Asia Tax Bulletin - Spring 2025

Tariffs on US products

As a retaliatory measure against the 10% additional tariffs by the United States on Chinese products, China has imposed additional tariffs of 15% on eight types of coal and liquefied petroleum gas (LPG) products, and 10% on 72 other products such as raw oil, agricultural machinery, cars with high engine displacement and pick-up cars originated from the United States.

The tariffs will become effective from 10 February 2025 and were published by the Tariff Commission of the State Council in Announcement of CTC [2025] No.1.

United States Reviews Tax Treaty with the PRC

On 21 February 2025, the President of the United States signed the memorandum "America First Investment Policy". The memorandum aims to prevent investments from foreign adversaries, particularly from the PRC, and to restrict United States outbound investments in the PRC.

According to the document, foreign adversaries, including the PRC, systematically direct and facilitate investment in US companies and assets to acquire cutting-edge technologies and interests in strategic industries, thereby harming the economic and national security of the US.

Additionally, the document discourages US companies and individuals from investing in the PRC. To this effect, the US will review possible suspension or termination of the double tax treaty between the US and the PRC, as amended by the 1986 protocol, as well as assess the admission of the PRC to the World Trade Organization and the related commitment by the US to grant unconditional Most Favoured Nation treatment to Chinese goods and services.

The potential implementation of these measures could significantly impact global trade.

Tax residence certificates

China's State Administration of Taxation (STA) has issued Announcement [2025] No. 4 (the Announcement) concerning the Certificate of Tax Residency (the Certificate), providing key clarifications and adjustments as set out below.

The Certificate is available to enterprises or individuals that meet the criteria for Chinese tax residency.

Domestic and overseas branches of Chinese resident enterprises shall apply through their head office in China. Self-employed individuals and individual proprietorships shall apply through the tax authority where the place of business management is located.

Notably, for the first time, the STA has clarified the rules for issuing Certificates to domestic partnerships. Domestic partnerships shall apply for Certificates through a domestic partner. The relationship between the partner and the partnership must be indicated under the "Taxpayer's Name" section in the Certificate.

Applicants are now allowed to request Certificates for the purpose of "treaty benefits" or "non-treaty benefits". Further, the applicability of the "non-treaty benefits" category has been expanded, and it covers recent multiple scenarios that taxpayers have encountered overseas. Applicants shall bear all legal liabilities and risks that arise from any false reporting.

For cases where the tax authorities can determine tax residency independently, the processing time has been reduced from 10 to 7 working days. For cases where the tax authorities cannot determine tax residency independently, those cases will be submitted to the higher-level authority for determination and supplementary information may be requested from the applicant, if necessary. Further, the Announcement encourages an applicant to apply for Certificates entirely online via the electronic tax bureau.

The "Tax Identification Number" section is added and the requirement for the authorized person's signature has been removed. The Certificate now allows customized notes to be added, such as partnership-related information.

The new Announcement will take effect from 1 April 2025. The two previous tax circulars governing tax residency rules (Circular [2016] No. 40 and Circular [2019] No. 17) will be abolished accordingly.

Stamp duty exemption for contracts on Entrepot Trade

The Ministry of Finance and the State Taxation Administration have announced an extension of the stamp duty exemption for contracts related to offshore entrepot trade up to 31 December 2027, as outlined in Circular [2025] No. 10 (the Circular). Previously, this exemption applied only to the Shanghai Free Trade Zone and the Ling-Gang New Area, and was set to expired on 31 March 2025.

The updated exemption has been expanded to enterprises located in the following areas:

• Shanghai Free Trade Zone and the Ling-Gang New Area;
• Zhejiang Free Trade Zone;
• Suzhou section of Jiangsu Free Trade Zone;
• Xiamen section of Fujian Free Trade Zone;
• Qingdao section of Shandong Free Trade Zone;
• Guangdong Free Trade Zone; and
• Hainan Free Trade Port.

For the purposes of the Circular, offshore entrepot trade refers to transactions in which a resident enterprise purchases goods from a non-resident enterprise and resells the goods to another non-resident enterprise, without the goods entering China's customs area.

International tax developments

Italy. On 19 February 2025, the new tax treaty between the PRC and Italy entered into force. The treaty generally applies from 1 January 2026 for withholding and other taxes and replaces the previous tax treaty from 1986.

Budget 2025

On the 26th of February 2025, the Hong Kong government announced the following tax measures as part of its 2025/26 Budget Proposals:

• review of the relevant tax deduction arrangements for IPR-related expenditures, including the lump sum licensing fees for acquiring the rights to use IP, and related expenses incurred on the purchase of IPR or the rights to use IPR from associates, so as to accelerate the development of IP-intensive industries and promote the development of IPR trading in Hong Kong; 
• proposals on tax incentives for funds, single family offices and carried interest, including expanding the scope of "fund" under the tax exemption regime, increasing the types of qualifying transactions eligible for tax concessions for funds and single-family offices, and enhancing the tax concession arrangement on the distribution of carried interest by private equity funds; 
• tax deduction for ship acquisition costs of ship lessors under an operating lease; 
• half-rate tax concessions for eligible commodity traders; 
• tax exemption for green methanol used for ship bunkering; 
• conducting preparatory work to allow the stamp duty payable on transfers of stocks at Renminbi (RMB) trading counters to be paid in RMB, with a view to putting forward a legislative proposal next year. 

Principal Purpose Test under tax treaties

On 21 January 2025, the Central Board of Direct Taxes (CBDT) issued Circular 1/2025 clarifying that the principal purpose test (PPT) under India's tax treaties applies prospectively and any grandfathering provisions under specific treaties are outside the scope of PPT. 

Circular 1/2025 clarifies that:

• the PPT provision applies prospectively. The effective date is based on whether PPT has been incorporated in the relevant treaty through a bilateral process or through the Multilateral Convention to Implement Tax Treaty Related Provisions to Prevent Base Erosion and Profit Shifting (MLI);
• grandfathering provisions under specific treaties (viz. treaties with Cyprus, Mauritius, Singapore) will remain outside the purview of the PPT provision;
• application of the PPT provision is expected to be a context-specific fact-based exercise, to be carried out on a case-by-case basis, and keeping in view the objective facts and findings; and
• tax authorities can refer to BEPS Action Plan 6 Final Report as well as specific commentaries (article 1 of the UN Model (2021) and article 29 of the UN Model (2021)). These references can serve as additional or supplementary sources of guidance while deciding on the invocation and application of the PPT provision, subject to India's reservations. 

Courtesy Vaish Associates it was reported that the Delhi bench of Tribunal, recently in the case of S.C. Lowy P.I. (Lux) S.A.R.L. v. ACIT , analysed the principal purpose test (‘PPT’) while deciding on the allowability of benefits under the India-Luxembourg tax treaty.

The taxpayer, a limited liability company incorporated in Luxembourg in the year 2015 was a wholly owned subsidiary (‘WOS’) of an investment company registered in the Cayman Islands, the ultimate holding entity was an offshore fund registered in the Cayman Islands. The taxpayer was registered with SEBI as a Category II – Foreign Portfolio Investor in India.

