ASEAN governments seek to attract, retain, and expand high-quality investment that supports resilient and inclusive growth and advances the digital and green transitions. Investment promotion agencies (IPAs) are central to this effort, leading investment promotion and facilitation across the region. Investment incentives are widely used tool to attract investment, though their effectiveness and fiscal costs depend strongly on context and design. This chapter draws on data from the 2025 OECD ASEAN Survey on Investment Promotion and Investment Incentives and the OECD Investment Tax Incentives Database. It examines the institutional design of investment promotion in ASEAN, including IPA mandates, autonomy, and strategic focus. It further analyses the design, governance and generosity of investment tax incentives in the region.
OECD Review of Investment Policies in ASEAN
Abstract
As ASEAN economies continue to pursue sustainable and digitally enabled growth, attracting high quality investment remains a central policy objective. Investment Promotion Agencies (IPAs), tasked with promoting and facilitating investment projects, play a pivotal role in this effort. Across ASEAN, IPAs are well-established institutions, but their mandates, degree of autonomy, and governance arrangements vary significantly. These differences may influence their ability to act strategically, engage proactively with investors, and contribute to effective policy co-ordination.
ASEAN Member States (AMS) have developed investment promotion strategies that are generally well aligned with national development plans and regional frameworks. Reflecting global shifts in production and technology, current strategies increasingly prioritise green and digital sectors, including renewable energy, electric mobility, semiconductors, cloud and data infrastructure, and advanced manufacturing. However, public access to these strategies remains limited in many AMS, reducing the visibility of countries’ policy direction and making it more difficult for investors to understand governments’ intended priorities and expected reforms.
Investment incentives remain a central tool of investment promotion strategies across ASEAN. All AMS deploy a mix of tax and non-tax instruments, with corporate income tax (CIT) incentives being the most common. Survey results indicate that IPAs place substantial strategic value on incentives, ranking them above investment generation and facilitation and aftercare services when assessing their relative importance within investment promotion strategies. While well-designed incentives can play a useful role when well-designed, international evidence suggests that they influence investor behaviour only under specific and limited conditions. When deciding where to locate, investors may consider incentives but they give much more importance to factors related to the investment climate, such as infrastructure quality, regulatory predictability, and availability of skilled labour.
Income-based CIT incentives are widely employed across the region, although these instruments tend to provide large benefits to investments that are already profitable early in the relief period and may generate limited additional investment. They also carry a high risk of redundancy in cases where firms would have invested regardless of the incentive. While the use of tax allowances and credits has been rising in some AMS, these expenditure-based tools remain less common than income-based instruments. Governments could consider adopting a stronger expenditure-based approach for their tax incentive design. Expenditure-based incentives offer a more targeted alternative to income-based benefits as they directly reduce specific business costs, thereby encouraging spending that might not occur without the incentive, including spending related to the green and digital transition. They are also less vulnerable to tax planning, can be designed in a cost-effective way and are less likely to be impacted by the Global Minimum Tax.
Further aligning incentive design with objectives of investment promotion strategies could enhance the effectiveness of policy measures. In many ASEAN countries, incentives are often available across nearly all sectors, which can dilute strategic focus and limit efforts to channel investment towards emerging green, digital, and technology-related sectors. Broad sector targeting can reduce distortions but typically increases fiscal cost and may weaken alignment with strategic priorities. Narrower targeting, supported by clear eligibility criteria and strong administrative capacity, can protect tax revenues and increase governments’ ability to direct investment toward green, digital, and higher-value activities.
In most AMS, incentives are introduced via various legal sources and governed by multiple authorities, reinforcing the need for transparency and co-ordination. Most IPAs report to already use formal co-ordination mechanisms with national institutions, suggesting a relatively structured approach to inter-agency collaboration. Many IPAs and other authorities across ASEAN already publish incentive guides, which provides guidance for investors. However, legislation introducing incentives is often scattered across multiple legal documents, making it difficult for investors and different government units to understand the full scope of available incentives and to identify outdated provisions.
Institutional arrangements for designing, granting, and administering incentives vary widely. In several AMS, IPAs are responsible not only for promotion and facilitation but also for administering and granting tax incentives, which can divert capacity from core mandates and blur accountability for fiscal oversight. While IPAs are well-positioned to serve as investor focal points and to channel information across government, the Ministry of Finance should retain final authority over tax incentives due to its fiscal competences and whole-of-government perspective. For non-tax incentives, the most appropriate granting authority depends on the nature of the measure: in some case the competent line ministry or agency may be better suited to administer them directly, while in other IPAs may assume a granting role, provided they co-ordinate closely with the relevant authorities.
Effective use of investment incentives requires regular monitoring and evaluation of their costs and benefits. Institutions of all AMS are engaged in monitoring compliance and/or uptake up of incentives, generating useful data for evaluation purposes. IPAs report that 70% of AMS assess whether incentives meet their policy objective, and whether the benefits achieve or exceed costs. However, it remains unclear how regular and extensive these evaluations are, which methodologies are being used and to which extent the results inform policy amendments. Evaluation results could provide a crucial source to identify and phase out redundant benefits.
Ensure that IPA core mandates are strategically selected, adequately resourced, and co-ordinated with other public bodies to avoid duplication and maximise the agency’s value. At the same time, strengthen whole-of-government co-ordination to address regulatory and permitting bottlenecks outside the IPA’s remit and ensure that facilitation measures reinforce the sectoral priorities defined in national strategies and IPA plans.
Align investment promotion strategies with national development plans and enhance coherence of incentive targeting with investment promotion priorities, particularly in support of the green and digital transitions. Making investment promotion strategies publicly available can strengthen the visibility of countries’ policy direction and signal priority sectors to investors.
Assessing incentives design features (e.g. tax instruments, sector or minimum investment conditions) can help to ensure they target desired investment, aligned with current investment strategies and development objectives, and are best-designed to support their stated objectives effectively. Long-standing incentives may target goals that may no longer align with current prioritise, requiring adjustment or phase out.
Balance investment promotion tools by reducing reliance on tax incentives and placing greater emphasis on targeted marketing, selected investor generation, streamlined procedures, and increased regulatory certainty, which are key for attracting and retaining high-quality investment. Explore what complementary policies are required (e.g. infrastructure, connectivity, regulations, education or labour market) and whether other measures might be more suitable to reach certain objectives. Incentives should be used to complement, not replace, wider efforts to improve the investment climate.
Prioritise expenditure-based incentives that are more likely to support investment that would not materialise otherwise. Expenditure-based incentives (tax allowances and tax credits) are typically more effective in attracting additional investment as they directly reduce the cost of capital of targeted investment expenses and are more cost-transparent as the size of the tax benefit is relative to the amount invested. They are also less likely to erode the 15% global minimum effective tax agreed by the OECD Inclusive Framework. While most AMS have started incorporating expenditure-based instruments in their incentives mix, the main CIT incentives in most countries are still generous exemptions that apply across multiple sectors, significantly reducing effective tax rates.
Enhance availability of incentive-relevant information and incentive governance. Ensure that eligibility criteria and granting procedures are clearly specified in legislation to reduce arbitrary decisions. The Ministry of Finance should hold the final decision power to grant tax incentives, while IPAs are well-placed as investor focal points and to engage in supportive functions. To further increase transparency for both investors and government, AMS could publish guides or operate an online portal, potentially hosted by the ASEAN Secretariat, providing regularly updated information on all active incentives, their eligibility criteria and procedural requirements.
Conduct evaluations regularly and strengthen transparency-enhancing measures to improve the effectiveness of incentives. Embedding periodical evaluation requirements in the law to assess how incentives are used, whether they are supporting their intended policy goals, and their costs, as well as clearly attributing responsibilities can support robust and consistent evaluation mechanisms. Assign technically specialised government bodies to lead evaluations, while aligning the role of IPAs in monitoring and evaluating incentives with their operational capacity and resources. Evaluation results can support governments to adjust existing incentives, replace them with more cost-effective alternatives or phase out benefits that are no longer needed.
3.2.1. AMS IPAs are generally mature with broad mandates frequently extending beyond just FDI attraction
Investment promotion has become a central policy tool for governments seeking not only to attract foreign direct investment (FDI) but also to steer investment towards activities that advance national development objectives. Effective promotion efforts can help mobilise investment into sectors and regions with the greatest potential to create quality jobs, foster skills upgrading, enhance productivity, and deepen linkages with domestic enterprises (OECD, 2023[1]). In today’s highly competitive global environment, well-designed promotion strategies are key to enable countries to position themselves as attractive destinations for sustainable and high-value investment projects.
To operationalise these strategies, most governments establish dedicated IPAs tasked with promoting and facilitating investment projects. Such agencies serve as the operational arm of investment policy: they translate national strategies into targeted promotion campaigns, provide information and support to investors, and often act as the first interface between government and business. Their institutional design, mandate, autonomy, and co-ordination with other public entities, largely determine the effectiveness of a country’s investment promotion ecosystem.
AMS are no exception. All have long-standing investment promotion institutions responsible for marketing their economies, targeting investors, supporting business establishment, and providing aftercare services (OECD, 2018[2]). Some, like Indonesia’s Ministry of Investment and Cambodia’s CDC, are integrated government bodies with broad mandates combining policy, regulatory and promotional functions (Table 3.1). Others, including Myanmar’s DICA and Lao PDR’s Investment Promotion Department, operate within line ministries, ensuring policy alignment but potentially limiting operational autonomy (OECD, 2023[3]). In contrast, the Malaysian Investment Development Authority, the Philippines' BOI, Singapore’s EDB, and Thailand’s BOI operate as autonomous or semi-autonomous institutions. This structure provides greater operational flexibility, minimises political interference, and enables faster decision-making, which improves responsiveness to investor needs.
Note: The Indonesian BKPM was transformed into the Ministry of Investment through the Presidential Regulation No. 64 of 2021.
Sources: Based on Government of Brunei Darussalam (1975[4]), Brunei Economic Development Board Act, Chapter 104, https://www.agc.gov.bn/AGC%20Images/LAWS/ACT_PDF/cap104.pdf; Royal Government of Cambodia (1995[5]), Sub-Decree No. 51 ANK/BK of June 26, 1995 on the organisation and functioning of the Council for the Development of Cambodia, https://ibccambodia.com/wp-content/uploads/2019/09/Law_on_investment_English.pdf; President of the Republic of Indonesia (2007[6]), Presidential Regulation No. 90 of 2007 concerning the Investment Coordinating Board, https://peraturan.bpk.go.id/Details/42141/perpres-no-90-tahun-2007; National Assembly of Lao PDR (2004[7]), Law on the Promotion of Foreign Investment, Law No. 11/NA, https://lsc.gov.la/Doc_legal/19.%20Foriegn%20Investment%20Promotion%20Law%20%282004%29%20Lao.pdf; Government of Malaysia (1965[8]), Malaysian Industrial Development Authority (Incorporation) Act 1965, https://live.origin.investmalaysia.gov.my/media/iaokbbwj/malaysian-industrial-development-authority-incorporation-act-1965.pdf; Congress of the Philippines (1967[9]), Republic Act No. 5186: Investment Incentives Act, https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/2/19296; Government of Singapore (1961[10]), Economic Development Board Act 1961, https://sso.agc.gov.sg/act/edba1961; Government of Thailand (1977[11]), Investment Promotion Act B.E. 2520, https://www.boi.go.th/english/download/boi_forms/proact_eng.pdf; Ministry of Planning and Investment (2017[12]), Decision No. 1895/QD-BKHDT of December 22, 2017 defining the functions, tasks, powers and organisational structure of the Foreign Investment Agency, https://luatvietnam.vn/co-cau-to-chuc/quyet-dinh-1120-qd-bkhdt-222669-d1.html.
