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Why Southeast Asia should seize the EUDR compliance opportunity

Authors

  • Atul Chandna

    EY Asia-Pacific Supply Chain Leader; EY Asean Consumer Consulting Leader; Partner, Consulting, Ernst & Young Advisory Pte. Ltd.

  • Roy Sibuea

    Partner, Tax, Perserikatan Perdata Purwantono, Suherman, Surja Consult

7 minute read 12 Mar 2025

The EU Deforestation Regulation (EUDR) offers an opportunity for businesses to drive compliance for value creation beyond sustainability.

In brief

  • The EUDR mandates due diligence to confirm specific commodities and related products are deforestation-free and comply with the country of origin’s laws. 
  • It is expected to impact Southeast Asian organizations as the region is a key global supplier of the raw materials of in-scope products. 
  • Companies that effectively address the challenge of EUDR compliance can potentially realize benefits beyond sustainability, such as a greater EU market share.

The EU Deforestation Regulation (EUDR) is a legislative framework established to reduce the EU’s impact on global deforestation and forest degradation associated with the production and consumption of certain commodities and products.

Part of the EU Green Deal, the EUDR will come into effect for medium and large companies in December 2025. It requires all EU imports, domestic trade and EU exports of specific commodities and their related products to be accompanied by a due diligence statement that confirms the products are deforestation-free. The statement must also confirm that they were produced in compliance with the country of origin’s laws, including those on human rights, labor and anti-corruption.

This regulation impacts businesses around the world that trade cattle, cocoa, coffee, oil palm, rubber, soy, wood and products derived from these commodities (see Regulation (EU) 2023/1115 Annex I for relevant products). Its impact on Southeast Asian organizations in the coffee, oil palm, rubber and wood industries is significant as the region is a key global supplier of these in-scope commodities.

Role of the tax function in sustainable supply chains

With governments and businesses increasingly introducing new commitments to sustainability, the tax function plays an integral role in sustainability transformations. Examples where the tax function can add value include driving compliance to help avoid penalties, identifying funding opportunities and helping to enhance external sustainability ratings.

How EY can Help

As the tax function typically monitors policies, it is well positioned to advise the organization on relevant regulatory requirements. As supply chain regulations are typically based on customs codes, the tax function plays a critical role in determining the extent to which the organization is impacted. Supply chain transparency and traceability requires extensive data management, so leveraging the right technology across the business is crucial to help drive compliance. Compliance with environmental regulations like the EUDR can make organizations eligible for various tax incentives aimed at encouraging sustainable practices. Such incentives can help reduce the overall cost of sustainability transformations.

Impact of EUDR on Southeast Asian organizations

While the EUDR requirements directly impact EU entities, any organization globally trading one or more of the in-scope products will also likely be impacted as the EUDR requires traceability to the plot of land where the raw materials originated from, many of which are in Southeast Asian countries.

Organizations headquartered in Southeast Asia with operations in the EU will be directly impacted by the regulation and at risk of non-compliance penalties — including fines and the seizure of goods — if the regulatory requirements are not met. Organizations in Southeast Asia without EU operations are also expected to be impacted because of the region’s status as a key global supplier of the raw materials of in-scope products. This is seen in the table below, which shows significant trade of key commodities between Southeast Asian countries and the EU.

Value of key Southeast Asian commodity exports to the EU in 2023

Even if Southeast Asian organizations do not supply directly to EU customers, their products will likely make their way to an EU organization as they move along the supply chain (Tier n, refer to the diagram below).

EY How the EUDR could impact southeast asian organizations diagram

Opportunities beyond compliance

While the EUDR will present challenges to Southeast Asian organizations impacted by the regulation, it also creates significant opportunities for those actively striving for supply chain traceability and transparency.

Complying with the EUDR is a big data challenge. Supply chain mapping and having visibility to Tier n suppliers can be challenging due to a lack of awareness, digital infrastructure and contractual clauses enabling the required data flows. Additionally, local regulations in Southeast Asia may conflict with EUDR requirements, such as sharing of geolocation data. Investing in due diligence will help organizations in the region to meet their EUDR compliance requirements across the supply chain, which can enhance their reputation as a responsible business.

