MAYER BROWN JSM | 1 Asia Tax Bulletin Autumn 2017 Americas | Asia | Europe | Middle East www.mayerbrownjsm.com 2 | Asia Tax Bulletin MAYER BROWN JSM | 3 In This Edition Pieter de Ridder Partner, Mayer Brown LLP +65 6327 0250 | firstname.lastname@example.org We are pleased to present the autumn 2017 edition of our firm’s Asia Tax Bulletin and hope that you will find it useful and interesting. You are looking at the latest tax developments over the past three months in the Far East of Asia including India. This edition contains a host of matters and I would like to highlight here the following: The State Council of the PRC announced new measures to encourage foreign investments, and the tax authorities issued a new decree on tax incentives for high and new technology enterprises, while Taiwan issued proposals for a new tax reform, and Hong Kong issued a consultation report on measures to counter tax avoidance. It looks more and more that Hong Kong is stepping up its actions against international tax avoidance. India saw an interesting High Court case about the general anti avoidance rules, which may give a hint how the newly effective GAAR provisions will be applied in practise. The new GST Law took effect on 1 July 2017, and you will read more about this new tax in this edition of the Asia Tax Bulletin. Indonesia amended its conditions for tax treaty application which have introduced new criteria which foreign companies have to satisfy in order to enjoy the reduced Indonesian withholding tax rates. Also, Indonesia amended its CFC provisions, which have widened the scope of situations for Indonesian persons investing abroad being subject to Indonesian taxation on the income of the foreign company/ies they control. Korea is proposing new tax provisions as a result of the OECD’s BEPS reports. Malaysia clarified the tax position of Malaysian REITs. Thailand proposes to introduce new tax provisions on e-commerce transactions, and Vietnam issued a new transfer pricing circular. Happy reading; we trust that you will find this of interest and look forward to hearing from you if you have questions or need assistance with tax matters in Asia. Thanks and kind regards, Pieter 4 | Asia Tax Bulletin MAYER BROWN JSM | 5 Contents SINGAPORE 26 IP tax incentive 26 GST on imported services 26 Estimated chargeable income filings 27 International tax developments TAIWAN 28 Tax reform THAILAND 30 VAT rate unchanged 30 Draft bill to tax e-commerce businesses 31 Smart Visa to be introduced in January 2018 VIETNAM 32 Transfer pricing circular published 33 Vietnam implements online portal for work permit applications CHINA 6 Policy on foreign investment 7 VAT on asset management services 7 Tax incentives for high and new technology enterprises 8 International tax developments HONG KONG 9 Consultation report on measures to counter BEPS 9 Amalgamation ruling 10 International tax developments INDIA 11 Valuation of unquoted shares 12 The general anti avoidance rules (GAAR) 12 CBDT extends due date for filing income tax returns 13 New GST law has taken effect 14 Taxpayer guidance on GST 14 Associated enterprise 14 International tax developments INDONESIA 15 Procedure to apply for tax treaty benefits 16 Controlled Foreign Company (CFC) rules changed 17 Taxpayer compliance status and BKPM 18 International tax developments JAPAN 19 Mutual agreement procedure 19 International tax developments KOREA 20 Tax law amendments proposal for 2018 MALAYSIA 23 eVisas available to nationals of 10 countries 23 Taxation of REITs 24 Withholding tax on offshore services 24 Deduction for issuance of Sustainable and Responsible Investment Sukuk 24 Income tax exemption for qualifying healthcare providers 24 Income tax treatment of GST borne by employer Key: Jurisdiction (Click to navigate) 6 | Asia Tax Bulletin MAYER BROWN JSM | 7 China (PRC) Policy on foreign investment On 8 August 2017, the State Council issued a notice (Guo Fa  No. 39) announcing measures to encourage foreign investment. The measures are intended to improve the foreign investment policy in five aspects. The contents of the notice are summarised below: • Reduction of limitations on import of foreign capital: The national treatment and negative list management system in respect of foreign investment, which was trialled in Free Trade Pilot Zones, will be fully implemented nationwide with increased market access to foreign investors. The notice encourages foreign investments in special and new energy automobiles, vessel design, call centres, banking, insurance and securities, etc. • Fiscal and tax incentives: Qualifying profits (dividends) derived by foreign investors from resident enterprises and reinvested in China are temporarily exempt from withholding tax. The income tax incentives currently aimed at technologically advanced service enterprises located in designated service outsourcing cities will be made available nationwide. The Ministry of Finance (MoF) and the State Administration of Taxation (SAT) will study the introduction of preferential tax policies regarding the remittance of foreign income to China by resident enterprises (including regional headquarters of multinational companies). Meanwhile, local governments may, within the framework of the laws, issue policies, including fiscal support, to encourage multinational companies to set up regional headquarters in China. In addition, the relocation of existing foreign investment in high-end manufacturing industries to the western and northeast part of China is encouraged. As such, local provincial governments may issue bonds to fund the construction of infrastructure and other key projects for trading with foreign countries. • Improvement of investment environment in the National Development Zones: More power will be granted to National Development Zones in terms of management of investments. The use of land for construction of foreign investment projects will be prioritised and guaranteed. Auxiliary services will also be upgraded. • Relaxation of entry and exit of talented and skilled persons: The policy on attraction of foreign talents will be optimised and work permit issuance is expected to be standardised across the country in 2018. Qualifying foreign talent may be entitled to a multiple entry visa for 5-10 years, and it may also be possible to apply for a permanent resident permit. • Improvement of general business environment: The State Council also urges the relevant government departments and provincial governments to unify the laws and regulations on domestic and foreign investment and to remove the regulations which impair foreign investment. It also promises improvements in respect of dispute resolution, remittance of profits by foreign investors, simplifying registration with different authorities, participations in Chinese enterprises and protection of intellectual property. Detailed rules and regulations are expected to be issued by the relevant government agencies and departments to implement the policies of the State Council. VAT on asset management services On 30 June 2017, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) jointly issued a notice (Cai Shui  No. 56) (the Notice) clarifying VAT payable on asset management services. Under the previous business tax regime, asset management services were exempt from business tax. Following the transition from business tax to VAT on 1 May 2016, these services became subject to VAT. The Notice seeks to clarify how these services will be taxed. It will apply from 1 January 2018 so as to allow asset management agents time to prepare for the implementation. According to the Notice, the taxable asset management services are subject to 3% VAT on the basis of the simplified method. The simplified method means that no input VAT can be deducted. Asset management agents include banks, trust companies, securities companies, private investment funds, insurance asset management companies, special insurance asset management institutions and pension funds. The taxable products covered by the Notice include, inter alia, asset management products, trust products, special or collective asset management plans, open security investment funds, composite insurance asset management products and old-age pension products. Taxable asset management services not covered by the Notice will be subject to VAT based on the current standard VAT rules. Tax incentives for high and new technology enterprises On 19 June 2017, the State Administration of Taxation (SAT) issued an announcement (SAT Gong Gao  No. 24) clarifying the administrative rules for high and new technology enterprises (HNTE). The announcement applies to the final settlement and payment of the annual enterprise income tax of 2017 and subsequent years. Some of the salient points include: • A