Asia Tax Bulletin Spring 2022 - Mayer Brown
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Asia Tax Bulletin Spring 2022
In This Edition
We are pleased to present the Spring 2022
edition of our firm’s Asia Tax Bulletin.
Dear Reader, Kong to come up with new tax changes with
respect to the taxation of offshore investment
The contents of this edition of Asia Tax income. So a lot is in store for Hong Kong this
Bulletin cover many different topics which year. Meanwhile, Thailand and Vietnam have
SAN FRANCISCO CHICAGO
have surfaced over the past three months in NEW YORK
signed the OECD’s Multilateral Instrument
the ASEAN countries and the PRC, India, WASHINGTON
BEIJING
PALO ALTO (also knownDCas the Multilateral Treaty) which
Japan and Korea. I would like to note marks a big step for these countries in their
CHARLOTTE TOKYO
LOS especially
ANGELESthat Hong Kong is looking to
HOUSTON fight against international tax avoidance. SHANGHAI
introduce tax incentives for the maritime
sector as well as for family offices operating DUBAI HONG KONG
WE HOPE YOU WILL FIND THIS EDITION OF HANOI
MEXICO
out of CITY
Hong Kong. At the same time, the INTEREST.
Hong Kong authorities have announced that
they intend to present new tax legislation HO CHI MINH CITY
Pieter de Ridder
AMERICAS
during the second half of 2022 to implement
the OECD’s minimum effective income tax SINGAPORE
rate of 15 percent for large multinationals.
Due to the European Union’s greylisting of
Hong Kong in 2021, we also expect Hong *
BRASÍLIA Pieter de Ridder
Partner, Mayer Brown
RIO DE
+65 JANEIRO
6922 2240 *
PAULO*
SÃOpieter.deridder@mayerbrown.com
*TAUIL & CHEQUER OFFICE
2 | Asia Tax Bulletin MAYER BROWN | 3
Contents
China India Korea Taiwan
6 Reduced income tax rate for small
low-profit enterprises
12 Budget 2022
21 Tax changes for 2022
29 Tax concessions
6 Tax incentives for technology 13 Budget and income tax and GST
changes for 2022/2023 Malaysia
start-ups Thailand
7 Information disclosure of entities 14 Most Favoured Nation clause in
India’s Tax Treaties 24 Tax deductibility of interest in
30
controlled transactions International tax developments
with material tax-related illegal and
dishonest acts
25 Covid concessions on tax residence
8 Benefits in Kind for foreign citizens Indonesia and permanent establishment
Vietnam
in the PRC
25 Electronic payment of tax
8 Tax Incentives 15 Income tax rates for construction
services 31 VAT rate reduction
26 Stamp duty relief
31 Vietnam signs the OECD’s Multilateral
Hong Kong 16 CFC guidelines
Instrument
9 Budget 17 New tax treaty with Singapore
Singapore
10 The minimum effective income tax
rate of 15% under Pillar 2 27 Budget
Japan
11 Taxonomies
28 Voluntary compliance programmes
11 Tax exemption for qualifying Family 18 Tax Reform
Owned Investment Holding
Companies 19 Withholding tax on dividends from
wholly-owned subsidiaries
19 Earnings stripping rules
19 Wage increase tax credit
20 Tax free share exchanges
4 | Asia Tax Bulletin MAYER BROWN | 5
Reduced income tax rate Information disclosure failure to perform tax obligations and an escape
from the supervision of taxation authorities before
for small low-profit of entities with material the audit case is completed, where the taxpayers
are confirmed by the tax authorities to have fled
enterprises tax-related illegal and (lost connection); 9) illegal provision of bank
Based on a circular issued by the MoF and SAT
dishonest acts accounts, invoices, or other conveniences resulting
in unpaid or underpaid tax in excess of RMB 1
[2022] No. 13, the PRC has reduced the million, or fraudulent acquisition of state export tax
effective tax rate for small, low-profit Courtesy Lee Tsai & Partners – it was reported that refunds; 10) tax agents violating tax laws and
JURISDICTION: on December 31, 2021, the State Administration of
enterprises from 10% to 5% on taxable income administrative regulations, resulting in the non-
Taxation promulgated the Administrative Measures payment or underpayment of taxes in excess of
China (PRC)
between CNY 1 million and CNY 3 million.
From 1 January 2021 to 31 December 2024, a on the Information Disclosure of Entities with RMB 1 million; and 11) other tax violations of vicious
small and low-profit enterprise is subject to Material Tax-Related Illegal and Dishonest Acts nature, in material aspects and with greater social
enterprise income tax on only 25% (reduced (hereinafter, the “Measures”), which revise and harm.
from 50%) of its annual taxable income improve the Measures for the Disclosure of
Information on Cases of Tax Violations and Article 4 of the Measures, which provides for the
between CNY 1 million and CNY 3 million at
Dishonest Acts accordingly. The Measures shall go protection of the personal information of the
the reduced rate of 20%, i.e. an effective tax
into effect on February 1, 2022. Dishonest Entities, requires the tax agencies at all
rate of 5%. The effective tax rate on income up
levels to maintain the confidentiality of the state
to CNY 1 million remains unchanged at 2.5% Article 6 of the Measures specifies 11 circumstances secrets, trade secrets or personal privacy, and
A small, low-profit enterprise is considered to where entities with material tax-related illegal and personal information learned in the information
be an enterprise that satisfies all the following dishonest acts are identified (hereinafter, the disclosure and management of the Dishonest
three conditions: “Dishonest Entities”), specifically including: 1) Entities with material illegal tax-related acts. In
falsification, alteration, concealment, unauthorized addition, Article 12 of the Measures stipulates that
• nnual taxable income of the enterprise is
a destruction of books of accounts, bookkeeping if the Dishonest Entity is a legal person or any other
less than CNY 3 million; vouchers, or overstatement of expenses or organization, only the legal representative or
• the enterprise has fewer than 300 understatement of income in the books of account; responsible person of the Dishonest Entity at the
employees; and or refusal to file a tax return or filing of a false tax time of the illegal act or the person actually
return after being notified by the tax authorities to responsible as determined by an effective decision
• t he total value of the enterprise’s assets is file a tax return; or non-payment or underpayment of the people’s court shall be disclosed when the
less than CNY 50 million. of tax payable in excess of RMB 1 million with the information of the Dishonest Entity is disclosed to
unpaid or underpaid tax payable for any year the public. The basic information of the tax-related
Tax incentive for accounting to over 10% of all categories of tax
payable for the year, or non-payment or
professional service institutions and practitioners
who are directly responsible for the material tax
technology start-ups underpayment of withheld or collected tax amount violation and dishonesty cases will no longer be
in excess of RMB 1 million through the disclosed.
