Macau Recent major tax developments in Macau Tax incentives for financial year 2013 The Legislative Assembly has approved certain tax incentives proposed by the Chief Executive of the Macau SAR in his Budget for the financial year 2013 on 13 December 2012. The key measures include the following: Similar to tax year 2011, the tax free income threshold for Macau complementary (corporate) tax will continue to be increased from MOP32,000 to MOP200,000 for income derived in tax year 2012. Taxable profits between MOP200,000 and MOP300,000 are taxed at 9%, and taxable profits over MOP300,000 are taxed at 12%. The tax free income threshold for Macau professional tax will continue to be increased from MOP95,000 to MOP144,000 for income derived in tax year 2013. Taxable income between MOP144,000 and MOP424,000 is taxed at progressive rates scale ranging from 7% to 11%. Taxable income above MOP424,000 is taxed at 12%. There is a 30% reduction in the Macau professional tax liabilities for income derived in tax year 2013. Together with the standard 25% deduction on the taxable income granted under the Macau Professional Tax Law, the effective tax rate for Macau professional tax is below 6.3%. The standard MOP3,500 reduction in the Macau property tax liabilities will continue to be available for assessments in tax year 2013 for both self-use and rental properties. Macau tourism tax will continue to be exempt for restaurants in tax year 2013. Macau stamp duty on insurance policies written or renewed in the tax year 2013 and for banking transactions in tax year 2013 will continue to be exempt. Macau stamp duty on admission tickets for performances, exhibitions, and entertainment programs will continue to be exempt in the tax year 2013. Macau industrial tax will continue to be fully exempt for tax year 2013. An adult, who holds a Macau permanent resident identity card and who does not own any properties other than a one carparking space, is eligible to enjoy an exemption on Macau stamp duty 48 Asia Pacific Tax Notes
levied on the purchase of a residential property for self-use purposes for the first MOP3,000,000 of the transfer consideration. The transfer consideration in excess of MOP3,000,000 will be subject to Macau stamp duty. The Macau stamp duty exemption has a three-year lock-in period, which means that unless the residential property purchased is transferred as part of a deceased estate, the purchaser will have to pay the Macau stamp duty that was originally exempt on the purchased property if this residential property is sold within three years after the grant date of the Macau stamp duty exemption. Licence fee for advertisements posted or placed in public areas, and the stamp duty thereon, will continue to be exempt in tax year 2013. Land rentals with amount below MOP100 shall not be collected by the Macau Finance Bureau in tax year 2013. However, any such amount already collected shall not be refunded. The above tax incentives have been proposed by the Chief Executive of the Macau SAR, Mr Fernando Chui Sai On, in his Budget for the Macau SAR. The overall goal of the tax incentives is to lessen the burden of small and medium sized enterprises and to improve the livelihood of the general public in Macau. While it is generally believed that the direction of the Macau Government policy would remain stable for the medium term (especially as gaming tax remains the major source of the Macau s public revenue), the extension of the above-listed tax incentives beyond the financial year 2013 is subject to annual review and will have to be approved by the Legislative Assembly on an annual basis. Amendment to the law on special stamp duty (SSD) and introduction of buyer stamp duty (BSD) On 24 October 2012, the Legislative Assembly approved an amendment to the scope of the law on SSD and introduced a BSD. The enactment of the legislation is intended to further curb speculation activities in the real estate market. The relevant legislation was gazetted on 29 October 2012 and became effective on 30 October 2012. After the amendment, the scope of the law on SSD is expanded to include not only residential properties, but also commercial properties, offices, and car-parking spaces. The transferor of any of these properties or properties under construction is subject to SSD of 20% on the value of the property if the property is resold within a year of its purchase. The SSD rate is reduced to 10% if the resale takes place between one and two years after the purchase. The SSD is also applicable to transfers of an 80% or more shareholding interest in a Macau company that has properties. In addition, a BSD has been introduced such that a company, an entrepreneur, or a non-macau resident acquiring a residential property in Macau will be subject to BSD at a flat rate of 10%, on top of the existing stamp duty and SSD, if applicable. Macau offshore companies and offshore financial institutions In addition to having very low corporate and individual tax rates, profits derived by approved offshore financial and non-financial institutions from prescribed offshore activities are exempt from all forms of taxes, such as complementary tax, annual industrial tax (currently exempt for all taxpayers), and stamp duties. The executives and/or staff at the supervisory level of the qualified institutions are exempt from professional tax for three years by application. Offshore financial institutions include: banks, insurance companies, reinsurance companies, trust management companies and fund management companies. For offshore non-financial institutions, there are eight permissible offshore activities: hardware consultant software consultant data processing database related activities back office activities research and development (R&D) activities tests and technical analysis activities, and management and administration of ships and aircraft. It might be worth exploring the possibility of setting up a Macau offshore institution (MOI) for companies in the relevant industries or, where it is commercially viable, for some of the above-listed back office and support functions to be relocated to Macau. Although trading is no longer a permissible offshore activity for a newly set up MOI, it may be possible to acquire an existing MOI with trading business scope ( trading MOI ), so that the new investor can inherit the tax exemption status of the trading MOI, subject to approval from the regulatory authority. Alternatively, consideration can be given as to whether a MOI (which has been approved to provide back office activities) can provide all the necessary services, such as procurement, quality control, marketing, and liaison services relating to trading transactions, to support another trading entity within the group, such that an arm s length service fee can be charged to the trading entity. The permanent Macau 49