qualifying HNTE may enjoy the tax incentive starting from the year in which the certificate of HNTE is issued and the filing procedure with the competent tax authorities is completed. • A HNTE is required to make a prepayment of enterprise income tax at a rate of 15% in the year that the certificate of HNTE expires. • If the enterprise fails to renew the certificate by the end of that year, it must pay enterprise income tax at the full tax rate by making a supplement to the prepayment. • The following documentation must be maintained by a HNTE: o the certificate of the HNTE status; o the documents supporting the HNTE status; o the documents related to intellectual property rights; o the documentation stating that the key technology used in the main products of the enterprise is within the scope of the “State Supported High and New Technologies” and the relationship between the key technology and the revenue generated by such key technology; o the documentation on personnel and the scientific and technology employee; JURISDICTION: Local provincial governments may issue bonds to fund the construction of infrastructure and other key projects for trading with foreign countries.” “ 8 | Asia Tax Bulletin MAYER BROWN JSM | 9 o the documentation on the proportions of R&D expenses to the revenue of the current and two previous years, the administration, accounts and specification of R&D expenses; and o other relevant documents required by the tax authorities at the provincial level. International tax developments Pakistan On 24 April 2017, the amending protocol, signed on 8 December 2016, to the China (People’s Rep.) - Pakistan Income Tax Treaty (1989), as amended by the 2000 and 2007 protocols, entered into force. The protocol generally applies from 24 April 2017. Romania On 17 June 2017, the 2016 tax treaty with Romania entered into force. The treaty generally applies from 1 January 2018. From this date, the new treaty generally replaces the 1991 tax treaty. Portugal On 7 May 2017, the agreement to clarify the application of the article on interest under PRC’s tax treaty with Portugal, signed on 7 April 2017, entered into force. The agreement on the application generally applies from 1 June 2017. China (PRC) cont’d JURISDICTION: Hong Kong JURISDICTION: The HK Companies are principally engaged in property investment and collectively own a commercial building for long-term investment and letting purposes.” “ Consultation report on measures to counter BEPS On 31 July 2017, the government released a consultation report on measures to counter base erosion and profit shifting (BEPS) by enterprises. According to the report, the proposed implementation strategy of countering BEPS, which focuses on the four minimum standards set by the OECD (i.e. countering harmful tax practices, preventing treaty abuse, imposing a country-by-country reporting requirement and improving the cross-border dispute resolution mechanism) while maintaining Hong Kong’s simple and low-tax regime, has gained the general support from the respondents. The government will introduce an amendment bill into the Legislative Council by the end of 2017. Amalgamation ruling On 22 August 2017, the Inland Revenue Department (IRD) published an advance ruling (Advance Ruling Case No. 62) in respect of the application of sections 14, 33A, 35, 39B, 51, 61 and 61A of the Inland Revenue Ordinance (IRO) which sets out the tax treatment of amalgamating companies. Details of the ruling, which will apply as from the year of assessment 2017/18, are summarised below: • Company A, Company B and Company C (the HK Companies) are companies incorporated in Hong Kong. Their respective parent companies and common ultimate holding company are incorporated outside Hong Kong. The HK Companies are principally engaged in property investment and collectively own a commercial building for long-term investment and letting purposes. In order to standardise the property holding structure, enhance management and operational efficiency, the Group planned to amalgamate Company B and Company C horizontally into Company A (the amalgamation) by 30 June 2017. Following the amalgamation, the rental of the building was to be solely managed by Company A. • The amalgamation is governed by the amalgamation provisions included in the Companies Ordinance. The 10 | Asia Tax Bulletin MAYER BROWN JSM | 11 legal effects of the amalgamation on and after the effective date of the amalgamation are as follows: o Company B and Company C cease to exist as entities separate from Company A; o Company A acquires all property, rights and privileges, and all liabilities and obligations of Company B and Company C; and o any agreement entered into by Company B and Company C may be enforced by or against Company A. • The following ruling was issued: o no profits or losses will arise, or be deemed to arise, in any of the HK Companies as a result of the amalgamation; o any provision or accruals of Company B and Company C will be carried over to and vested with Company A without any changes in the related tax base and treatments; o annual allowances of commercial building and structures will be available to Company A, subject to balancing charges on disposal not exceeding the aggregate of the allowances made to the HK Companies; and o the unclaimed reducing value of the relevant machinery or plant of Company B and Company C will be used for computing the annual allowances made to Company A, subject to balancing charges on disposal not exceeding the aggregate of the allowances made to the HK Companies. Hong Kong cont’d JURISDICTION: International tax developments New Zealand According to a press release of 14 July 2017 published by the Hong Kong Government, Hong Kong and New Zealand have signed a Competent Authority Agreement on automatic exchange of information. The Agreement specifies the details of what information will be exchanged and when, as set out in the OECD Automatic Exchange of Information Agreement (2014). Saudi Arabia On 24 August 2017, the Hong Kong - Saudi Arabia Income Tax Agreement (2017) was signed in Hong Kong. India JURISDICTION: A comprehensive goods and services Tax (GST) has replaced the multitude of indirect taxes prevailing in India.” “ Valuation of unquoted shares The Central Board of Direct Taxes has issued a notification on 12 July 2017 (Notification No. 61 /2017/F. No. 149/136/2014-TPL) that, under section 50CA and section 56(2), read together with section 295 of the Income-tax Act, 1961, Rules 11UA and 11UAA of the Income-tax Rules, 1962 in relation to valuation of unquoted equity shares for the purpose of the above sections be amended. • The amendment provides that the fair market value of unquoted equity shares on the valuation date will be calculated as follows: (A + B + C + D – L) × (PV) ÷ (PE), where: o A = book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance sheet as reduced by – any amount of income-tax paid, if any, less the amount of income tax refund claimed, if any; and – any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; o B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer; o C = fair market value of shares and securities as determined in the manner provided in this rule; o D = the value adopted or assessed or assessable by any authority of the government for the purpose of payment of stamp duty in respect of the immovable property; o L = book value of liabilities shown in the balance sheet, but not including the following amounts: – paid-up capital in respect of equity shares; – the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; – reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; 12 | Asia Tax Bulletin MAYER BROWN JSM | 13 India cont’d JURISDICTION: – any amount representing provision for taxation, other than amount of income tax paid, if any, less the amount of income tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; – any amount representing provisions made for meeting liabilities, other than ascertained liabilities; and – any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; o PV = the paid up value of such equity shares; and o PE = total amount of paid up equity share capital as shown in the balance sheet. • The valuation date in the rule means the date on which the capital asset, being a share of a company other than a quoted share referred to in section 50CA, is transferred. This amendment will come into force on 1 April 2018 and will apply in relation to assessment year 2018/19 and subsequent years. The general anti avoidance rules (GAAR) While we are waiting for case law to develop on the new GAAR provision in the income tax law, a recent Bombay High Court case about the application of the Mauritius/ India tax treaty provides interesting hints on what may be relevant factors to consider under the