China has extended one of the conditions for aforementioned means; 2) default in the payment
of tax payable or employment of means of Pursuant to Article 18 of the Measures, the
technology start-ups to qualify for tax
transferring or concealing property to undermine Dishonest Entity may apply for early cessation of
incentives. Specifically, the condition that the
the collection of outstanding tax by the tax dishonesty information disclosure in any of the
enterprise must have fewer than 300
authorities, 3) acquisition of state export tax following three circumstances, including:
employees, and its assets and annual revenue
do not exceed CNY 50 million at the time of refunds by fraudulent means; 4) refusal to pay taxes 1) taxes, late payment fees, and fines are paid
investment, has been extended to 31 by means of violence or threats; 5) false issuance of (refunded) in accordance with the Decision on Tax
December 2023 (Ministry of Finance and State special VAT invoices or other invoices used to Treatment and the Decision on Administrative
Taxation Administration Joint Circular [2022] fraudulently obtain export tax refunds or offset Punishment for Taxation, and the dishonest
No.6). A venture capital enterprise or a limited taxes; 6) false issuance of more than 100 ordinary information of the Dishonest Entity has been
partnership investment enterprise that holds a VAT invoices or of invoices amounting to over RMB disclosed for six months;
direct equity investment in a technology 4 million; 7) unauthorized printing, forgery, or
alteration of invoices, illegal manufacture of special 2) the Dishonest Entity is declared bankrupt with
start-up for at least 2 years is entitled to a tax
invoice anti-counterfeiting products, or forgery of the people’s court rendering a decision to approve
deduction of 70% of the investment amount.
invoice supervisory seal; 8) acts of tax evasion, the reorganization plan or recognize the settlement
evasion of tax arrears recovery, fraudulent export agreement, and the tax agency is compensated in
tax refund, tax resistance, false invoicing etc. or accordance with law; and
CHINA (PRC) MAYER BROWN | 7
3) in the event of major natural disasters, public
health, social security, and other emergencies,
Tax Incentives Budget
those who make outstanding contributions due to
participation in emergency rescue and relief, The Ministry of Finance (MoF) and the State The Financial Secretary delivered the Budget
epidemic prevention and control, major project Taxation Administration (SAT) sent out a circular on for 2022/2023 on 23 February 2022. It
construction, or fulfillment of social responsibility. 29 January 2022 that the following circulars and contained the following tax highlights (all
public notices have been extended until 31 amounts in HK$):
December 2023:
Benefits in Kind for Foreign • Introduction of a tax deduction for
• Public Notice [2019] No. 60 concerning the JURISDICTION:
Citizens in the PRC
domestic rental expenses for taxpayers
reduction of enterprise income tax to 15% liable to salaries tax and tax under
Hong Kong
(from the statutory rate of 25%) for enterprises personal assessment, subject to a
The Ministry of Finance and the State Taxation operating and maintaining equipment used for deduction ceiling of $100,000 per year of
Administration on 31 December 2021 issued environment protection; assessment from 2022/23. The
circular [2021] No.43, which extends the tax policy • Circular [2020] No. 10 concerning individual deduction will not apply to a taxpayer
which allows foreign individuals who work in China income tax exemption for extra allowances, who is the owner of the domestic
to choose the treatment of benefits in kind as bonuses and medical materials received by property or an associate of the landlord
contained in Circular [2018] No. 164. The latter medical staff or workers related to COVID-19 of the rented property (eg, spouse,
circular provides in article 7 that from 1 January prevention; parent, child, brother/sister or partner of
2019 to 31 December 2021 foreign individuals may the taxpayer, or a corporation controlled
elect every year to apply special additional • Circular [2018] No. 120 concerning exemption by the taxpayer) or where the taxpayer
deductions for children’s education, adult from value added tax for start-up incubators receives a rent refund from the employer.
education, elderly care, extraordinary medical and incubation services provided by university
science parks and innovation platforms, and • Half-tax concession (i.e profits tax rate of
expenses, mortgage interest and housing rents or
exemption from house property tax and urban 8.25%) to attract more maritime
receive tax-exempted allowances for housing,
land use tax for real estate used by these enterprises to establish a presence in
language training, school fees for children as they
enterprises or institutions; and Hong Kong.
applied before 1 January 2019.
• Circular [2019] No. 14 concerning exemption • Continue to proactively expand Hong
from house property tax and urban land use Kong’s Comprehensive Avoidance of
tax for wholesale premises and market halls of Double Taxation Agreements (CDTAs)
agricultural products. network. At present, Hong Kong has
signed 45 CDTAs and is in negotiations
with 14 tax jurisdictions, with a view to
minimising the risk of double taxation
borne by foreign enterprises doing
business in Hong Kong.
• Proposal to limit future rates concession
for domestic properties to one domestic
property for each eligible owner who is a
natural person starting from 2023/24.
• Introduce from 2024/25 progressive
rating system for domestic properties.
For domestic properties with annual
rateable value of $550,000 or below, it is
proposed that rates will continue to be
charged at the present level of 5% of the
rateable value. For domestic properties
with rateable value over $550,000, it is
proposed that rates be charged at 5% of
the rateable value on the first $550,000
and at 8% of the rateable value on the
next $250,000, and then at 12% on
rateable value exceeding $800,000.