In addition to differences in legal status, IPAs across ASEAN vary significantly in their governance, scope of mandates and operational models (OECD, 2023[3]). While most IPAs in ASEAN carry broad mandates that go beyond inward FDI attraction, only Indonesia’s Ministry of Investment and Downstream Industry and Viet Nam’s FIA focus primarily on this core function (Figure 3.1). A similar pattern appears in OECD countries, where agencies devoted solely to investment promotion are also rare. Only three out of 37 operate this way, since many are embedded in wider economic development bodies that also cover trade, innovation, or entrepreneurship (OECD, forthcoming[13]).
Across ASEAN, these broader mandates often include administering incentive schemes or SME support programmes, as in Brunei Darussalam, Singapore, and Thailand or engaging in the negotiation of international investment agreements, as in Myanmar. Notably, 60% of AMS IPAs have the mandate to grant tax incentives and 40% also provide non-tax incentives. This differs markedly from OECD agencies, where only 9% grant tax incentives and 29% provide non-tax incentives, and where export promotion is the second most common function (OECD, forthcoming[13]). Such wide-ranging mandates can strengthen policy coherence and alignment with development goals, although they risk diluting strategic focus if not matched with clear governance arrangements and adequate resources (Steenbergen, 2023[14]). This underscores the need for IPA core mandates to be strategically selected, adequately resourced, and effectively co-ordinated with other public bodies to avoid duplication and maximise the agency’s contribution to national development objectives.
Number of mandates
Source: Based on AMS IPAs’ websites and establishing statutes (2025).
3.2.2. AMS IPA strategies frequently promote investment in green and digital sectors
The effectiveness of investment promotion depends in part on how IPAs translate their mandates into clear strategies and targeted promotion efforts (OECD, 2021[15]; Loewendahl and Bryan, 2019[16]). Most AMS IPAs have adopted multi-year investment promotion strategies or sectoral plans that specify the types of investment to attract, the sectors and regions to prioritise, and the tools to employ.1 These strategies typically derive from national development or industrial plans and seek to align investment attraction with broader goals such as economic diversification, technological upgrading, and the green transition and the digital transformation (World Bank, 2023[17]; Sanchiz Vicente and Omic, 2020[18]).2 Identifying priority sectors enables IPAs to allocate resources more strategically and to tailor the design of services and outreach initiatives
Priority sectors identified by AMS IPAs frequently include renewable energy, advanced manufacturing, battery and electric vehicles, and semiconductors, reflecting the region’s ambition to position itself within emerging global value chains (Table 3.2). Virtually all AMS, except Singapore, have defined priority sectors. On average, AMS report targeting eight sectors out of 30 possible options, broadly in line with the average of ten sectors targeted by OECD IPAs (OECD, 2024[19]). Such a selective approach to investment promotion is likely to contribute to stronger IPA performance in attracting FDI according to existing research (OECD, 2024[19]; Harding and Javorcik, 2012[20]).
This growing focus on green and digital industries, with eight out of ten countries prioritising renewable energies, seven targeting data centres and cloud computing, and six focusing on advanced manufacturing, battery and electric vehicles, and semiconductors and other microelectronics – indicates convergence with global investment trends and with ASEAN’s own policy agendas, such as the ASEAN Digital Economy Framework and the Renewable Energy Long-Term Roadmap. Several AMS have also embedded these priorities in well-defined development strategies (e.g. Singapore's Smart Nation 2.0 initiative or Viet Nam’s National green growth strategy for the 2021-2030 period).
IPA sectoral priorities, by country (as reported by IPAs)
Note: Coloured cells indicate priority sectors for IPA:
for green sectors (Battery electric vehicle, blue economy and renewable energies).
for digital sectors (AI and machine learning, data centres and cloud computing, digital health, fintech and blockchain technologies, ICT and semiconductors and microelectronics).
for other sectors.
Singapore EDB indicated that it does not adopt a sector-specific prioritisation approach.
Source: OECD Survey on investment promotion and investment incentives (AMS, 2025).
Similar prioritisation patterns were already observed in a previous survey conducted in 2022, which found that the Sustainable Development Goals (SDGs) and digital transformation ranked among the top factors influencing investment promotion priorities for 56% of AMS IPAs, the highest share alongside alignment with the political or national agenda (OECD, 2023[3]). This reflects a shared ambition across the region to attract investments that contribute to decarbonisation, digitalisation, and the development of advanced regional value chains.
While OECD and ASEAN economies share some core investment priorities, notable differences emerge in how each region approaches the digital and green transitions (Figure 3.2). Renewable energy is the most prioritised sector in investment promotion strategies in both regions, highlighting a shared commitment to decarbonisation. Both ASEAN and OECD IPAs prioritise semiconductors to a similar extent, but the lower prioritisation of the broader ICT sector by ASEAN highlights a significant divergence in strategic focus that is evident in the supporting areas. ASEAN IPAs take an infrastructure-first approach and place significantly greater emphasis on data centres and cloud computing. OECD countries, by contrast, focus more on advanced applications such as artificial intelligence and machine learning, digital health, and fintech.
Source: OECD survey on investment promotion and investment incentives (OECD countries, 2024; AMS, 2025).
At the same time, many AMS continue to promote more traditional sectors such as agrifood, tourism, and textiles, illustrating a dual priority of sustaining employment-intensive industries while moving towards high-technology segments. Aligning these objectives requires effective policy co-ordination to avoid dispersion of promotional efforts and ensure that limited public resources target the most strategic sectors. Notably, an analysis of AMS investment tax incentives reveals that such benefits remain available for several non-priority industries (see Design section below).
Despite improvements in strategic alignment, the public availability of IPA strategies remains limited. Only a few ASEAN IPAs, such as those of Thailand and the Philippines, publish comprehensive investment promotion strategies that are accessible to the public, including investors. This is low compared with OECD countries, where most have an investment promotion strategy but only 51% make their strategies publicly available (OECD, forthcoming[13]). Ensuring these documents are accessible helps communicate policy priorities, strengthen investor confidence, and signal a commitment to transparency and accountability. Public strategies can also strengthen domestic co-ordination. When line ministries, local governments, and regulators share a common understanding of the IPA’s priorities, they can more effectively align their respective actions, including regulatory frameworks, permitting processes, infrastructure planning, and skills development with national investment priorities.
3.2.3. AMS IPA facilitation measures are complementing prioritisation strategies
Beyond strategic prioritisation, effective investment promotion also depends on how investors experience the regulatory and administrative environment once they decide to enter or expand in a country. This is where investment facilitation becomes a critical complement to promotion. While promotion generates investor interest in priority sectors, facilitation supports investors in establishing, operating, and expanding their activities by improving transparency, predictability, and the efficiency of procedures (Novik and de Crombrugghe, 2018[21]).
ASEAN has taken steps to strengthen facilitation through the ASEAN Investment Facilitation Framework, which promotes transparency of measures, streamlining of administrative procedures, and greater use of digital tools to improve service delivery (Box 3.1). It also promotes advisory support for investors, co-ordination across competent authorities, temporary entry for businesspersons, facilitation of investment-supporting factors, and structured consultation mechanisms.
Digital tools are becoming central to easing administrative requirements by improving access to information, reducing paperwork, and allowing investors to navigate procedures more efficiently. Many AMS have established single digital platforms integrating services such as investment applications, information portals, advisory channels, and e-registration, creating a strong foundation for further digitalisation of facilitation services across the region. Selected examples include:
CDC Suppliers Database with Sustainability Dimensions: Online database that provides information of suppliers as well as their sustainability characteristics.
MIDA InvestMalaysia Portal: an end-to-end online platform providing a single-entry point for applications overseen by MIDA, including status tracking and information on available incentives.
Although digitalisation is progressing, many AMS IPAs have not yet made full use of emerging technologies such as artificial intelligence. AI could enhance facilitation by enabling smarter portals with real-time feedback, improved inter-agency co-ordination, investor dashboards, policy-matchmaking tools, and interactive maps showing available greenfield and brownfield sites. These applications can support more efficient and responsive facilitation services.
Source: ASEAN (2022[22]), ASEAN Investment Report 2022, https://asean.org/book/asean-investment-report-2022; CDC (2021[23]), The Suppliers Database with Sustainability Dimensions, https://sd2.cdc.gov.kh.
Building on this regional framework, AMS have expanded domestic facilitation efforts. One-stop shop centres are now widespread, though their scope and degree of integration vary, and they are not always housed within IPAs (ASEAN, 2022[22]). Digitalisation is progressing in many countries, yet fully integrated single-window systems remain under development. Monitoring tools such as the ASEAN Investment Facilitation Monitor also highlight persistent differences across countries in business registration, licensing, and how regularly regulatory information is updated.
Some AMS are going further by introducing mechanisms that target bottlenecks in strategic sectors. Thailand’s BOI launched FastPass to shorten approval and licensing times by 20 to 50% for major projects in data centres, clean energy, industrial estates, and electronics, with implementation beginning in December 2025 (Thailand BOI, 2025[24]). In the Philippines, Executive Order 18 on Green Lanes for Strategic Investments streamlines and automates procedures to attract investment in clean energy, electric vehicles, and new technologies (Philippines BOI, 2024[25]). These measures are increasingly important as AMS prioritise high-value green and digital projects, where investors often face complex requirements and need timely, reliable administrative processes.
While IPAs play an important operational role, effective investment facilitation ultimately requires a whole-of-government approach. Many bottlenecks lie outside the remit of IPAs, underscoring the importance of coherent co-ordination across ministries and agencies so that facilitation reforms effectively reinforce the sectoral priorities set out in national strategies and IPA plans.
3.3.1. Investment incentives, particularly corporate income tax relief, are a key tool in AMS investment promotion efforts
Investment incentives form a central pillar of investment promotion strategies across ASEAN. Tax incentives, in particular, are a core and long-standing component of investment promotion strategies in all AMS (OECD, 2019[26]). Every AMS offers corporate income tax (CIT) incentives, and 60% of them provide exemptions on taxes on goods and services, making these the most common instruments promoted by IPAs (Table 3.3). By contrast, incentives linked to other tax categories are less widespread. Two-thirds of AMS offer relief on indirect taxes such as value-added tax (VAT) or trade-related duties (e.g. customs duties), but only the Philippines provides incentives on payroll or property taxes, and none offer relief on social security contributions. This diverges from practices in OECD economies, where one-third offer incentives on social security contributions. Heavy reliance on fiscal incentives in AMS may, however, create risks of redundancy, foregone revenue, and competitive escalation between jurisdictions (IMF et al., 2015[27]).
Note: Coloured cells indicate the presence of at least one incentive of this type as reported by AMS IPAs.
Source: OECD survey on investment promotion and investment incentives (AMS, 2025).
Among non-tax incentive instruments, regulatory incentives, such as differential regulation and standards, specialised administrative support, or preferential treatment in public procurement, are widespread across the region and more common than in OECD countries. Specialised administrative support, including expedited licensing, simplified documentation, and dedicated support throughout the investment process, is provided in 60% of AMS, compared to 43% in OECD countries. In developing and emerging economies, where regulatory or administrative barriers and transparency challenges often persist, such measures may help mitigate administrative burdens and uncertainties for investors. This may contribute to accelerate project implementation and reduce operational costs, thereby improving the overall investment climate. For example, Malaysia’s Digital Investment Office (DIO) serves as a single window to co-ordinate and facilitate administrative procedures for digital investments (Box 3.2).