GAAR, as these were arguments put forward by the Indian tax authority supporting its stance that the Mauritius company in this case was a mere shell company. The arguments put forward were the following: • The Taxpayer is a ‘shell company’ and ‘fly-by-night’ Company: Contending that the Mauritius company had been incorporated only to take advantage of the Treaty, the Revenue pointed to the original proposal made to the Indian regulator at the time of investment which depicted the name of one Bermudan company as the investor. Only later was the proposal amended to route the investment through Mauritius. • No commercial substance: The Revenue argued that the Mauritius company had never incurred expenses of wages, salaries of staff, electricity, other charges etc., and its only income and expense (apart from the profits from the sale of shares) were on account of interest received from or paid to its group entities. • Period of holding: The mere fact that the Mauritius company had held shares for 13 (thirteen) years was irrelevant according to the Revenue while assessing its eligibility to tax treaty benefits. • Beneficial owner of the shares: The Revenue contended that the Bermudan company owning the Mauritius company was in fact the beneficial owner of the shares since the Mauritius company had not nominated anyone on the Board of Directors (Board) of its subsidiary and in fact, certain employees of the Bermudan company were appointed as directors on the Indian subsidiary’s Board. • AAR’s verdict on ‘shell company’: Arguing that the transaction was a clear case of Treaty abuse, the Revenue stated that the AAR is not empowered to decide cases of tax avoidance. According to the Revenue, the AAR was erroneous in not discussing the basis for concluding that the Mauritius company was not a ‘shell company’. CBDT extends due date for filing income tax returns On 31 August 2017, the Central Board of Direct Taxes (CBDT) announced the following extended due dates: • The deadline of 30 September 2017 for filing income tax returns and the various audit reports prescribed under the Income Tax Act, 1961 is extended to 31 October 2017; and • All taxpayers having a Aadhaar number are required to link it with the Permanent Account Number (PAN) by 31 December 2017 (extended from the previous deadlines of 31 August 2017 and 31 July 2017). New GST law has taken effect From 1 July 2017, a comprehensive goods and services Tax (GST) has replaced the multitude of indirect taxes prevailing in India. The Constitution Amendment Bill enabling GST was ratified by the parliament on 8 August 2016 followed by a notification of The Constitution (One Hundred and First Amendment) Act, 2016 on 8 September 2016. The following Acts were provided for the President’s assent on 12 April 2017): • The Central Goods and Services Tax (CGST) Act, 2017; • The Integrated Goods and Services Tax Act, 2017; • The Union Territory Goods and Services Tax Act, 2017; and • The Goods and Services Tax (compensation to states) Act, 2017. The CGST Rules 2017 and the related notifications with reference to the above Acts were released in the months of June and July 2017 (for details refer to http://www.cbec.gov.in/htdocs-cbec/gst/index). GST in India is governed by the GST Council, with the Finance Minister as its Chairman. The GST Council will make recommendations to the Union and states on the taxes, cesses and surcharges levied by the Centre, the states and the local bodies which may be subsumed in the GST. Alcohol for human consumption and five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been excluded from GST, and the GST Council will decide the date from which they are to be included. Furthermore, electricity has also been excluded from the purview of GST. The following sets out some important aspects of the GST: • GST is a destination-based tax on consumption of goods and services and is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as set-off. • Taxable event for GST is the supply of goods or services or both. The term “supply” is wide in its import and covers all forms of supply of goods or services or both. This includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. • The value of taxable supply of goods and services will ordinarily be “the transaction value” which is the price paid or payable, when the parties are not related and price is the sole consideration. • The turnover threshold for payment of GST by a taxpayer is INR 2 million (INR 1 million for north east and special categories). • A dual GST model has been adopted in India whereby the taxes will be levied by the central and state governments. This is in line with the Indian constitutional requirement of fiscal federalism between central and state governments. • Transactions made within a state will be levied with Central GST (CGST) by the central government and state GST (SGST) by the government of that state on a common taxable base. On inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the central government. Therefore, CGST and IGST shall be levied and administered by the central government and the respective states will administer the SGST. • A Harmonised System of Nomenclature (HSN) code shall be used for classifying the goods under the GST regime. • A Special Purpose Vehicle called the Goods and Services Tax Network (GSTN) has been set up to cater to the needs of GST. The GSTN will provide a shared IT infrastructure and services to central and state governments, tax payers and other stakeholders for the implementation of GST. • Under the CGST/SGST Act, every registered person shall be assigned a compliance rating based on the record of compliance in respect of specified parameters. • Under the CGST/SGST Act, any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit will be passed on to the recipient by way of commensurate reduction in prices. An authority will be constituted by the government to examine whether input tax credits availed by any 14 | Asia Tax Bulletin MAYER BROWN JSM | 15 India cont’d JURISDICTION: registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. • A five tier rate structure has been adopted for the purposes of GST, the rates being 0%, 5%, 12%, 18% and 28%, and 28%+cess on certain goods. Most goods and services have been classified at 12% or 18%, with certain essential goods and services at either 5% or 0%. The GST rate on pearls, precious or semi-precious stones, diamonds (other than rough diamonds), precious metals (like gold and silver), imitation jewellery is 3% and on rough diamonds it is 0.25%. Taxpayer guidance on GST On 25 August 2017, the Ministry of Finance announced in a press release that the Central Board of Excise and Customs (CBEC) had issued frequently asked questions (FAQs) relating to GST law, procedures, tax rates, and specific industries and sectors. The FAQs are available at the CBEC GST portal under the “Services” section. Taxpayers can also visit this portal or the main CBEC portal to find the most recent GST information. Associated enterprise The High Court of Gujarat (HC) gave its decision on 20 June 2017 in the case of Commissioner of Income Tax (CIT ) v. M/s Veer Gems (Tax Appeal No. 338 of 2017) (published on 13 July 2017) upholding the decision of the Income Tax Appellate Tribunal (ITAT) on the definition of “associated enterprise” (AE) under the Income Tax Act, 1961 (ITA). The HC dismissed the CIT’s appeal and upheld the order of the ITAT, agreeing that the mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises AEs. As the taxpayer and M/s Blue Gems are not AEs, the question of applying transfer pricing provisions would not arise. International tax developments Korea On 12 May 2017, the investment protection agreement (IPA) between India and Korea, signed on 26 February 1996 in Delhi, was terminated by way of a notice of 12 May 2016. The termination notice was published by the Korean Ministry of Foreign Affairs on 28 April 2017. Portugal On 5 May 2017, the investment protection agreement (IPA) between India and Portugal, signed on 28 June 2000 in Lisbon, was terminated by way of a verbal note of 4 May 2016 from the Embassy of India in Lisbon. The note was published in Portuguese Official Gazette No. 128/2017 of 5 July 2017. New Zealand On 7 September 2017, the amending protocol, signed on 26 October 2016, to the India - New Zealand Income Tax Treaty (1986) entered into force. The protocol generally applies from 7 September 2017. Indonesia JURISDICTION: The new beneficial ownership test no longer contains the requirement that the earned income is subject to tax in the tax treaty country.” “ Procedure to apply for tax treaty benefits Indonesia has completely amended its provisions on the Certificate of Domicile (CoD) for foreign and domestic tax residents. In relation