During the assessment proceedings, the Indian tax authorities have denied the benefit of IndiaLuxembourg tax treaty to the taxpayer holding that the taxpayer (a) was not the beneficial owner of the income (b) was merely a pass through/ conduit entity (c) did not have any commercial rationale/substance in Luxembourg and (d) entire scheme of arrangement was for the purposes of tax avoidance through treaty shopping. 

The Delhi bench of Tribunal, relying on the High Court ruling in case of Tiger Global, held that the taxpayer holding a valid TRC of Luxembourg would be entitled to the benefit of India-Luxembourg tax treaty, observing as under:

• Taxpayer was incorporated in the year 2015 and had made substantial investments not only in India but in various countries across the world;
• the taxpayer regularly filed income tax returns in Luxembourg and offered to tax worldwide income therein;
• the taxpayer exercised independent control over its investments and income earned therefrom;
• taxpayer continues to exist till date in Luxembourg and continues to hold substantial investments;
• taxpayer has incurred substantial operational expenditure vis., consulting fees, legal and litigation fees, other professional fees etc. in Luxembourg;

With regard to the PPT clause introduced Article 29 of the tax treaty by MLI, the Tribunal observed that the tax authorities did not bring on record any cogent material to prove that obtaining treaty benefit was one of the principal purposes of the taxpayer. Hence the taxpayer is entitled to the treaty benefit. 

The decision of the Tribunal is landmark since it is the first precedent, wherein the Tribunal dealt with the principal purpose test enunciated in the MLI introduced in any tax treaty. With regard to the PPT introduced by the MLI, Tribunal held that the onus is on the tax authorities to prove the obtaining treaty benefit was one of the principal purpose of the taxpayer for entering into any arrangement.

The Tribunal negating the contention raised by the Revenue regarding PPT emphasised that where the taxpayer is a tax resident of any jurisdiction having a commercial rationale/substantial presence in that jurisdiction, it would be entitled to claim the treaty benefit. It is not open for tax authorities to recharacterize the nature of any income, unless it is proved that the arrangement entered into by the taxpayer is a sham.

The Central Board of Direct Taxes (CBDT) has issued a press release on 15 March 2025 to clarify that Circular No. 1/2025 (the Circular) on the application of the principal purpose test (PPT) provision under India's tax treaties is not intended to interfere with other provisions of the domestic law or other anti-avoidance rules or judicial interpretations. 

The press release further clarifies that the Circular:

• provides guidance on the application of the PPT provision under India's tax treaties and applies only to those treaties where a PPT provision exists;
• is not intended to interfere or interact with other provisions of Indian tax treaties that may be invoked to examine the entitlement or denial of treaty benefits, other than the PPT; and
• is not intended to interfere with anti-abuse rules under Income-tax Act, 1961 (the Act), such as general anti-abuse rules (GAAR), special anti-abuse rules (SAAR), and judicial anti-abuse rules (JAAR), of which will continue to operate independently. 

New Income Tax Act

The Union Finance Minister presented The Income Tax Bill, 2025 (the Bill) to the lower house of the parliament on 13 February 2025. The Bill is expected to come into force from 1 April 2026 and will replace the existing Income Tax Act, 1961 (the existing Act). 

The Bill aims to simplify the language and structure of the existing Act by enhancing readability, addition of tables and formulae, removing redundant and repetitive provisions and reorganizing the sections logically. The existing principles of taxation are preserved in the Bill without any major tax policy changes or modifications to tax rates.

Budget 2025 tax changes

Courtesy Majmudar, India’s Union Budget (the “Budget”) was announced on February 1, 2025, and the Finance Bill, 2025 (the “Finance Bill”) was tabled in Parliament. 
International Financial Services Centre (“IFSC”)

IFSC is a jurisdiction that provides financial services to non-residents and residents, to the extent permissible under the current regulations, in any currency except the Indian Rupee. The IT Act has, over the past few years, provided several tax concessions to IFSC units.

Currently, any income that is accruing, arising or has been received by a non-resident as a result of (i) the transfer of; or (ii) distributions from, non-deliverable forward contracts, offshore derivative instruments, or over-the-counter derivatives (“Specified Derivatives”) entered into with a banking unit set up in IFSC, is tax exempt.

The Finance Bill proposes to extend the foregoing tax exemption to the income earned by a non-resident in relation to specified derivatives entered into with foreign portfolio investors set up in IFSC. This amendment will take effect from April 1, 2025.

The foregoing changes are intended to promote the set-up of foreign portfolio investors in the IFSC.

In addition, in order to incentivize operations from IFSC, the Finance Bill has proposed the following amendments with effect from 1 April 2025:

• Sunset dates: The sunset dates for tax concessions related to the commencement of operations of IFSC units and the relocation of funds to IFSC under various provisions, have been extended to March 31, 2030.
• Tax on life insurance proceeds: Section 10(10D) of the IT Act currently provides tax exemptions on life insurance proceeds, including the proceeds from IFSC insurance offices, subject to certain premium limits. The exemption is not available if the annual premium exceeds INR250,000 (Indian Rupees Two Hundred and Fifty Thousand) for unit-linked policies or INR500,000 (Indian Rupees Five Hundred Thousand) for other life insurance policies. The proposed amendment aims to provide better treatment to non-residents by removing the premium limit for life insurance policies issued by IFSC insurance offices. This will ensure that life insurance proceeds from such policies are exempt from tax regardless of the premium amount.
• Ship leasing: The tax exemptions for aircraft leasing units in IFSC on capital gains and dividends have been extended to ship leasing units in IFSC.
• Dividends for treasury centres: Currently, any loan or advance given by a company (in which the public is not interested) to a shareholder holding 10% or more voting power or to any business in which such a shareholder has a substantial interest, is treated as “deemed dividend” to the extent of the company’s accumulated profits. Concerns were raised that corporate treasury centres in IFSC could unintentionally fall under this provision when borrowing from their group entities. A treasury centre of an entity or a group entity enables it to centralise and concentrate cash and risk management to gain economies of scale, process efficiencies, and ensure tighter control of cash flow in the group entity. The establishment of a treasury centre in the IFSC allows corporations to manage their global treasury operations such as foreign exchange and risk management, asset management, and advisory related to mergers and acquisitions, etc. To address the issue mentioned above, the amendment excludes loans or advances between two (2) group entities from being treated as deemed dividends if one (1) group entity is a finance company or finance unit in an IFSC set up as a global or regional treasury centre. This exemption applies only if the parent or principal entity of the group entity is listed on a foreign stock exchange, except in restricted jurisdictions specified by the tax authorities.
• Simplification for IFSC fund managers: Currently, fund management activity that is carried out through an eligible fund manager acting on behalf of an eligible investment fund shall not constitute a business connection in India, subject, inter alia,to the fulfilment of the condition that the aggregate participation or investment in the eligible investment fund, directly or indirectly, by persons resident in India does not exceed 5% of the corpus of the fund. Representations have been made highlighting the need to provide a simplified regime for IFSC based fund managers managing funds situated in other jurisdictions so that fund managers in IFSC are at par with the fund management entities in competing foreign jurisdictions. The Finance Bill has proposed amendments seeking to rationalize the foregoing condition, by providing a four (4)-month window to fulfil the condition, if the aggregate participation or investment exceeds 5% of the corpus of the fund on April 1 and October 1 each year. The Finance Bill provides that the foregoing condition will not be modified for any eligible fund and other conditions can be relaxed for funds whose managers in IFSC begin operations by March 31, 2030.
• Expansion of relocation regime: Currently, the relocation of funds to a “resultant fund” (i.e., alternative investment funds in IFSC) is exempt from capital gains tax. The Finance Bill has proposed to extend the tax exemption to the relocation of original funds to retail schemes and exchange traded funds (“ETFs”) in the IFSC. The amendment will expand the definition of “resultant fund” to include retail schemes and ETFs that are regulated under the IFSC Authority Act, 2019. The transfer of the assets of a fund (that is the original fund) or of its wholly owned overseas special purpose vehicle, subject to certain conditions, to a resultant fund in India is called “relocation.” Further, a “resultant fund” means a fund established or incorporated in India to which the assets of the original fund are transferred, subject to certain conditions. The amendment (as explained above) will encourage retails schemes or ETFs to relocate to the IFSC.