8 | Asia Tax Bulletin CHINA (PRC)
• Plan to submit a legislative proposal to the
LegCo in the second half of this year to
The minimum effective Taxonomies Tax exemption for qualifying
implement the global minimum tax rate and income tax rate of 15% Family Owned Investment
On 31 March 2022, the IRD published its latest
Holding Companies
other relevant requirements in accordance with
the Organisation for Economic Co-operation under Pillar 2 update on its IRD Taxonomy Package, which is its
and Development (OECD) BEPS 2.0 framework programme requiring electronic filing of tax returns
targeting multinational enterprises (MNEs) In view of the implementation of the global by companies and businesses. The IRD published The Hong Kong government has launched a
with consolidated group revenue exceeding minimum effective tax rate as part of the the IRD Taxonomies Illustrated, rendered in Excel consultation about its proposal to introduce a tax
€750 million. international tax reform proposals drawn up by the spreadsheets for content illustration, which is part exemption of profits tax for qualifying Family
Organisation for Economic Co-operation and of the IRD Taxonomy Package. It also contains an Owned Investment Holding Companies (“FIHV”)
• The government is considering introducing a
Development (OECD) to address base erosion and Inline Extensible Business Reporting Language managed by Single Family Offices (“SFO”) in Hong
domestic minimum top-up tax with regard to
profit sharing (BEPS), the Hong Kong government (IXBRL) schema, to be released by the IRD in due Kong. Both the FIHV and the SFO must be centrally
the aforesaid MNEs starting from the year of
announced that it will consider the introduction a course. managed and controlled in Hong Kong and they
assessment 2024/25 to ensure that their
domestic minimum top-up tax, to ensure that the must be owned by members of a family.
effective tax rates reach the global minimum The Taxonomies is a classification system that can
effective rates of in-scope MNE groups in Hong be used to facilitate electronic reporting of financial
effective tax rate of 15% so as to safeguard The FIHV (which can be a partnership, trust or
Kong reach the global minimum effective tax rate statements prepared in accordance with HKFRS, as
Hong Kong’s taxing rights. company) should not engage in commercial or
of 15% so as to safeguard Hong Kong’s taxing well as tax computation and supporting schedules industrial activities. The SFO (which must be a
• The government reaffirms its stand to rights. to the profits tax return. Businesses will be required company) must manage assets under management
preserve the advantages of Hong Kong’s tax
As required by the OECD, a qualified domestic to use the IXBRL schema for the profits tax return of one or more FIHVs of the same family of at least
regime in terms of its simplicity, certainty and
minimum top-up tax must be implemented and preparation, which is new to Hong Kong. As a HKD 240 million based on an average of the last
transparency, maintain the territorial source
administered in a way that is consistent with the result, the preparation of audited accounts must three years. The tax exemption would comprise the
principle of taxation as well as minimise the
outcomes provided for under the GloBE Rules and take into account the requirements under the IXBRL same types of assets as are exempted under the
compliance burden on MNEs when
the commentary in order to be allowed to set off schema. Both auditors and tax practitioners must unified tax exemption facility (qualifying funds
implementing BEPS 2.0.
against top-up tax payable under the GloBE Rules. prepare themselves for the use of the IXBRL managed by Hong Kong based fund managers).
• Business registration fees have been waived for schema.
The GloBE Rules provide that International It is proposed that the new tax exemption will take
2022/2023.
Shipping Income and Qualified Ancillary effect on 1 April 2022. The consultation runs till 8
• Profits tax, salaries tax and tax under personal International Shipping Income should be excluded April 2022. If approved and promulgated into law, it
assessment for 2021/22 are reduced by 100%, from the computation of the GloBE Income or Loss would provide a similar tax exemption as provided
capped at $10,000. – this will also be adopted by Hong Kong. in Singapore to Singapore based investment
holding entities.
It was announced on 6 April 2022 that the tax Nevertheless, if an in-scope MNE group has
concessions proposed by the government in the income other than the aforementioned excluded
2022-23 budget have been approved by income, such other income should still be included
parliament, reducing salaries tax, tax under in the computation of GloBE Income or Loss and
personal assessment and profits tax for the year of thus the domestic minimum top-up tax. The
assessment 2021/22 by 100%, subject to a ceiling Government will take into account these
of $10,000 per case. considerations when designing the domestic
minimum top-up tax for Hong Kong.
10 | Asia Tax Bulletin HONG KONG HONG KONG MAYER BROWN | 11
Budget 20221 In an effort to streamline the process for tax
litigation, certain measures have been introduced
Budget and income tax and
The Minister of Finance issued the
to avoid repetitive appeals by the department in GST changes for 2022/2023
the higher courts. This is a positive step towards an
government’s Budget Proposals for 2022 on efficient litigation resolution framework. Further,
1 February 2022. GST – COMPANIES HAVING A TURNOVER ABOVE
the Budget proposes to provide an ability to
INR 20 CRORE TO GENERATE B2B E-INVOICES:
On the direct tax front, the most significant taxpayers to rectify any errors in their tax return
proposal is the taxation of virtual digital within a period of 2 years from the end of the Businesses (except certain specified) with a
relevant assessment year. turnover of over INR 20 crore will have to generate
JURISDICTION: assets. The Budget proposes to tax transfer
of virtual digital assets at the rate of 30%, an electronic invoice for B2B transactions. The
In a welcome move, the Budget also proposes that
threshold was INR 50 crore till 31 March 2022.
India
irrespective of the period of holding and where an income tax liability has been modified by
does not allow for any deduction in respect Notification No. 1/2022-Central Tax dated 24
an order of an Adjudicating Authority, under the
of expenses incurred aside from the cost of February 2022 has been issued for the purpose.
Insolvency and Bankruptcy Code, 2016, the
acquisition. Further, gift of such assets will be Assessing Officer (“AO”) shall modify the demand Consequently, more businesses would have to raise
taxed in the hands of the recipient. payable in conformity with such order. This would e-invoices and invoices issued otherwise would not
Additionally, loss from transfer of such assets result in removal of an anomaly whereby there was be valid. It may be noted that input tax credit (‘ITC’)
cannot be set-off against any other income. no mechanism or procedure to reduce the income cannot be availed by the recipients on invalid
Tax is also to be withheld at the rate of 1% tax liability to give effect to such orders. invoices.
on the transfer of such assets in certain cases.
Pursuant to various judicial pronouncements on INCOME -TAX ON VIRTUAL DIGITAL ASSETS:
Tax rates largely remain unchanged. successor liability, the Budget proposes to
However, surcharge on income tax for Section 115BBH is being inserted into the Income-
introduce a new deeming fiction in the case of a
co-operative societies has been capped at tax Act, 1961 for taxation of virtual digital assets.
