Asia Tax Bulletin Spring 2021 - Mayer Brown
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Asia Tax Bulletin Spring 2021
In This Edition
EUROPE
BRUSSELS
LONDON
We are pleased to present the Spring 2021 edition of
DÜSSELDORF
PARIS FRANKFURT
our firm’s Asia Tax Bulletin.
ORK BEIJING
Dear Reader, GTON DC how to compute eligible IP (royalty) income
CHARLOTTE
As the world struggles to recover from the
for the reduced income tax rate; and Thailand’s TOKYO
introduction of VAT on overseas digital services
pandemic, business continues regardless and
consumed in Thailand with effect from SHANGHAI
the tax authorities appear to have little
trouble keeping up, at least judging from
1 September 2021.
DUBAI HONG KONG
developments over the past three months. This edition also contains some interesting HANOI
case law in various Asian countries. We
This edition of the Asia Tax Bulletin covers the
hope you enjoy reading it.
highlights, inter alia including the tax proposals HO CHI MINH CITY
in the 2021 budgets in Hong Kong, India and Stay safe and don’t give in to the
Singapore; China’s draft stamp duty law and current challenges.
simplified APA procedure; the long-awaited SINGAPORE
carried interest concession proposed by the
Hong Kong tax authority; India’s launch of the With kind regards,
Faceless Penalty Scheme and an e-portal to
BRASÍLIA
report tax evasion; the Indonesian tax
* Pieter de Ridder
authorities’ clarification on the offshore tax
exemption treatment of expats living in
VITÓRIA*
RIO DE JANEIRO *
Indonesia – as well as the dividend withholding
tax exemption criteria for Indonesian SÃO PAULO *
companies; Korea’s tax law changes for 2021;
Malaysia’s Covid relief package and its *TAUIL & CHEQUER OFFICE
ratification of the Multilateral (BEPS) Treaty;
Pieter de Ridder
the first corporate tax rate reduction by the Partner, Mayer Brown LLP
Philippines in 20 years; the IRAS (Inland +65 6327 0250
Revenue Authority of Singapore) circular on pieter.deridder@mayerbrown.com
2 | Asia Tax Bulletin MAYER BROWN | 3
Contents
China Indonesia Philippines Taiwan
Tax changes in Taxation of foreign citizens and 24 Tax exemption for 33 Transfer pricing for intangibles
6 working plan 2021 15 investment income under COVID-19 vaccines
Capital gains tax on building and
Imports of transport vehicles and
omnibus law
24 Deficiency tax assessments
34 land trading
7 yachts in Hainan Free Trade Haven 16 COVID-19 tax incentive extended
25 Tax evasion included as predicate
offence for money laundering
7 Draft stamp duty law
17 Tax incentives for special
economic zones Thailand
International
8 Simplified procedure for unilateral 25
Advance Pricing Agreements 18 Bookkeeping requirements tax developments
35 VAT on e-services
8 International tax developments 18 International tax developments
Singapore 36 Transfer pricing clarifications
Japan 26 Tax framework for variable
Hong Kong capital companies Vietnam
19 International tax developments
27
9 Budget tax proposals 2021 Additional deductions for research
and development 37 Vietnam commits to sign the
Multilateral Instrument (MLI)
10 Tax incentive insurance business
Korea 27 Joint venture not considered as a
37 E-commerce activities
10 Carried interest related party
20 Tax law amendments 2021
Income from business of making 38 Advance pricing agreement procedures
10 Hong Kong to raise stamp duty
28 property investments
on stock transfers
21 International 38 International tax developments
tax developments
29 Tax requirements for liquidations
Advance ruling on unremitted foreign-
India Malaysia 29 sourced dividend income offset
against non-trade debt
Software not subject to
11 withholding tax 22 Digital service tax for foreign
Tightening rules for claiming input
service providers
30 tax GST
11 Union Budget 2021
23 Relief package
14 Covid-19 pandemic: residence status 30 FRS 109 Impairment of
Trade Receivables
of certain individuals 23 International tax developments
30 Equipment for Working from Home
14 Faceless Penalty Scheme
E-portal for reporting tax
31 Budget Tax Changes 2021
14 evasion-related issues Transfer pricing guidance for
31 centralised activities of MNEs
International
32 tax developments
MAYER BROWN | 5
Tax changes in Imports of transport vehicles Draft stamp duty law
working plan 2021 and yachts in Hainan Free On 28 February 2021, the Standing Committee of
In its Working Plan 2021, released on 5 March
Trade Haven the National People’s Congress published the draft
Stamp Duty Law for public consultation. The draft
2021, the government of PRC announced
The government will exempt the import of vessels, law will replace the current Interim Regulations of
several tax changes, including extending the
aviation and motor vehicles from import duties, Stamp Duty that were issued by the State Council
preferential value-added tax (VAT) treatment
value-added tax and consumption tax at the import on 6 August 1988, and brings the stamp duty on
for small taxpayers, enhancing various
stage from 25 December 2020 until the closing of securities transactions under legal norms while
JURISDICTION: incentives and simplifying the procedures for
the bonded zone of the island. maintaining the existing tax framework and overall
tax incentive applications. The main tax
tax burden. The deadline for public consultation is
China (PRC)
changes announced are as follows: In order to be eligible for the exemptions, the 29 March 2021.
• extending the preferential treatment of following conditions must be fulfilled:
TAXPAYERS
small VAT taxpayers; • the items are imported by enterprises that
are incorporated as legal persons and Entities and individuals that issue taxable
• increasing the turnover threshold for VAT
registered in the Hainan Free Trade Haven documents or conduct securities transactions within
exemption for small taxpayers from CNY
and engaged in transportation and tourism China are subject to stamp duty. The stamp duty
100,000 to 150,000 per month;
businesses (for an aviation enterprise, the on securities transactions is levied on the transferor.
