The government recently introduced two new draft laws to increase financial leasing activities in Macau. The new regime will consist of:
- a financial leasing companies regime; and
- a tax benefit scheme for financial leasing.
Replacing legislation that has been in force for over 20 years(1) and considered a necessary condition for developing financial activity in Macau, the new legal regime will:
- reclassify financial leasing entities as 'non-depository institutions';
- make the supervision of these entities more flexible; and
- allow for the creation of special financial vehicles in Macau.
In addition to new tax incentives, the new laws intend to create the conditions for growth and specialisation in the financial sector, which currently contributes only 6.3% to the gross domestic product.
The new financial leasing companies regime was generally approved by the Legislative Assembly on 31 May 2018. The law proposes to redefine the legal framework that applies to financial leasing companies and repeals Decree-Law 51/93/M of 20 September 1993.
The purpose of redefining the legal framework is to:
- regulate the incorporation and transactions of financial leasing companies and their subsidiaries for financial leasing purposes (as defined in Article 1 of the draft law); and
- promote the stable development of financial leasing activity in Macau by attracting more companies from mainland China and abroad to develop their business activities in the region.
Key changes The draft law introduces the concept of 'subsidiaries for the purpose of financial leasing'(2) and permits its incorporation in Macau. It also defines 'financial leasing companies' and 'financial leasing subsidiaries' for financial leasing purposes:
- financial leasing companies are considered financial institutions and are no longer regarded as credit institutions – they remain subject to financial supervision, but less stringent supervision than that exercised over credit institutions; and
- financial leasing subsidiaries are also subject to financial supervision and include:
- financial institutions whose capital is wholly owned by banks; and
- financial leasing companies which are authorised to carry out business in Macau and whose sole purpose is to hold and manage specific financial leasing projects.(3)
General rental activities of a consumer nature (eg, short-term car rental services) are not considered financial leasing activities and companies which merely conduct general rental activities will not be granted a financial leasing company licence.
The draft law provides that financial leasing companies and financial leasing subsidiaries may conduct only the following activities:
- financial leasing;
- divesting and accepting assignments of leased assets;
- managing leased assets;
- selling and safeguarding leased assets;
- foreign exchange transactions, interest rate and currency swaps required for operating; and
- other transactions authorised by the Monetary Authority of Macau (AMCM).
As mentioned, financial leasing companies and financial leasing subsidiaries are no longer considered credit institutions, but mere financial institutions. They are therefore prohibited from receiving deposits or any other repayable funds from the public.
The incorporation of leasing companies in the region will require prior authorisation from the Macau chief executive, to be granted by an executive order, after consultation with the AMCM.
Financial leasing companies may be incorporated in the form of:
- public limited companies; or
- private limited companies.
Under the new regime, the minimum capital requirement of financial leasing companies is reduced from MPtc30 million to MPtc10 million. Further, the threshold for what constitutes an administrative body has been lowered (they may now comprise only a director).
Only banks and financial leasing companies that are authorised to carry out business in Macau can hold subsidiaries for financial leasing in the region. To establish a subsidiary, companies must send prior written notification to the AMCM.
However, certain general provisions governing financial institutions, provided for in the Legal Framework of the Financial System, continue to apply.
The draft law redefines the penalties which apply to financial leasing companies and subsidiaries. For example, the following fines will apply to administrative offenses subject to different treatment, depending on the level of seriousness of each infringement:
- MPtc10,000 to MPtc500,000 for infringing Article 4 (use of designation), Article 9(1) (compulsory special registration), Article 11 (deadline for submission of special registration), Articles 16(1) and 16(2) (remittance of accounting elements), Article 18 (amendment to the articles of association) or Articles 21(2) and 21(3) (notification to be made after the constitution of the subsidiaries for financial leasing);
- MPtc100,000 to MPtc2 million for infringing Article 3(2) (permitted operations), Article 12(1) (participation of qualified members), Article 14 (governing body), Article 15 (accounting and internal control), Article 17 (constitution of subsidiaries and participations in other companies) or Article 21(1) (prior notification on the constitution of subsidiaries for the purpose of financial leasing); and
- MPtc500,000 to MPtc5 million for infringing Article 5(4) (the unauthorised operations in Macau which are reserved for financial leasing companies).
After comparative studies of the support and incentive policies applied to financial leasing companies and their activities in the neighboring territories, the government deemed Law 1/94/ M of 23 May 1994 (tax incentives for financial leasing) to be outdated and insufficient to attract financial leasing companies to set up and develop their activities in the region.
In order to increase Macau's competitive capacity in the financial leasing market, a new tax benefit scheme which maintains the stamp duty exemption for incorporated companies and increases the share capital of financial leasing companies in Macau has been generally approved.
Key changes In addition to stamp duty exemption for incorporated companies and increasing the share capital of financial leasing companies, the draft law establishes that the first acquisition by the company of a property exclusively for its sole use (eg, headquarters) is exempt from the stamp duty applicable to goods transfers. The granted exemption lapses if said property is transferred or assigned to another purpose within five years of its acquisition.
The maximum rates of reintegration and amortisation of fixed assets under finance leases, which are considered as deductible tax costs, are increased from double to triple.
Provisions for doubtful debt receivables of companies carrying out leasing activities are accepted as costs attributable to the financial year and can be considered as deductible tax costs, and the respective maximum amounts may be raised to 10% of total receivables.
The 5% income tax rate applies to income obtained through financial leasing activities by financial leasing companies. Income obtained overseas is exempt from this tax only if it was recorded in a Macau company's accounting records.
At this early stage of the new financial leasing companies regime, there are currently only two financial leasing companies in Macau. However, the tax benefits set out in the tax benefit scheme for financial leasing aim to make Macau more attractive to financial leasing companies from mainland China and overseas.
While the new legislation has been generally approved in draft form, the final regime will likely reflect the proposed versions.
For further information on this topic please contact Pedro Cortés or Raquel Sofia Rocha at Rato, Ling, Lei & Cortés Advogados by telephone (+853 2856 2322) or email (email@example.com or firstname.lastname@example.org). The Rato, Ling, Lei & Cortés Advogados website can be accessed at www.lektou.com.
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