Financial incentives – such as grants, preferred loans, and guarantees – remain relatively limited in AMS compared to OECD countries, partly due to their more immediate budgetary implications. Only 30% of AMS offer direct grants, and only Singapore provides loan or guarantee-based incentives, compared to 80% and 74% of OECD countries, respectively. Unlike grants or subsidised loans, tax breaks do not require immediate government spending, which may create the perception that they entail lower budgetary costs and contribute to a policy bias in their favour (OECD, 2010[28]; World Bank, 2024[29]; Van Parys, 2012[30]).3 In-kind benefits, by contrast, are used similarly in both AMS and OECD groups, applying in 30% and 31% of the countries respectively.
The DIO is a collaborative platform established by the MIDA and the Malaysia Digital Economy Corporation to co-ordinate and facilitate all digital investments, both foreign and local, into Malaysia. The DIO online platform offers investors a streamlined approach for considering investment proposals. Through a co-ordinated application process, it enables investors to receive prompt responses from the relevant DIO officer. Furthermore, the DIO supports end-to-end investment facilitation, encompassing pre-approval and post-approval processes, including support for expatriates and digital talent. Digital investment projects undergo a joint evaluation by MIDA and MDEC, ensuring a faster and more efficient process. Previously, investors had to navigate multiple channels, which frequently caused confusion and the potential loss of digital investment leads.
This platform is a direct result of the support for the MyDIGITAL Blueprint, which was launched in February 2021. Specifically, it aims to achieve the Blueprint's goals of securing RM70 billion in investments by 2025 and increasing the digital economy’s contribution to Malaysia’s GDP from 19.1% to 22.6%.
Source: Ministry of Economy of Malaysia (2021[31]), The launch of the Digital Investment Office Official Online platform, https://ekonomi.gov.my/en/node/2325.
3.3.2. Incentives target a broad range of objectives but are not always aligned with investment promotion strategies
AMS deploy a wide array of tax and non-tax incentives to attract investment and support diverse policy objectives, yet the focus of these incentives does not always match the priorities outlined in national investment promotion strategies. While most investment promotion strategies emphasise the digital transition and climate-related objectives, IPAs report that the top three policy objectives of their incentives mainly pursue core economic goals such as boosting productivity and innovation, facilitating investment, and promoting employment (Figure 3.3, Panel A). No IPA explicitly identifies climate action, the digital transition, regional development, or gender and social inclusion as core objectives of its incentives framework. This suggests that incentive policies and promotion strategies may not always be fully aligned, even when they target similar sectors.
However, some incentives do incorporate design features, which promote certain development areas. For instance, eligibility or performance conditions may be set in line with specific socio-economic goals (e.g. minimum investment thresholds or requirements for job creation, or energy-efficiency targets); tax relief can be targeted at income streams linked to national priorities (e.g. reduced CIT rates for export earnings) or at lowering the cost of activities that generate wider societal benefits beyond the investing firm (e.g. tax credits for training expenditure or allowances for R&D investment). Analysing these design elements helps reveal which investors, sectors, and activities a country aims to promote, and helps to clarify the broader policy objectives embedded in its incentive regime. Even if not promoted via incentives, AMS may use other measures to advance certain policy objectives (e.g. regulations).
All AMS offer at least one CIT incentive that targets broader development objectives through specific eligibility or outcome conditions, such as job creation requirements, minimum domestic sourcing thresholds, or criteria tied to reducing the environmental impact of FDI (Figure 3.3, Panel B).
Environmental objectives are supported in eight AMS through eligibility conditions tied to green assets or targeting of green sectors. For example, Cambodia’s Qualified Investment Project scheme targets a range of agriculture, manufacturing and service sectors, including eco- and green tourism, renewable energy generation, sustainable waste management, and low-impact manufacturing and agriculture. Malaysia’s Green Investment Tax Allowance promotes the acquisition of certified green technologies—such as electric vehicles and renewable-energy storage systems—and supports the development of renewable energy and hydrogen projects.
Job quality and skills development, as well as Employment and job creation, feature prominently as well: Indonesia allows firms to deduct 200% of spending on internships, training, and education programmes, incentivising spending on workforce upskilling.
Export promotion, more central in ASEAN than in OECD economies, is a key objective in five AMS. The Philippines, for instance, offers up to seven years of CIT exemption followed by ten years of a special 5% tax rate to firms exporting at least 70% of their output.
Local linkages are encouraged in two countries: the Philippines provides an additional 50% deduction for domestic input expenses, while Thailand grants a three-year CIT exemption at 100% of the investment value for upgrading production lines with automation or robotics, provided at least 30% of the system's value links to or is supported by the domestic automation industry.
Social inclusion is explicitly targeted only in Viet Nam, which offers a permanent CIT exemption to enterprises whose workforce comprises at least 30% employees from disabled people, rehabilitated drug abusers or HIV/AIDS patients; and via a tax credit for firms when hiring or ethnic minority employees under certain conditions
In some cases, multiple incentives coexist with overlapping or even conflicting aims or apply broadly across multiple sectors, risking diluting policy impact. For example, in instances where incentives still extend to fossil fuel–related activities and potentially undermine national sustainability commitments. These inconsistencies contribute to wider gaps between the stated objectives of incentive policies and the strategic priorities set out in national and regional investment promotion strategies, particularly those centred on sustainability and digitalisation. Strengthening coherence between incentive design and strategic goals would help AMS ensure that public resources are deployed more effectively in support of high-impact, future-oriented development priorities.
Note: Panel B: the ITID identifies development goals that are commonly targeted through CIT incentive design features which include the six areas shown in the figure. For more information on the indicator methodology, please refer to Annex 3.A.
Source: Panel A: OECD survey on investment promotion and investment incentives (AMS, 2025). Panel B: OECD ITID, February 2025, capturing 1885 CIT incentive entries in 74 economies.
3.3.3. ASEAN IPAs generally consider that investment incentives significantly influence investment decisions
ASEAN IPAs attach high strategic value to investment incentives – particularly CIT incentives – often more so than OECD counterparts. They rank these instruments above other promotion measures, such as aftercare or regulatory facilitation, in terms of their perceived contribution to effective investment promotion (Table 3.4).4 Among the various factors potentially influencing investment decisions, AMS IPAs view CIT incentives as the most influential factor for export-oriented investments and the second most important for both resource-seeking and market-seeking projects, just after natural resource availability and market size respectively. By contrast, OECD IPAs tend to regard incentives as complementary tools, placing greater emphasis on services that enhance the overall business environment and investor experience.
Average ranking out of 10 possible options (from most important to least important measure)
Source: OECD survey on investment promotion and investment incentives (OECD countries, 2024; AMS, 2025).
These perceptions contrast with global empirical evidence showing that incentives generally play a secondary role in investors’ location decisions, considered only after fundamentals such as market size, logistics, skills availability, and regulatory quality (Katitas and Pandya, 2024[32]; Andersen, Kett and von Uexkull, 2018[33]). This comparatively strong emphasis on fiscal incentives suggests that AMS IPAs may be underutilising other policy tools that can be equally, if not more, effective in promoting investment and maximising long-term developmental impact.5 Offering tax incentives to projects that are not primarily tax-sensitive can have limited influence on location decisions, resulting in a waste of resources that could have otherwise been used elsewhere. For instance, resource-seeking investors respond mainly to the location of the resource itself, while efficiency-seeking firms may react to tax incentives, but may also relocate elsewhere once the benefit expires (Johnson and Toledano, 2023[34]; James, 2014[35]).
The relatively low priority assigned to aftercare services by AMS IPAs highlights an opportunity to rebalance promotion strategies towards facilitation, retention and investor servicing. Such functions, including helping investors navigate administrative requirements, supporting business expansion, and channelling investor feedback into policy reform, can be critical for encouraging reinvestment, which typically accounts for a substantial share of FDI inflows. A more balanced approach may also be particularly relevant given the fiscal constraints many AMS face, as tax bases remain mostly narrow and often fail to adequately capture emerging sectors of the economy (Stotsky and Bhattacharya, 2022[36]; ASEAN+3 Macroeconomic Research Office, 2025[37]).
3.4.1. CIT benefits are the principal investment incentives in AMS, yet their effectiveness depends on smart design
The effectiveness and fiscal cost of investment incentives depends critically on their design features. International evidence shows that incentives can influence investment behaviour only under certain conditions. They are warranted only when tailored to address specific market failures or distortions that hinder socially optimal outcomes and that cannot be remedied more effectively or efficiently through alternative instruments, such as regulatory reforms, infrastructure investments, or targeted expenditure measures (OECD, 2026[38]). By contrast, poorly designed incentives, especially fiscal and financial incentives, may generate redundancy, create distortions, and impose high fiscal costs without delivering commensurate benefits.
Many governments recognise the potential drawbacks of providing incentives, notably tax incentives, but face significant pressure to grant generous relief to compete with other jurisdictions for investment or in response to corporate lobbying. Aside from country-specific economic and institutional conditions, adequate governance structures and tailoring incentive design to the policy problem are critical to mitigate potential inefficiencies and maximise positive spillover effects (Celani, Dressler and Wermelinger, 2022[39]; James, 2014[35]; James, 2013[40]; IMF et al., 2015[27]; OECD, 2022[41]). Clearly identifying the underlying barrier to investment, such as high upfront costs, information gaps, or financing constraints, and assessing whether a tax measure is the most appropriate tool to address it are fundamental steps in designing effective incentive policies. The more precisely the barrier is defined, the more effectively the incentive can be structured to achieve the intended outcome. For example, using CIT incentives to boost employment in a specific region may be ineffective if the binding constraint is a shortage of skilled labour rather than labour costs.
Once a sound rationale is established, designing a tax incentive scheme requires careful consideration of multiple elements: the instrument used (see Box 3.3), the targeting scope (e.g. qualifying income or specific expenditure categories, such as R&D, training or acquisition of energy-efficient equipment see ), the generosity of relief, and limits on its duration or cost (e.g. sunset clauses or caps) (OECD, 2026[38]). These elements influence investor behaviour, fiscal costs, policy outcomes, making them critical for incentives effectiveness in achieving stated policy objectives and at what cost. Design choices need also to consider the available administrative capacity, as some policy approaches require more intensive verification and monitoring than others.
The most commonly observed CIT incentives are often categorised as income-based tax incentives (CIT exemptions and reduced CIT rates), which relate to the income generated by a firm, and expenditure-based tax incentives (tax allowances and tax credits), which relate to the capital or current expenditure of firms.
Tax exemptions provide a full (100%) or partial (less than 100%) exemption of qualifying taxable income, which may refer to all of a business’ income or income from particular sources (e.g. export income).
Reduced rates are CIT rates set below the standard rate for qualifying taxable income and apply on a temporary or permanent basis.
Tax allowances are deductions from taxable income (i.e., income subject to taxes) and may target current or capital expenditures. Qualifying capital expenditures are generally asset specific (e.g. machinery, buildings, equipment). Qualifying current expenditures tend to be activity specific (e.g. spending on training, R&D, exporting). Tax allowances can accelerate the rate of deducting capital costs (up to 100% of incurred costs) or enhance deductions beyond 100% of the acquisition cost. The latter includes allowances that apply in addition to standard depreciation resulting in deductions that effectively exceed the initial capital cost, for example, allowing firms to deduct 150% of the value of a new machine. Tax allowances for current expenditure are typically enhancing.
Tax credits are deductions from the amount of taxes due (i.e., tax liability) that may relate to capital expenditures or current expenditures.