• reducing the current income tax charge for Hainan Free Trade Haven must be the main TAXABLE SCOPE
small and low-profit enterprises and sole operational headquarters);
traders by 50% in addition to the existing Stamp duty is levied on contracts, documents for
tax incentives; • the imports must be used for their the transfer of property rights, business account
transportation and tourism businesses; and books, and securities transactions listed in the
• reducing premiums on unemployment
• the yachts may only operate within Hainan “Table of Taxable Items and Tax Rates of
insurance and work-related
province. However, motor vehicles such as mini Stamp Duty”.
injury insurance;
buses may be used for transport of passengers TAXABLE ITEMS AND TAX RATES
• simplifying the procedure for application or cargo between Hainan Free Trade Haven
and obtaining tax incentives; and a place outside the Hainan Free Trade While generally maintaining the current stamp duty
Haven if the vehicles do not remain outside rates, the draft law simplifies taxable items and
• continuing the super-deduction of 75% for
the Hainan Free Trade Haven more than 120 rates, as well as reduces tax burdens as follows:
research and development activities and
increasing the said super-deduction for days on an annual basis. The 120-day limit, • maintaining the rates for loan contracts,
manufacturing enterprises to 100%; however, does not apply to vehicles that go contracts for purchase and sale, technical
inland and pick up passengers or cargo and contracts and securities transactions;
• refunding input VAT newly accrued by an return immediately.
advanced manufacturing enterprise on a • reducing the tax rates for processing contracts,
monthly basis; Different Hainan government departments will be contracts for construction engineering survey
involved in drawing up a list of the enterprises and design, and goods transportation contracts
• adjusting import taxes to encourage eligible for the exemption from import duties. from 0.05% to 0.03%;
imports of high-quality goods
and services; The exemption is laid down in Circular [2020] No. • reducing the tax rate for business account
54 jointly issued by the Ministry of Finance, General books from 0.05% to 0.025%; and
• expanding the applicable scope of the Customs Service and the State Taxation
enterprise income tax incentives for Administration on 25 December 2020. A list of • abolishing the fixed amount of stamp duty of
environmental protection and energy- the exempt items containing 100 means of CNY 5 per document charged on the
saving projects; and transportation was published at the same time certificates for rights and licences.
• reducing taxes imposed on rental of and attached to the circular. TAX BASIS
residential properties.
The tax basis for taxable documents is the amount
The Ministry of Finance and the State Taxation listed in the contracts, documents for the transfer
Administration are expected to issue detailed of property rights and business account books, and
regulations or circulars to implement these the tax basis for securities transactions is the
tax changes. transaction amount of the securities transactions.
CHINA (PRC) MAYER BROWN | 7
TAX INCENTIVES • the enterprise had an APA in the past 10 tax
years which must have been executed in line
Budget tax
In general, the current stamp duty incentives
remain unchanged. At the same time, the State with the terms laid out in the agreement; and proposals 2021
Council has the authority to stipulate reductions or • the enterprise has been subject to a special
exemptions of stamp duty according to the needs tax adjustment investigation which has The Hong Kong government has proposed a
of national economic and social development. been closed. 100% one-off reduction (limited to HKD
10,000) in Profits Tax, Salaries Tax and tax
The tax authority is authorised to deny payable under personal assessment for the
Simplified procedure for the application if one of the following year of assessment 2020/21 and an increase in
circumstances occurs: JURISDICTION:
unilateral Advance the stamp duty rate to 0.13% (from 0.1%) for
share transactions.
• compared with previous years, substantial
Hong Kong
Pricing Agreements changes have taken place in the years to be Funds. A subsidy of up to HK$1 million per
covered by the APA in terms of related party Open-ended fund company (OFC) will be
The State Taxation Administration has issued a transactions, business environment and provided by the Hong Kong Government to
draft Public Notice concerning the application of a functions/risks; cover 70% of expenses paid to local
simplified procedure for unilateral advance pricing professional service providers for the set-up of
• the enterprise is under special tax adjustment
arrangements (APAs) on the basis of which the an OFC in or to re-domicile an offshore fund to
investigation or other tax investigations, and
conclusion of an APA can be completed within six Hong Kong within the next three years.
the case is still open;
months if the information and documents The SFC welcomed the government budget
requested are submitted in time. Public comments • the enterprise fails to file the annual report measures in a subsequent press release and is
must be submitted before 18 April 2021. form on related party dealings pursuant to the due to make further announcements on details
relevant regulations or the filing is incorrect; of the proposal in due course.
Subject to the conditions prescribed in this Public
Notice issued on 19 March 2021, enterprises • the enterprise fails to prepare and keep The Hong Kong Government also reiterated its
applying for a unilateral APA on the basis of Public contemporaneous documentation pursuant to intention to introduce an amendment bill to
Notice [2016] No. 64 regarding the measures for the relevant regulations; and provide tax concessions for carried interest
improving the administration of APAs may apply a issued by private equity funds operating in
• the information requested has not been
simplified procedure that consists of the following Hong Kong, with an aim to secure passage at
provided or does not conform to the
three stages: the Legislative Council within the current
requirements of the tax authority and the
• application for evaluation; failure is not rectified. session for such tax concessions to start to
apply from 2020-21.
• negotiation and signing; and In addition, the simplified procedure cannot be
applied to a unilateral APA where two or more than The details were announced in the Budget for
• monitoring and execution. 2021/22 that was presented to the Legislative
two authorities of provinces or regions are involved.
The simplified procedure will only be available to The tax authority is required to notify its decision Council by the Financial Secretary on 25
enterprises with annual related party transactions on the acceptance of the application within 90 days February 2021. The tax measures proposed
with a total value of more than CNY 40 million in from the delivery date of the Notice of Tax Matters. require legislative amendments before
the last three years prior to the year in which the A successfully concluded APA applies for between implementation. Once enacted, the
Notice on Tax Matters is issued by the tax authority three to five years. amendments will apply from 1 April 2021.
to notify the acceptance of the enterprise’s intent • a waiver of business registration fees for
for an APA. In addition, one of the following
conditions must be satisfied: International 2021/22; and
• an increase in the rate of ad valorem
• the enterprise provides the tax authority with tax developments stamp duty on Hong Kong stock
contemporaneous documentation for the last transactions from 0.1% to 0.13% for
three years in compliance with the State HONG KONG both buyers and sellers.