Presumptive taxation scheme for non-residents engaged in providing services for electronics manufacturing

The Finance Bill has proposed to introduce a presumptive tax regime at the rate of 25% for non-residents who are engaged in the business of providing services or technology to an Indian resident company engaged in electronic manufacturing. The presumptive tax rate of 25% will apply on the aggregate amount received or paid to the non-resident by the Indian resident company. This amendment will take effect from April 1, 2025.

Prior to the proposed amendment, a non-resident or a foreign company was liable to tax as business income on the profits from the foregoing activity at the applicable rates as there was no separate scheme for presumptive taxation for the said activity.

The motive of the amendment is to bring tax certainty to specified businesses. It reduces compliance costs and promotes ease of doing business. In our view, the foregoing change is a welcome initiative as it will position India as the global hub for electronics system design and manufacturing.

Harmonisation of significant economic presence and its applicability with business connection

Section 9 of the IT Act is a special deeming provision that provides specific circumstances under which a non-resident’s income is deemed to accrue or arise in India. Section 9 contains the concept of “business connection” which stipulates that income earned by a non-resident through or from a business connection in India will be deemed to accrue or arise in India and will therefore be taxable in India.

Section 9 further provides what constitutes business connection and what is carved out from its meaning. One of the carve outs states that a non-resident shall not constitute business connection in India if the operations of the non-resident are limited to the purchase of goods in India for the purpose of exporting (“Export Carve-out”)

The concept of Significant Economic Presence (“SEP”) was brought in through the Finance Act, 2018 that inter-alia, includes within its ambit transaction in respect of any goods, services, or property carried out by a non-resident with any person in India, including the download of data or software in India, if the total payments from such transactions during the previous year exceed a prescribed amount. In case where a non-resident has SEP in India, such SEP shall constitute ‘business connection’ in India. Given that the scope of SEP is broad, it could inadvertently negate the Export Carve-out, creating a contradiction.

To harmonize the provisions and maintain consistency, the Finance Bill has proposed an amendment to the definition of SEP. The amendment clarifies that the transactions or activities of a non-resident in India, which are confined to the purchase of goods in India for export, will not be considered as creating an SEP in India. This will align the provision with the existing Export Carve-out, ensuring that such transactions remain outside the scope of Indian taxation. This amendment will take effect from April 1, 2025.

This is a welcome clarification as the Finance Bill has proposed to correct the anomaly. Going forward, transactions or activities of a non-resident in India that are confined to the purchase of goods in India for export purposes shall not constitute either a business connection or a significant economic presence of such non-resident in India.

Definition of “capital asset” amended for investment funds

Indian tax law defines the term “capital asset” to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets. Further, securities held by a foreign institutional investor in accordance with the Securities and Exchange Board of India regulations are also treated as capital assets. However, there was uncertainty with respect to the treatment of investment funds as capital assets.

An “investment fund” means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 or regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

The Finance Bill has proposed that securities held by investment funds that are regulated by the Securities and Exchange Board of India Act, 1992 will be treated as capital assets and any income arising from the transfer of such securities will be considered capital gain. This amendment will take effect from April 1, 2025.

This is a helpful clarification. As a consequence of the amendment categorizing securities held by investment fund as a capital asset, the transfer of such securities shall be taxed as capital gains. Consequently, based on the FAQ issued by the Indian government on February 1, 2025 the income shall be a pass-through to be taxed in the hands of unit holder and not the investment fund.

Taxation of capital gains on transfer of capital assets by non-residents

The Finance (No, 2) Act, 2024 made substantial changes to the capital gains tax regime in India. The tax rate on long term capital gains arising from the transfer of equity shares made on or after July 23, 2024 was changed to 12.5% (plus applicable surcharge and cess), irrespective of whether the transferor is a resident or non-resident.

The tax rates for foreign portfolio investors are provided in section 115AD of the IT Act. While Finance (No, 2) Act, 2024 amended section 115AD of the IT Act to provide that long term capital gains arising on transfer of listed equity shares will be taxable at 12.5% (plus applicable surcharge and cess), long term capital gains arising on all other assets continued to be taxed at rate of 10%. This anomaly is proposed to be corrected by the Finance Bill. Going forward, any long-term capital gains arising to foreign portfolio investors will be subject to tax at 12.5% (plus applicable surcharge and cess). The amendments will take effect from April 1, 2025

Carry forward of losses in case of amalgamation

Section 72A of the IT Act provides for the carry-forward and set-off of accumulated losses and unabsorbed depreciation allowance, in case of amalgamation, demerger, business reorganisation, etc. Section 72A(1) of the IT Act provides that the accumulated losses and unabsorbed depreciation of the amalgamating company are to be deemed the loss or the unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected. Similar provisions have been provided for business reorganisations by which a company succeeds a firm or a proprietary concern or business reorganisations by which a limited liability partnership succeeds a private company or unlimited public company.

Typically, business losses cannot be carried forward for more than eight financial years from the financial year in which the loss was first computed. In case of amalgamations, the loss of predecessor entity gets a fresh life in the hands of the successor entity and therefore, provides the opportunity for the evergreening of losses of the predecessor entity. The Finance Bill proposes to end the foregoing issue by amending section 72A of the IT Act to limit the carry forward and set off of accumulated loss to eight (8) financial years from the immediately succeeding financial year for which such loss was first computed for the original predecessor entity. Note that the carry forward of losses in amalgamations is only allowed in cases like amalgamation of company owning an industrial undertaking or ship or hotel with another company. The amended provision will apply to amalgamation or business reorganisation effected on or after April 1, 2025.

The proposed amendment is likely to impact carry forward of losses in cases of conversion of firm/ proprietary concern into company or conversion of a private company/ unlisted public company into a limited liability partnership in a tax neutral manner. In cases where such conversions are not undertaken in a tax neutral manner (i.e., without fulfilling conditions under section 47 of the IT Act), carry forward of losses is not permitted under the IT Act. The proposed amendment is likely to have an impact on the amalgamation schemes pending approval from the court. Importantly, for mergers, the amended provision will apply from the effective date i.e., date of approval from court irrespective of the appointed date in the scheme. A clarification on this aspect will be helpful for the taxpayers.