Note: Additional information on how the key design features affect tax relief is discussed in (Celani, Dressler and Hanappi, 2022[42]).
Source: Celani, Dressler and Wermelinger (2022[39]); and Celani, Dressler and Hanappi (2022[42]).
3.4.2. Income-based tax incentives are prevalent and offered in all AMS
Income-based incentives (CIT exemptions and reduced CIT rates) remain the predominant instruments used in AMS and several other emerging economies. All AMS provide full CIT exemptions, with durations ranging from six years (Viet Nam) to 30 years (Indonesia). Similar patterns are observed in peer regions, where between 75 and 100% of countries also offer CIT exemptions (Figure 3.4, Panel A). In several AMS, namely Lao PDR, Malaysia, Myanmar, the Philippines, Thailand and Viet Nam, exemptions are followed by reduced CIT rates or partial exemptions for an additional period.6 For example, eligible high-tech investors in Viet Nam can receive a full CIT exemption for six years followed by a 50% CIT reduction for 13 years. By contrast, expenditure-based incentives (tax allowances and tax credits) remain less prominent, although many AMS also offer some form of tax allowance or credit (except Lao PDR and Myanmar) (Figure 3.4, Panel B).
Note: Panel A: as % of countries per region, using the indicated tax instrument for at least one CIT incentive. Panel B: Number of CIT incentives using the indicated tax instrument, per AMS.
Source: OECD ITID (February 2025), capturing 1885 CIT incentive entries in 74 economies.
In principle, tax incentives should stimulate investment that would not occur in their absence. However, evidence on the effectiveness of income-based incentives in generating ‘additional’ investment is largely disappointing. Studies show that in countries with weaker investment environments, income-based incentives have often failed to attract additional investment (Klemm and Van Parys, 2012[43]; Chai and Goyal, 2008[44]; Van Parys and James, 2010[45]). These incentives are expected to primarily influence foreign investors in highly mobile, low-upfront cost activities focused on short-term cost-reduction – activities that are also more ‘footlose’ and prone to divestment once incentives expire. Such dynamics may also crowd out domestic investment (Klemm, 2009[46]; Botman, Klemm and Baqir, 2008[47]). As a result, income-based incentives often operate as “beggar-thy-neighbour” measures, shifting investment across jurisdictions rather than creating new investment globally.
Income-based incentives as used in AMS and elsewhere may be impacted by the Global Minimum Tax (GMT) (OECD, 2022[41]). The GMT establishes a co-ordinated system where large multinational enterprises (MNEs) and their subsidiaries are subject to a minimum effective tax rate of 15% (Box 3.4). The minimum tax rate applies a top-up tax so that MNE profits in excess of a certain level of economic activity in the jurisdiction are taxed at the 15% minimum tax rate. The GMT is designed to preserve the ability of countries to use the tax system to support and steer investment, particularly when this investment results in real economic activity. At the same time, the GMT reduces the returns from Base Erosion and Profit Shifting (BEPS) practices and places limits on certain forms of tax competition between jurisdictions (OECD, 2026[48]). The GMT affects the use of tax incentives. When an in-scope MNE benefits from a CIT exemption or reduced tax rate that results in an effective tax rate below 15%, it may be subject to a top-up tax, collected in the host jurisdiction or another jurisdiction that has implemented the rules. As a result, the GMT is expected to strongly curb harmful tax competition and encourage better incentive design. It may also lead countries to rethink their promotion strategies by placing greater emphasis on tools other than CIT incentives (Box 3.5).
The Global Minimum Tax (GMT) represents a major change in the taxation of multinational businesses. It modernises the international tax system to tackle longstanding issues of corporate tax avoidance by MNEs and places multilaterally agreed limits on international tax competition. This allows governments to strike a better balance between domestic resource mobilisation through corporate income taxes and attracting FDI.
The GMT applies through the Global Anti-Base Erosion (GloBE) Rules, a co-ordinated system of domestic rules that ensure a minimum level of taxation for in-scope MNEs across jurisdictions. In-scope MNEs have annual global revenues equal to or greater than EUR 750 million in at least two of the four previous financial years. Under the rules, where the combined income and taxes of all of the MNE group’s subsidiaries in a given jurisdiction yields an effective tax rate (ETR) below the minimum rate of 15%, a top-up tax is due to bring the ETR up to 15%. This top-up tax can be collected in the jurisdiction where the profit is under-taxed, or – if that jurisdiction does not implement the rules – it may be collected by another jurisdiction that has implemented parts of the rules.
The GMT applies to an MNE’s excess profits, which are determined after deducting a substance-based income exclusion (SBIE). The SBIE is computed as a fixed percentage of the MNE’s payroll and tangible assets located in the jurisdiction. Limiting the application of the GMT to excess profits means that firms with substantial economic activity in a jurisdiction may continue to benefit from reduced tax rates in that jurisdiction without being subject to the top-up tax. This means routine profits on substantive activities will be shielded from the effect of GMT, even if they have an effective tax rate below 15%.
Impact on use of tax incentives
The design of the GMT preserves the ability of countries to use tax incentives to support and steer investment, especially where the incentives result in real economic activity. It also gives countries the opportunity to strike a better balance between using the tax system to influence investment decisions, while limiting revenue costs and competitive distortions that come from very generous incentives offered to the most profitable firms.
How the GMT affects tax incentives depends on the tax incentive design and the characteristics of MNEs and their activities in the country. Notably, the GMT will not affect tax incentives that benefit firms that are not in scope, such as domestic firms or subsidiaries of MNE groups with revenues below EUR 750 million.
The GMT also treats different types of incentives differently. For example, low effective tax rates that arise from incentives such as accelerated depreciation for tangible assets will not lead to top-up taxation under the rules. The GMT also provides more favourable treatment to certain expenditure-based and production-based tax incentives (Qualified Tax Incentives, or QTIs), where these incentives are associated with tangible assets and employment. Low tax rates arising from QTIs are therefore less likely to lead to top-up taxation under the rules than income-based tax incentives, if the MNE group has sufficient economic activity in the jurisdiction. These features mean that incentive types that offer the least value for money are discouraged under the GMT.
The impact of the GMT on tax incentive policies, and investment policies more broadly, thus depends on a variety of factors, calling for a careful analysis so that countries can best consider their policy options.
Source: OECD (2026[48]), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), Side-by-Side Package: Inclusive Framework on BEPS, www.oecd.org/content/dam/oecd/en/topics/policysub-issues/global-minimum-tax/side-by-side-package.pdf
Due to the co-ordinated nature of the GMT, all countries have a strong incentive to assess how the GMT impact their taxpayers and tax incentives. Except for Cambodia, Lao PDR and Myanmar, all AMS have endorsed the GMT. Indonesia, Malaysia, Singapore, Thailand and Viet Nam have already implemented all or part of the GMT.
Expenditure-based incentives, on the other hand, can be designed to provide tax relief in direct proportion to qualifying investment, thereby directly reducing the cost of capital for new investment. This makes them more effective at supporting investment that would not otherwise occur (OECD, 2026[38]; IMF et al., 2015[27]). They also tend to be more targeted, limiting scope for unintended beneficiaries and mitigating some of the inefficiencies associated with income-based incentives. Evidence from high-income countries shows that measures such as accelerated depreciation, immediate expensing, enhanced allowances and R&D or investment tax credits have had success in stimulating new investment (House and Shapiro, 2008[49]; Zwick and Mahon, 2017[50]; Rodgers and Hambur, 2018[51]; Maffini, Xing and Devereux, 2019[52]; Ohrn, 2019[53]; Guceri and Liu, 2017[54]; Hall, 2019[55]; OECD, 2023[56]).
Expenditure-based incentives may also be less affected by the GMT when designed to support investments that increase economic substance in the host jurisdiction, such as through higher levels of tangible assets or employment (OECD, 2022[41]). AMS could, therefore, assess whether a gradual shift away from broad income-based incentives towards more targeted expenditure-based incentives would deliver policy objectives more effectively and at lower fiscal cost. Guidance on selecting types and design features of expenditure-based incentives is provided in OECD (2026[38]).
The evolving global tax landscape, including the introduction of the GMT may influence the role of both tax and non-tax incentives in investment promotion. While most OECD IPAs (60%) do not expect major changes to their strategies due to their limited reliance on CIT incentives, all ASEAN IPAs, except for the Philippines, report that they consider adjusting their approaches in response to GMT (Figure 3.5). Half plan to shift their incentive mix toward GMT-compatible alternatives, such as expenditure-based tax incentives and non-tax instruments. Furthermore, 60% also expect to place greater emphasis on marketing and promotion, and an equal share plan to strengthen investment facilitation measures by streamlining procedures, while half intend to improve regulatory certainty and the quality of legislation.
The scope of planned adjustments varies across AMS IPAs. The Brunei Economic Development Board and the Lao Investment Promotion Department intend to implement all four major changes, signalling a comprehensive re-evaluation of their promotion and facilitation strategies. Others, such as Cambodia’s CDC and Myanmar’s DICA, anticipate more targeted adaptations focused primarily on promotion and marketing. Taken together, these shifts point to a broader opportunity for ASEAN IPAs to reduce reliance on CIT incentives and place greater weight on other policy tools.
Source: OECD survey on investment promotion and investment incentives (OECD countries, 2024; AMS, 2025).
3.4.3. Eligibility criteria of CIT incentives in ASEAN follow similar patterns to those in other regions
ASEAN countries use a mix of sectoral, location-based, size-based, and performance-based criteria to target prioritised activities, following similar patterns to those in other regions. Sector and location requirements (e.g. SEZ location conditions) are the most common targeting tools, followed by minimum investment thresholds and outcome-based conditions (Figure 3.6, Panel A). All AMS restrict eligible sectors and all, but Singapore and the Philippines apply SEZ criteria in at least one incentive (Figure 3.6, Panel B).7 Reliance on SEZ conditions is stronger than in most peer regions, with the exception of MENA, where all surveyed economies have at least one CIT incentive targeting projects located in SEZs. Minimum investment requirements and outcome-based conditions are employed in six out of ten AMS – more frequently than in Eurasia, at similar levels to SADC, but less commonly than in LAC and MENA.
Note: Panel A: as % of countries per region, using the indicated eligibility condition for at least one CIT incentive. Panel B: Number of CIT incentives using the indicated eligibility condition, per AMS.
Source: OECD ITID (February 2025), capturing 1885 CIT incentive entries in 74 economies.
The prominent targeting of SEZs is hardly surprising, as they have been central to the export-led development strategies of ASEAN economies for decades and are part of their economic development strategies. In Viet Nam, for instance, SEZs accounted for over 50% of total FDI and 80% of manufacturing FDI in 2020 (ASEAN, 2020[57]). In these zones, investors typically receive preferential tax treatment on CIT and other taxes and regulatory advantages (e.g. relaxed regulatory standards). Location-based tax and non-tax incentives are also granted in industrial parks by half of AMS, notably Brunei Darussalam, Indonesia, Lao PDR, Philippines, and Viet Nam. Industrial parks are increasingly developing green and digital manufacturing. In 2024, for instance, Indonesia inaugurated the Wiraraja Green Renewable Energy & Smart-Eco Industrial Park in Batam. This park is designated as the hub for Indonesia's semiconductor ecosystem, covering areas such as polysilicon production as well as cleantech components such as solar cells, batteries, and energy storage systems (Putra and Ginting, 2024[58]).