Taxation Administration’s Public Notice [2016]
On 11 March 2021, China and Qatar signed an
No.42 not more than three months before the
amending protocol to their existing tax treaty.
application for the simplified procedure. A
master file must be provided if applicable;
8 | Asia Tax Bulletin CHINA (PRC)
Tax incentive Carried interest refers broadly to a return linked to Software not subject
the performance of an investment of a private
insurance business equity fund, typically upon the disposal of the to withholding tax
investment after it has been held for a period of
time. The Bill exempts eligible carried interest from The Indian Supreme Court (SC), ruled on
The Government gazetted on January 15, 2021 the
profits tax, while 100% of eligible carried interest 2 March 2021, whether payments to foreign
subsidiary legislation to implement the new profits
will be excluded from employment income for the vendors for the purchase of computer
tax concessions for insurance-related businesses
calculation of salaries tax. In addition, the Bill also software ought to be characterised as
on March 19, 2021. Enacted in July 2020, the Inland
proposes to expand the classes of assets that may ‘royalty’ or as purchase of goods.
Revenue (Amendment) (Profits Tax Concessions for
be held and administered by a special purpose JURISDICTION:
Insurance-related Businesses) Ordinance 2020 The SC, through an unanimous judgment
entity on behalf of a fund for the purpose of a
reduces the profits tax rate by 50% (i.e. 8.25%)
India
profits tax exemption regime for funds, with a view pronounced by a bench of three Judges,
for all general reinsurance business of direct allowed the appeals of the companies (filed
to facilitating the operation of funds in Hong Kong.
insurers, selected general insurance business against a Karnataka High Court ruling
of direct insurers and selected insurance decided against the companies) and rejected
brokerage business. the Revenue appeals (filed against a Delhi
The profits tax concessions will promote the Hong Kong to raise stamp High Court decided against the Revenue).
In a fairly detailed judgment, the SC held
development of marine and specialty insurance
businesses of Hong Kong. They will also enhance duty on stock transfers that payments made to foreign vendors for
the competitiveness of the insurance industry in the purchase of software (either by Indian
seizing new opportunities, including those arising distributors, for onward distribution to
On 5 March 2021, the Hong Kong government end-users or directly by Indian end-users)
from the Belt and Road Initiative.
published the Revenue (Stamp Duty) Bill 2021 (the cannot be said to be a payment for the use
The Inland Revenue (Amendment) (Profits Tax Bill) in the Gazette to give effect to the proposal to of the copyright therein. As such, the
Concessions for Insurance-related Businesses) increase the rate of stamp duty on stock transfers payments are not taxable in India in the
Ordinance 2020 (Commencement) Notice appoints to 0.13% (from 0.1%) as announced by the Financial hands of the foreign vendors as ‘royalty’, for
March 19, 2021, as the date on which the Inland Secretary in the 2021-22 Budget. the years prior to the 2012 amendment to
Revenue (Amendment) (Profits Tax Concessions for the definition of ‘royalty’ in the Indian
Insurance-related Businesses) Ordinance 2020 has domestic tax law. No TDS (withholding tax)
become effective. The Inland Revenue (Profits Tax The Bill seeks to amend the Stamp Duty Ordinance
therefore applies. The SC held that the
Concessions for Insurance-related Businesses) to increase the rate of stamp duty payable on
2012 retroactive amendment to the ‘royalty’
(Threshold Requirements) Notice prescribes contract notes for the sale or purchase of Hong
definition has to be implemented only
threshold requirements for determining whether Kong stock and correspondingly on certain
prospectively and not retroactively.
the relevant activities of the specified transfers of such stock with effect from 1 August
The SC also held that given the Double Tax
insurance-related business are, or are arranged 2021. The Bill was introduced into the Legislative
Avoidance Agreements (DTAAs) override
to be, conducted in Hong Kong. Council for first reading on 17 March 2021.
principle in the Indian income-tax law, the
payments would not be taxable as ‘royalty’
Carried interest under most of India’s DTAAs, even after the
2012 amendment in the Indian domestic
tax law.
The government has proposed tax concessions for
carried interest distributed by eligible private
equity funds managed out of Hong Kong, including Union Budget 2021
exemption from Profits Tax and Salaries Tax. The
government published the Inland Revenue On 1 February 2021, the Finance Minister
(Amendment) (Tax Concessions for Carried Interest) presented the Union Budget 2021/22 before
Bill 2021 in the Gazette of 29 January 2021. The tax Parliament. The key highlights of the
exemption has retroactive effect to 1 April 2020. amendments introduced in the Finance Bill
2021 are summarised below.
10 | Asia Tax Bulletin HONG KONG HONG KONG MAYER BROWN | 11
CORPORATE TAX PERSONAL TAX INCENTIVES FOR FINANCIAL SERVICES Only in serious tax evasion cases, where there
• There will be no change in the corporate tax There will be no change in the slab rates for Dividend payments to real estate investment trusts is evidence of concealment of income of INR 5
rate. individuals. (REITs) and infrastructure investment trusts (InvITs) million or more in a year, can reassessment be
shall be exempt from tax deducted at source (TDS). opened for up to 10 years.
• Late deposit of employees’ contribution to the Additional annual deduction of INR 150,000 for
provident fund by employers shall not be interest on a loan taken for first time purchase of Advance tax liability on dividend income shall arise • A National Faceless Income Tax Assessment
allowed as a deductible expenditure in the affordable housing property will be available up to only after declaration or payment of dividend. Tribunal (ITAT) Centre will be set up. All
hands of the Company. 31 March 2022. communication between the ITAT and the
For foreign portfolio investors, treaty rates can be appellant shall be electronic. Where personal
• Goodwill (other than acquisition of goodwill by New rules were proposed for the removal of double availed for withholding tax on dividend income. hearing is needed, it shall be done through
purchase) of a business or profession shall not taxation for non-resident Indians (NRIs). videoconferencing.
To further incentivise operations of units in the
be considered as an asset and therefore not be
Maturity proceeds from unit-linked insurance International Financial Services Centre (IFSC) in • A dispute resolution committee will be created
eligible for depreciation.
policies issued on or after 1 February 2021 will be GIFT City, the Finance Minister proposed to allow for small taxpayers with taxable income up to
EQUALISATION LEVY taxable, if the aggregate annual premium exceeds an exemption on capital gains for aircraft leasing INR 5 million and disputed income up to INR
INR 250,000 in any of the financial years during the companies, a tax exemption for aircraft lease 1 million.