‘business reorganisation’ wherein the assessments/
15% to provide them with a level playing field Gains from various virtual digital assets such as
proceedings (whether pending or completed) on
with companies. Further, the surcharge on Bitcoin, Ethereum, etc. will be taxed at a flat 30%
the predecessor entity made during the course of
long-term capital gains on transfer of any rate.
pendency of the scheme/reorganization, are
type of asset (including unlisted shares) has deemed to have been made on the successor. Except for the cost of acquisition, no deduction in
been capped at the rate of 15%, this is on par respect of any expenditure will be allowed. No
with that of listed shares. Additionally, Developments in relation to the Gujarat International
set-off of losses of buying /selling of virtual digital
dividends received by Indian companies from Finance Tec City (“GIFT City”) include setting up of
assets from other incomes will be allowed. Profits
their foreign subsidiaries is proposed to be foreign universities and an international arbitration
from one virtual digital asset will not be allowed to
increased to the rate of 30% instead of the centre. On the tax front, tax exemption has been
be set off against losses from other virtual digital
current rate of 15%. Further, the Finance Bill proposed for income of a non-resident from offshore
assets.
2022 (“Finance Bill”) proposes to levy derivative instruments, or over the counter derivatives
withholding tax on perquisites provided to issued by an offshore banking unit, income from Further more as per new Section 194-S, 1% TDS for
Indian resident taxpayers at the rate of 10% royalty and interest on account of lease of ship and every transaction of virtual digital assets to be
of the value of the perquisite. income received from portfolio management services effective from 1 July 2022. The threshold limit for
in IFSC. Separately, the Budget proposes to replace TDS would be INR 50,000/year for specified
For eligible start-ups established before the Special Economic Zone Act, with a new persons (Individuals/HUFs).
March 31, 2022, a tax holiday for 3 legislation. However, the fine print of the new
consecutive years out of 10 years from the WINDOW FOR FILING UPDATED RETURN OF
legislation is awaited.
incorporation date was provided. In response INCOME
to the Covid-19 pandemic, the Budget A slew of changes has also been made to the
Subsection 139(8A) has been inserted in the
proposes to extend this benefit to start-ups scheme under the Income-tax Act, 1961 (“ITA”) for
Income-tax Act. Taxpayers will get an additional
incorporated prior to March 31, 2023. charitable organisations, search and seizure related
chance for updating their income- tax returns.
Additionally, the concessional tax regime of provisions, faceless assessment, allowability of
15% to manufacturing companies was expenditure for the purposes of business or Updated returns can be filed by taxpayers within a
available should such companies commence profession and penalty related provisions. time frame of 24 months from the end of the
manufacturing by March 31 2023; this date relevant assessment year. Provision also provides
has now been extended to March 31, 2024. cases where updated returns of income cannot be
filed.
1
Courtesy Nishith Desai Associates. INDIA MAYER BROWN | 13
Section 140B has been inserted to provide that
apart from tax and interest due in relation to
Importantly, this issue was addressed by the Delhi
High Court in two recent rulings (Concentrix
Income tax rates for
updated return of income, the taxpayer will be Services Netherlands BV WP (C) 9051/2020 and construction services
required to pay an ‘additional tax’. Optum Global Solutions International BV WP (C)
882/2021) wherein the Court held that the 10% tax For many years since 2000, Indonesia has been
TDS ON SALE OF IMMOVABLE PROPERTY
rate on dividends under the India-Netherlands tax applying a ‘final income tax’ system to prescribed
TDS provisions have been aligned with the treaty would reduce to 5% as per the MFN clause in categories of construction services which taxes
computation provisions, Section 194-IA has been the said treaty. However, the Circular deviates from the gross income received from these services at
amended to provide that the tax has to be the said liberal interpretation. In this regard, the specified income- tax rates, regardless of whether
JURISDICTION:
deducted on higher of sales consideration or stamp Circular does clarify that any decision rendered by the income produced a profit or a loss.
duty value. any court on this issue in favour of the taxpayer will
Indonesia
remain unaffected by this Circular. With effect from 21 February 2022 the rates were
Tax shall not be withheld where both the Stamp
amended and a number of additional categories
duty value of property and consideration paid is With respect to dividend income, this issue
of construction services were added to the
less than INR 50 lakh. assumed significance only from 1 April 2020 when
system based on Government Regulation (GR)
the dividend taxation regime was overhauled (i.e
Number 9 of 2022 (GR 9/2022), amending the
Most Favoured Nation
when the company level distribution tax was
previous GR Number 51 of 2008 (GR 51/2008) for:
replaced with a shareholder level income tax). That
Clause in India’s Tax Treaties said, the interpretational issues covered by the • construction work carried out by service
Circular are also relevant to other income streams providers holding a small business
which are covered by an MFN clause (like fees for qualification certificate or by individuals with
Courtesy Khaitan & Co – it was reported that in a
services and royalties). a work competency certificate: 1.75%
significant development, the Apex Tax
Administration Body of India, the Central Board of The Circular concludes that a taxpayer is entitled to (previously 2%);
Direct Taxes (CBDT) through its Circular No. 3 of apply the MFN clause under a tax treaty (Relevant
• construction work carried out by companies
2022 dated 3 February 2022 (Circular) has clarified Tax Treaty) in relation to any beneficial provision
or individuals without certificates: 4%
its position with respect to interpretation of Most under a tax treaty with the Third State only if the
(unchanged);
Favoured Nation (MFN) clause in tax treaties. The following conditions are cumulatively satisfied:
tax treaties between India and certain jurisdictions • construction work carried out by service
• The treaty with the Third State was entered into
have an MFN clause (in the protocol to those tax providers other than the two categories of
after the signing/entry into force (depending on
treaties) which captures the relevant treaty partners service providers referred to above, including
the language in the respective tax treaty) of the
understanding that if India agrees to a more service providers holding a medium or large
Relevant TaxTreaty;
beneficial tax treatment with respect to certain business qualification, or specialist
income streams with another treaty partner • The Third State was an OECD member at the qualification: 2.65% (previously 3%);
subsequently, the same should be read into the time of signing of its tax treaty with India;
treaty having the MFN clause. • construction consulting services carried out
• The provision in the tax treaty with the Third
by service providers with business entity
The core issue which is at the centre of the current State is more beneficial vis-a-vis the Relevant
certificates or by individuals with work
development is whether the non-residents located Tax Treaty; and
competency certificates: 3.5% (previously
in certain European countries (such as France,
• A separate notification has been issued by the 4%);
Netherlands, Sweden, Spain, Hungary and
Indian Government importing such benefits
Switzerland) can avail the concessional tax rate of
into the Relevant Tax Treaty. • construction consulting services carried out
5% on the dividends they receive from any Indian
by service providers without business entity
entity, by relying on the MFN clause in India’s tax
certificates or by individuals without work
treaties with these jurisdictions.
competency certificates: 6% (unchanged);
• integrated construction work (combination of
construction work and construction
consulting) carried out by service providers
with business entity certificates: 2.65%; and
• integrated construction work carried out by
service providers without business entity
certificates: 4%.
