non-resident business in Asia can be a profitable and promising investment.

To choose the right jurisdiction for your business, contact the experts at Intelligent Solution Group. We offer our clients corporate services in a comprehensive outsourcing format. The company's products include various Asian destinations. Our goal is to protect our clients' capital, prevent possible risks, offer the best solutions and help businesses operate with peace of mind.