The tax on royalties or fees for technical services
term of these policies. rentals paid to foreign lessors, a tax incentive for
(FTS) and the EL will be mutually exclusive effective The definition of the term “slump sale” will be
relocating foreign funds in the IFSC and to allow a
from 1 April 2020. Accordingly, the EL shall not be The income of a resident in India who has opened amended so that all types of “transfers” as defined
tax exemption for the investment division of foreign
charged on the consideration which is taxable as a specified account in a notified country while in section 2(47) of the Income Tax Act are included
banks located in the IFSC.
royalties or FTS. being a non-resident in India and a resident in within its scope.
the other country from a specified account for To incentivise investment in eligible start-ups, the
For purposes of defining e-commerce supply or NRIs will be allowed to operate one person
retirement benefits (see Note) shall be taxed in eligibility for claiming a tax holiday for start-ups is
service, online sale of goods and online provision of companies in India.
the manner and in the year as prescribed by the extended by one more year – until 31 March 2022.
services shall include one or more of the following
Central Government. Further, in order to incentivise funding of start-ups,
activities taking place online:
The tax deducted at source under section 196D of
the capital gains exemption for investment in COVID-19 pandemic:
• accepting offers for sale; start-ups is also extended by one more year until
• placing purchase orders;
the ITA in respect of income from securities held by
Foreign Portfolio Investors can be deducted at the
31 March 2022. residence status of
• acceptance of purchase orders;
rate provided under tax treaties if such rate is lower TAX ADMINISTRATION AND OTHER MEASURES certain individuals
than the existing rate of 20% and if a tax residence
Relief measures will be granted to senior citizens by
• payment of consideration; or certificate has been obtained. The Central Board of Direct Taxes (CBDT) has
removing the need to file income tax returns for
• supply of goods or provision of services, partly Taxability of interest on various funds where income those aged 75 years and above, having only clarified that an individual forced to stay in India
or wholly. is exempt: pension and interest income. Paying banks will be due to travel restrictions and who is facing double
required to deduct the necessary tax on their taxation on income for previous year (PY) 2020-21
Consequently, provisions referring to income • Employees contributing substantial amounts may furnish relevant information of his
income.
arising from the afore-mentioned activities that to provident funds benefit from the tax circumstances to the CBDT for the purpose of
would have been exempt under section 10(50) of exemption on the entire interest accrued and/ Details of capital gains, dividend income, income claiming double tax relief. Based on the submitted
the Income Tax Act (ITA) and chargeable to the or received from such contribution under from listed securities and interest income from bank information, the CBDT will examine:
EL will be amended to give effect to the section 10 of the ITA. deposits will also be pre-filled in the income tax
aforementioned amendments. return form. • whether any relaxation is required to be
• The Finance Bill proposes to remove the provided; and
Consideration received or receivable from exemption for interest accrued during the The following amendments on tax audit,
e-commerce supply or services will include: previous year on the recognised provident fund assessment and appellate proceedings were • if required, whether general relaxation is
to the extent it relates to the amount or proposed: required for a class of individuals or specific
• consideration for sale of goods irrespective of relaxation is required for individual cases.
aggregate of amounts of employee
whether the e-commerce operator owns the • The tax audit limit will be increased from INR 50
contribution in excess of INR 250,000 in a The required information must be submitted
goods; and million to INR 100 million for persons carrying
previous year, on or after 1 April 2021. electronically via Form-NR by 31 March 2021.
out 95% of their transactions digitally.
• consideration for provision of services
irrespective of whether the service is provided • The time limit for re-opening income tax
or facilitated by the e-commerce operator. assessment cases will be reduced from six years
to three years.
12 | Asia Tax Bulletin INDIA INDIA MAYER BROWN | 13
The CBDT has initially clarified that the possibility of
double taxation of an individual’s PY 2020-21
E-portal for reporting tax Taxation of
income does not exist when taking into evasion-related issues foreign citizens and
consideration the provisions of the Income Tax Act
read in conjunction with tax treaties. However, in To promote e-governance and encourage the
investment income under
the interest of understanding possible situations of
double taxation, the CBDT will allow affected
public to participate in curbing tax evasion, the omnibus law
Central Board of Direct Taxes has launched a
individuals to submit their relevant information. dedicated e-portal to receive complaints for tax The Ministry of Finance (MoF) has provided
The CBDT previously clarified that the period of evasion, undisclosed foreign assets and income and further guidance for the tax changes
benami transactions (i.e. transactions where JURISDICTION: introduced under Law No. 11 Year 2020 on
stay in India of certain individuals will not be
taken into account in determining the individual’s property is transferred to one person for a Job Creation (Law 11/2020) that include,
Indonesia
residence status for the PY 2019-20, subject consideration paid or provided by another person). among others, clarifications regarding the
to conditions. taxation of income of foreign individuals that
Informers can file complaints regarding violations of
qualify as domestic tax subjects and taxation
the Income Tax Act 1961, Black Money (Undisclosed
of dividends and offshore income received by
Faceless Penalty Scheme Foreign Assets and Income) Imposition of Tax Act
resident taxpayers. In this regard, the MoF has
1961 and Prevention of Benami Transactions Act.
issued MoF Regulation No.18/PMK.03/2021
Informers may or may not have an existing
The central government has launched the Faceless (PMK-18) to implement Law 11/2020 and the
Permanent Account Number (PAN) or Aadhar, and
Penalty Scheme, 2021, which lays down the salient features are set out below.
they may opt to claim a reward.
procedures for the imposition of penalties under
the Income Tax Act through electronic channels. TAXATION ON INCOME OF FOREIGN
The scheme complements the faceless assessment INDIVIDUALS
and appeal schemes announced in August 2020 to
promote transparency in the assessment and • A foreign citizen who becomes a tax
appeal process and minimise personal interaction resident in Indonesia is subject to tax only
between taxpayers and the tax authorities. on the income received or sourced from
Indonesia for the first four years from the
Under the scheme, the imposition of a penalty
date that the individual qualifies as a tax
arising from an income tax assessment, including
resident, provided that the individual
the automatic allocation of cases among penalty
fulfils the expertise requirement set out in
centres or units yet to be established by the Central
Appendix II of PMK-18.