establishment risk in other tax jurisdictions may be mitigated through the use of such a MOI, if appropriately structured. Consideration can also be given as to whether a MOI can be set up for hosting and maintaining servers for internet businesses in a way that the taxable presence exposure created by the physical presence of servers in other tax jurisdictions, if any, can be better managed. In addition to benefiting from the tax exemption status of a MOI, individual investors meeting certain minimum investment threshold may also apply for Macau residency status under the Macau investment migration scheme. Under the scheme, the applicant may apply for a Macau permanent residency card after maintaining the business in Macau for seven years. Hengqin-Macau cooperation On 6 March 2011, the Framework Agreement on Cooperation between the Province of Guangdong and the Macau SAR was signed. The Framework Agreement sets out the directions regarding a wide range of cooperation in the economic, social, welfare and cultural sectors, and helps promote the province of Guangdong and Macau to work together to develop the Hengqin Island and the Guangdong-Macau Cooperative Industrial Park. In July 2011, the PRC Government further announced the granting of preferential policies to the Hengqin Island that are more innovative than those given to any of the other special economic zones so far. Some of the tax incentives are specific to investors and residents from Hong Kong and Macau, which shows the Central Government s commitment to encourage cooperation between Hong Kong/Macau and the province of Guangdong. The preferential policies are designed to attract investors and skilled labour in the following industries: tourism, commercial services, financial services, cultural innovation, Chinese medicine and health care, scientific research, and hi-tech industries. The preferential tax and customs policies are shown in the following table. Taxes Customs duty Corporate income tax (CIT) Value-added tax (VAT) and Consumption tax (CT) Individual income tax (IIT) Preferential treatments Production-related commodities and equipment, except for commodities imported for commercial real estate projects, shipped from overseas to the Hengqin Island shall be kept under bonded status until they are moved to other areas of the PRC. When products manufactured in the Hengqin Island are sold and moved to other areas of the PRC, the importer can choose to report customs duty based on either the duty rate applicable to the imported raw materials or the duty rate applicable to the finished goods. Qualified enterprises shall be eligible for a reduced CIT rate of 15% on their taxable profits. Trading of commodities among enterprises in the Hengqin Island shall be exempt from VAT and CT. Production-related commodities sold and transported from the PRC to the Hengqin Island shall be treated as exports and eligible for export tax refund. Hong Kong and Macau residents working in the Hengqin Island shall receive an IIT rebate from the Guangdong Provincial Government so that their effective income tax burden will be the same as what they would pay if they were working in Hong Kong/ Macau. 50 Asia Pacific Tax Notes
In March 2013, China s National Development and Reform Commission approved the Catalogue for the Guidance of Industry Development in Hengqin New Area (Hengqin Catalogue), which sets out the industries and business sectors that are allowed to be invested and operated on the island. No. Category Number of business sectors Examples 1 Leisure and tourism 10 Cultural and leisure vacation services, conference tourism, souvenirs sales, luxury yacht, tourism agencies, festivals and events. 2 Logistics, commerce and business related services 36 Modern logistics operational centre, logistics related services and technology, express processing hubs, warehousing, advertisement, exhibition, HR agency and consulting services, distribution management, headquarters, construction and operation of high-end hotel, office and commercial centre and retailing. 3 Financial services 34 Bank and non-bank financial institutions, security houses, insurance companies, equity and securities investment funds and fund management, financial leasing and guarantee, development of financial products, consumer finance and small lending, trust and relevant information technology development. 4 Cultural innovation 24 Film and television production; production and publication of products in the area of cartoon animation, audio and video, advertisement, sports events and entertainment business, R&D of internet and multimedia businesses. 5 Pharmaceutical industry and healthcare 27 Healthcare consulting, development and production of new drugs, diagnostic reagents, R&D and production of new pharmaceutical packaging materials and diagnostic equipment, Chinese medicine R&D, testing and production. 6 Education and R&D 23 Education and training, development and application of information technology, internet technologies and other high/ new technologies. 7 New high technology 34 R&D, application and production of various software, information technology, environmental protection, marine-related, biological and new energy products. 8 Others 12 Public services, infrastructure engineering and ecological system. Foreign invested projects in Hengqin are still subject to the relevant industry restrictions for foreign investment as mentioned in the Catalogue for Foreign Investment. Investors from Macau should consider whether or not the Mainland and Macau Closer Economic Partnership Arrangement allows them to have more flexibility and advantages before investing in Hengqin. One of the major preferential tax incentive policies granted by the State Council to Hengqin is that qualified enterprises on the island will be eligible for a reduced CIT rate of 15%. The state government authorities will select a list of industries from the Hengqin Catalogue to form another catalogue for encouraged industries. Enterprises operating in any of the encouraged industries will be entitled to the 15% CIT rate. In addition to these preferential tax and customs policies, certain financial subsidies and support are also available at the local level to qualified private equity funds, fund management companies or regional headquarters companies under the respective circulars issued by the Zhuhai Government. Macau 51
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