Amongst the 90% of AMS that tie incentives to specific geographic locations, more than half target remote or underdeveloped regions, namely Cambodia, Indonesia, Lao PDR, Myanmar, the Philippines, and Viet Nam. These location-based incentives are often designed to encourage more balanced regional development and support local economic potential. However, since no AMS IPA identified regional development as a top objective of their country’s incentive policies, this may suggest that geographic incentives are not always part of a clearly defined regional strategy.
Investment size criteria, demanding firms to invest a minimum amount of money or operate with a minimum number of employees at the early stage of the project, are commonly used to determine eligibility for both tax and non-tax incentives. These conditions are typically intended to secure tangible economic benefits and support industrial development (Collins, 2015[59]). Within the range of CIT incentives examined, minimum investment thresholds are used exclusively with CIT exemptions, except for Thailand, where they also apply with a reduced CIT rate. Required investment amounts vary substantially across AMS, from LAK 1.2 million (approximately USD 55 500) in Lao PDR to USD 50 million in Brunei Darussalam, and in some cases are expressed in relative terms. For example, to qualify for an extended CIT exemption in Thailand, investors may choose between investing THB 200 million or 1% of total sales in the first three years (Thailand BOI, 2022[60]). To benefit from tax or non-tax incentives, some AMS, notably Indonesia, Lao PDR, Malaysia and Singapore, require investors to meet both a minimum capital investment and a minimum employment threshold, such as employing a minimum share of national workers or workers with a diploma, performing technical and research functions.
The broad use of such conditions reflects efforts to align incentives with key priority objectives identified by AMS IPAs, notably investment attraction and job creation. However, high thresholds may inadvertently exclude smaller or early-stage projects that could generate long-term development benefits. This is particularly relevant for innovation-driven sectors, such as cloud computing or small-scale renewables, which are prioritised by AMS IPAs but may not meet stringent capital or employment requirements despite their strategic value. Moreover, it is not evident that larger projects inherently deliver greater societal benefits than multiple smaller ones. High thresholds may therefore risk inefficient resource allocation and lead to unnecessary fiscal costs (OECD, 2022[61]; OECD, 2015[62]). Some countries opt for a staggered approach with thresholds varying depending on a firm’s annual turnover (OECD, 2023[63]). In many cases, however, a more effective approach could be to employ expenditure-based CIT incentives, which provide benefits in proportion to actual business expenses and can be easier to target and monitor.
A distinctive feature of ASEAN relative to peer regions is the comparatively high use of ownership conditions, 40% of AMS (Brunei Darussalam, Malaysia, Singapore and Viet Nam) apply ownership-related requirements, compared with 0-22% in other regions. These conditions may relate to legal form (e.g. publicly listed firms, co-operatives) or capital origin (e.g. minimum or maximum domestic or foreign shareholding). For example, Viet Nam offers tax exemptions to agricultural co-operatives operating in disadvantaged areas.
3.4.4. Broad sector targeting of incentives is not always aligned with other development strategies
Sector-based conditions are a long-standing tool used to support manufacturing, export-oriented, and pioneer industries, and to promote investment in sectors with high spillovers potential (Janet, 2024[64]). ASEAN countries are actively promoting investment in green and digital sectors by directing incentives and strategic focus toward renewable energy, electric vehicles, semiconductors, and digital infrastructure. Renewable energy and manufacturing of batteries and electric vehicles rank among the most frequently promoted sectors, stated as a priority sector in 80% and 60% of ASEAN IPAs, respectively. This focus is consistent with strong investment momentum across the entire renewable energy supply chain, from critical minerals to component manufacturing and power generation. Between 2020 and 2023, renewable energy industries in ASEAN attracted over USD 27 billion annually in greenfield FDI, about a quarter of total greenfield investment in the region (ASEAN, 2024[65]).
More than half of AMS also offer incentives for semiconductors, in line with regional strategies to strengthen participation in global semiconductor value chains. For example, Viet Nam’s semiconductor strategy (Decision 1018/QD-TT, 21 September 2024) seeks to further position the region as a unified production hub, covering activities from mineral extraction to packaging and distribution (VNTR, 2024[66]). Digital transformation is another major priority: incentives for data centres and cloud computing are offered in half of the countries and 70% of IPAs highlight them as critical to the region’s fast-growing digital economy. Although Singapore remains the only ASEAN country in the top ten global ranking for data-centre markets, Southeast Asia is one of the fastest-growing regions for data infrastructure (IEA, 2025[67]; FTI Consulting, 2025[68]).
Beyond these new-economy sectors, traditional industries continue to attract substantial policy attention. The automotive industry remains a priority for investment promotion for half of AMS, drawing significant investment incentives, and supported by competitive labour costs (e.g. Viet Nam and the Philippines), strong supplier networks (e.g. Thailand and Malaysia), and intra-ASEAN trade integration (ASEAN, 2023[69]). Furthermore, 60% of AMS offer incentives for battery electric vehicles (EVs), reflecting ambitions to shift from combustion engines and tap into growing demand for cleaner transport systems (IEA, 2025[70]; OECD, 2024[71]). Other traditional industries reported as priorities of AMS IPA are advanced manufacturing (in 60% of countries); ICT (50%); food processing (50%); health, pharmaceutical and life sciences (50%), ICT (40%), tourism, agriculture and livestock (in 40%, respectively).
While IPAs report increasing focus on priority sectors, CIT incentives, one of the main tools for investment promotion in ASEAN economies, are available to almost any sector, potentially rendering policies to support the green and digital transition less effective. Evidence from the ITID, shows that in almost all AMS, firms from nearly any sector can access at least one CIT benefit (Table 3.5). Several countries operate multiple overlapping incentives with wide sectoral coverage, resulting in investors being eligible for more than one incentive simultaneously. Enhancing alignment would help ensure that public resources are directed toward the most strategic sectors, including those identified in the ASEAN Regional Investment Promotion Action Plan 2025-2030 (Box 3.6).
All AMS except Indonesia and Thailand offer at least one tax exemption covering the entire manufacturing sector, and frequently extend these benefits to agriculture, services or mining (Table 3.5). Broad targeting is most common with CIT exemptions (Brunei Darussalam, Thailand), but some countries employ broad sector targeting even when using a mix of instruments, combining exemptions with tax allowances (Cambodia, Malaysia, Philippines), with reduced rates (Singapore, Viet Nam) and tax credits (Viet Nam). Broad targeting may reduce distortions, but it can also raise fiscal costs and undermine policy objectives. For instance, some AMS offer tax benefits for electricity generation from both renewable and non-renewable sources (e.g. Cambodia, the Philippines, Viet Nam), weakening the incentive to shift towards clean energy.
Blue squares indicate that the country (y-axis) has at least one corporate income tax incentive with a sector condition targeting the corresponding sector or sub-sector (x-axis)
Note: The table reflects a positive list targeting approach, i.e. mentioned sectors or sub-sectors are eligible to receive preferential tax treatment. It does not consider negative lists, i.e. mentioned sectors are not eligible for incentives, and incentives without any sector targeting, e.g. allowances on current expenditure available for all sectors. The sector classification used corresponds to the United Nations International Standard Industrial Classification of All Economic Activities (ISIC) rev. 4.
Source: OECD ITID (February 2025), capturing 1885 CIT incentive entries in 74 economies.
Narrowing the scope of incentives via eligibility conditions or the choice of tax instrument can help to reduce costs and may better support policy goals, including those related to the green and digital transitions. Some countries use additional conditions, such as requirements related to a project’s complexity and innovation potential, to narrow eligibility. For example, the Philippines offers a full seven-year tax exemption for innovative manufacturing and technology-based projects, including additive manufacturing, the production of highly technical goods, and innovative start-ups. In other cases, countries use expenditure-based incentives to refine targeting within a broad sectoral scope. Malaysia, for instance, provides a double deduction for automation expenditure for the first RM 10 million (roughly USD 2.4 million), applicable across manufacturing and selected service industries, provided the investment improves productivity (e.g. reduced labour or increased volume of output), uses more advanced technologies than current ones, and incorporates Industry 4.0 technologies (e.g. additive manufacturing, advanced materials, artificial intelligence, augmented reality, autonomous robots, big data analytics, cloud computing, cybersecurity, internet of things (IoT), simulation and system integration) (MIDA, 2024[72]).
While targeting via tax instruments and eligibility conditions can limit revenue costs and can better support specific policy objectives, it may cause high implementation and compliance costs, as well as potential distortions (OECD, 2026[38]). Very narrow targeting risks distorting markets by picking winners potentially locking in specific technologies. In some cases, e.g. when promoting selected sectors, firms with political influence or market power might influence targeting decisions. Targeting can also introduce complexity for investors, especially smaller investors, which can deter the investment sought (Cui, Hicks and Xing, 2022[73]). This makes transparency-enhancing efforts outlining the specific requirements of incentives even more pertinent. AMS are recommended to assess whether available incentives are best targeted and consider these trade-offs.
Coherence between sector-specific incentives and strategic priorities identified in investment promotion varies considerably. Coherence, where a sector is both prioritised and incentivised, or neither, is relatively strong in Singapore, Myanmar, Brunei Darussalam, and Cambodia, where more than 80% of sectors are aligned. In other AMS, alignment is more limited. At the sector level, agrifood and food processing, health and life sciences, batteries and EVs, and semiconductors show the strongest alignment across countries. However, notable mismatches persist. For instance, aerospace is targeted by specific incentives in half of AMS but is a priority for only 20% of IPAs. Similarly, chemicals and plastics are incentivised by 50% of AMS but are a priority for only a fifth of IPAs. Enhancing alignment would help ensure that public resources are directed toward the most strategic sectors, including those identified in the ASEAN Regional Investment Promotion Action Plan 2025-2030 (Box 3.6).
The ASEAN Regional FDI Action Plan 2025-2030 is a strategic initiative developed collaboratively by the Coordinating Committee on Investment (CCI), the ASEAN Secretariat, and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Its main objective is to collectively promote the ASEAN region and target specific high-potential sectors to attract incremental FDI.
As IPAs stand at the forefront of investment promotion, this strategy envisions fostering stronger collaborative efforts among them. This marks a shift from individual country investment promotion to a co-ordinated regional value chain approach. This includes co-ordinated investor outreach, joint participation in international events, and developing unified marketing strategies.
The strategy also targets sectors with high potential for attracting diverse value chains, enabling each Member State to attract investment in specific activities across the value chain. Sector selection considers factors such as global FDI trends, potential for greenfield investment, contribution to ASEAN's development objectives, diverse value chains, and the advantages of promoting ASEAN as a region. This approach particularly focuses on sectors related to the green transition and post-pandemic recovery. Selected sectors include carbon capture and storage, medical devices, biofuels, and solar PV equipment. Potential future sectors could include veterinary healthcare, biomass and biomass processing equipment, geothermal energy including equipment manufacturing, smart grid technologies, and renewable energy monitoring and control systems.
Source: ASEAN (2024[74]), ASEAN Regional FDI Action Plan 2025-2030, https://asean.org/wp-content/uploads/2024/10/ASEAN-Regional-FDI-Investment-Promotion-Action-Plan-2025_AEM-document-with-cover.pdf.
3.5.1. AMS tax revenues remain relatively low
Corporate income taxation across ASEAN has undergone notable rate reforms over the past decade. Several countries have lowered statutory CIT rates since 2015 or kept them at levels already competitive within the region, while also expanding the use of tax incentives. The Philippines and Lao PDR undertook the most significant rate cuts, reducing their CIT rates from 30% in 2015 to 25% in 2023 and from 24% to 20%, respectively (Figure 3.7, Panel A). Other countries maintained statutory rates broadly stable and expanded the availability and generosity of investment incentives (i.e. Cambodia, Singapore and Thailand). For example, Singapore has increased the generosity of its R&D deduction, while Thailand has introduced a series of new incentives, including targeted at innovation and knowledge-intensive projects and extended CIT exemptions for Eastern Economic Corridor investments.