While EUDR compliance will be challenging, the regulation creates significant opportunities for Southeast Asian organizations that actively strive for supply chain traceability and transparency.

The EUDR application dates were recently postponed because many organizations are not prepared, the regulation requires clarification and their IT infrastructure is not ready. This has created an opportunity for the “first-mover advantage”. Southeast Asian organizations that effectively and promptly address EUDR requirements can potentially grow their EU market share, as customers and consumers prefer environmentally responsible companies. 

When investing, it is worth considering how systems and processes can be established for holistic supply chain traceability. Implementing the due diligence and traceability systems required by the EUDR can lead to more efficient supply chain management and cost savings. While the current scope of the EUDR is defined, the EU has stated that it will review and revise the regulation regularly. 

Other sustainable supply chain regulations continue to be introduced. For example, the EU adopted new rules in December 2024 requiring 100% recyclable packaging by 2030. Rather than retrofitting a traceability system every time a new regulation is adopted, Southeast Asian organizations should engage all business functions to design infrastructure that is future-proof. As supply chain regulations are typically based on harmonized system or combined nomenclature codes, the tax function has a strategic role to play in developing appropriate systems and processes. Implementing a holistic, “gold standard” traceability system will give Southeast Asian organizations better data to help make better decisions across the business. 

Preparing for the EUDR

The application dates of the EUDR were originally 30 December 2024 for medium and large companies and 30 June 2025 for small and micro businesses. However, there was much pushback from governments and organizations around the world — many from Southeast Asia — due to the extensive requirements for compliance. As a result, the effective dates of the regulation were postponed by 12 months. Information on the regulatory process is available in this EY tax alert. 

Experience has shown that considerable lead time is typically needed to achieve traceability across supply chains and establish effective data collection systems. The business response to the regulation may also require changes to contractual agreements, product sourcing and distribution, or product design.

How EY can Help

Some Southeast Asian organizations have already positioned themselves at the forefront of such efforts as sustainability leaders or a part of industries that have traditionally come under more scrutiny, such as oil palm. While certification schemes cannot be relied on for EUDR compliance, programs such as the Roundtable on Sustainable Palm Oil can help organizations focus on risk assessment and mitigation efforts. Organizations that already participate in certification schemes should experience relatively less disruption to their business if they analyze the gaps between their schemes and EUDR compliance and act promptly to close them.

 

Other organizations in the region are still evaluating the extent of their exposure to the EUDR and their capability to meet the regulatory demands. A key challenge is the need to obtain data from smallholders at the start of the supply chain (i.e., the plot of land where the raw materials originated from). While the EUDR is applicable to small and micro businesses in the EU from 30 June 2026, those in Southeast Asia already need to provide data to their EU customers for them to comply with the regulation. Onboarding and upskilling potentially large numbers of smallholders, together with establishing EUDR-compliant supply and reporting, is time-intensive and will require the involvement of multiple business functions. 
 

Southeast Asian organizations should act now. The EUDR presents an opportunity to help expand their EU market share and invest in future-proof systems and processes that can create value beyond sustainability.

This article was authored with contributions from Yulia Damayanti, EY Asean Sustainability Transformation Leader; Andrea Dudas, Senior Manager, EY Asia-Pacific Sustainability Tax Hub, Ernst & Young Tax Consultants Sdn. Bhd.; and Linh Hoang Anh Nguyen, Senior Manager, EY Law Vietnam Limited Liability Company.

Summary

The EUDR will likely impact businesses that globally trade in-scope products, especially Southeast Asian suppliers of coffee, oil palm, rubber and wood. The tax function plays a key role in driving compliance and securing tax incentives aimed at encouraging sustainable practices. To address the challenge of EUDR compliance, companies should consider investing in future-proof systems and processes that enable holistic supply chain traceability and contribute to value creation beyond sustainability.

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    About this article

    Authors

    • Atul Chandna
      EY Asia-Pacific Supply Chain Leader; EY Asean Consumer Consulting Leader; Partner, Consulting, Ernst & Young Advisory Pte. Ltd.
    • Roy Sibuea
      Partner, Tax, Perserikatan Perdata Purwantono, Suherman, Surja Consult
    Related topics
    Sustainability
    Tax
    Climate change and sustainability services

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