Tax Collected at Source (TCS) 

Section 206C(1H) of the IT Act requires sellers to collect 0.1% tax on sales of goods exceeding INR5,000,000 (Indian Rupees Five Million), while section 194Q of the IT Act mandates buyers to deduct the same tax on payments to sellers for goods above INR5,000,000 (Indian Rupees Five Million). This creates confusion as both the tax collected at source (“TCS”) by the seller and tax deducted at source (“TDS”) by the buyer apply to the same transaction. To ease the compliance burden, the Finance Bill has proposed that with effect from April 1, 2025, TCS under section 206C(1H) will no longer apply if TDS has already been deducted under section 194Q of the IT Act.

This amendment brings in clarity to avoid dual taxation of the same income.

Cryptocurrency assets

The Finance Act, 2022 introduced taxation of virtual digital assets (“VDAs”) under section 115BBH of the IT Act, imposing a 30% tax on VDA transfers with no deductions except for the cost of acquisition. It also includes a 1% tax deduction on VDA transactions under section 194S of the IT Act. However, there were no reporting requirements prescribed for VDA under the IT Act. The Finance Bill proposes to introduce obligations on “reporting entities” to furnish information on transactions of crypto assets. A clarification will be provided by the Indian government with respect to the persons covered within reporting entities and the nature and manner of maintenance of information by the reporting entities.
The proposed amendment is geared towards intermediaries like cryptocurrency exchanges which are likely to be included within the ambit of “reporting entities.” The rules will also clarify the intricacies of the due diligence to be carried out by the reporting entities for purpose of identification of any cryptocurrency-user or owner. This is likely to increase the compliance burden on the reporting entities and they will have to develop infrastructure to ensure that data is collected properly for reporting to the government. This amendment will take effect from April 1, 2025.

Arm’s length price

Transfer pricing provisions under the IT Act require income arising from international transactions or specified domestic transactions (“SDTs”) between associated enterprises to be computed on an arm’s length price (“ALP”) basis. The IT Act provides methods for determining the ALP in such transactions. The assessment proceedings of such taxpayers involve the Tax Assessing Officer (“TAO”) referring the determination of the ALP be determined by the Transfer Pricing Officer (“TPO”). After the TPO determines the ALP, the TAO adjusts the taxpayer’s total income in accordance with the TPO’s order. Typically, entities engage in similar international transactions or SDTs on a yearly basis. Consequently, the process of referring these transactions to the TPO for ALP determination is repeated annually.

Given the complexity and administrative burden of this process, the Finance Bill has proposed to introduce section 92CA(3B), providing an option to taxpayers to apply the same ALP to “similar international transactions or SDTs” for a block of three (3) years. Under the amendment, the taxpayers must file a prescribed form within the specified timeframe to exercise the foregoing option. The TPO will assess the validity of the option and issue an appropriate order within one (1) month of its exercise, determining whether the transactions are similar and valid. Once confirmed, the ALP determined for an international transaction or SDT in the given year will be applied by the TAO to similar transactions or SDTs for the two (2) consecutive years immediately following that year.

The Lower House of Parliament (Lok Sabha) passed the Finance Bill 2025 on 25 March 2025 with significant amendments to the original proposals. These amendments include a proposal to abolish the 6% equalization levy applicable on payments to non-residents in respect of online advertisement services, effective from 1 April 2025 (the 2% equalization levy on e-commerce supplies was removed from 1 August 2024). 

Further, for the purpose of determining whether an eligible investment fund does not constitute a business connection in India, only direct participation by Indian investors up to 5% will be considered, and any indirect participation will be disregarded. 

The Bill proposes amendments to clarify the computation of "undisclosed income" under block assessment. It also proposes to clarify that where income is taxed under the new presumptive taxation regime for non-residents providing services or technology for electronics manufacturing facilities in India at 25% of the revenue, any royalties or fees for technical services offered under this regime will not be taxed under section 115A of the Income Tax Act, 1961 (the Act) and expenses incurred for earning such income will also not be disallowed under section 44DA of the Act. 

The Bill also proposes to amend certain provisions applicable to units in the International Financial Services Centre (IFSC) as follows: 

• expansion of the definition of "capital assets" to include any securities held by (i) a Foreign Institutional Investor (FII) in accordance with the Securities and Exchange Board of India (SEBI) regulations or (ii) an investment fund in accordance with SEBI regulations or under the International Financial Services Centres Authority Act, 2019; and 
• clarification of provisions related to IFSC compliance and tax exemptions.

Global minimum tax (Pillar 2)

The Minister of Finance (MoF) has issued MoF Regulation No. 136 of 2024 (PMK-136/2024) to implement the Global Anti Base Erosion (GloBE) rules in Indonesia with effect from 1 January 2025.

Pursuant to PMK-136/2024, a minimum tax of 15% will apply to the Constituent Entities of a multinational enterprise group with annual gross turnover of at least EUR 750 million in the consolidated financial statements of the Ultimate Parent Entity in at least 2 of the 4 tax years preceding the tax year in which the global minimum tax is imposed.

PMK-136/2024 provides the guidelines on, among others, the scope of application of the GloBE rules, determination of effective tax rate, substance based income exclusion, de minimis provisions, determination of top-up tax under the income inclusion rule (IIR), undertaxed profits rule (UTPR) and domestic minimum top-up tax, adjustments to determine global minimum tax profit or loss, adjusted covered tax calculations and safe harbour provisions. The administrative provisions include details of filing of returns and payment of the top-up tax.

PMK-136/2024 was promulgated on 31 December 2024 and came into effect from 1 January 2025. The provisions on UTPR will only come into effect on 1 January 2026.

VAT rate

Indonesia announced in December 2024 that Value Added Tax (“VAT”) would increase from 11% to 12% on January 1, 2025, as a follow-up of Law No. 7 of 2021 regarding the Harmonization of Taxation Regulations. Accordingly, on December 31, 2024, the Minister of Finance issue Regulation No. 131 of 2024 regarding the Treatment of Value-Added Tax on Imports of Taxable Goods, Delivery of Taxable Goods, Delivery of Taxable Services, and the Utilization of Non-Tangible Taxable Goods From Outside the Customs Area in the Customs Area, and the Utilization of Taxable Services From Outside the Customs Area in the Customs Area (“MOF Reg. 131/2024”). This regulation took effect on January 1, 2025, and raises the VAT for luxury goods from 11% to 12%.

This was followed by the issuance of Directorate General of Tax Regulation No. PER-1/PJ/2025 of 2025 regarding Technical Instructions for Making Tax Invoices in the Framework of Implementing MOF Reg. 131/2024, dated January 3, 2025 (“DGT Reg. 1/2025”).

MOF Reg. 131/2024 generally regulates the application of the 12% VAT, while DGT Reg. 1/2025 regulates the transitional guidelines related to the issuance of VAT invoices.

Indonesia’s Finance Minister, Sri Mulyani, has emphasized that the 12% VAT rate will only apply to motor vehicles and other luxury goods subject to Indonesia’s luxury goods sales tax (Pajak Penjualan atas Barang Mewah or “PPnBM”). She further said that the VAT on all goods and services that are currently taxed at 11% would remain unchanged, highlighting the stability of tax rates for items that are not classified as luxury goods.