These tax changes have taken place against a backdrop of persistently low overall tax revenue mobilisation. Tax-to-GDP ratios in ASEAN, except Brunei Darussalam and Myanmar for which data are not available, range from 11.0% in Lao PDR to 17.9% of GDP in the Philippines (Figure 3.7, Panel B). The regional average of 14.3.% is well below the OECD (33.9%) and Latin America and the Caribbean (LAC) (21.3%) averages in 2023, reflecting relatively narrower tax bases, shaped by generous incentives as well as high levels of informality and compliance challenges, which contribute to comparatively lower revenues from personal income and value added tax (OECD, 2024[75]; OECD et al., 2025[76]; OECD, 2025[77]).8 While Cambodia and the Philippines have significantly increased their tax-to-GDP ratios over the last decade, the ratio has remained broadly stable or declined slightly in other AMS (OECD, 2025[77]).
Despite relatively low overall revenue mobilisation, corporate taxation plays an important role in the fiscal systems of many AMS. On average, CIT revenues amount to 3.9% of GDP in the region, excluding Brunei Darussalam and Myanmar, for which data are not available. This is broadly in line with the OECD average of 3.8% of GDP in 2023, though it can be notably higher in some countries, such as Malaysia where it reaches 7% of GDP. CIT also accounts for a relatively large share of total tax revenues in AMS – 26.8% on average (excluding Brunei Darussalam and Myanmar), compared with 11.3% in OECD countries – highlighting its importance as a revenue source. In this context, improving the design of tax incentives could help strengthen their contribution to investment and development objectives while safeguarding this important revenue base.
Note: Panel A: CIT rates of 2025 correspond to 2023 rates. Panel B: Tax revenue data is unavailable for Brunei Darussalam and Myanmar. See endnote 8 for details on unweighted regional averages.
Source: OECD (2025[78]), OECD Corporate Tax Statistics Database; Tax Foundation (2024[79]), Corporate Tax Rates Around the World; OECD (2025[80]), OECD Global Revenue Statistics Database (2025[80]).
3.5.2. Incentives substantially reduce effective taxation in selected sectors
To assess the generosity of corporate income tax incentives, this section models forward-looking effective average tax rates (EATRs) for a hypothetical investment project in selected sectors and locations (see Annex 3.B for more details). Forward-looking EATRs estimate effective taxation over the lifetime of a prospective and stylised investment project. This allows to compare how the same project will be affected by the standard tax system of different countries with and without incentives. The indicators presented in this paper should be interpreted with caution. Results are sensitive to underlying modelling assumptions and may deviate from effective taxation observed in practice. Economy-specific conditions (such as inflation and discount rate) and investment-specific parameters (such as economic depreciation and profitability) are held constant across countries, sectors and activities and over the lifecycle of the investment project. Box 3.7 outlines the main modelling assumptions. The analysis does not consider sector-specific differences in asset utilisation. Future work could further explore these variations.
The analysis covers four scenarios, focusing on the selected sectors (a) digital industries (services and manufacturing), (b) renewable energy production, (c) automotive manufacturing, and (d) projects located in Special Economic Zones (SEZs) because these sectors/locations are commonly promoted in most ASEAN investment promotion strategies.9 For each scenario, effective taxation is modelled under the statutory regime after standard deductions and once one income-based flagship incentive is applied (see Box 3.7 and Annex 3.B for more details on the selected incentives). Because multiple incentives may apply and can sometimes be combined in several AMS, the estimates presented here may understate the full generosity available to qualifying firms.
EATR calculations in this section use data on standard tax system features from the OECD Corporate Tax Statistics (CTS) database and investment tax incentives from the OECD ITID. The modelling is based on Celani, Dressler and Hanappi (2022[42]). See Annex 3.Bfor further modelling explanations.
EATR indicators in this chapter are calculated under the following assumptions:
Macroeconomic conditions: Interest rates and inflation are held constant across countries and over the investment lifecycle at 3% and 1%, respectively.
Investment project: The same investment project is modelled across all countries and scenarios. It consists of a mix of assets which depreciate at a constant annual rate (see Annex 3.B for more information on asset composition). The project generates profits at a constant pre-tax rate on the capital stock each period and remains profitable throughout its lifecycle. The investment is 65% financed through retained earnings and 35% through debt, and the firm does not expand the project following the initial investment.
Standard tax system: Estimates incorporate country-specific statutory CIT rates, asset-specific capital allowance rates reflecting fiscal depreciation, and the applicable cost recovery methods. No personal income taxes or other taxes are included.
Investment tax incentives: The analysis focuses on income-based incentives, as for the most part, full CIT incentives were flagship schemes prominently promoted by AMS IPAs on their websites. For each country, the exemption with the longest available duration applicable to a given sector or location was selected. Where incentives required a minimum investment, medium-size investment criteria were applied. Modelled incentives may apply to more than one sector and are in some cases used to calculate more than one scenario. The selected full CIT exemptions are sometimes followed by partial exemptions (IDN, KHM, MMR, THA and VNM), reduced rates (Lao PDR) or a simplified tax regime (PHL) (see Annex 3.B for further details on the incentives modelled). They are applied from the first year of production, within any country- or incentive-specific restrictions such as caps or carryover limits. The interaction between tax incentives and standard allowances follows country- or incentive-specific rules.
Tax exhaustiveness and carryforward: The analysis assumes that the investing firm fully utilises available standard capital allowances as they arise. This reflects the assumption that firms generate sufficient taxable income from other activities to absorb deductions. As a result, asset-specific ETRs under incentives represent a lower bound, and period-by-period ETRs may in some cases turn negative.
In digital-related industries – including software design, cloud services, high-tech manufacturing and the production of components relevant for the digital transition – selected income-based incentive regimes reduce the effective average tax rates (EATRs) on corporate income by 72.6% on average relative to the baseline tax treatment. This highlights the considerable fiscal generosity of many flagship incentives. The biggest tax reductions are observed in Indonesia and Malaysia, where the analysed incentive schemes – ten-year full CIT exemptions for pioneer industry projects – reduce baseline EATRs from 21.7% and 22.7%, respectively, to 4.6% and 5.9% (Figure 3.8, Panel A).10
EATR indicators are low across all analysed countries for the stylised investment project in digital-related industries. The lowest values are observed in Thailand and Singapore. Thailand’s activity-based flagship incentive scheme grants full tax relief for eight to 13 years depending on the project’s activity or industry, with possible extensions if additional criteria are met.11 The analysis considers the incentive available for knowledge-based activities, such as microelectronics design, embedded software and systems design, and cloud service, which benefit from a full CIT exemption for eight years, reducing EATRs to 4.3%. Singapore, despite its relatively low statutory CIT rate of 17%, offers a 15-year-long full CIT exemption for a broad range of pioneer service companies operating in activities such as engineering, industrial design, computer-based services, consulting, medical services, international trade and financial activities. This regime reduces the EATR to around 3%, the lowest amongst the comparator countries.
Renewable energy production also receives substantial tax support. Across the analysed countries, CIT incentives for renewable energy projects reduce EATRs by 62.7% on average relative to the baseline treatment. The greatest reductions are observed in Indonesia and the Philippines, where analysed CIT exemptions reduce baseline EATRs from 21.7% to 4.6% under Indonesia’s pioneer industry exemption and from 23.4% to 8.5% under the Philippines’s CREATE MORE Act (Figure 3.8, Panel B).12 The lowest EATRs for renewable energy projects are observed in Indonesia (4.6%) and Viet Nam (5.4%). In Viet Nam, qualifying projects benefit from a four-year full CIT exemption followed by a 50% exemption for nine years.
Similar magnitudes are observed in the automotive sector where the analysed incentive regimes reduce baseline EATRs by 70.3% on average across the selected countries. The largest reductions occur again in Indonesia and Malaysia, where incentives reduce EATRs from around 22-23% to 4.6% and 5.9%, respectively (Figure 3.8, Panel C). Across countries, incentivised EATRs remain substantially below statutory rates, ranging from 4.3% in Cambodia to 9.9% in Myanmar. In Cambodia, investors may benefit from three to nine years CIT exemption or enhanced deductions, depending on the investment activity, under the Qualified Investment Project regime. After the exemption period, projects may benefit from partial exemptions of 25-75% for an additional six years. The analyses considered a high-tech automotive investment project eligible for a nine-year exemption followed by six years of partial exemptions.
Note: This figure considers tax incentives available to investors as of 1 July 2024. Each panel illustrates the difference between the standard treatment of a stylised investment project under standard tax rules and the EATR after applying an income-based tax incentive per country. For each country, the income-based incentive with the longest available duration applicable to a given sector or location was selected. Where incentives required a minimum investment, medium-size investment criteria were applied. Modelled incentives may apply to more than one sector and are in some cases used to calculate more than one scenario. The country selection per sector of interest is based on the relative importance of FDI inflows compared to overall FDI inflows per country. See Annex 3.B and Celani, Dressler and Hanappi (2022[42]) for further information on modelling assumptions and selected incentives.
Source: Authors’ elaboration based on OECD (2025[81]), OECD Investment Tax Incentives Database; and OECD Corporate Tax Statistics. EATR calculations are based on Celani, Dressler and Hanappi (2022[42]).
SEZ incentives tend to be even more generous than those available to firms operating outside such zones.13 Across the analysed AMS countries, SEZ incentives reduce effective tax rates by 74.8% on average, lowering baseline EATRs from 19.8% to around 5.0% on average across countries. With the exception of the Philippines, incentivised EATRs in SEZs cluster between 3.5% and 5.8%, making most of these incentive more generous than modelled non-SEZ incentives (Figure 3.8, Panel D).
The lowest EATRs are observed in Lao PDR (3.5%), Malaysia (3.8%) and Thailand (3.9%), while the Philippines records the highest EATR (8.8%). The most significant reduction occurs in Malaysia, where a fifteen-years full CIT exemption for projects in its Northern Corridor Economic Region (NCER) lowers effective taxation by 18.9 percentage points, from 22.7% to 3.8%. In addition to CIT reductions, SEZ regimes commonly provide VAT and import duty exemptions, which are reflected in the analysis, although further increasing the fiscal costs of these regimes.
In all analysed scenarios, CIT exemptions substantially reduce taxation across AMS, often lowering the EATRs to a fraction of statutory rates. This widespread reduction highlights the extent to which incentives may increase tax competition within the region, as countries feel pressured to match or exceed neighbouring regimes to attract investment – even though empirical evidence shows that income-based incentives can be ineffective to increasing investment (Klemm and Van Parys, 2012[43]; Chai and Goyal, 2008[44]; Van Parys and James, 2010[45]). In many cases, CIT exemptions reduce effective corporate income taxation by more than half, and in some cases to only one-fifth of the baseline treatment. Strengthening evaluation frameworks and improving the design of incentive regimes could help ensure that incentives remain effective while limiting unnecessary revenue losses. Greater regional dialogue and co-ordination on incentive policies – including on incentive design, information sharing, evaluations practices and adjustments to the Global Minium Tax – could also support more efficient and sustainable investment promotion strategies.