to foreign tax residents, the DGT simultaneously issued Regulation No. PER-10/ PJ/2017 (PER-10) on 19 June 2017 that includes a new CoD standard. PER-10 will apply starting 1 August 2017 and revokes the following DGT regulations: • Regulation No. PER-61/PJ/2009 9PER-61) as amended by Regulation No. PER-24/PJ/2010 (PER-24); and • Regulation No. PER-62/PJ/2009 as amended by Regulation No. PER-25/PJ/2010. Valid CoDs based on these former regulations are still applicable up to the end of their validity period. PER-10 confirms that a CoD is valid for a maximum of 12 months and the new CoD format now specifies the validity period. There are, however, still two types of CoDs, i.e. DGT-1 and DGT-2, with the same users as under the old regulations (e.g. for banking institutions and nonbanking institutions). As regards the DGT-1 form, PER-10 modifies the beneficial ownership test set out under PER-61 and PER-24 and adds a new set of general residency tests that must be fulfilled by non-individual taxpayers to be able to enjoy tax treaty benefits. The general residency tests applicable to all types of income generated from Indonesia are as follows: 1. A new test is that there are relevant economic motives or other valid reasons for the establishment of the foreign entity; 2.The entity has its own management to conduct the business and such management has independent discretion; 3.Also new is that the entity must have sufficient movable and immovable assets to conduct business other than the assets generating income from Indonesia; 4.Partially new is the requirement that the entity must 16 | Asia Tax Bulletin MAYER BROWN JSM | 17 Indonesia cont’d JURISDICTION: have sufficient and qualified personnel to conduct the business ; and 5.Also partially new is that the entity must have an active business activity other than receiving dividends, interest and/or royalties sources from Indonesia. In addition, non-individual taxpayers must fulfil a beneficial ownership test if required under the relevant tax treaty where generating income in the form of dividends, interest, or royalties. The new beneficial ownership test consists of the following: 1. The entity should not act as an agent, nominee, or conduit; 2.New is that the entity must have controlling rights or disposal rights over the income, the assets, or the rights that generate the income (new); 3.No more than 50% of the entity's income is used to satisfy claims by other persons; 4 New is that the entity must be able to base its risk on its own assets, capital and/or the liabilities; and 5.The entity must have no contracts which oblige the entity to pay the income received to residents of a third country. Interestingly, the new beneficial ownership test no longer contains the requirement that the earned income is subject to tax in the tax treaty country. This opens up the possibility to apply tax treaty benefits under a number of Indonesia's tax treaties (e.g. Hong Kong) which were previously challenged. Specific to the new DGT-2 form is a new section requesting detailed information on the income earned from Indonesia for which tax treaty benefits are claimed. This section is similar to that under the DGT-1 form. It has also been accepted in the past that certain government agencies of a tax treaty partner (e.g. central banks, or institutions stipulated in the tax treaty) do not need to use the DGT-1 or DGT-2 forms or any other CoD. However, PER-10 now requires these institutions to submit a CoD issued by the relevant country in order to confirm their tax exempt status under the relevant tax treaty. CoDs must be submitted together with the relevant monthly tax returns when the income tax is due and can be submitted in an electronic format. Where income tax is "over withheld" due to a delay in completing the CoD when the relevant monthly tax return has been submitted, or there is an incorrect application of the tax treaty, PER-10 indicates that taxpayers should refer to the Minister of Finance Regulation No. 187/PMK.03/2015 for a refund. PER-10 also confirms that taxpayers have the right to obtain treaty benefits through the Mutual Agreement Procedure in cases such as where a withholder fails to remit the relevant withholding tax. Controlled Foreign Company (CFC) rules changed The Ministry of Finance (MoF) issued Regulation 107/ PMK.03/2017 (PMK 107) of 27 July 2017 regulating the taxability of deemed dividends from controlled foreign corporations (CFCs). PMK 107, which is effective from tax year 2017, replaces MoF Regulation 256/PMK.03/2008 of 31 December 2008. A CFC is defined as a foreign corporation, other than a listed corporation, in which Indonesian resident shareholders (individuals or companies), individually or collectively, hold(directly or indirectly) 50% or more of its total paid-up capital or paid-up capital with voting rights as at the end of the tax year of the Indonesian shareholders. Capital held by trusts or similar entities is deemed to be held by investors in such entities. Dividends are deemed to be distributed four months after the due date for submission of the annual tax return by the CFC, or 7 months from the end of the tax year of the CFC if the CFC is not obliged to file a tax return or where the tax filing deadline is not stipulated. Indonesian shareholders must declare the deemed dividends in the tax return for the tax year in which the dividends are deemed to have been distributed. The deemed dividends are computed by multiplying the effective shareholding in the CFC by the CFC's after-tax profit as per the financial statements. Actual dividends received from CFCs are also taxable. However, taxes may be reduced by the deemed dividends taxed in the current and past four years. If the actual dividends received exceed the deemed dividends, the excess is taxable in the year in which the actual dividends are received. Foreign tax paid on actual dividends received can be credited against the tax payable of the Indonesian shareholder in the tax year in which the dividends are received. The tax credit is the lesser of: • Foreign income tax on the actual dividends received based on tax treaties; • Foreign income tax on the actual dividends received which has been paid or payable; and • The portion of Indonesian tax payable on the actual dividends which is calculated based on the proportion of actual dividends received to the total taxable income. • A tax credit arising from dividends received from a country can only be credited against Indonesian tax payable on the income from the same country. The Indonesian shareholders must submit the computation of the foreign tax credit in a prescribed form together with the annual tax return and the following documents of the CFC: o the financial statements; o a copy of the income tax return, provided that the CFC is required to file tax returns; o a computation of profit after tax for the past five years; and o proof of foreign tax paid on the actual dividends received. Taxpayer compliance status and BKPM1 The Investment Coordinating Board ("BKPM") has issued a regulation on the Confirmation of Taxpayers Status at the Permit and Non-Permit One Stop Integrated Services desk ("PTSP") of the Investment Coordinating Board ("Regulation 7/2017"). This Regulation, issued 8 June 2017, requires BKPM officials to confirm a taxpayer' s compliance status before processing applications for permit or non-permit services at the PTSP. The regulation is short on detail and this alert is based in part on the BKPM's socialisation (public outreach) efforts. According to the regulation, any foreign investment or domestic company which submits an application to the BKPM will have its status as a compliant taxpayer confirmed before its application is processed. The BKPM will do this through the BKPM online system or an online application system established by the Directorate General of Tax. Only government officials have access to this application. If a taxpayer is confirmed to be compliant, the BKPM will process the application. During the socialisation of Regulation 7/2017, the BKPM stated that in order to be confirmed compliant, the applicant must have a valid Taxpayer Registration Number ("NPWP") and have paid its tax due for the last two years as shown by its Annual Notification (Surat Pemberitahuan Tahunan "SPT"), unless the taxpayer is under no obligation to pay tax. If the applicant is not a compliant taxpayer, the BKPM will send the applicant a notification to that effect, and the applicant must then check its status at the local Tax Service Office (Kantor Pelayanan Pajak "KPP") to see if it owes any outstanding tax. According to the BKPM, the non-compliance may be due to, among other things: (i) the applicant has not yet obtained a NPWP (ii) the applicant has not submitted its SPT asrequired to the Directorate General of Tax, or (iii) the applicant’s case is being tried by the tax court, etc. Once any outstanding tax due has been paid, the KPP will issue the applicant a clearance certificate. Then, the applicant must upload the certificate to the BKPM online system to continue processing its application. This procedure will be conducted every time an application is submitted to BKPM. In addition, the BKPM stated that it will only confirm the tax status of the actual applicant, not the proxy if the application is submitted by a third party under a POA. To date, Regulation 7/2017 has not been implemented yet. However, according to BKPM confirmation, 1 Courtesy Makarim & Taira. 