Withholding tax on insurance premiums

Courtesy AKSET Law it was reported that on October 18, 2024, the Minister of Finance (the “MOF”) issued Regulation No. 81 of 2024 on Tax Provisions for the Implementation of the Core Tax Administration System (the “Regulation”). The Regulation is an omnibus regulation that consolidates and updates various tax rules to enhance the new Core Tax Administration System. Its objective is to modernize the tax administration by ensuring transparency, efficiency, and accountability through advanced IT systems, improved business processes, and comprehensive databases.

In this item we wish to outline the provisions regarding the withholding taxes applicable to insurance and reinsurance premiums paid to foreign insurance companies as stipulated in the Regulation. These provisions were previously regulated under MOF Decree No. 624/KMK.04/1994 dated December 27, 1994 on Withholding of Article 26 Income Tax on Income in the Form of Insurance Premiums and Reinsurance Premiums Paid to Overseas Insurance Companies (the “Decree”). The Decree is revoked and replaced entirely by the Regulation.

One of the primary features retained in the Regulation is the 20% withholding tax rate applied to the estimated net income from insurance and reinsurance premiums paid to overseas insurance companies. This consistency ensures that businesses familiar with the Decree may continue their compliance efforts without needing to adjust to a new tax rate.

The method for calculating the estimated net income remains unchanged. Specifically, the Regulation stipulates that the “estimated net income”, which serves as the basis for withholding taxes shall be calculated as follows: (i) 50% of the premium paid by the insured to an overseas insurance company, (ii) 10% of the premium paid by an Indonesian insurance company to an overseas insurer, and (iii) 5% of the premium paid by an Indonesian reinsurance company to an overseas insurer.

A modification introduced by the Regulation is the extension of the tax payment deadline. Under the Decree, taxpayers were required to remit the withheld tax within 10 days after the end of the month in which the premium was paid. The Regulation extends this period to 15 days after the end of the month in which the premium is paid.

Another change in the Regulation is the documentation requirements for withholding taxes. Previously, the Decree required the issuance of three copies of the withholding tax receipt: one for the payee, one to be attached to the Monthly Income Tax Return, and one for the withholding agent’s records. Now, the Regulation simplifies this process by eliminating the specific requirement. This change reduces the administrative burden on businesses and streamlines compliance process, making it easier for companies to fulfill their tax obligations with less paperwork.

The Regulation introduces a more streamlined reporting process. The regulation adopts the Unified Income Tax Monthly Return Form, which replaces the previously used Income Tax Monthly Return Form (SPT Masa PPh 26) under the Decree.  This unified form integrates various reporting requirements into a single, cohesive document, enhancing efficiency and reducing the likelihood of errors in tax filings. By consolidating reporting procedures, the Regulation aims at facilitating a more integrated and centralized approach to tax administration, benefiting both taxpayers and regulatory authorities.

Automatic Exchange of Financial Account Information

On 24 January 2025, the Indonesian Directorate General of Taxes published updated lists of participating and reportable jurisdictions for the purpose of the automatic exchange of financial account information under the CRS MCAA in 2025.

The update consists of the following changes:

• the Bahamas, Trinidad and Tobago and Uganda have been added to the list of participating jurisdictions; 
• Armenia, Aruba, Belize, Bulgaria, Costa Rica, Moldova and Qatar have been added to the list of reportable jurisdictions, and 
• Antigua and Barbuda has been removed from the list of reportable jurisdictions. 
  
   

2025 Tax Reform Bill

Courtesy IBFD it was reported that the Japanese Cabinet has submitted the 2025 tax reform bill to the Diet. The bill covers various tax areas, and includes the following items related to corporate tax and international taxation: 

• incorporating additional OECD guidance into Japan's global minimum tax primary rules (i.e. income inclusion rule or IIR), including new rules for the treatment and calculation of deferred taxes for global minimum tax purposes; 
• introducing the backstop rule of the global minimum tax (i.e. undertaxed profit rule or UTPR) and the Domestic Minimum Top-up Tax (QDMTT), effective from April 2026; and 
• replacing the current simplified VAT exemption procedures for foreign tourists with a standard refund procedure, requiring customs to confirm that goods purchased by foreign tourists have been taken out of Japan, effective from November 2026. 

Tax law amendments approved

The Strategy and Finance Committee of the Korean National Assembly has recently approved seven tax law amendment bills regarding the Restriction of Special Taxation Act, Corporate Income Tax Act, Inheritance and Gift Tax Act, Comprehensive Real Estate Tax Act, Value Added Tax Act, National Tax Basic Act and Customs Act. 

Restriction of Special Taxation Act

• The scope of national strategic technology will be expanded to include "artificial intelligence and future transportation vehicles". 
• Increases in the tax credit rate for national strategic technology semiconductor investments as follows: (i) from 15% to 20% for mid-sized and large companies; and (ii) from 25% to 30% for small or medium-sized companies. 
• Investments in research and development (R&D) facilities will be eligible for the same tax credit rates as investments in commercialization facilities. 
• Extension of the application period of tax credits for (i) national strategic technology and new growth/ original technology R&D expenses; and (ii) investments in national strategic technology, for 2 years until 31 December 2029 (the application period of tax credits for national strategic technology semiconductor R&D expenses is proposed to be extended for 4 years until 31 December 2031). 
• The temporary integrated investment tax credits for mid-sized companies and small or medium-sized companies will continue to be available for investments made in 2024 (investments whose tax base is reported on or after 1 January 2025 for the first time) and investments made in 2025 (investments made in tax years commencing on or after 1 January 2025). As a result, the base tax credit for current period investment will be at the following rates:
  • general technology: 7% for mid-sized companies and 12% for small or medium-sized companies; and 
  • new growth/original technology: 8% for mid-sized companies and 14% for small and medium-sized companies.

Value Added Tax Act

Foreign platforms (non-resident individuals and foreign corporations) will be required to submit information regarding the facilitation/brokerage of sales or payment for goods/services supplied by Korean businesses (e.g. foreign payment gateway service providers and electronic financial business operators). 

National Tax Basic Act

An enforcement fine is introduced for failure to comply with the tax authority's request for information during tax audits (not exceeding 0.3% of the taxpayer's daily average revenue, and if it is difficult to calculate the relevant amount, the amount should not exceed KRW 5,000,000 per day). 

The amendment bills were approved on 18 February 2025.

Reform of the inheritance tax system

The Korean Ministry of Economy and Finance (MoEF) recently announced the government's proposal to shift to a recipient-based inheritance tax system, to ensure tax fairness and align with global practices. This change will also harmonize Korea's inheritance tax system with the existing gift tax system which is currently recipient based. 

According to the MoEF, Korea intends to pass the amendment bill through the National Assembly in 2025 and implement the new inheritance tax system effective from 2028. While the details of the amendment are still under discussion, the move represents a significant shift toward tax equity in Korea. 

While most countries around the world levy recipient-based inheritance taxes, Korea is one of the few countries that levy inheritance taxes based on the overall estates of deceased donors. 

The inheritance tax system in Korea has received much attention in recent years due to its unique approach, as the amount of inheritance payable by beneficiaries is determined based on the total value of deceased donors' estate, rather than the specific portion received by each beneficiary. This often leads to higher tax rates compared to the actual value of the estate inherited by each beneficiary. Further developments will be reported in due course.