14 | Asia Tax Bulletin INDIA INDIA
CFC guidelines FOREIGN EXCHANGE RATE TO BE USED IN
APPLYING CFC RULES
New tax treaty with • Branch Profit Tax rate is reduced from 15% to
10%. However, this is not applicable for
On 28 December 2021, the Director General of Tax SE-55 provides guidance and examples which Singapore applies from Production Sharing Contracts in the oil and gas
sector.
(DGT) issued SE-551 as an internal guideline to reaffirms that:
1 January 2022 • New Capital Gains article is added to provide
implement Minister of Finance (MoF) Regulations 2 • Conversion of the amount of deemed dividends
on Controlled Foreign Companies (CFC). SE-55 that the right to tax “capital gains” will be
and paid dividends are using the BI middle rate Further to the previous edition of this Bulletin
provides comprehensive guidelines including various limited to the jurisdiction of residency of the
or the daily spot rate of foreign exchange on the where we reported the ratification of Indonesia’s
examples. asset seller, with certain exceptions and/or
international market if the BI middle rate is not new and favourable tax treaty with Singapore, we
qualifications. This makes Singapore a
OVERSEAS LOSSES. available. now report that the new treaty has taken effect
favourable holding company location for
from 1 January 2022. It contains, inter alia, the
In principle, overseas losses cannot be offset against • The exchange rate used for the dividend amount Indonesian investments as the tax treaty
following interesting features:
other domestic income. In determining the basis for is the one applicable at the time of the deemed exempts future divestments from Indonesian
the imposition of deemed dividends in relation to dividend recognition or when the dividends are • Dividend withholding tax rate remains the capital gains tax.
CFC losses, the following shall apply: received. same, i.e 10% for substantial holding and 15%
• The exchange of information (EOI) article is
in all other cases.
• The CFC losses from different countries/ • The exchange rate used for the FTC is the expanded which essentially follows the EOI
jurisdictions cannot be offset against CFC exchange rate determined by the MoF at the • Interest withholding tax rate remains the same, article in the 2017 OECD Model Tax
income from another country. time the foreign income tax is payable, paid or i.e 10%. However, there are modifications in the Convention.
withheld. If the domestic taxpayer is conducting provision such as the discontinuation of the
• The CFC losses can be netted off with CFC • New Entitlement of Benefits article is added to
United States Dollar (USD) bookkeeping, any withholding tax exemption on interest from
income from CFCs within the same country/ adopt the Principal Purpose Test provision as
FTC in a currency other than USD must be Government bonds and the scope of
jurisdiction. However, if the total Net Profit After prescribed in Article 7 of the MLI regarding the
converted into USD Government institution.
Tax from all CFCs in the same jurisdiction prevention of treaty abuse.
resulted in a loss position, then the loss cannot • The netting off of deemed dividend with the • Royalty withholding tax rate is decreased from
be offset against domestic income or CFC paid dividend follows examples given in the 15% in all cases to 8% and 10% depending on
income from other countries. MoF Regulations. No separate calculation is the type of royalties.
necessary to calculate gain or loss from the
INTERACTION OF THE CFC RULES WITH THE difference of exchange rates used at the time
DIVIDEND EXEMPTION RULES UNDER THE the dividend is deemed and distributed.
OMNIBUS LAW
REPORTING THE DEEMED DIVIDEND, DIVIDEND
With the enactment of the offshore dividend PAID AND FOREIGN TAX CREDIT IN ANNUAL
exemption rules under the Omnibus Law, the INCOME TAX RETURN (AITR)
provisions of the CFC Rules remain valid as long as
the CFC does not distribute dividends to domestic SE-55 explains how to report the deemed dividend,
taxpayers and/or the domestic taxpayer does not paid dividend and FTC in AITR Forms 1770 S, 1770
invest the paid dividends distributed by the CFC as and 1771, which can be highlighted as follows:
required under the Omnibus Law. • For Form 1770 S, both deemed dividend and
DEEMED DIVIDEND ON TRUST paid dividend is reported under the Overseas
Net Income column, and
PMK-93 stipulates that the ownership through trust
or similar arrangements is deemed as a “pass- • For Forms 1770 and 1771, the deemed dividend
through” and will be considered as ownership by the is added as a positive fiscal adjustment when it
investor(s) in the trust or similar entity. SE-55 affirms is recognised and reversed as a negative fiscal
that in principle, those who recognise and report the adjustment when the actual dividend is paid.
deemed dividend as well as claim the Foreign Tax The paid dividend will be reported under the
Credit (FTC) on the paid dividends are the settlors. Overseas Commercial Net Income column.
However, if the settlor has passed away or cannot be
identified, then the beneficiary of the trust can
recognize and report the deemed dividend as well
as claim the foreign tax credit.
16 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 17
Tax Reform Withholding tax on Earnings stripping rules
On 10 December 2021, Japan announced
dividends from wholly- Japan’s earnings stripping rules restrict deductions
its 2022 tax reform proposal, which contains owned subsidiaries for net interest expenses that exceeded 20% of a
a number of changes to the existing tax Japanese company’s adjusted taxable income.
rules that may impact companies doing Under the Proposal, the following dividends paid to Under the current rules, foreign companies are only
business in Japan, including changes that domestic companies will no longer be subject to subject to the earnings stripping provisions on
may provide some companies with a chance withholding tax: income attributable to a Japanese permanent
JURISDICTION: to reduce their Japanese tax burden, as well establishment (PE). However, under the Proposal,
as changes that may result in potential • dividends paid with respect to shares of the scope of the earnings stripping rules will be
Japan
pitfalls (eg, disallowance of certain wholly-owned domestic subsidiaries, and expanded to include Japan-source income of a
incentives, etc.) for failure to comply with • dividends paid with respect to shares of foreign company without a PE in Japan, as well as
the new provisions. Additionally, domestic affiliated companies in which more Japan-source income of a foreign company with a
amendments were made to the Japanese than one-third of the outstanding shares are PE in Japan, regardless of whether or not such
Companies Act (JCA) in 2021 introducing a directly owned, as of the dividend record date. income is attributable to the Japanese PE.