Board of Direct Taxes (CBDT), issuance and delivery
of penalty notices or orders, appeals against such • If the said individual leaves the country
penalty notices or orders and communications and returns within the four-year period,
between penalty centres or units and assessees, the four-year period will start from the
among other things, will be made electronically. date that the individual first becomes a
The CBDT may set up faceless penalty centres and resident tax subject.
specify their relevant jurisdiction, among which the
National Faceless Penalty Centre will be tasked to • Foreign citizens will require prior approval
facilitate the conduct of penalty proceedings in a from the tax authorities before they can
centralised manner. Until such time that penalty apply the territorial tax treatment.
centres are set up, the CBDT will direct the National
• Individuals that qualify as tax residents
Faceless Assessment Centre and its assessment
and fulfil the expertise requirement prior
units to carry out the duties and responsibilities of
to the issuance of PMK-18 may apply for
the penalty centres. Full details of the scheme are
territorial tax treatment as long as the
available in Notification No. 2/2021 of 12 January
four-year period has not passed. Once the
2021. The scheme comes into effect on the date of
application is approved, the individual
its publication in the Official Gazette.
may apply the tax treatment from
2 November 2020 until the four-year
period for the individual expires.
14 | Asia Tax Bulletin INDIA INDIA MAYER BROWN | 15
DIVIDENDS AND OFFSHORE INCOME EXEMPT PMK-18 also includes the implementing rules Taxpayers are required to comply with all the • After the expiration of the above-mentioned
FROM TAX regarding VAT and General Provision and Procedure administrative requirements set out in PMK-239 in incentive period, eligible taxpayers will be
on Taxes amendments made under Law 11/2020. order to avail of the tax incentives. granted a 50% reduction in CIT payable for
Dividends and other income exempt from tax are
PMK-18 came into effect on 17 February 2021. two subsequent years.
summarised below:
• domestic dividends received by corporate Tax incentives for special • Withholding tax (WHT) will not apply to the
COVID-19 tax above-mentioned exempt income.
taxpayers; and
economic zones
• other income, subject to the condition that the incentive extended • Eligible taxpayers that invest at least IDR 100
billion in certain business fields and/or
income is reinvested in Indonesia for a certain The Ministry of Finance (MoF) has provided further regions may be entitled to:
period as follows: The Ministry of Finance (MoF) has further extended details on the tax incentives available for companies
the tax incentives (i.e. value-added tax not collected operating in special economic zones (SEZs) such as >> a 30% reduction in net income on the total
>> domestic dividends received by
or borne by the government and withholding tax exemption from income tax, value-added tax (VAT), investment on fixed assets (including the
individual taxpayers;
exemptions) period until 31 December 2021 sales tax on luxury goods, import duties, tax on cost of land used for business purposes),
>> offshore dividends received from a listed (previously, until 31 December 2020) for the importation and excise duties. The MoF has issued reduced over six years at 5% each year;
company by domestic taxpayers; provision of the following goods and services that MoF Regulation No. 237/PMK.010/2020 (PMK-237) >> accelerated depreciation allowances of up
are needed in handling the COVID-19 pandemic: to implement the incentives announced under
>> offshore dividends received from a to 100% for the use of tangible and
non-listed company by domestic taxpayers • the import or acquisition of goods and Government Regulation Number 12 of 2020. intangible assets, subject to conditions; and
subject to an investment amount of at least services by government agencies, hospitals A business entity (i.e. state-owned enterprises, >> a reduced WHT rate of 10% (from 20%) or
30% of profit after tax; and other authorised parties and region-owned enterprises, cooperatives, private the treaty rate, whichever is lower, on
pharmaceutical companies; companies and joint ventures) operating in SEZs
>> offshore income from a permanent dividend payments made to non-resident
establishment subject to an investment • the sale of the vaccine, medicines or goods may avail of the above-mentioned tax incentives recipients (except payments made to
amount of at least 30% of profit after by pharmaceutical companies to certain provided that the entity: permanent establishments in Indonesia);
tax; and parties; and • is a resident corporate taxpayer conducting and compensation for losses for up to
business activities in SEZs; 10 years.
>> offshore income from active • income received from certain parties by
businesses abroad. esident taxpayers for the performance of • is an entity approved by the authority to VAT AND SALES TAX ON LUXURY GOODS
required services. conduct business in SEZs;
The qualifying reinvestments must be placed in Exemptions will apply on the importation, utilization
the financial markets or instruments outside the In addition, the tax incentives available to local • has clear boundaries in accordance with the or delivery of certain taxable goods, intangible
financial markets as specified under PMK-18. healthcare equipment manufacturers and stages of SEZ development; and goods and/or services by eligible taxpayers in SEZs
community members for their donations and or between taxpayers in and outside SEZs, subject
The abovementioned investments must be: • has a business licence.
provision of services and assets to assist the to conditions.
• made at the end of the third month (individual government for COVID-19 purposes under INCOME TAX IMPORT DUTIES, TAX ON IMPORTATION AND
taxpayers) or the end of the fourth month Government Regulation No. 29/2020 of 10 June
• A 100% reduction in corporate income tax (CIT) EXCISE DUTIES
(corporate taxpayers) after the end of the fiscal 2020 are also extended from 31 December 2020 to
year the dividends or other income are received 30 June 2021. payable, provided that the investment is at least Exemptions will apply on the importation of the
or obtained; IDR 100 billion, may be granted to: following dutiable/taxable goods by qualified
Details of the above measures are provided in MoF
>> business entities, on income received from taxpayers, subject to conditions:
• held for at least three fiscal years starting from Regulation No.239/PMK.03/2020 (PMK-239). PMK-
the fiscal year when the dividends or other 239 came into effect on 1 January 2021 and the transfer or lease of land and/or buildings • on capital goods for the construction or
income are received or earned; and replaces MoF Regulation No.143/PMK.03/2020 in SEZ or income from other main business development of SEZs for a maximum period of
(PMK-143). PMK-239 remains largely the same as activities in SEZs, for a period of 10 years; or five years; and
• retained (i.e. not transferred), except to some
PMK-143 except for certain variations. >> businesspersons, on income from
other type of qualifying investment. • for taxpayers that process goods, on taxable
Under PMK-239, the tax incentives are applicable to investments in main business activities goods (e.g. raw materials, auxiliary materials,
Foreign taxes paid on the exempted offshore carried out in SEZs for the following
the sale, import or acquisition of the vaccine and its machinery and equipment, etc.).
