05/11/21

ASIA: Macau Gov’t studying possible adjustment in line with global minimum corporate tax agreement.

As published on macaubusiness.com, Friday 5 November, 2021.

The Macau SAR government is currently studying adjusting the current corporate tax to match the recently ratified global minimum corporate tax and what impact it would have for investment in the city, Financial Services Bureau (DSF) Director, Stephen Iong Kong Leong revealed today (Friday).

Draft bills for the revamp of the local tax code and a new legal framework for the exchange of information in tax matters were approved today at the Legislative Assembly (AL), and will now proceed to committee evaluation and discussion.

Secretary for Economy and Finance Lei Wai Nong stated the changes will unify the rules of the separate tax laws enforced separately since the 1970’s, clearly defining the rights and obligations in the tax legal relations, and update the local Tax Code in accordance with international standards.

“We hope that with a clear and unambiguous fiscal legal regulation, the new tax code can be in line with Macau’s development path in the next phase and attract more investors from abroad to invest in the SAR,” Secretary Lei added.

Before the general voting, legislator Ip Sio Kai questioned if authorities had already evaluated the possible impact of a recent international agreement to define a minimum 15 per cent tax bracket for companies,

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

Last week G20 leaders have formally endorsed a global corporate minimum tax, which would ensure big companies pay a minimum tax rate of 15 per cent and make it harder for them to avoid taxation.

Some 136 countries – including Mainland China – have ratified the agreement, which is expected to come into effect globally in 2023 and raise an additional US$150 billion in annual tax revenue, according to the Organisation for Economic Cooperation and Development.

Signatories included noted ‘tax haven’ jurisdictions such as Ireland, Bermuda, the Cayman Islands, the British Virgin Islands, Barbados, Saint Vincent and the Grenadines.

The minimum corporate tax does not require countries to set their rates at the agreed floor, but gives other countries the right to apply a top-up levy to the minimum on companies’ income coming from a country that has a lower rate

“We will try to follow national regulations. We are currently carrying out deep studies concerning the update of [corporate tax] and the consequences for investors in Macau since we want to minimise the impact on investors,” Iong said.

Complementary tax is imposed on the worldwide income earned by Macau-registered entities, irrespective of where their residence or headquarters are situated and irrespective of the nature of the income.

If a foreign entity is engaged in commercial/industrial activities and/or rendering services in Macau SAR, the resultant gain from such commercial/industrial activities and/or services rendered will be subject to complementary tax.

The exception to the foregoing is rental income from the leasing of immovable properties located in Macau SAR, which is taxed separately under the property tax regime

Under the Macau Complementary Tax Law, complementary tax is imposed on a progressive rate scale ranging from 3 to 9 per cent for taxable profits below or equal to MOP300,000 and 12 per cent for taxable profits over MOP300,000. Taxable profits below MOP 32,000 are exempt from tax.

Raymond Tang, Macau tax leader at Deloitte, previously stated to SCMP that the city is no longer viewed as a low-tax jurisdiction after it abolished all tax benefits for offshore companies this year but warned the “global minimum tax could curtail Macau’s ability to offer fiscal incentives” as it attempts to diversify its economy and to increase the level of its financial services.

In October, 2018 the AL also passed a bill revoking the current offshore law, with offshore companies operating in the Macau SAR having until January 1, 2021 to request Macau Trade and Investment Promotion Institute (IPIM) to transition to onshore companies or cancel their operations.

As for the most important tax revenue generated in the SAR, gaming tax revenue, Secretary Lei underlined that any change to the current gaming tax rate would have to be carefully pondered, considering the importance of the sector for “the livelihoods of a large number of residents and its importance to the local economy”.

The government taxes the gross gaming revenue of Macau casinos at a rate of 35 per cent, but other levies on the casino gaming gross, raise the tax rate to 39 per cent in effect.

Iong indicated that local financial authorities intended to establish a “simple but strong” tax code that would observe the territorial basis of taxation, avoid double tribulation and converge tax duties under the same fiscal addresses.

The territoriality principle refers to the principle of levying tax only within the territorial jurisdiction of sovereign tax authority or country, with residents are not taxed on any foreign-source income.

For example, for income generated abroad, the territoriality principle is applied in Hong Kong, while Mainland China taxes Chinese nationals on their foreign earned income.

In Macau, professional tax is payable by anyone receiving income from employment services performed in Macau SAR or from a Macau employment, with professional tax rates progressive and cumulative up to a maximum rate of 12 per cent.

“Our newly proposed tax code will operate under the territoriality principle. Profits generated abroad are not taxed. Companies that generate profits under concessions or via stock dividends are also excluded under this principle,” Iong underlined.

Legislator Lam U Tou inquired if there have been negotiations with mainland authorities and Hengqin to calculate taxes according to Macau for residents who move to or invest in mainland China.

“We need to divulge this information clearly for our professionals so they consider working in Mainland China,” Lam noted.

Responding to the questions DSF President clarified that under the Guangdong-Macao In-Depth Cooperation Zone in Hengqin would already offer tax exemptions for companies and professionals who decide to get settled in the area.

“As for the Mainland China tax system, when someone does not have a fiscal address in the mainland and resides 183 days per year outside the country for less than five years, he/she is not covered by the mainland tax system,” Iong stated.

Foreign individuals who reside in China for 183 days or more in a tax year but not more than six consecutive years will be subject to tax on both their China-source income and their foreign-source income.

“We have discussed with mainland authorities to be more flexible when dealing with Macau taxpayers. If they have resided there for less than six years, they will be exempt from taxes”.

The DSF President was also adamant that the new tax code will not substantially impact taxpayers, but instead will significantly help them in issues such as clarifying the required deadlines for tax payments.

The current tax system allows for different tax duties allow allows for a different tax address to be provided for payment, such as stamp duties or professional income taxes.

“This can generate some confusion for us and the taxpayers. With the new tax code, we will uniformise them all under only one tax address so as to avoid problems in identifying the taxpayer’s location, which would avoid not being able to charge taxes for failure to identify the taxpayer if he does not update his fiscal address,” the DSF President stated.

The code draft introduces concepts such as tax resident and tax residence’ so as to ‘better comply with its international tax obligations’ and better ‘attract more foreign investors’ to the SAR.

Iong also indicated that authorities have already established multiple agreements with different countries and regions to avoid double taxation, taking into consideration criteria such as the number of days someone resides in Macau

“At the moment the current tax legislation does not include criteria for assessing the status of a fiscal resident. This can have consequences in the tax rate enforced and create confusion between regions, which will not know which one has the right to charge a certain tax. The proposed tax code will clarify these situations” he added.