18 | Asia Tax Bulletin MAYER BROWN JSM | 19 Indonesia cont’d JURISDICTION: this regulation will be implemented in the near future. Given this, we would advise clients to ensure they are up-to-date on their tax filings and other tax obligations, especially if they are planning anything which will require interaction with the BKPM. International tax developments Netherlands On 1 August 2017, the amending protocol, signed on 30 July 2015, to the Indonesia - Netherlands Income Tax Treaty (2002) entered into force. The protocol generally applies from 1 October 2017. As reported in previous editions of this bulletin, the protocol has made the Netherlands a favourable jurisdiction for holding and financing activities for Indonesia given the 5% withholding tax rates. Also, the protocol contains a new approach for Indonesia to determine beneficial ownership. Macao According to a recent press release, published by the Indonesian tax authorities, the signing of a joint declaration on automatic exchange of information between Indonesia and Macau will take place in the near future. The two countries will exchange information automatically based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Information (MCAA). The MCAA is based on the international standard for the exchange of information developed by the OECD. Switzerland On 4 July 2017, Indonesia and Switzerland signed a joint declaration on automatic exchange of information in Jakarta. In accordance with their commitment to the Global Forum, Indonesia and Switzerland intend to start collecting data in 2018 and first transmit data in 2019, after the necessary legal basis has been created in both countries. Both countries will exchange information automatically based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Information (MCAA). The MCAA is based on the international standard for the exchange of information developed by the OECD. The joint declaration specifies that both states are satisfied with the confidentiality rules provided for in the other state with regard to taxes. Japan JURISDICTION: The objective of this agreement is to strengthen exchange of information schemes and the collaboration among customs authorities.” “ Mutual agreement procedure The Japanese National Tax Agency’s (NTA’s) Office of Mutual Agreement Procedure this month released guidance on mutual agreement procedures (MAP). This guidance complements the existing Commissioner’s Directive on Mutual Agreement Procedures (Administrative Guidance) and is designed to ensure Japan’s compliance with BEPS Action 14: More Effective Dispute Resolution Mechanisms. International tax developments Mexico On 10 August 2017, Japan and Mexico signed an agreement on mutual administrative assistance in customs matters in Mexico City. The objective of this agreement is to strengthen exchange of information schemes and the collaboration among customs authorities to co-ordinate practices to fight and detect illegal practices in international commerce. Latvia On 5 July 2017, the Japan - Latvia Income Tax Treaty (2017) entered into force. The treaty generally applies from 1 January 2018. 20 | Asia Tax Bulletin MAYER BROWN JSM | 21 Korea JURISDICTION: The top marginal rate for taxable income in excess of KRW 200 billion will be increased from 22% to 25%.” “ Tax law amendments proposal for 2018 Corporate taxation The Ministry of Strategy and Finance (MOSF) announced its proposed tax law amendments for 2018 (the 2018 Tax Amendments) on 2 August 2017. The 2018 Tax Amendments in respect of corporate taxation will be effective as of 1 January 2018. The top marginal rate for taxable income in excess of KRW 200 billion will be increased from 22% to 25% (see table below for the current and new tax rates). Since the local income tax on the corporate income tax is 10% of the applicable corporate income tax rate, this means that Korean corporations may be subject to a top tax rate of 27.5% ((25% + 10%) x 25%) on taxable income in excess of KRW 200 billion. Under the current PITL and CITL, a non-resident/foreign corporation is subject to personal income tax/corporate income tax, respectively, on transfer of listed shares in Korea, if the non-resident/foreign corporation holds 25% or more of the listed Korean company. The 2018 Tax Amendments will expand taxation of capital gains derived by a non-resident/ foreign corporation from transfer of listed shares. As such any non-resident/ foreign corporation holding 5% or more of the listed Korean company will be subject to capital gains tax. In accordance with the current STTCA, when personal income tax/corporate income tax incentives are provided in connection with income derived from a foreign-investment company's eligible business, a certain amount for each hired employee is granted as additional tax incentive for purposes of supporting job creation by foreign-investment companies. The upper limit for the additional incentive is either 40% or 30% of the foreign investment amount for the 7-year or 5-year tax incentive, respectively. Under the proposed 2018 Tax Amendments, the upper limit for additional tax incentive from additional employment will be increased to 50% or 40% of the foreign investment amount for the 7-year or 5-year tax incentive, respectively. This new rule will be effective for the application of tax incentives made on or after 1 January 2018. Individual taxation The 2018 Tax Amendments in respect of individual taxation will be effective as of 1 January 2018. Under the current Presidential Decree of the PITL, a foreign individual is considered a tax resident of Korea if he or she has resided in Korea for 183 days or more over two taxable years. With the 2018 Tax Amendments, a foreign individual will be considered as a tax resident of Korea if he or she has had a residence in Korea for 183 days or more over one taxable year. International taxation The 2018 Tax Amendments in respect of international taxation will be effective as of 1 January 2018. Key points include: • Hybrid mismatch arrangement: With respect to interest paid by a Korean company in a hybrid financial arrangement with a foreign related party, the proposed 2018 Tax Amendments will deny a deduction for such interest if the interest is viewed as dividends and not taxed in the recipient's country. As a result of this amendment, some of the interest which had been deducted may not be deductible depending on the tax treatment of the interest in the recipient's country; thus, it is expected that uncertainty for tax purposes will increase in financial transactions between related parties. • Limiting deduction for interest expense of multinational enterprises: Under the 2018 Tax Amendments, if the ratio of net interest to adjusted net income (i.e. EBITDA (earnings before interest, taxes, depreciation, and amortisation)) paid to a foreign related party by a Korean company (including the permanent establishment of a foreign corporation and excluding financial and insurance businesses) exceeds a certain ratio (30%), the excess interest will not be deductible. Where the thin capitalisation rules also apply to a taxpayer, the non-deductible interest is subject to the amount resulting under the above new rule or the thin capitalisation rules, whichever is greater. • Interest on loans paid to a foreign subsidiary or affiliate will also be covered under this proposed rule (whereas the current thin capitalisation rule does not apply to such interest on loans paid); consequently, some of the interest paid abroad may be denied as a deduction for not only foreign companies but also Korean companies with subsidiaries abroad. In addition, since the thin capitalisation rules as well as the new rule will apply to a foreign company, it is anticipated that nondeductible interest will be increased in comparison to the past. This rule will be effective for taxable years beginning after 1 January 2019. • Reportable foreign financial accounts: Currently, Korean tax residents (with some exceptions) are required to report their foreign financial accounts if the aggregate balance of those accounts