dividends or offshore income are not creditable, time period:
raw materials, including vaccination support
deductible or refundable. In the event that the Taxpayers must comply with all the administrative
equipment, in addition to the goods and services as Tax incentive Amount of
offshore dividends or offshore income are not fully requirements set out in PMK-237 in order to avail
provided under PMK-143. PMK-239 also requires period (years) investment (IDR)
reinvested in Indonesia, the foreign tax credit will of the tax incentives. PMK-237 was gazetted on
pharmaceutical companies that produce the vaccine
be calculated on a proportional basis. 10 between 100 billion to 500 billion 30 December 2020 and will come into effect
or medicine for COVID-19 purposes to obtain a
15 between 500 billion to 1 trillion
30 days thereafter.
recommendation letter from the Ministry of Health
in order to benefit from the tax incentives. 20 above 1 trillion
16 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 17
Bookkeeping requirements >> before the start of the fiscal year where International
bookkeeping is made in English and USD (if
the company will maintain bookkeeping or
tax developments
The Directorate General of Taxation (DGT) requires records in English and USD) for eligible
taxpayers to maintain their bookkeeping or records corporate taxpayers. USA
in Indonesia in the Indonesian language and
denominated in Indonesian Rupiah (IDR). • Taxpayers with foreign investments and According to an update of 25 February
However, certain taxpayers may maintain the permanent establishments may also maintain 2021, published by the US Internal Revenue
aforementioned bookkeeping or records in English their bookkeeping or records in English and in Service, Japan and the United States have
and in IDR or in US dollars (USD) by notifying the USD by submitting an application electronically JURISDICTION: signed a mutual agreement to implement
Ministry of Finance (MoF) or submitting an to the DGT not later than three months from the the arbitration process under article 25(5),
Japan
application for written consent to the MoF through date of establishment of the company or before (6) and (7) of the Japan–United States
the DGT. The DGT has issued Regulation No. the beginning of the fiscal year where Income Tax Treaty (2003), as amended by
PER-24/PJ/2020 (PER-24) dated 28 December 2020. bookkeeping is made in English. the 2013 protocol.
PER-24 came into effect on 28 December 2020 and • Taxpayers who have obtained the MoF’s GEORGIA
replaced PER-23/PJ/ 2015. approval to maintain their bookkeeping or On 29 January 2021, the Georgia–Japan
• Taxpayers may maintain their bookkeeping or records in English and in IDR or USD and Income Tax Treaty (2021) was signed, in
records in English and in IDR while certain subsequently apply to reverse their decision will Tbilisi. Once in force and effective, the new
corporate taxpayers may maintain their not be allowed to revert to English for five years treaty will replace the former USSR–Japan
bookkeeping or records in English and in USD, from the time the application for the use of the Income Tax Treaty, in relations between
by submitting an application electronically, Indonesian language and IDR is granted. Georgia and Japan.
including the required attachments, through • Taxpayers are required to comply with the
channels allowed by the DGT in accordance with SPAIN
administrative requirements set out in PER-24.
the format provided in Appendix A of PER-24. On 1 May 2021, Japan’s new tax treaty with
Eligible corporate taxpayers include: Spain will enter into force. The treaty
>> companies operating under work contracts
International generally applies from 1 January 2022. The
with the government in the mineral and coal tax developments provisions of article 25 (Exchange of
information) and article 26 (Assistance in
mining sector;
SINGAPORE the collection of taxes) will have effect from
>> contractors with cooperation contracts in 1 May 2021, without regard to the date on
the oil and gas mining sector; and According to a press release of 9 March 2021, which the taxes are levied or the taxable
>> companies that carry on joint operations published by the Singaporean Ministry of Trade and year to which the taxes relate. From these
under cooperation agreements that have Industry, the investment protection agreement with dates, the new treaty generally replaces the
obtained permission to maintain Indonesia, signed in Bali on 11 October 2018, previous tax treaty.
bookkeeping in English and USD. entered into force.
PERU
• The notification or application must be made On 29 January 2021, the Japan–Peru
not later than three months: Income Tax Treaty entered into force.
>> from the beginning of the financial year The treaty generally applies from
where bookkeeping or records are 1 January 2022.
maintained in English by the taxpayers;
>> from the date of establishment of the
company (if the company has been
maintaining bookkeeping or records in
English and in USD since its establishment)
for eligible corporate taxpayers; or
19 | Asia Tax Bulletin
18 | Asia Tax Bulletin INDONESIA INDONESIATax law • Increased individual income tax rate; International
amendments 2021 • Tax on non-resident or foreign corporation’s tax developments
income derived from virtual assets;
In December 2020, the National Assembly
UK
approved the tax law amendments proposed • Requiring virtual asset company to submit
by the Ministry of Economy and Finance, tax data; On 1 January 2021, the trade continuity agreement
followed by an official announcement of the between Korea and the United Kingdom, signed on
relevant Presidential Decrees released and • Clarifying place of supply for electronic services; 22 August 2019, entered into force.
JURISDICTION: are currently in force as of February 17, 2021.
• Clarifying determination of related party to VIETNAM
The local tax law amendments proposed by
whom advance issued is not allowed as bad
Korea
the Ministry of the Interior and Safety were On 20 January 2021, the amending protocol, signed
debt deduction;
also approved by the National Assembly and on 27 November 2019, to the Korea-Vietnam
are currently in force. Income Tax Treaty entered into force. The protocol
• Subjecting a foreign corporation to
generally applies from 1 January 2022.
non-compliance penalty for not submitting
Below you will find a summary of the
payment statement; CAMBODIA
significant amendments. Please note that
most of the below amendments are effective • Expanded definition of foreign related party; On 29 January 2021, Korea’s tax treaty with
as of January 1, 2021 (however, amendments Cambodia entered into force. The treaty generally
regarding taxes on financial investments are • Expanded scope of passive income for applies from 1 January 2022.
expected to be applied as of January 1, controlled foreign corporation (CFC) regime;
2023). The tax amendments include:
• Extended due date for submission of
• A new integrated investment tax credit international transaction related data;
scheme—rebuild investment tax
credit scheme; • Adding companies for exceptional 100%
utilization of NOL;
• Relief from investment tax credit
requirements for new growth-engine • Expanded reasons for bad debt write-offs of
technology commercialization facilities; foreign receivable;
• SME outsourcing costs for patent study • Establishing basis for allocation of assets
and analysis as qualified expenditures for and liabilities by industry under
R&D tax credits; thin-capitalization rule; and
• Extended tax credit carry-forward period; • Shortening the reporting period for tax data.