share delivery regime. This regime is now
Under the current rules, withholding tax is imposed
available as another M&A transaction
regime under which a target corporation when a parent corporation receives a dividend from Wage increase tax credit
survives and an acquiring corporation a wholly-owned subsidiary that is part of a 100%
delivers shares as consideration. The new group. The parent corporation is then entitled to Under the current rules, companies filing blue form
share delivery regime can be used for receive a refund or credit of the withholding tax at tax returns are generally entitled to take a credit of
partial acquisitions and does not require the time it files its corporate tax return and when up to 20% (25% for small and medium-sized
inspection by a person elected by the calculating its corporate tax amount, the parent enterprises (SMEs) if certain wage payments made
court. As such, it provides certain corporation is able to exclude the entire amount of in the current fiscal year (FY) exceed certain wage
advantages over the previously existing the dividend from income, resulting in no corporate payments made in the previous FY. The Proposal
methods for carrying out such transactions. tax being imposed. Thus, the revisions are meant to will expand on the existing rules and provide
In addition, the Japanese Corporate Tax eliminate the inconsistency of imposing withholding increased credit amounts if companies meet certain
Act (JCTA) was amended in 2021 to make it tax on dividends that are not subject to corporate conditions. For large companies (i.e non-SMEs), the
possible to structure transactions using the tax. Practically speaking, the revisions would make relevant conditions are as follows:
share delivery regime in a tax-free manner, it necessary to determine whether, at the time of
• Wages paid to continuously employed
thus providing potential tax benefits as well. the dividend, the dividend is received from a
employees in the current FY ≥ Wages paid to
wholly-owned subsidiary or an “affiliated
The following is a brief overview of the continuously employed employees in the prior
subsidiary” (generally, a subsidiary in which the
relevant 2022 tax reform proposal items FY x 103%.
recipient owns more than one-third of the total
that would likely have the largest impact on number of outstanding shares) to determine • Wages paid to continuously employed
multinational companies doing business in whether withholding tax would apply. However, as employees in the current FY ≥ Wages paid to
Japan and outlines the recent legal changes the scope of the revisions is limited to subsidiaries continuously employed employees in the prior
related to the share delivery regime. in which more than one-third of the outstanding FY x 104%.
shares are owned, such a determination should not
• Education and training costs in the current FY ≥
create any additional administrative burden. The
Education and training costs in the prior FY x
revisions above will apply to dividends received on
120%.
or after 1 October 2023.
JAPAN MAYER BROWN | 19Tax free share exchanges The 2021 Tax Reform Bill provides that a recognition
of gain or loss arising from the transfer of shares in
Tax changes for 2022
one company to another company in exchange for Courtesy Kim & Chang – it was reported
On 10 December 2020, the ruling parties and the new shares of another company pursuant to the that in December 2021 the National
government published the “2021 Tax Reform share delivery regime, under the JCA, shall be Assembly finalised and ratified the
Proposal” or Zeisei Kaisei Taiko. The 2021 Tax deferred if the value of the new shares in the other proposed tax law amendments submitted
Reform Proposal seems to focus on boosting the company is at least 80% of the total value of by the Ministry of Economy and Finance
domestic economy, especially in areas which have consideration. Therefore, the requirement of with most of the amendments taking effect
been severely impacted by the COVID-19 pandemic. obtaining METI approval will be removed. This
JURISDICTION: as of 1 January 2022. The Presidential
Among these proposed amendments to the tax law, change could potentially have a significant impact in Decrees issued subsequent to the
a proposed amendment to expand the scope of the area of M&A, as well as group reorganisation.
Korea
ratification of the amendments were also
tax-free share exchanges may have a significant
First, an acquisition of less than 100% of a Japanese publicly released and have been in effect
positive effect on M&A transactions and corporate
company’s ownership in exchange for new shares of since 15 February 2022.
reorganisations. The 2021 Tax Reform Bill was
passed in late March 2021, and some of the the buyer may be carried out without incurring
changes, including the expansion of the scope of capital gain tax at the Japanese shareholder level. CORPORATE TAXATION
tax-free exchanges discussed herein, have already This cannot be done in a tax-free manner under the
taken effect. current rules, as a share exchange under the JCA Where a domestic entity acquires a
will always result in 100% acquisition. business (70% or more of the assets and
Under the Individual Income Tax Act (IITA) and the 90% or more of the net assets) of another
JCTA, no gain or loss will be realized for Secondly, the new rules may be applicable to
related domestic entity and a significant
shareholders transferring shares by way of a share intra-group reorganization as well. For example,
concern for tax avoidance exists, the
exchange pursuant to the JCA and equivalent under the current rules, a Japanese individual
carry-forward losses of the transferee
foreign corporate law. While a share exchange under shareholder will be fully taxed on the gain resulting
cannot be deducted from income
the JCA is always tax-free for shareholders unless from a contribution of shares in a company which
generated from the transferred business (i.e
cash or other property is delivered, the target he/she controls in exchange for shares in another
the losses can be deducted only from
company may be subject to the “deemed asset sale” company which is controlled by the same person.
income generated from the existing
rule for certain asset categories if it is categorized as The new rules may make such restructuring
business of the transferee), applicable to
a non-tax qualified share exchange. A share transactions tax-free.
business transfers made on or after 1
exchange under the JCA can be used only when the Thirdly, using cash as consideration can still qualify January 2022.
buyer intends to acquire all issued shares in the for tax-free treatment at the shareholder level and
target company. Additionally, the Special Tax recognition of gain corresponding to “shares” will INDIVIDUAL TAXATION
Measures Act (STMA) currently provides a special be deferred.
tax deferral rule for a share exchange which is not by
Finally, there will be no tax consequences for the The special tax concession of a flat 19%
way of share exchange under the JCA (i.e
target corporation and therefore, there will be personal income tax rate for foreign
shareholders of the target company individually
greater flexibility to implement post-closing employees is extended to those who start
contribute shares to the buyer in exchange for new
integration. working in Korea for the first time on or
shares in the buyer), but only if such share exchange
before 31 December 2023.
is approved in advance by the Ministry of Energy,
Trade and Industry (METI) pursuant to the Act for Tthe current income tax exemptions of 70%
Strengthening Industrial Competitiveness. However, and/or 50% for foreign technical experts are
it was reported that no such approval was granted extended until 31 December 2023.
by METI.