Singapore/Johor Special Economic Zone

The governments of Malaysia and Singapore exchanged the agreement for the establishment of the Johor-Singapore Special Economic Zone (“JS-SEZ”) on 7 January 2025. The JS-SEZ is a special economic zone to promote and support investment and free-up movement of goods and people between Malaysia and Singapore. It encompasses an area of 3,505 sq. km., is located in the state of Johor, the southernmost state of Peninsular Malaysia which is separated from Singapore by the Straits of Johor but is linked to the latter by rail and road connections via a causeway and a bridge.

The JS-SEZ is not intended solely to attract investments from Singapore. Both governments have expressed a commitment to work together to attract new investment projects globally, with the initial aim of establishing 50 high-value investments and creating 20,000 skilled jobs in the JS-SEZ within five years of its inception. It was also reported that the JS-SEZ will include a passport-free immigration system and improved passenger rail lines between Johor and Singapore.

Targeted sectors of the JS-SEZ include manufacturing, logistics, digital industry, healthcare and education. Further, aerospace, medical devices, electrical and electronics, chemicals and pharmaceuticals have been identified as new priority sectors.

The JS-SEZ will have nine flagship zones, namely Johor Baru City Centre, Iskandar Puteri, Tanjung Pelepas-Tanjung Bin, Pasir Gudang, Senai-Skudai, Sedenak, Forest City, Pengerang Integrated Petroleum Complex (PIPC) and Desaru.

The activities earmarked for each of the nine flagship zones are as follows:

Malaysia will set-up and manage an infrastructure fund to support companies seeking to establish a presence in the JS-SEZ whilst Singapore will create a fund to facilitate investments and support for Singaporean companies seeking to expand their operation into the JS-SEZ and the potential twinning operations of multi-national companies in Singapore and the JS-SEZ. Malaysia will also set up a one-stop centre to facilitate investments called the Invest Malaysia Facilitation Centre - Johor (IMFC-J). 

Courtesy Skrine & Co it was reported that the Johor Investment, Trade, Consumer Affairs and Human Resources Committee Chairman, Lee Ting Han informed reporters on the sidelines of an event on 14 January 2025 that “Investors that fund more than RM1 bil in the JS-SEZ will be offered a corporate tax rate of 5% for a period of 15 years while investors that finance RM500 million to RM1 bil will be offered 5% for a period of 10 years.” These rates are significantly lower than the current standard corporate tax rate of 24%.

Lee added that under the JS-SEZ, other projects such as integrated theme parks and MICE (Meetings, Incentives, Conventions and Exhibitions) events will also be granted special incentives, to be announced later in phases. 

While these announcements are made by a state executive councillor of Johor, the state where the JS-SEZ is located, a formal announcement by the Ministry of Finance of Malaysia detailing the incentives and the qualifying criteria is still pending.

Stamp Duty audit framework

The Inland Revenue Board (IRB) has published on its website a Stamp Duty Audit Framework (the Framework) to assist audit officers in carrying out their duties more efficiently and effectively, and to assist duty payers in fulfilling their responsibilities. 

• IRB will conduct 2 audit review methods, which are the general review (i.e., desk audit) and the comprehensive review.
• The general review is conducted at the premises of the IRB. It involves the examination of documents submitted by the auditee during the stamping application. However, the general review may be subject to the comprehensive review with notification made to the auditee.
• The comprehensive review may be conducted at the auditee's premises, the IRB office, or any agreed location, involving all executed (signed) documents held by the auditee. Stamped documents must be properly and systematically maintained by the auditee.
• Stamp duty audits may cover up to 3 calendar years. However, the audit coverage period limit does not apply to cases involving fraud, duty evasion, or negligence as prescribed under the Stamp Act 1949 (the Act).
• The selection of stamp duty audit cases is conducted either through a computer system based on risk assessment criteria or from various sources of information received.
• The auditee must respond within 14 working days from the date of the Audit Visit Letter or Audit Action Notification Letter. If the auditee fails to respond within this period, the audit will proceed using appropriate methods. The auditee may request to postpone the audit visit for valid and unavoidable reasons if an Audit Visit Letter has been issued.
• The duration of an audit for a comprehensive review may take up to 4 days, subject to conditions.
• The duty payer may also undertake a voluntary disclosure, which is a duty payer's written declaration for documents exceeding 3 months from the permitted stamping period, made at any time before the commencement of an audit, subject to conditions.
• Where there is duty underpaid, a penalty may be imposed under section 47A of the Act. However, the Stamp Office has the discretion to reduce or waive the imposed penalty. For cases of voluntary disclosure, a concessional penalty rate may apply, which is 10% of the unpaid duty or MYR 50, whichever is higher. 

The Framework is effective from 1 January 2025 onwards.

Tax exemption for payments from Labuan entities

Courtesy IBFD it was reported that the Ministry of Finance (MoF) has gazetted the Income Tax (Exemption) Order 2025 (PU(A) 59/2025) that provides for the exemption from tax on certain payments received from Labuan companies, with effect from year of assessment (YA) 2023 until YA 2027. The exemption applies to dividends, interest, distributions, royalties and service payments made by Labuan entities, subject to specified conditions. 

The chargeable income from the following will be exempt from tax:

• dividends received by a Labuan company; 
• dividends received by any person from a Labuan company, which are paid, credited or distributed from income derived from a Labuan business activity, or income exempt from tax; 
• interest received by a non-resident person from a Labuan company, except for interest accruing to a business carried on by a non-resident person in Malaysia licensed to carry on financial services activities; 
• interest received by a Labuan company from another Labuan company; 
• interest received by a resident person (except for a licensed person carrying on financial services) from a Labuan company; 
• royalties received by a non-resident person and a Labuan company from a Labuan company; 
• distributions received by the beneficiary from a Labuan trust or Labuan Islamic trust; 
• distributions of profit after tax paid, credited or distributed received by the partner of a Labuan limited partnership, a Labuan limited liability partnership, a Labuan Islamic limited partnership or a Labuan Islamic limited liability partnership from the Labuan limited partnership, Labuan limited liability partnership, Labuan Islamic limited partnership or Labuan Islamic limited liability partnership; 
• distributions of profit after tax received by a member of a Labuan foundation or a Labuan Islamic foundation from the Labuan foundation or Labuan Islamic foundation; 
• service payments received by a non-resident person from a Labuan company for services, advice or assistance rendered by the non-resident person pursuant to paragraphs 4A(i) and (ii) of the Income Tax Act 1967 (the Act); and 
• service payments received by a Labuan company from another Labuan company for services, advice or assistance rendered by the Labuan company pursuant to paragraphs 4A(i) and (ii) of the Act. 

Any person who has been granted the abovementioned exemptions will not be subject to withholding tax under sections 109, 109B and 109C of the Act, where applicable. PU(A) 59/2025 revokes the Income Tax (Exemption)(No. 22) Order 2007 (PU(A) 437/2007).

Income Tax and Employer Audit Framework

Courtesy IBFD it was reported that the Inland Revenue Board (IRB) has recently issued the latest Income Tax and Employer Audit Framework (the Framework), which was updated by combining all audit procedures under one framework, covering the audit activities on income tax and petroleum income tax, income tax on financial and insurance companies, withholding tax, capital gains tax, tax related to Labuan business activities, and audit on employer's obligations. 