exceed KRW 1 billion at the end of any month during a given year. According to the 2018 Tax Amendments, Korean tax residents will now be required to report their foreign financial accounts if the aggregate balance exceeds KRW 500 million at the end of any month during a given year. • Increase in fines for non-compliance with Combined Report of International Transactions: Under the current rules, if a taxpayer fails to submit (or made false statements on) part or all of the CRIT (local file, master file, and country-by-country report), a fine of KRW 10 million will be imposed on each failure to file the CRIT reports respectively (i.e. if the local file and master file are not submitted, a fine of KRW 20 million would be imposed). The proposed 2018 Tax Amendments will increase the fine to KRW 30 million. The higher fines will be applicable to non-submission or false CRIT submitted on or after 1 January 2018. Taxable income Current corporate income tax rate (rate including local income tax) Proposed corporate Income tax rate (rate including local income tax) Under KRW 200 million 10% (11%) Same KRW 200 million to KRW 20 billion 20% (22%) Same KRW 20 billion to KRW 200 billion 22% (24.2%) Same In excess of KRW 200 billion 25% (27.5%) 22 | Asia Tax Bulletin MAYER BROWN JSM | 23 Korea cont’d JURISDICTION: • Increase in withholding tax rate applicable to income derived by dispatched foreign employees and expansion of withholding agent: Under the current PITL, a Korean company is required to withhold 17% of the service fees paid to a foreign corporation for services provided by the foreign corporation's dispatched employees into Korea. The withholding obligation applies only if the total service fees paid to a foreign corporation exceeds KRW 3 billion in a year. In addition, only Korean companies in the air transport, construction, and professional/scientific/ technical service industries are obligated to withhold on the service fees paid to a foreign corporation. The proposed 2018 Tax Amendments will increase the withholding tax rate to 19%, and reduce the threshold of the annual total service fees to be paid to a foreign corporation from KRW 3 billion to KRW 2 billion. Furthermore, the scope of companies subject to this withholding obligation will be expanded to cover Korean companies in the ship building and financial industries. The new withholding rule will be applicable to payments of service fees on or after 1 July 2018. • Harmonisation regime for transfer pricing and customs valuation: In accordance with the current Korean tax law, if the transfer pricing (TP) method and the customs valuation method are similar, a taxpayer may utilise the harmonisation regime for TP and customs valuation and simultaneously to apply for an advance pricing agreement (APA) and advance customs valuation arrangement (ACVA). Under the proposed amendment, even if the TP and customs valuation methods are different, the taxpayer can claim a harmonised approach between domestic tax authorities and customs authorities, and simultaneously apply for APA and ACVA. Thus, tax authorities and customs authorities may be required to work closely with one another in order to reach an agreement on the TP and customs value for imported goods. With the amendment, taxpayers will now be able to use the commonly used profit-based method (such as transactional net margin method), despite the fact that such a profit-based TP method is not adopted as a customs valuation method by Korean customs law. As a result, it is anticipated that the effectiveness of the harmonisation regime for TP and customs valuation will be improved. Tax administration and other matters The 2018 Tax Amendments in respect of tax administration and other matters will be effective as of 1 January 2018. Under the current LCITA, the deadline for applying for APA is the last day of the first taxable year of which the taxpayer has requested such proposed APA to be applied. The proposed 2018 Tax Amendment tightens this deadline to the day prior to the first day of the first taxable year to which the proposed APA will apply. Taxpayers should be mindful of this new tighter deadline when they seek to apply for an APA. The new deadline will apply to the application for APAs covering taxable years beginning on or after 1 January 2019. The deadline for the submission of local file was extended last year to 12 months after the fiscal-year end. However, under the current LCITA, the under-reporting penalty is exempted only if a transfer pricing (TP) study is prepared and stored by the filing deadline for corporate income tax return (i.e. three months after the fiscal-year end). As such, no exemption for under-reporting penalty can be provided even if the local file is submitted within 12 months of the fiscal-year end. The newly proposed amendments will provide for such exemption if the local file is submitted on time (i.e. by the end of 12 months after the fiscal-year end). The new rule promotes greater convenience for taxpayers. Malaysia JURISDICTION: Employers are required to account for output tax on the provision of taxable goods to employees even if no consideration is charged.” “ eVisas available to nationals of 10 countries The Immigration Department of Malaysia recently made eVisas available to nationals of China, India, Sri Lanka, Nepal, Myanmar, Bangladesh, Pakistan, Bhutan, Serbia and Montenegro seeking to travel to Malaysia for business purposes. eVisas are single-entry, valid for three months and grant a maximum period of stay of 30 days for each visit. Upon approval, the eVisa must be printed on A4 paper to present upon arrival at any Malaysian point of entry. eVisas may not be extended. Taxation of REITs On 8 September 2017, the Inland Revenue Board of Malaysia (IRBM) issued Public Ruling (PR) No. 5/2017 – Taxation of Real Estate Investment Trust or Property Trust Fund, which replaces PR No. 2/2015. The ruling incorporates the amendments made to the Income Tax Act 1967 (ITA) by the Finance Act 2017. Some of the salient points from the PR are as follows: • A unit trust is now defined as a unit trust that is approved by the Securities Commission as a Real Estate Investment Trust (REIT) or Property Trust Fund (PTF), and listed on Bursa Malaysia pursuant to section 61A of the ITA. • Consequently, effective from year of assessment 2017, a REIT/PTF is exempted from tax only if it is listed on Bursa Malaysia and distributes 90% or more of its total income to its unit holders. • Interest income received from a bank licensed under the Financial Services Act 2013 or Islamic Financial Services Act 2013 or a development financial institution prescribed under the Development Financial Institutions Act 2002 is exempted from tax. • The treatment of a REIT/PTF that establishes a special purpose vehicle solely for the issuance of Sukuk has been updated. 24 | Asia Tax Bulletin MAYER BROWN JSM | 25 Withholding tax on offshore services Due to a law change in 2016, offshore services rendered to Malaysian parties are now subject to Malaysian withholding tax. On 7 July 2017, the Inland Revenue Board of Malaysia (IRBM) published Practice Notes 1/2017 and 2/2017 of 23 June 2017, which offer guidance on the withholding of tax for contracts or services provided outside Malaysia effective from 17 January 2017. Details of the practice notes are summarised below: • Contracts made and services performed after 17 January 2017 are subject to withholding tax. • For contracts signed before 17 January 2017, but services performed after 17 January 2017, the payments are subject to withholding tax. • For contracts signed and services performed before 17 January 2017, but payment made after 17 January 2017, no withholding tax is applicable. • For contracts signed and payment made before 17 January 2017, but services performed after 17 January 2017, no withholding tax is applicable. Under certain tax treaties, Malaysia's right to tax is restricted as follows: • Payments for services performed outside Malaysia are not subject to withholding tax for Singapore and Spain; and • Payments for services are not subject to withholding tax for Australia and Turkmenistan. Deduction for issuance of Sustainable and Responsible Investment Sukuk On 27 July 2017, the Income Tax (Deduction for expenditure on issuance or offering of Sustainable and Responsible Investment Sukuk) Rules 2017 were gazetted. The rules aim to provide a tax deduction for the expenditure incurred for the issuance or offering of a Sustainable and Responsible Investment Sukuk approved by the Securities Commission Malaysia. The deduction is applicable for a company that is incorporated under the Companies Act 2016 or a Labuan incorporated company that has elected to be charged for income tax under the Income Tax Act 1967, and