• Extended foreign tax credit carryforward
period and deduction for unused foreign
tax credits allowed;
• Extended net operating loss (NOL)
carryforward period;
• Extended applicable period of tax credits
for increasing wages;
• Increased threshold for advertisement
expense not treated as
entertainment expense;
• Increased threshold for entertainment
expense not requiring
supporting evidence;
20 | Asia Tax Bulletin KOREA MAYER BROWN | 21Digital service Relief package • The service tax and tourism tax exemptions for
accommodation service providers will be
tax for foreign On 17 March 2021, the Prime Minister announced a
extended until 31 December 2021 (from
service providers number of tax measures, including an additional tax
30 June 2021).
deduction of up to MYR 50,000 for companies on • An entertainment duty exemption will be
The Royal Malaysian Customs Department the rental of premises and hostels for employees, granted to selected industries, such as theme
(RMCD) has issued updated guidelines on additional personal tax relief of up to MYR 1,000 for park operators, cinema operators and others,
the 6% service tax for digital services the purchase of travelling packages, and deferment subject to conditions.
provided by foreign service providers of monthly tax instalment payments for selected
JURISDICTION: • The Human Resources Development Fund levy
(FSPs), including clarification on intra-group industries and other parties under the PEMERKASA
exemption will be granted to companies in the
relief package to facilitate the economic recovery of
Malaysia
relief, issuance of credit and debit notes, tourism and retail industries until June 2021.
and remission of penalties. the country in response to the COVID-19 pandemic.
DIRECT TAXATION
The main updates of the guidelines, which
took effect from 1 January 2021 (except
International
• An additional tax deduction of up to
stated otherwise), are set out below. MYR 50,000 will be available for expenses tax developments
• Effective 14 May 2020, FSPs or foreign incurred on the rental of premises and hostels
registered persons (FRPs) that provide for employees upon application made by CAMBODIA
digital services to a company in manufacturing companies and services
According to a recent update published by the
Malaysia within the same group of companies where the services are related to
Cambodian Tax Department, the Cambodia–
companies are exempt from charging manufacturing activities. The companies must
Malaysia Income Tax Treaty has entered into force.
service tax, subject to conditions. Thus, be registered with the Ministry of
The treaty generally applies from 1 January 2021.
an FRP that provides digital services International Trade and Industry (MITI) and
only to a company in Malaysia in the passed the compliance audit under the BEPS/MULTILATERAL TREATY
same group of companies may apply for Safe@Work initiative.
On 18 February 2021, Malaysia became the 63rd
cancellation of registration. Meanwhile, • An additional tax deduction will be granted to country to deposit its instrument of ratification for
an FSP that provides digital services employers for COVID-19 screening expenses the Multilateral Convention to Implement Tax Treaty
only to a company in Malaysia in the incurred by their employees until Related Measures to Prevent BEPS (MLI). The
same group of companies is not liable 31 December 2021. convention will enter into force in respect of
to be registered as an FRP. Malaysia on 1 June 2021. Malaysia submitted its MLI
• Personal relief amounting to MYR 1,000 will be
• The Director General (DG) may approve position on 24 January 2018 listing its reservations
granted to individuals who purchase travelling
an application made by an FRP to and notifications and including 73 tax treaties that it
packages with registered travelling agents,
account for the service tax at the time wished to be covered by the MLI.
subject to conditions.
when an invoice is issued.
• Deferment of monthly tax instalment payments
• Where the service tax has been from April 2021 to 31 December 2021 will be
accounted for and there is a reduction granted to selected industries such as the
or increase in the amount of service tax, tourism industry, subject to conditions.
an FRP is required to issue credit notes
or debit notes, as applicable, for • A tax incentive will be provided to companies in
adjustment purposes. The credit notes the tourism industry will be extended until year
and debit notes issued must comply of assessment 2022.
with the prescribed format. INDIRECT TAXATION
• The DG may remit the whole or any part • A 100% excise duty exemption will be granted
of the amount of penalties levied for on any sale of motorcycles of 150cc and below.
non-compliance with the provisions of This will be effective from 1 April 2021 to
the Services Tax Act 2018. 31 December 2021.
MALAYSIA MAYER BROWN | 23Tax exemption for The provisions proposed under the CREATE Bill Tax evasion included as
vetoed by the President are summarised below.
COVID-19 vaccines TAX INCENTIVES FOR REGISTERED PROJECTS
predicate offence for
The government has exempted the
AND ACTIVITIES money laundering
procurement, importation, donation, • Provisions for domestic market enterprises are To strengthen the country’s anti-money laundering
storage, transport, deployment and as follows: (AML) law, the government has designated tax
administration of COVID-19 vaccines evasion involving tax deficiencies of more than
>> the 5% special corporate income tax (SCIT)
through the government’s vaccination PHP 25 million as a predicate offence to
on gross income for domestic market
JURISDICTION: program from customs duty, value-added money laundering.
enterprises with a minimum investment
tax, excise tax, donor’s tax and other fees capital of PHP 500 million for five years and The AML Act of 2001 has expanded its definitions
Philippines
effective 1 January 2021. domestic market enterprises under the for unlawful activity to include tax evasion under
To be eligible for the above-mentioned Strategic Investment Priority Plan engaged section 254 of the National Internal Revenue Code
exemption, the vaccines must not be in activities as critical; and where the deficiency basic tax due in the final
intended for resale or commercial use and assessment is more than PHP 25 million per year
>> the option to avail of enhanced deductions
must be distributed to the persons to be or each tax type covered. In addition, the AML Act
in lieu of the SCIT.