The Framework was issued to standardize the IRB's tax audit procedures and establish clearer and more structured rights and responsibilities for audit officers, taxpayers, employers and tax agents. 

The main objective of the Framework is to encourage voluntary compliance with tax laws and regulations in line with the self-assessment System, by following the awareness, education, services approach. 

The IRB conducts tax audits using two approaches: 

• general review (desk audit); and 
• comprehensive review (involving interviews related to the business's operational model at agreed premises). 
• The number of assessment years covered during the tax audit are generally up to 3 years of assessment (YAs), except for employer audit, where the coverage is generally up to 2 YAs, except in the case of fraud, wilful default, or negligence. 
• Audit cases must be resolved within 90 to 450 calendar days, depending on the type of audit conducted. 
• Taxpayers may opt for voluntary disclosure before the commencement of an audit to be entitled to a reduced penalty rate.

• The penalties for the Labuan tax audit and employer audit are also detailed in the Framework. 

The Framework came into effect from 15 March 2025, and revokes the following: 

• the Income Tax Audit Framework dated 1 May 2022; 
• the Financial and Insurance Tax Audit Framework dated 1 May 2022; 
• the Petroleum Tax Audit Framework dated 1 May 2022; 
• the Employer Tax Audit Framework dated 1 October 2021; and 
• the Withholding Tax Audit Framework dated 1 August 2015. 

Automatic Exchange of Financial Account information 

On 3 February 2025, the Inland Revenue Authority of Singapore (IRAS) published updated lists of participating and reportable jurisdictions for the purpose of the automatic exchange of financial account information under the CRS MCAA and Singapore's bilateral automatic exchange agreements. 

In the updated list of reportable jurisdictions for the 2024 reporting period, Armenia, Belize, Moldova and Ukraine were added. Reporting Singapore Financial Institutions (SGFIs) should submit information for the 2024 reporting period by 31 May 2025. 

In the updated list of participating jurisdictions, Armenia, Moldova and Ukraine were added. The updated list takes effect 4 February 2025. 

CFC low-tax jurisdictions list

The MoF has announced updates to the low-tax jurisdictions list under the controlled foreign corporation (CFC) Rules on 27 December 2024. A CFC is a corporation located in low-tax jurisdiction held directly or indirectly with at least 50% of the shareholding or have a significant influence by a Taiwanese tax resident enterprise or individual. The income generated by CFCs shall be recognized by Taiwanese enterprises or individuals as investment income. 

The low-tax jurisdictions list is based on Article 4, Paragraph 3 of the Regulations on the Recognition of CFC Income by Enterprises and the Regulations on the Calculation of CFC Income by Individuals (hereinafter referred to as the CFC Regulations). 

The low-tax jurisdictions list includes 3 main categories as set out below.

• Article 4, Paragraph 1 (Item 1) of the CFC Regulations pertains to the jurisdictions where the statutory corporate income tax rates are below 14%. There are 31 jurisdictions in category 1 of the updated list. 
• Article 4, Paragraph 1 (Item 2) of the CFC Regulations pertains to jurisdictions that adopt a territorial system, therefore foreign sourced income is not taxed unless it is repatriated. There are 48 jurisdictions in category 2 of the updated list. 
• Article 4, Paragraph 2 of the CFC Regulations pertains to any other jurisdiction that provides a lower tax rate or special tax regime for specific regions or specific types of companies, which shall be determined on a case-by-case basis. 

The MoF pointed out that the CFC system was implemented from 1 January 2023. An enterprise or individual shall examine whether their foreign enterprise holding is a CFC in accordance with the relevant provisions of the CFC Regulations. A CFC shall be subject to Article 43-3 of the Income Tax Act or Article 12-1 of the Basic Tax Act. The overseas investment income or profits of a CFC must be recognized and reported during the income tax returns filing period in May each year (under Article 71 of the Income Tax Act). 

Reduced tax rate for Special Economic Zones

On 13 January 2025, Thailand's cabinet has resolved in principle to approve a reduction of the corporate income tax rate to 10% in respect of profit generated from targeted businesses operating in Thailand's special economic zones.

The reduced rate would apply for 10 consecutive accounting periods. The income eligible for the reduced rate must be generated from the production of goods in special economic zones or from providing services supplied and used in special economic zones.

For a company established on or after the effective date of the law, the business establishment in the special economic zone must be a permanent building. If the company was registered before the effective date of the law, the business establishment in the special economic zone must be a permanent building that is an extension or addition to the existing business establishment.

There are currently 10 special economic zones in the border areas of Thailand, namely Tak, Mukdahan, Sa Kaeo, Songkhla, Trat, Nong Khai, Narathiwat, Chiang Rai, Nakhon Phanom and Kanchanaburi.

Tax incentives for individuals Investing in Thai Sustainable Mutual Fund

On 11 March 2025, the Thai Cabinet approved in principle a draft Ministerial Regulation proposed by the Ministry of Finance regarding tax incentives to support the establishment of a special Thai Sustainable Mutual Fund (Thai ESGX). Thai ESGX is a new fund in the "Thai ESG" category of mutual funds, which supports holders of units in long-term equity funds (LTFs) to exchange their LTF units for units in Thai ESGX funds.

Tax Deduction for Exchange of LTF Units for Thai ESGX Units

The draft Ministerial Regulation issued under the Revenue Code provides that the value of all investment units held in LTF funds and exchanged for units in Thai ESGX may be claimed as a personal income tax deduction, but not exceeding THB 500,000 in total. For tax year 2025, the tax deduction cannot exceed THB 300,000, and for tax years 2026 to 2029, the tax deduction cannot exceed THB 50,000 per annum.

LTF unitholders must express their intention to exchange all of their LTF units to Thai ESGX units to receive the tax benefits within 2 months from the date the Thai ESGX fund opens for the first exchange of units, but no later than 30 June 2025. The Thai ESGX units must be held for at least 5 years from the date of the exchange of units.

In this regard, the calculation of the income to be eligible for the personal income tax deduction will be based on the number of investment units as at the date of the Cabinet's approval, and the value of the investment units will be set at the price as at the date of notification of intention.

Income from the sale of Thai ESGX units held for at least 5 years will be exempt from tax.

Tax Deduction for Purchase of Thai ESGX Units

The draft Ministerial Regulation provides a personal income tax deduction for the purchase of Thai ESGX units in the tax year 2025 separately from the current personal income tax deduction for Thai ESG funds.

The amount paid for the purchase of investment units in a Thai ESGX Fund may be claimed as a personal income tax deduction of up to 30% of assessable income, but not exceeding THB 300,000, provided that the purchase of investment units in the Thai ESGX Fund is made within a period of 2 months, from 1 May to 30 June 2025. Income received from the sale of the investment units will be exempt from tax. The investment units in the Thai ESGX Funds must be held for at least 5 years from the date of purchase to be eligible for these tax benefits.

From 2026 onwards, the personal income tax deduction limit for the purchase of investment units in Thai ESGX funds will be included under the same tax deduction limit for the Thai ESG funds, i.e. a deduction of up to 30% of assessable income, but not exceeding THB 300,000 per year, and the investment units must be held for at least 5 years.