at least 90% of the proceeds raised from the issuance of the Sustainable and Responsible Investment Sukuk are used for the sole purpose of funding a Sustainable and Responsible Investment Project. The Order is deemed to be effective from year of assessment 2016 until 2020 Income tax exemption for qualifying healthcare providers On 21 July 2017, the Income Tax (Exemption) (No. 3) Order 2017 was gazetted. The Order aims to provide a tax exemption for qualifying capital expenditure incurred in relation to buildings or medical devices used in Malaysia by a company providing qualifying private healthcare services that is incorporated or deemed to be registered under the Companies Act 2016 and which is resident in Malaysia. The Order is deemed to be effective from year of assessment 2015. Some of the salient points include: • The qualifying expenditure in relation to buildings refers to the cost of purchasing or constructing a new building or the cost of modifying or refurbishing an existing building. It does not refer to buildings used as living accommodations. • With regard to medical devices, the qualifying expenditure refers to medical devices costing more than MYR 50,000 that are verified by the Minister of Health as relating to the qualifying project. • The exemption is applicable for a period of five consecutive years from the date of the first qualifying capital expenditure incurred by the qualifying company. • In order to qualify for the exemption, the number of non-Malaysian healthcare patients must be at least 5% of the total patients received by the healthcare service provider in a year of assessment, and at least 5% of the gross income generated by the healthcare provider must originate from non-Malaysian patients. Income tax treatment of GST borne by employer On 17 July 2017, the Inland Revenue Board of Malaysia (IRBM) issued Public Ruling (PR) No. 3/2017 – Income tax treatment of Goods and Services Tax (GST) Part lll – Employee Benefits: GST borne by an employer. The PR aims to provide details on the income tax treatment of the GST output tax borne by the employer on goods or services provided for free to its employees. Key points include that: • Employers are required to account for output tax on the provision of taxable goods to employees even if no consideration is charged. These include business goods that are provided for free and goods that are temporarily allowed for private use by employees. • No output tax need be accounted for if services are provided for free to employees, with the exception of services provided for the benefit of sole proprietors, partners, directors of a company or persons connected to an employer. • For employees' income tax purposes, the output tax in respect of benefits in kind, perquisites or value of living accommodation incurred for employees and borne by employers will be payable if the relevant benefit in kind, perquisite or value of living accommodation itself is taxable. Malaysia cont’d JURISDICTION: 26 | Asia Tax Bulletin MAYER BROWN JSM | 27 Singapore JURISDICTION: The consultation document sets out the proposed scope and features of the reverse charge mechanism.” “ IP tax incentive The EDB issued a statement on 17 July 2017 that details the IP tax incentive announced in Singapore’s Budget Statement 2017 has been delayed for the moment. The EDB did mention that, by the end of 2017, it will announce the cut-off date when new applications for IP tax incentives under the flag of the Pioneer Company (PC) incentive or the Development and Expansion Incentive (DEI) will no longer be considered by the EDB. The EDB stated that companies which are presently enjoying the PC or DEI incentive will no longer enjoy tax incentives in respect of IP income as from 1 July 2021. The new IP Development Incentive will be consistent with the ‘modified nexus’ principle of Action 5 of BEPS, and therefore that it shall apply only to qualifying R&D developed in Singapore. Further details are yet to be issued. GST on imported services On 9 May 2017, the Singapore tax authority issued a consultation document about the application of GST to imported services in the context of business-tobusiness (“B2B”) transactions. It proposes that GST be imposed on services imported by GST-registered persons making non-taxable supplies by way of a reverse charge mechanism. The consultation document sets out the proposed scope and features of the reverse charge mechanism. It is relevant to businesses such as insurance companies and banks, which are generally GST exempt on their turnover, and who receive offshore services for which they pay service fees. It is proposed that these service fees become subject to the prevailing GST rate (7% at the moment) whereas currently there is generally no GST liability on imported services. Estimated chargeable income filings On 21 July 2017, the Income Tax (Filing of Estimates of Chargeable Income) Rules 2017 (the Rules) were gazetted. The salient points of the Rules are discussed below. • For the purpose of the Rules, revenue in a year of assessment (YA) is the gross amount of income derived from principal activities in the accounting period relating to that YA. • The criteria for a waiver of the requirement to file estimates of chargeable income (ECI) with regard to a company, as reported earlier this year, are deemed to have come into operation on 29 December 2016. • Effective 29 December 2016, the criteria for a waiver of the requirement to file a person’s estimated income and other information with regard to a partnership for a YA pursuant to section 71(3) of the Income Tax Act are as follows: o the accounting period relating to that YA ends in the months of October, November or December; or o the revenue of the partnership in the YA immediately before the relevant YA does not exceed SGD 500,000. • Effective 21 July 2017, the Income Tax (Electronic Filing of Estimates of Chargeable Income) Rules 2017 were revoked. • Effective 21 July 2017, the effective YA or YAs to which a class of companies must furnish the ECI using the electronic service provided by the Inland Revenue Authority of Singapore are as follows: International tax developments Nigeria On 2 August 2017, the Nigeria - Singapore Income Tax Treaty (2017) was signed in Nigeria. The treaty contains a withholding tax rate of 7.5% on dividends, interest and royalties and a time threshold for services and projects against permanent establishment risks. The treaty awaits ratification before it can take effect. Turkey On 1 October 2017, the free trade agreement (FTA) between Singapore and Turkey, signed on 14 November 2015, entered into force. Financial account information sharing: The CRS MCAA is a multilateral framework agreement providing a standardised and efficient mechanism to facilitate the automatic exchange of information based on the Common Reporting Standard (CRS). Under the CRS MCAA, a bilateral exchange relationship comes into effect only if both jurisdictions are signatories to the CRS MCAA, have filed the relevant notifications under Section 7 of the CRS MCAA, and have listed each other as intended exchange partner jurisdictions under the CRS MCAA. The Singapore tax authority announced that as of 7 August 2017, exchange relationships under the CRS MCAA have been activated with the following jurisdictions: Belgium, Brazil, Bulgaria, Canada, Cyprus, Faroe Islands, Gibraltar, Greece, Guernsey, India, Indonesia, Isle of Man, Jersey, Luxembourg, Mexico, Portugal, Slovak Republic, Spain, Uruguay. Class of companies Effective YA Revenue exceeding SGD 10 million in YA 2017 2018 Revenue exceeding SGD 1 million in YA 2018 2019 All companies 2020 and subsequent YAs 28 | Asia Tax Bulletin MAYER BROWN JSM | 29 Taiwan JURISDICTION: The highest rate of individual income tax will be reduced from 45% to 40%. ” “ Tax reform On 1 September 2017, the Ministry of Finance published an official announcement on tax reform aimed at establishing a fair income tax system that is in line with international trends and competitiveness. According to the announcement, the reform has the following main objectives: • The mitigation of the tax burden on salary-earning and low and medium income taxpayers for the sake of fairness and rationality; • The decrease of the tax burden on small and mediumsized and creative enterprises to encourage industrial transformation and upgrade; • The adjustment of the individual income tax rate structure to attract more talent and increase Taiwan’s global competitiveness; and • The establishment of a new and simple investment income tax system by abolishing the imputation tax system as per international trends. In order to accomplish the aforementioned objectives, the following has been proposed to the Legislative Yuan (Congress): • The standard deduction