3.6.1. Incentive schemes in ASEAN are administered under a mix of legal frameworks
In ASEAN, multiple types of legal instruments govern investment incentives, with an average of three for tax incentives and 1.2 for non-tax incentives. Tax incentives are primarily granted via tax and investment laws. About 10% of non-tax incentives are introduced via tax laws, and less than half through investment laws (Figure 3.9). This dispersion across different types of legal frameworks is particularly evident in countries like the Philippines, where more than 180 separate legal documents governed fiscal and non-fiscal incentives as of 2015 (Parel, 2017[82]). Such fragmentations can complicate oversight, create inconsistencies within the tax system, and may undermine transparency. For example, investors and government units might have difficulties understanding, whether incentives are still in place or outdated. To ensure coherence and accountability, it is preferable to provide tax incentives through primary tax legislation and publish a consolidated version of the law, reflecting annual changes (IMF et al., 2025[83]).
As a percentage of AMS countries (as reported by IPAs)
Source: OECD survey on investment promotion and investment incentives (AMS, 2025).
3.6.2. AMS IPAs are actively involved in incentive governance, with greater engagement in tax rather than non-tax incentives
The design, granting, and monitoring of investment incentives involve a complex interplay among various institutions, extending beyond IPAs. This leads to diverse institutional governance arrangements, where IPAs' roles in providing, designing, and evaluating incentives vary widely across the region. ASEAN IPAs engage more actively in tax incentives than in non-tax incentives across all dimensions: information provision, administration, granting authority, and policy involvement (Table 3.6). On average, an ASEAN IPA handles 4.2 out of 6 possible functions for tax incentives, compared to 2.9 functions for non-tax incentives, highlighting a stronger involvement compared to OECD countries.
Role of AMS IPAs in incentives governance (as reported by IPAs)
Source: OECD survey on investment promotion and investment incentives (OECD countries, 2024; AMS, 2025).
All ASEAN IPAs serve as the main contact point for providing tax incentive information to investors, though this drops to 80% for non-tax incentives. While this positions IPAs as key intermediaries between governments and investors, the way they communicate and structure this information differs significantly across the region. Only 40% of countries centralise incentive information through a single online portal or dedicated webpage. For instance, Thailand’s BOI or Singapore’s EDB webpages outline different incentives, their eligibility requirements, and benefits. In most AMS, information spreads across different government websites, requiring investors to navigate multiple sources. This can result in incomplete or outdated understanding. Additionally, 70% of IPAs include incentive information in promotional packages such as brochures or investor guides, and 90% refer to official documents like laws and regulations. However, the usefulness of promotional materials may be limited when information is only shared on demand, posing a barrier for investors still in the exploratory phase. Showing the full scope of available incentives and requirements in one document or a consolidated online platform, could significantly improve incentive-transparency and accessibility of information. Including timestamps or update notices and references to legal documents could further support transparency and help investors and different government units to understand which benefits are still in place or have been amended. Such a platform could be hosted on the ASEAN Secretariat’s webpage or managed individually by each AMS.
Most IPAs are also involved in administering and granting incentives but less commonly in designing benefits. Notably, Lao PDR’s Investment Promotion Department is the only IPA in the region that reports having the legal authority to both design and grant tax incentives without requiring consultation with other government entities. While 60% of ASEAN IPAs grant tax incentives, only 40% grant non-tax incentives. Similarly, 70% of IPAs are involved in administering tax incentives compared to 40% for non-tax incentives. Though IPAs can contribute by proposing incentives, advising on design, and support implementation and granting procedures, it is recommended that the primary authority responsible for tax incentive design should be the Ministry of Finance (OECD, 2026[38]). In case of application-based tax incentives, the final granting decision should be taken by the Ministry of Finance, while for non-tax incentives the authority responsible for the underlying policy objective might be better placed.14 IPAs can be involved, where appropriate, in supportive functions, co-ordinating closely with the competent ministries or agencies. For example, in Indonesia, BKPM issues initial approvals for tax incentives, but the final decision on tax treatment is made by the tax authority once the company begins commercial operations. In Singapore, the Ministry of Trade and Industry and the Ministry of Finance hold the legal authority over incentives, while the EDB handles the application process.
The way in which incentives are granted or authorised impacts the transparency of investment incentives (OECD, 2023[84]). If tax incentives are based on clear, measurable criteria, enabling eligible taxpayers to self-declare the benefit in their tax return can leverage investors’ knowledge of their businesses, while using auditing resources of tax administrations more effectively for taxpayers with higher risk profiles (OECD, 2026[38]). For tax and non-tax incentives granted via approval-based procedures, providing guidance on decision criteria and expected timelines can help to limit leeway of granting authorities and reduce uncertainty for investors. Brunei Darussalam is the only AMS that indicated to negotiate tax incentives bilaterally with investors through ad hoc contracts, though this practice is not recommended as it increases the risk of rent-seeking behaviour and can risk that large investors extract large benefits (OECD, 2023[84]; Oman, 2000[85]; Krakoff and Steele, 2016[86]).
This division of responsibilities mirrors the fragmented landscape that investors must navigate when applying for incentives. Across the region, investors often engage with multiple actors, including ministries of finance, sectoral ministries, SEZ authorities, or subnational governments. This fragmentation can make the application process more complex and time-consuming than systems that rely on a single point of contact, as found in some OECD jurisdictions (Box 3.8).
In Poland, investors seeking incentives initially contact the Polish Investment and Trade Agency (PAIH), the national IPA, which conducts a preliminary screening to assess their eligibility for investment incentives. PAIH evaluates the firms’ data and determines eligibility for specific incentives.
With regard to the governmental grant, PAIH based on the information obtained from investors, prepares a project description. This description includes an assessment of the investment and the proposed amount of support, along with a justification. The completed description, along with supporting documents, is then submitted by PAIH to the Ministry of Economy. An interministerial committee reviews the application and recommends a grant amount, after which the ministry makes the final decision. The investor has 30 days to accept the proposed support and, if accepted, an agreement is concluded.
Source: Polish Investment and Trade Agency (2024[87]), Investment incentives, https://www.paih.gov.pl/en/why_poland/investment_incentives/governmental_grants/.
Consultations during incentive design and policy advocacy on behalf of investors provide important channels for IPA to share their expertise on businesses and investor needs. IPAs in 90% of AMS are consulted during the design of tax incentives, and 70% are consulted on non-tax incentives. Moreover, 70% of region’s IPAs advocate for new or additional tax incentives, while 60% do so for non-tax incentives. These channels give IPAs a voice in shaping policy and enable them to convey investor feedback to address specific market failures or strategic needs. However, this influence could be used more strategically to support the reform or removal of redundant, ineffective, or outdated incentives. Doing so would help ensure that the overall incentive framework remains efficient, fiscally prudent, and aligned with national development priorities.
3.6.3. AMS generally rely on formal co-ordination mechanisms between national institutions, which can support policy alignment and accountability
Effective co-ordination is essential, given the number of stakeholders involved in the governance of investment incentives, including ministries, SEZ administrators, and other national and subnational agencies. Co-ordination can facilitate both policymaking and implementation, as offering multiple incentives, may risk policy overlaps and conflicts, particularly if designed and administered by different authorities. Effective co-ordination among relevant agencies at all levels of government can support aligning policy goals and ensure implementation remains coherent across all agencies involved (OECD, 2026[38]).
The survey reveals that ASEAN IPAs actively participate in co-ordination mechanisms aimed at aligning incentive policy with broader development objectives (Table 3.7). Co-ordination is more common at the national level than at the subnational level, where only a few IPAs engage formally. In some cases, co-ordination takes place informally through ad hoc meetings or personal networks rather than established institutional frameworks. However, only Cambodia’s Council for the Development of Cambodia report no participation in either formal or informal mechanisms.
Note: Coloured cells indicate the presence of a co-ordination mechanism.
Source: OECD survey on investment promotion and investment incentives (OECD countries, 2024; AMS, 2025).
While informal co-ordination allows flexibility, it often lacks structured procedures and clear accountability, increasing the risk of inconsistencies between incentive design and implementation. In contrast, formal co-ordination mechanisms, with defined mandates, clear communication channels, and joint planning processes, better equip them to promote policy coherence. Through these mechanisms, IPAs could gain a better understanding of the full scope, types, and conditions of existing incentives, as well as the procedures involved in their granting or administration. This allows them to align their investment promotion and facilitation efforts with current incentive frameworks, amplifying the impact of both tools. Similarly, IPAs could bring investors' feedback and market intelligence to actors involved in incentive design and conception, helping governments refine incentive schemes over time and better target strategic priorities such as the green transition and digital transformation.
3.7.1. All AMS conduct monitoring activities, with strong support from IPAs in most countries
Monitoring of investment incentives is essential to support compliance of investors and inform policy evaluation. It involves tracking how incentives are used in practice, and collecting data on take-up, firm characteristics, costs, and other relevant metrics. Data collected during the monitoring process are an essential source for understanding whether incentives contribute to stated objectives and at what cost (OECD, 2026[38]).
Each AMS engages in monitoring activities, involving several government agencies in some cases, which requires clearly defined responsibilities and established procedures for co-ordination and data sharing. Even when IPAs are not the main authority managing incentives, they may still play a role due to their proximity to investors and, depending on their capacities, contribute to data collection and oversight. According to the survey, all ASEAN investment promotion agencies, except for the Brunei BEDB, carry out at least one form of monitoring activity (Table 3.8). Notably, Singapore's Economic Development Board and the Investment Promotion Department of Lao PDR are involved in all identified monitoring activities related to investment incentives. These include the ongoing and systematic collection of data to track progress or compliance, tracking the costs of incentives granted, requesting feedback from investors, registering the take-up of incentives, and monitoring compliance with eligibility or performance requirements.
Role of ASEAN IPAs in monitoring of investment incentives (as reported by IPAs)
Note: Coloured cells indicate if IPAs and/or government involvement in monitoring activities.
Source: OECD survey on investment promotion and investment incentives (OECD countries, 2024; AMS, 2025).
ASEAN IPAs appear to be more involved in monitoring activities than their counterparts in OECD countries. Among the different functions, monitoring compliance is the one most commonly undertaken, followed closely by registering the take-up of incentives. The survey indicates that IPAs are more involved in these areas than other government bodies, which may be as they interact directly and regularly with investors during project set-up and aftercare. This regular engagement gives them first-hand access to information on how incentives are used and whether recipients meet the required conditions. Their role is therefore more focused on monitoring investor engagement and incentive uptake, rather than on monitoring the fiscal cost of incentives. Ministries, particularly those responsible for finance, are often better placed to report on how public resources are used, including through indirect expenditures such as tax incentives. In the Philippines, for example, the Department of Finance maintains a central database for the monitoring and analysis of tax incentives granted (Box 3.9).
The Tax Incentives Management and Transparency Act (TIMTA) mandates the reporting of tax incentives granted to registered business entities. Its main purpose is to measure the government's fiscal exposure and monitor the economic impact of these incentives.
The key provisions of the act include reporting requirements, where registered business entities must file annual tax incentives reports with Philippine IPAs, such as the BOI and the Philippine Economic Zone Authority. These IPAs then submit aggregate reports to the Bureau of Internal Revenue. The Department of Finance is responsible for maintaining a single database to monitor tax incentives and submits aggregate data to the Department of Budget and Management for inclusion in the annual budget. The act also mandates the National Economic and Development Authority to conduct cost-benefit analyses on investment incentives.
This monitoring mechanism has permitted estimations of actual foregone tax revenues. In 2023, these were estimated at 537.5 billion pesos, with electronics, electrical products, and semiconductors accounting for 50% of the incentives while the energy services sector represented 8% of the total.