Tax measures to promote return of Thai Nationals working abroad

Courtesy IBFD it was reported that income tax incentives approved by the Cabinet last year to encourage Thai nationals working abroad to return to work in the country have now become law. Qualifying employees will be eligible to pay a flat personal income tax rate of 17% on employment income whilst employers will receive a 150% corporate income tax deduction for the salary costs of the employee.

The criteria and conditions include the following:

• employees must be Thai nationals who have at least 2 years' experience working abroad and hold at least a bachelor's degree;
• the employee must be employed in a business engaged in a target industry, which is exempt from corporate tax in accordance with the National Competitiveness Enhancement for Targeted Industries Act, Investment Promotion Act or the Eastern Special Development Zone Act;
• the employee must enter Thailand during the period from 25 March 2025 to 31 December 2025 for the purpose of working for their employer and commence working no later than 31 December 2025;
• the employee must not have worked in Thailand in the tax year in which the right to use the 17% tax rate is first exercised;
• the employee must not have been a tax resident of Thailand in the 2 tax years prior to the year in which the right to use the 17% flat tax rate is first exercised; and
• the employee must be a tax resident of Thailand in each tax year in which the rights are exercised, except for the first and last tax years in which the rights are exercised.

The tax incentives will be available until 31 December 2029.

Further rules and conditions may be prescribed by the Revenue Department.

The tax incentives are specified in Royal Decree 793 issued under the Revenue Code. The Royal Decree came into effect on 25 March 2025.

Carbon tax

Thailand's Cabinet has recently resolved in principle to approve a law to introduce a carbon pricing mechanism in the excise tax rates imposed on oil and oil products.

The draft law, in the form of a ministerial regulation proposed by the Ministry of Finance, will initially set the carbon tax at THB 200 per tonne of carbon equivalent. The carbon tax will be included as part of the excise tax rate collected on oil and oil products and will not affect retail prices.

The law will be introduced with the objective of creating awareness among consumers and business operators of the costs incurred from greenhouse gas emissions and to change their behaviour to reduce carbon dioxide emissions in support of sustainable national development.

Any future increase in the carbon tax above THB 200 per tonne of carbon equivalent will require the Cabinet's approval, as it will affect the excise tax rate of oil and oil products

Import duty and VAT on imported Low-Value Goods

The government has revoked (through the issuance of Decision 01/2025/QD-TTg) the duty and VAT exemption for imported goods valued at VND 1 million or less that are delivered via express delivery services.

Decision 01/2025/QD-TTg rescinds Decision 78/2010/QD-TTg, which stipulates the tax exemption for imported goods with values not exceeding the VND 1 million threshold.

Withholding tax obligations on ecommerce platforms

With effect from 1 April 2025, local and foreign operators of e-commerce marketplaces, digital platforms that have payment function and other digital organisations making payments to the individuals shall deduct and pay Value Added Tax (“VAT”) and Personal Income Tax (“PIT”) on behalf of:

• Individual, household residents for worldwide income generated from providing goods and/or services via e-commerce platforms; and
• Individual, household non-residents for Vietnam sourced income generated from providing goods and/or services via e-commerce platforms.

The tax must be withheld before making payments (collected from the customers on the e-commerce platforms on behalf of the individuals, household sellers) to the individuals, household sellers.

Deadline for tax declaration and payment will be by 20th of the following month. The operators will be granted with a 10-digit tax code to declare and pay taxes on behalf of the business individuals and households via online tax portal managed by the Vietnamese Tax Authority (GDT).

The applicable withholding VAT and PIT rates are the following:

*The highest rates of 5% VAT and 2%/5% PIT will be applied if the operators cannot determine the nature of the income and corresponding applicable tax rates.

Local and foreign operators of e-commerce marketplaces, digital platforms that do NOT have payment function are not subject to the tax withholding obligations. The business individuals and households shall declare and pay taxes directly via the portal managed by General Department of Taxation. Accordingly, the tax filing and payment obligations for residents will be determined in accordance with the prevailing regulations.

The applicable VAT and PIT rates for non-residents are the following:

In case the business individuals and households have overpaid taxes from their ecommerce activities, they can apply for tax refund.

Country by Country report exchanges

On 10 February 2025, the Vietnamese government promulgated Decree No. 20/2025/NĐ-CP, which amends and supplements specific provisions of Decree No. 132/2020/NĐ-CP regarding tax administration for enterprises engaged in related party transactions (RPTs). Decree 20/2025 will take effect on 27 March 2025, and apply to the Corporate Income Tax (CIT) period of 2024.

On 3 January 2025 Vietnam signed the multilateral competent authority agreement on the exchange of country-by-country reports (CbCR's). The MCAA CbCR was designed by the OECD as a straightforward way for countries to indicate which foreign jurisdictions they would exchange CbCRs with if the group has a consolidated turnover of EUR 750 million or its equivalent in any other currency. This signing by Vietnam creates an important basis for the exchange of CbCRs between the tax authorities of Vietnam and other countries. Any jurisdiction which signs the MCAA CbCR is required, by the time the initial exchange occurs, to have (i) the necessary safeguards to maintain the confidentiality of information received and (ii) the infrastructure needed for an efficient exchange relationship.

At present, we understand that the tax authorities in Vietnam are in the process of completing such requirements so that the exchange of CbCRs in both directions can officially take place. The rules regarding submission of CbCRs in Vietnam remain unchanged. Vietnamese headquartered groups are required to submit appendix IV and overseas headquartered groups are required to submit a copy of the group's CbCR either in hard copy or soft copy via e-tax.

A new transfer pricing decree

Businesses often face challenges applying the rules in Decree 132 around interest deductibility, particularly with regard to interest charged by credit institutions which are deemed to be related parties for transfer pricing purposes. On 10th February 2025, the Ministry of Finance issued Decree 20, which applies from the financial year 2024 onwards and addresses many of these issues.

The decree expands the definition of related parties to align with changes in the Law on Credit Institutions. Related parties now include affiliates of credit institutions under the new law. It limits the classification of third-party lenders or guarantors as related parties.

Lenders, guarantors, and credit institutions will not be considered related parties unless they engage in "management, control, capital contribution, or investment" in the borrowing entity. This amendment addresses taxpayer concerns about being classified as having related-party transactions merely due to borrowing from commercial banks, which previously subjected them to restrictions on deductible interest expenses based on EBITDA.

Under Decree 132, non-deductible interest expenses can be carried forward to subsequent tax years and deducted if the net interest expense/EBITDA ratio is below 30 per cent in those years. The changes in Decree 20 to the definition of related-party relationships via borrowing criteria are applicable from 2024 onwards. Thus, there may be instances where a company borrows from a credit institution that is considered a related party before 2024 but no longer a related party from 2024 onwards. In such a case, it opens the question whether the non-deductible interest expenses incurred before 2024 can be carried forward to the years from 2024 onwards. Decree 20 provides transitional guidance in this respect, i.e., the non-deductible interest expenses as of the end of 2023 shall be equally allocated to the respective remaining years for claiming deduction in such years.

Decree 20 expands the responsibilities of the State Bank of Vietnam to provide information on related party individuals and companies of credit institutions upon request from tax authorities. The final decree includes the new version of appendix I of the TP declaration forms, incorporating the changes brought about by Decree 20, which taxpayers will need to use when submitting their upcoming TP declaration forms.