20 | Asia Tax Bulletin JAPAN INDONESIATRANSFER PRICING CONTROLLED FOREIGN CORPORATION (CFC) INTERNATIONAL TAXATION ADMINISTRATION AND REPORTING
RULES REQUIREMENTS
The credit default swap and economic model Thin capitalization: The asset and liability allocation
analysis methods are available in determining the The following changes have been made to the CFC method by business type has been clarified. he deadline for non-residents and foreign
T
arm’s length interest rate for financial transactions, rules, effective from taxable years commencing on corporations to submit information related to
applicable to financial transactions occurring on or or after 1 January 2022: he substantive ownership requirements of the
T international transactions has been extended from
after 15 February 2022. overseas investment vehicle regime has been the due date for filing tax returns to 6 months from
• as announced earlier, the threshold effective clarified to reflect relevant tax treaty requirements. the last day of the month in which the fiscal year
Transfer pricing methods for cash pooling tax rate for foreign corporations subject to the end falls (applicable for submissions made on or
transactions within a multinational enterprise group CFC rules is set at 70% of the maximum s announced earlier, the two-step process foreign
A
after 15 February 2022).
are allowed as provided in the OECD Transfer marginal corporate income tax rate, which is tax credit mechanism (refund followed by
Pricing Guidelines, applicable to financial currently 25% (thus, an effective income tax withholding) for specified investment vehicles has Liaison offices of foreign corporations that perform
transactions occurring on or after 15 February rate of 17.5%, increased from 15%); been simplified: instead of refunding the foreign only non-business functions in Korea are required
2022. tax to the investment vehicle, the foreign tax will be to submit information on the current operating
• s announced earlier, trusts subject to
a deducted from withholding tax payable at the time status of the office (including information on
The transfer pricing rules under special economic corporate income tax have been included of distribution to investors (applicable to income employees, operational funds, domestic
circumstances such as the COVID-19 pandemic within the scope of the CFC rules; and paid on or after 1 January 2023). transactions, etc.) to the tax office by 10 February
have been rationalized: each year (with effect from 1 January 2022).
• t he scope of income actually earned by a
VAT
• as announced earlier, taxpayers may include foreign corporation in determining deemed L iaison offices are also included in the list of entities
loss-making companies in their comparables dividends is clarified as the average of income required to submit a table of total VAT invoice
lectronic retail brokerage services supplied to
E
set (for tax filings submitted on or after 15 actually earned in the most recent three taxable amounts by each seller (without obligation to pay
non-residents or foreign corporations are zero
February 2022); and years (years in which certain activities are VAT), in respect of goods or services supplied on or
rated.
carried out as the main business). after 1 July 2022.
• here cost is not shared as agreed under a cost
w
Changes have been made to rules for input credit
sharing agreement due to force majeure eporting of overseas real estate: the reporting
R
and invoices, including extension of time to qualify
events, the tax authority may make an obligation is extended to cover all real estate
for input credits for late-issued invoices or invoices
exception to the determination and holdings by a Korean resident with effect from 1
mistakenly issued prior to the time of supply,
amendment of the amount of allocated cost January 2022, not only to acquisitions, operation
allowing input credit for incorrectly issued invoices
based on arm’s length cost allocation (for tax for investment and disposals. The fine for non-
and extension of time to issue amended invoices.
filings submitted on or after 1 January 2022). reporting of holdings is 10% of the acquisition
Foreign businesses providing e-services in Korea price, which will take effect from 1 January 2023.
are required to retain additional documents
containing details of services provided, with effect The penalties for late submission of international
from 1 July 2022. transaction documents or submission of revised
documents (provided that the original submission
was on time) have been reduced by 30%-90%,
provided that no penalty has been imposed yet.
he penalty tax rate for late payments is reduced
T
from 0.025% per day to 0.022% per day (8.030%
per annum).
Adjustments have also been made to various other
administrative fines.
22 | Asia Tax Bulletin KOREA KOREA MAYER BROWN | 23Tax deductibility of • The Amendment Rules replace the definition of
‘qualifying deduction’ in the Principal Rules with
Covid concessions on tax
interest in controlled the following: residence and permanent
transactions here there is business expenditure incurred in
w
the profit and loss account (‘P&L Account’)
establishment
allowed as a deduction under the Act
The Income Tax (Restriction on The Malaysian tax authority released a circular on 24
and the amount of the deduction allowed
Deductibility of Interest) Rules 2019 [P.U.(A) December 2021 in which it announced that the
exceeds the amount of business expenditure
175/2019] (“Principal Rules”) have been Covid-related tax concessions on tax residence and
JURISDICTION: incurred, an amount equal to the difference
amended by the Income Tax (Restriction on permanent establishment due to the travel
between the amount of the deduction and the
Deductibility of Interest) (Amendment) restrictions in 2020 and 2021, will no longer apply
Malaysia
amount of the business expenditure incurred in
Rules 2022 [P.U.(A) 27/2022] (“Amendment with effect from 1 January 2022. This means that
the P&L Account; or
Rules”) which came into effect on 1 foreign companies can no longer apply for lenience
February 2022. The Principal Rules, inter where there is no business expenditure incurred based on travel restrictions if they carry on business
alia, restrict the amount of interest that can on the P&L Account, the amount of the activities in Malaysia.
be deducted by specified persons who deduction allowable under the Act.