Source: Congressional Policy and Budget Research Department House of Representative (2025[88]), Foregone Revenues from Investment Tax Incentives 2021-2023, https://cpbrd.congress.gov.ph/wp-content/uploads/2025/05/FF2025-40-Foregone-Revenues-from-Investment-Tax-Incentives.pdf.
3.7.2. Evaluation of investment incentives remains limited and uneven across ASEAN, with government institutions more involved than IPAs
Incentive evaluations are crucial to understand if policies fulfil their underlying objectives, if they generate broader economic and social benefits, and at which cost. Monitoring data can serve as a useful source for evaluations. The result of such assessments can also help to identify whether the issue underlying an incentive’s policy objective still prevails, if the incentive is still needed and whether alternative policy measures would be more cost-effective. Robust evaluations ideally examine both direct outcomes and wider spillovers, but require high-quality data, appropriate analytical tools and technical expertise to generate meaningful results (OECD, 2026[38]).
According to IPA survey results, many AMS (70%) already engage in evaluation activities, although their scope, regularity and methodologies used is unclear and may vary across countries. These assessments are mostly undertaken by governmental bodies (e.g. ministries), though IPAs are also involved in Cambodia, Indonesia, Lao PDR, Malaysia and Singapore. While undertaking such assessments can be complex, conducting some level of assessment is recommended even where evaluation capacities are still developing. For example, Cambodia and Indonesia reported engaging only in selected dimensions of evaluations. Countries could consider developing a plan to expand their evaluation capacities and continue a staggered approach in the meantime, for example, by annually evaluating only a sub-set of incentives (e.g. the costliest or longest-running benefits), or outsource complex evaluations to research institutions (OECD, 2026[38]).
Results of evaluations can help to inform incentive reforms and, if published, strengthen financial and fiscal accountability, particularly as tax incentives may involve high fiscal cost, which can reduce opportunities for public spending on infrastructure, public services, or social support, or require higher taxes on other activities (IMF et al., 2015[27]). The governments of Lao PDR, Singapore, and Viet Nam already publish results, while this does not seem to be the case for other AMS. It is unclear to what extent evaluation results are used to inform incentive amendments in AMS. Governments are recommended to do so, as results can help to identify too costly, ineffective and redundant incentives.
The ITID considers a policy area being targeted by evaluating whether a specific design or eligibility condition of the tax incentive relates to one of six policy goals. Column 1 lists policy areas identified in the ITID. The clusters build on those identified in the OECD FDI Qualities Indicators (2019[89]) and the FDI Qualities policy toolkit (2022[61]). Annex Table 3.1 identifies how economies target these respective clusters, either through eligibility conditions or the design features of tax incentives (columns 2-5).
Notes: Eligibility conditions and design features listed in the table are used by at least one economy included in the database. The list may evolve in the future when economy coverage extends.
1. Includes only tax incentives benefiting electricity generation from renewable energy sources, but not electricity generation from non-renewable sources. Tax incentive may be part of a broader special regime that benefits other sector of the economy.
2. Refers to expenses incurred for the purpose of seeking opportunities and promoting the export of goods or services produced in the economy (e.g. publicity and advertisements abroad, export market research, participation in trade fairs amongst others).
Other policy goals commonly targeted with tax incentives relate to infrastructure and innovation. Infrastructure can relate to a broad set of areas, including transport, utilities (e.g. electricity or gas distribution, water and sewage disposal structures), construction or ICT. CIT incentives promoting innovation commonly target R&D-related costs (e.g. wages of R&D employees, current costs of R&D projects, assets) or certain types of income (e.g. income from R&D or registered patents).
Forward-looking effective tax rates (ETRs) are the primary analytical tool within the standard tax modelling framework. Two forward-looking ETR indicators are typically produced within the standard framework: the effective average tax rate (EATR) and the effective marginal tax rate (EMTR).
EATRs focus projects that generate positive economic rent over their lifetime and capture the share of an investment project's discounted lifetime profit paid in taxes. They provide an indicator of the overall effective taxation faced by a hypothetical investment project under a given tax system, synthesising the effects of both standard and preferential corporate tax provisions. This makes EATRs a useful tool for examining investment decisions at the extensive margin, i.e. discrete choices between mutually exclusive, comparable investment projects, such as location decisions, on the assumption that those projects generate non-zero economic rents. Given this emphasis on discrete choices, EATRs are used as the estimate in this paper.
Unlike backward-looking effective tax rates, which are calculated from firms’ observed tax payments, forward-looking EATRs are derived from a model that simulates the tax treatment of a stylised investment project. This approach allows tax systems to be compared across countries under a consistent set of economic assumptions.
The estimates in this report are based on the OECD corporate effective tax rate model (see Celani, Dressler, Hanappi (2022[42])), which builds on the theoretical framework developed by Devereux and Griffith (1998[90]; 2003[91]). The model combines detailed information on tax provisions (such as statutory CIT rates, depreciation rules, and tax incentives) with a standardised set of asset-specific parameters and economic assumptions (including rates of return, economic depreciation and inflation). By holding these assumptions constant across countries, the model ensures that variations in calculated EATRs reflect only cross-country differences in tax policy design rather than differences in economic conditions or investment patterns.
The model covers seven asset categories:
ARW - Air, rail or water transport vehicles
CHW - Computer hardware
EQP - Equipment
INT - Acquired software
MAC - Industrial machinery
NRS - Non-residential structures (buildings)
RTV - Road transport vehicles
The composite EATR used in the analysis reflects the average tax treatment of a representative investment project across different types of assets and financing sources. It is calculated as an unweighted average of tax rates for three asset groups: tangible assets, non-residential structures (buildings), and intangibles represented by acquired software. The tangible asset component itself is calculated as the average of five asset categories: air, rail or water transport vehicles (ARW), computer hardware (CHW), equipment (EQP), industrial machinery (MAC) and road transport vehicles (RTV). The analysis does not consider sector-specific differences in asset utilisation. The indicator also incorporates financing assumptions by modelling investment financed with 65% retained earnings and 35% debt, allowing the calculations to reflect the tax treatment of interest deductibility.
The model assumes that the investing firm can and does make full use of modelled tax benefits, which may not reflect the reality for all taxpayers, particularly smaller firms or those with limited tax capacity. It also does not account for international investment and cross-border tax considerations, shareholder-level taxation (such as personal income taxes on dividends and capital gains), jurisdiction-specific limitations on interest deductibility, or taxes outside the core corporate income tax system, such as consumption taxes, payroll taxes, or wealth taxes.
Country-specific parameters relating to statutory CIT rates and asset depreciation rules are incorporated in the calculations. The selected incentive regimes modelled in the analysis are listed in Annex Table 3.2. Further details on the EATR methodology are provided in Celani, Dressler and Hanappi (2022[42]).
Note: This table considers investment tax incentives available to investors as of 1 July 2024. The country selection per sector of interest is based on the relative importance of FDI inflows compared to overall FDI inflows per country. Some incentives target sectors very broadly and were used to calculate more than one scenario.
Source: OECD, ITID.
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← 1. For instance, Thailand's BOI has a Five-Year Investment Promotion Strategy (2023-2027), while the Philippines' BOI has its Strategic Investment Priority Plan (SIPP) for 2025-2028. Cambodia CDC’s has established sector-specific strategies, such as for the automotive and cashew sectors, and is currently developing a new three-year investment promotion strategy for the electronics and agro-processing sectors.
← 2. For example, Brunei Darussalam’s Economic Blueprint and the Ministry of Finance and Economy’s Strategic Plan 2021-2025 guide the Brunei Economic Development Board’s efforts to achieve Wawasan Brunei Darussalam 2035, which prioritises diversification and competitiveness.
← 3. Tax expenditures, like direct spending, reduce public revenue and may necessitate compensatory tax increases to maintain previous levels of government services.
← 4. ASEAN IPAs view incentives as more influential than their OECD peers, with 70% rating both CIT and non-tax incentives between 6 and 10 on a ten-point influence scale, while other tax incentives are seen as somewhat less decisive.
← 5. Offering tax incentives to projects that are not primarily driven by tax considerations can have little or no effect on location decision, leading to a waste of resources that could have otherwise been used to support other productive purposes. For instance, resource-seeking investors are guided mainly by the location of the resource itself, while efficiency-seeking firms may be more prone to respond to tax benefits but may also relocate elsewhere once the benefit expired (Johnson and Toledano, 2023[34]; James, 2014[35]).
← 6. Export-oriented investors in the Philippines can be eligible for the Special Corporate Income Tax (SCIT). The SCIT applies a 5% tax on generated income instead of all other national and local taxes. It thus not qualified as reduced CIT rate but simplified tax regime.
← 7. In the Philippines, investors cannot benefit from additional tax incentives if located in SEZ but can access the same incentives as investors located elsewhere in the country.
← 8. The ASEAN average represents and unweighted average of Cambodia, Indonesia, Lao PDR, Malaysia, the Philippines, Singapore, Thailand and Viet Nam. Brunei and Myanmar are not considered as tax data is not available. The LAC average represents an unweighted average for the 26 Latin American and Caribbean (LAC) countries included in the publication Revenue Statistics. The OECD average in 2023 is calculated by applying the unweighted average percentage change for 2023 in the 36 member states providing data for that year to the overall average tax-to-GDP ratio in 2022.
← 9. The category Digital industries comprises incentives applicable to relevant services and manufacturing activities, including division 26 manufacture of compute, electronic and optical products, division 27 manufacture of machinery and equipment and division 58-63 information and communication under the United Nations International Standard Industrial Classification of All Economic Activities, Revision 4.
← 10. In Indonesia, the modelled CIT exemption is followed by a 50% tax reduction for two additional years and requires a minimum investment between IDR 5-15 trillion (around USD 300-900 million). Indonesia also offers exemptions for pioneer projects with lower or higher investment values – ranging from IDR 100 billion, or roughly USD 30 million, to larger-scale investments – with durations between five and 20 years although these schemes were not included in the modelling.
← 11. Criteria to additionally increase Thailand’s activity-based incentives are (1) Competitiveness Enhancement: the business makes a minimum spending on R&D-linked machinery of at least 1%-3% of turnover or not less than 200-600 million baht received an additional 1-3 year exemption; (2) Decentralisation: projects located in 20 provinces with lowest per capita income benefit from a 50% reduced CIT rate for 5 years, following the 8-year tax exemption; (3) Special Economic Zone: projects located in Special Economic Zone or Technology parks benefit from a 50% reduced CIT rate for five years. Merit-based incentive extensions can be accumulated, but must not exceed 13 years.
← 12. The Philippines’ Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was introduced in 2021 and further amended by the CREATE MORE Act in 2024. The regime provides tax exemptions ranging from four to seven years depending on the investment activity and project location. After the exemption period, firms serving primarily the domestic market may benefit from five years of enhanced deductions. Firms exporting at least 70% of their output may instead benefit from either ten years of enhanced deductions or ten years under the Simplified Corporate Income Tax (SCIT) regime, which replaces corporate and local taxes with a 5% tax on gross income. The EATR reported in this chapter is modelled on the basis of a seven-year full CIT exemption for a renewable energy generation project located outside the National Capital Region and adjacent areas. After the exemption period, investors may also benefit from enhanced deductions or the SCIT regime, implying that the actual EATRs could be lower than the modelled estimates.
← 13. While many countries offer more generous incentives to SEZ residents than to companies operating outside of SEZs, some countries offer the same incentives to both types of investors, e.g. Cambodia.
← 14. In some cases, accessing incentives does not require an application and investors can self-declare benefits in their tax return. The revenue authorities in charge of administering tax incentives would then be the responsible authority to verify if investors declared the incentive rightfully.