amount will be increased from NTD 90,000 to NTD 110,000, and the salary income exemption will be increased from NTD 128,000 to NTD 180,000; • The highest rate of individual income tax will be reduced from 45% to 40%; • Sole proprietorships and partnerships will be treated as tax transparent entities for corporate tax purposes and, therefore, will only be subject to individual income tax; • The special tax rate for undistributed earnings will be reduced from 10% to 5%, and the undistributed earnings tax cannot be credited to the withholding tax on dividends; • The corporate tax rate will increase from 17% to 20%; • Dividends distributed to non-resident shareholders will be subject to withholding tax at a rate of 21%; and • The imputation tax system will be abolished and replaced with the traditional (classic) tax system. With regard to the new investment income tax treatment, the following options are currently under consideration: • Option A – “Partial Exemption”: 37% of total dividend income will be exempted and the remaining 63% will be taxed in the hands of the recipient as taxable gross income at rates from 5% to 40%. • Option B – “Dividend Tax Deduction or Separated Flat Tax”: Taxpayers have two choices under Option B. The taxpayer may either include the dividend income in his individual gross taxable income (entitled to a tax deduction of 8.5% of dividend income up to a ceiling of NTD 80,000) or have the dividend income taxed separately at a flat rate of 26%. The government expects to implement the tax reform from 2018 onwards so as to reduce tax compliance costs, mitigate tax dispute cases, balance public fiscal revenue, strengthen its investment environment and promote economic development. 30 | Asia Tax Bulletin MAYER BROWN JSM | 31 Thailand JURISDICTION: ” “ VAT rate unchanged On 15 August 2017, the reduced VAT rate of 7% was extended until 30 September 2018. Pursuant to section 80 of the Revenue Code, the statutory VAT is 10%. However, the VAT rate was reduced to 7% on 1 April 1999, with the effective period having been routinely extended since that date. Draft bill to tax e-commerce businesses A draft bill to tax international e-commerce transactions has been subject to public consultation. The key proposals of the legislation are: • A foreign company selling intangible goods or rendering services through electronic media to a person that is not registered for VAT in Thailand will be required to register for VAT, subject to the provisions in the Revenue Code. • The owner of a website or application through which a foreign company sells intangible goods or renders services will be treated as an agent of the foreign company for VAT purposes. • Importation of tangible goods worth less than THB 1,500 will no longer be exempt from VAT. • A foreign company operating an e-commerce business with a local domain in Thailand which receives payment in Thai baht, transfers money from Thailand, or meets other conditions prescribed by the Director General will be treated as having a permanent establishment (PE) in Thailand subject to corporate income tax. • Income from online advertising, providing space on a webpage and other income to be prescribed in a Ministerial Regulation derived by a foreign company operating an e-commerce business will be subject to withholding tax at the rate of 15%. Those who qualify for a Smart Visa will be exempt from having to obtain a work permit and will be permitted to live and work in Thailand for a period of 2-4 years . Smart Visa to be introduced in January 2018 Thailand’s Board of Investment of (BOI), Ministry of Labour, and Ministry of Foreign Affairs, are finalising the details for a Smart Visa, which will be made available to qualified applicants starting in January 2018. Those who qualify for a Smart Visa will be exempt from having to obtain a work permit and will be permitted to live and work in Thailand for a period of 2-4 years. Smart Visas will be available to highly skilled workers and technical experts such as physicians, aviation engineers, and other experts who will work in the Eastern Economic Corridor; investors who gain the BOI investment promotional privileges for specified industries (including nextgeneration automotive; smart electronics; affluent, medical and wellness tourism; agriculture and biotechnology; food for the future; robotics; aviation and logistics; biofuels and biochemicals; digital; and medical hub); and entrepreneurs undertaking start-ups. Until the details for Smart Visa have been finalised and announced in the Royal Thai Government Gazette, there may be further changes. 32 | Asia Tax Bulletin MAYER BROWN JSM | 33 Vietnam JURISDICTION: ” “ Transfer pricing circular published The Ministry of Finance published circular 41/2017/TTBTC (Circular 41) on 22 June 2017 to provide guidance on the Transfer Pricing Decree No. 20/2017/ND-CP (Decree 20), which was effective on 1 May 2017. Circular 41 seeks to clarify the following articles of Decree 20: • Article 6: comparability analysis and selection of independent comparables for the purpose of comparing and determining prices of related-party transactions; • Article 7: transfer pricing methods; • Article 10: rights and obligations of taxpayers in declaration and determination of transfer prices; and • Article 11: safe harbour for transfer pricing documentation. Of key importance are the additional guidance provided in Circular 41, as mentioned below: • Circular 41 provides the formula to compute the arm’s length range, which will be used to determine if an adjustment is required; • Circular 41 also provides further guidance on the application of the transfer pricing methods prescribed by Decree 20; • It is clarified that an ultimate parent company in Vietnam with global consolidated revenue of at least VND 18 trillion (stated as VND 18,000 billion in Decree 20) will have to prepare the country-by-country report (CbCR); • Where a taxpayer has multiple parent companies, the taxpayer must prepare the master file and CbCR for each shareholder that consolidates the financial statements of the taxpayer; • If the current year CbCR is not available by the submission deadline, the CbCR for the preceding year may be submitted; and • The safe harbour rule for documentation allows a taxpayer that achieves a ratio of net operating profit before interest and tax to revenue of at least 5% (for distribution sector), 10% (for manufacturing sector) or 15% (for toll manufacturing sector) to be exempted from preparing transfer pricing documents provided that other exemption criteria is met. It is clarified that a taxpayer with multiple businesses is allowed to use segmental results to determine the ratios. Where a taxpayer has multiple parent companies, the taxpayer must prepare the master file and CbCR for each shareholder that consolidates the financial statements of the taxpayer. Vietnam implements online portal for work permit applications Effective October 2, 2017, the Vietnamese Ministry of Labour – Invalids and Social Affairs (“MOLISA”) will implement an online portal for the electronic submission and management of work permit applications. Electronic submission will be optional, and employers will still able to submit paper applications at the labour department. Despite indications that the information submitted online will be kept confidential and will be periodically backed up, the portal is classified as “not secure.” MOLISA has also provided guidance on the timing of when applications should be filed, as well as processing times: Type of application Application submission deadline Processing time for adjudication Foreign Labour Demand (Job Position Approval) If submitted online, at least 20 business days prior to anticipated start date; if submitted in paper format, at least 30 business days 12 business days Renewal of Foreign Labour Demand (Job Position Approval) If submitted online, at least 10 business days prior to work authorisation expiration; if submitted in paper format, at least 30 business days 12 business days New Work Permit Application If submitted online, at least 7 business days prior to anticipated start date; if submitted in paper format, at least 15 business days 5 business days if submitted electronically. 7 business days if submitted in paper format Renewal of Work Permit Application At least 5 business days prior to expiration of current work permit and no more than 45 days prior 3 business days Work Permit Exemption If submitted online, least 5 business days prior to anticipated start date; if submitted in paper format, at least 7 business days 3 business days 34 | Asia Tax Bulletin MAYER BROWN JSM | 35 About Mayer Brown JSM Mayer Brown JSM is one of Asia’s largest and longest-standing law firms. 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