vaccinated without consideration. of 2001 provides that the AML Council will not
• In summary, qualified domestic market intervene in the Bureau of Internal Revenue (BIR)
Congress has earlier approved the tax enterprises, whether engaged in activities that operations but may coordinate with the BIR to
exemption for the sale or importation of are classified as critical or not, may avail of the investigate such violations. However, the AML
COVID-19 vaccines in the Corporate income tax holiday for four to seven years Council may not institute proceedings to
Recovery and Tax Incentives for Enterprises followed by enhanced deductions for five years, recover monetary instruments, property or
Bill. The Bill is yet to be enacted into law. but not the SCIT; proceeds representing, involving or relating to a
tax crime if the BIR has recovered the same in a
Deficiency • the option for existing export and domestic
separate proceeding.
market enterprises to reapply for a new set of
tax assessments incentives for the same activities; and
International
On 26 March 2021, the President approved • automatic grant of tax incentives to applicants if
the measures proposed by Congress, that the application for such incentives has not been tax developments
include, among others, lower corporate acted upon within 20 days from the submission CEPA
income tax (CIT) rates, revised fiscal of application and supporting documents.
incentives for registered projects and On 1 May 2021, the amending protocol, signed in
INDIRECT TAXATION Tokyo on 27 February 2019 and in Siem Reap on
activities and indirect tax exemption for
COVID-19 drugs, vaccines and raw • Higher threshold for VAT-exempt sale of low- 2 March 2019, to the 2008 Comprehensive
materials, under the Corporate Recovery cost and socialised housing. Economic Partnership Agreement (CEPA) with the
and Tax Incentives for Enterprises (CREATE) Association of Southeast Asian Nations (ASEAN),
TAX ADMINISTRATION will enter into force in respect of the Philippines.
Act. The Bureau of Internal Revenue is
expected to issue the regulations to 90-day processing period for the issuance of The protocol has already entered into force in
implement the CREATE Act in due time. general tax refunds or tax credits. respect of Japan, Brunei, Cambodia, Laos,
Myanmar, Singapore, Thailand and Vietnam.
The CREATE Act reduces the CIT rate from
30% to following rates:
• 20% for domestic small and medium
enterprises, effective 1 July 2020;
• 25% for other domestic companies and
resident foreign companies, effective 1
July 2020; and
• 25% for non-resident foreign
companies, effective 1 January 2021.
PHILIPPINES MAYER BROWN | 25Tax framework • expenditure incurred for connected R&D
carried out on behalf of the approved company
Additional deductions for
for variable by a non-resident related party or where the research and development
R&D is not carried out in Singapore;
capital companies On 29 January 2021, the Inland Revenue Authority
• payments made under an excluded cost-sharing
agreement to carry out connected R&D; and of Singapore (IRAS) issued an updated e-Tax Guide
INTELLECTUAL PROPERTY INCOME to clarify that the additional deduction for
• payments made in order to become a party qualifying research and development (R&D)
The Ministry of Finance has issued the
to a cost-sharing agreement (to the extent that expenditure under section 14DA(1) of the Income
regulations that set out the determination
JURISDICTION: the payments were made to obtain a Tax Act (ITA) for the years of assessment (YAs)
of intellectual property (IP) income subject
specified right). 2019-2025 is 150% of the qualifying expenditure.
to the concessionary tax rate under section
Singapore 43ZI(5) of the Income Tax Act (ITA), deemed The above-mentioned expenditure, in relation to Under the previous e-Tax Guide of 1 December
income subject to the regular corporate tax the computation of the percentage, may be 2017, the additional deduction for qualifying R&D
rate and record-keeping requirements for modified in the absence of records before or on or under section 14DA(1) of the ITA for YAs 2009-2025
an approved company. after the approval date of the company. was set at 50% of the qualifying expenditure. The
rate was subsequently amended in Act 45 of 2018.
The percentage of qualifying intellectual Where an approved company is subject to the
property income earned by an approved concessionary tax rate for qualifying IP income In addition, the IRAS lowered the threshold of the
company during a taxable period that falls derived from a patent application and the pre-claim scheme from SGD 20 million to SGD 15
within the tax relief period from each Comptroller discovers that the approved company million. The scheme is available to large and
elected qualifying IP right subject to the has ceased to have the patent application in any complex projects and was implemented to provide
concessionary tax rate under section year of assessment, the approved company will be upfront certainty for R&D claims.
43ZI(5) of the ITA is determined using the deemed to have derived an income subject to the
following formula: regular tax rate under section 43(1)(a) of the ITA in
the basis year.
Joint Venture not considered
C * 130%
An approved company:
as a related party
C+D • beginning on the approval date must keep The IRAS ruled in an advance ruling that an
where: records of all pertinent expenditures, incorporated joint venture (JV) indirectly owned by
information and details of qualifying IP three unrelated foreign companies (the
C = sum of the following expenditure income; and
incurred or made in the periods with shareholders) that do not have control over the JV
records by the approved company, less • must provide information on any qualifying IP nor are controlled by a common person is not a
excluded expenditure: right that ceases or becomes part of the related party to any of the shareholders for income
elected family of qualifying IP rights in the tax tax purposes.
• expenditure incurred, except under a return for the year of assessment in which it
cost-sharing agreement, for connected The JV is wholly owned by a foreign company (the
elects or is treated as having elected a family of parent company) established by three unrelated
research and development (R&D) qualifying IP rights for the purposes of availing
carried out directly by or carried out on foreign companies (the shareholders). The
the concessionary tax rate. shareholders are independent from each other and
behalf of the approved company; and
The regulations came into effect on 22 January without any common directors or significant
• payments made under a cost-sharing 2021. The concessionary rate of tax for an approved shareholders. They are not under the common
agreement (not being an excluded company under section 43ZI(5) of ITA is a rate control of another person, and neither of them
cost-sharing agreement) to carry out determined in accordance with the formula of controls the other. None of the shareholders can
connected R&D; and A + B, where: exercise control over the JV or its parent company
D = sum of the following expenditure through board or shareholder resolutions.
• A is a base rate of 5% or 10% as the Minister or
incurred or made in the periods with the appointed person may determine; and
records by the approved company, less
excluded expenditure: • B is the sum of every rate increase specified by
the Minister or the appointed person, subject
• expenditure incurred in obtaining a to conditions.
specified right from another person,
except under a cost-sharing agreement;
SINGAPORE MAYER BROWN | 27You can also read