Electronic payment of tax
have been granted financial assistance in a
CARRYING FORWARD OF EXCESS INTEREST.
controlled transaction. For this purpose, a
‘controlled transaction’ is defined in section The scope of rule 6(1) of the Principal Rules that
140C(3) of the Income Tax Act 1967 (‘the allows a company to carry forward any interest The Inland Revenue Board of Malaysia (HASiL)
Act’) as financial assistance (i) between expense exceeding the amount ascertained under announced on 3 March 2022 that starting 1 April
persons one of whom has control over the rule 4 to subsequent years of assessment has been 2022, a new e-Telegraphic Transfer (e-TT) System
other; or (ii) between persons both of whom expanded and now applies to any person, namely a has been introduced for the payment of Income
are controlled by some other person. The company, a limited liability partnership, a Tax, Petroleum (Income Tax), Real Property Gains
Amendment Rules amend the Principal corporation sole and a body of persons (i.e any Tax (RPGT), Compound Payment, Income tax paid
Rules in 1 and 2 discussed below. unincorporated body of persons including a Hindu by Foreign Artists (Public Entertainer) and
joint family but excluding a partnership). Withholding Tax (WHT), through Telegraphic
QUALIFYING DEDUCTION.
Transfer (TT), Electronic Funds Transfer (EFT) and
The Amendment Rules have also clarified that the
Rule 4 of the Principal Rules limits the Inter-Bank GIRO (IBG) methods from within and
condition in Rule 6(2) of the Principal Rules which
maximum amount of interest that can be outside Malaysia.
imposes a condition (i.e.the shareholding of the
deducted in a basis period for a year of
company) that restricts the carrying forward of E-TT is a system that will generate a Virtual Account
assessment in respect of a controlled
excess interest only applies to a company and not Number (VA) as payment identification. Taxpayers
transaction to an amount equal to 20% of
to other persons who are allowed under rule 6(1) to who wish to pay tax through TT from will be
the amount of ‘tax-EBITA’ of a person. One
carry forward excess interest. required to access the e-TT system through the
of the components in the calculation of the
following steps:
amount of ‘tax-EBITA’ under rule 5 is the
total amount of the ‘qualifying deduction’ Visit the My Tax Portal at https://mytax.hasil.gov.my;
allowed.
Click on ezHasil Services > submenu e-TT ;
Before the Principal Rules were amended,
Fill up the required payment information to
‘qualifying deduction’ meant:
generate the VA number ; and use the VA Number
• n amount equal to the amount of
a as payment account number when making payment
expenditure incurred by a person through TT at the bank counter or through
computed in any deduction falling to electronic banking portal.
be made under the Act where the
With the implementation of the new e-TT system,
amount of the deduction is twice the
the four types of direct tax payments i.e.
amount of the expenditure incurred by
Compounds, Foreign Artists Tax, WHT and RPGT
a person;
withheld by the acquirer (section 21B, RPGT Act
• any claim for deduction under any rules 1976) which previously could only be paid manually
made under section 154(1)(b) of the Act at HASiL Payment Counters, can also be paid
where the deduction is allowed for the online.
purposes of ascertaining the adjusted
income of the person.
MALAYSIA MAYER BROWN | 25Stamp duty relief • the application may be submitted online to any
IRB state office, via the IRB’s Stamp Duty
Budget
Assessment and Payment System (STAMPS),
The Inland Revenue Board (IRB) has issued updated followed by the physical submission of The Finance Minister delivered the government’s
guidelines for the relief from stamp duty in the case supporting documents. Budget for 2022 on 18 February 2022. Key
of reconstruction or amalgamation of companies topics of the Budget are the following:
under section 15 of the Stamp Act 1949. The • the documents that are required to be
submitted include, among others: • There are no changes to the corporate tax
guidelines clarify, among others, the approval
rate. In response to Pillar Two of the OECD
terms, application procedure and the >> d
ocumentary proof of the reconstruction or
JURISDICTION: BEPS 2.0 project, the Singapore government
responsibilities of the parties involved (i.e. the amalgamation scheme of the companies is exploring the feasibility of introducing a
transferee company and the existing company): such as a duly stamped share transfer
Singapore
minimum effective tax rate to top up the
• the transferee company will be eligible for the agreement, commercial property transfer effective tax rate of multinational groups
stamp duty relief if the transferee company agreement or reconstruction/amalgamation operating in Singapore (with annual
increases its share capital for the purpose of agreement; revenues of EUR 750 million or more) to
acquiring any existing company or for acquiring >> b
oard resolution on the increment in share 15%.
not less than 90% of the issued share capital of capital and share certificates certified by • Despite talk in the press about a wealth tax,
any existing company. the company secretary; the government did not propose to
• the compensation for this reconstruction or • The IRB may revoke an approval if it discovers introduce a new wealth tax. Instead, the
amalgamation activity must be at least 90% in that the documents submitted are not true, the personal tax and property tax rates were
the form of shares issued by the transferee approval terms are not fulfilled, the transferee increased as mentioned below.
company. and existing companies (including the • Personal income tax rates will be increased
• the shares of the transferee company must be shareholders) cease to be the beneficial owners for annual taxable incomes exceeding SGD
held in the name of the shareholders and not in of the issued shares within 3 years from the 500,000 from the current 22% to 23% and
the name of any representatives. date of the registration (of the transferee those exceeding SGD 1 million to 24%. The
company) or from the passing of a board new rates will not apply to 2022 but will
• the transferee company applying for the relief resolution on the increment of share capital, or apply to income earned during 2023.
must submit the application letter not later than for any other reason mentioned in the
12 months from: guidelines. In this connection, the stamp duty • As expected, the Goods & Services Tax
payable will be imposed with an additional (GST) rate will go up to 8% on 1 January
>> t he date of registration of the transferee
penalty at the rate of 6% per annum; and 2023 and to 9% a year later. Minimum salary
company;
levels for new employment pass applications
>> t he date of the resolution increasing the • The companies involved in the transfer of and renewals will go up.
share capital of the transferee company; property should notify the IRB in writing if any
of the circumstances described in the • Property Tax will go up in 2023 for owners of
>> t he date of the agreement filed with the guidelines occur. real property (progressively so for high end
Registrar of Companies; property) in Singapore.
• A number of income tax incentive
programmes which were scheduled to
expire have been extended (withholding tax
on container lease payments to overseas
lessors, withholding tax on ship and
container lease payments under the
Maritime Sector Incentive, Aircraft Leasing
Scheme, Approved Royalties Incentive,
Approved Foreign Loan, Qualifying Funds
managed by Singapore fund management
companies, Project and Infrastructure
Finance, withholding tax exemptions for the
finance sector in Singapore in respect of
interest and prescribed swap payments).
• The income tax exemption for corporate
amalgamations (legal mergers) have been
extended to licensed insurers.
26 | Asia Tax Bulletin MALAYSIA PHILIPPINESYou can also read
