Corporate Tax

Authorities is just not contemplating potential changes in step with the worldwide minimal corporate tax treaty

The Macau Special Administrative Region government is currently examining the adjustment of the current corporate tax to the recently ratified global minimum corporation tax and what impact this would have on investments in the city, Stephen Iong Kong Leong, director of the Financial Services Bureau (DSF) announced today (Friday). .

Bills for the revision of the municipal tax code and a new legal framework for the exchange of information in tax matters were passed by the Legislative Assembly (AL) today and are now being evaluated and discussed by the committee.

Economy and Finance Minister Lei Wai Nong stated that the changes will unify the rules of the separate tax laws that have been separately enforced since the 1970s, clearly define rights and obligations in tax relations, and update the local tax code in line with international standards .

“We hope that the new tax law with a clear and unambiguous tax regulation in the next phase can match the development path of Macau and attract more foreign investors to invest in the SAR,” added Minister Lei.

Before the general vote, the legislator Ip Sio Kai asked whether the authorities had already assessed the possible effects of a recent international agreement setting a minimum tax margin of 15 percent for companies,

“This agreement covers more than 130 countries” […] It will probably take 2 or 3 years to get enforced, but it will likely be of great importance to our tax system, ”noted Ip.

Last week, the G20 leaders officially approved a global corporate minimum tax that would ensure that large companies pay a minimum tax rate of 15 percent and make it difficult for them to avoid taxes.

Around 136 countries – including mainland China – have ratified the agreement, which is expected to come into force worldwide in 2023 and will generate additional tax revenue of $ 150 billion per year, according to the Organization for Economic Co-operation and Development.

Signatories included well-known “tax haven” areas such as Ireland, Bermuda, the Cayman Islands, the British Virgin Islands, Barbados, St. Vincent and the Grenadines.

The minimum corporation tax does not require countries to set their rates at the agreed minimum rate, but does give other countries the right to levy a top-up tax on the minimum income of companies from a country with a lower rate

“We will try to follow the national regulations. We are currently conducting in-depth studies to update [corporate tax] and the consequences for investors in Macau as we want to minimize the impact on investors, ”said Iong.

An additional tax is levied on global income generated by Macau-registered companies regardless of where they are resident or headquartered, and regardless of the type of income.

If a foreign company engages in commercial / industrial activities and / or provides services in Macau SAR, the resulting profits from such commercial / industrial activities and / or services rendered are subject to an additional tax.

This excludes rental income from the leasing of real estate in Macau SAR, which is taxed separately under the property tax regime

Under the Macau Supplementary Tax Act, the incremental tax is levied at a progressive rate of 3 to 9 percent for taxable profits less than or equal to 300,000 MOP and 12 percent for taxable profits above 300,000 MOP. Taxable profits below 32,000 MOP are tax-free.

Raymond Tang, Macau Tax Manager at Deloitte, had previously told SCMP that the city would no longer be considered a low-tax state after abolishing all tax breaks for offshore companies earlier this year, but warned that the “global minimum tax would reduce the ability to supply.” of Macau ”. tax incentives ”while trying to diversify its economy and increase the level of its financial services.

In October 2018, the AL also passed a bill repealing the current offshore law, allowing offshore companies operating in the Macau SAR to call on the Macau Trade and Investment Promotion Institute (IPIM) until January 1, 2021 Onshore companies to switch or cease operations.

Regarding the main tax revenue in the Special Administrative Region, gambling tax revenues, Minister Lei stressed that any change in the current gambling tax rate must be carefully considered, considering the importance of the sector to “the livelihood of a large number of” residents and its importance to the residents local economy ”.

The government taxes Macau casinos’ gross gaming revenue at a rate of 35 percent, but other levies on casino gross gaming revenues raise the tax rate to 39 percent.

Secretary of the Economy and Finance Lei Wai Nong [middle] and Director of the Financial Services Bureau (DSF), Stephen Iong Kong Leong

Simple but strong

Iong pointed out that the local tax authorities intend to create a “simple but strong” tax law that complies with the territorial tax base, avoids duplication of charges and consolidates taxes under the same tax addresses.

The territoriality principle refers to the principle of collecting taxes only within the territorial jurisdiction of the sovereign tax authority or the country, with residents not being taxed on income from foreign sources.

In Hong Kong, for example, income earned abroad is subject to the territoriality principle, while mainland China taxes Chinese nationals on their foreign earned income.

In Macau, occupational tax is payable by anyone who receives income from employment services in the Macau Special Administrative Region or from employment in Macau, with occupational tax rates progressive and cumulative up to a maximum of 12 percent.

“Our newly proposed tax law will work on the principle of territoriality. Profits earned abroad are not taxed. Companies that generate profits through concessions or stock dividends are also excluded from this principle, ”emphasized Iong.

Legislator Lam U Tou asked if there had been negotiations with mainland authorities and Hengqin to calculate Macau taxes for residents moving or investing in mainland China.

“We need to make this information clear to our professionals so that they can consider working in mainland China,” said Lam.

In response to the questions, the DSF President made it clear that the Guangdong-Macao In-Depth Cooperation Zone in Hengqin is already offering tax exemptions for companies and professionals who want to settle in the region.

“As for the tax system in mainland China, someone who does not have a mainland tax address and lives abroad for 183 days a year for less than five years is not covered by the mainland tax system,” Iong said.

Foreign residents who reside in China for 183 days or more in a tax year but not more than six consecutive years are subject to taxation on both their Chinese and foreign-sourced income.

“We spoke to the mainland authorities to be more flexible with Macau taxpayers. If they have lived there for less than six years, they are exempt from tax. “

Simplification of the system

The DSF President also emphasized that the new tax code does not have any significant impact on taxpayers, but rather helps them a lot in clarifying the deadlines for tax payment, for example.

The current tax system provides for different tax levies. Allows you to specify a different tax address for the payment, e.g. B. Stamp taxes or trade taxes.

“That can lead to confusion for us and for taxpayers. With the new tax number, we will unify them all under one tax address in order to avoid problems with identifying the taxpayer’s place of residence, ”said the DSF President.

The draft code introduces concepts such as tax residency and tax residency to “better meet international tax obligations” and “attract more foreign investors” to the SAR.

Iong also pointed out that the authorities have already signed several agreements with different countries and regions to avoid double taxation, taking into account criteria such as the number of days someone is in Macau

“Currently, the current tax legislation does not contain any criteria for assessing the status of a tax resident. This can affect the tax rate enforced and lead to confusion between regions who do not know which one is allowed to levy a particular tax. The proposed tax law will clarify these situations, ”he added.

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