Asia Tax Bulletin - Summer 2024

Customs duties

Courtesy IBFD, it was reported that at the 9th Meeting of the Standing Committee of the 14th National People's Congress, China passed the Law on Customs Duties. The Law maintains the current structure of the customs duty system, and the overall tax burden remains unchanged. To keep pace with cross-border e-commerce developments, the Law clarifies the relevant provisions on withholding agents in the field of cross-border e-commerce and extends the period of time within which overpaid duties are refunded from 1 year to 3 years. The Law will come into effect on 1 December 2024.

On 18 June 2024, the EU-China Joint Customs Cooperation Committee (JCCC) took place in Shanghai, being the 11th high-level meeting held up to this date. It marks the 20th anniversary of the customs cooperation between China and the European Union.

In addition, an external study on their customs cooperation was recently completed by the European Commission, and China and the EU agreed to establish a new working group on cross-border e-commerce in view of the trends and challenges.

Preferential tariffs for Taiwanese products

The Tariffs Committee of the State Council has announced the termination of tariff reduction or elimination for an additional 134 products from Chinese Taipei. The tariff reduction or elimination for trade in goods were agreed in the Cross-Strait Economic Cooperation Framework Agreement that was signed in 2010. According to Announcement of Tariffs Committee [2024] No. 4) issued on 30 May 2024, the termination is a response to the unilateral restrictions of trade imposed by Taiwan.

Administrative guidelines on Advance Rulings

The Beijing tax authority has released its guidelines on advance tax rulings (in Chinese), which are similar to those issued by the Shanghai tax authority in December 2023.

The guidelines apply to taxpayers situated within the jurisdiction of the Beijing tax authority. The First Division Tax Bureau of Beijing is the responsible body for the examination and provision of rulings for large enterprises listed in the "List of Thousands Group Enterprises" (compiled by the State Taxation Administration in 2017), while other enterprises must apply to the tax bureaus in charge of their tax settlements.

Stock tax incentives

China has historically incentivised the tax treatment of stock incentives. From 1 January 2024 to 31 December 2027, individual income tax payments on stock options, restricted shares and equity incentives granted by listed companies to individuals may be settled in instalments at a maximum of 36 months, starting from the date on which the stock options are exercised, restricted shares are released or shares as incentives are received. If the taxpayer resigns in the course of the 36-month period, the entire tax amount due must be paid before the resignation date.

The same deferral treatment applies to situations where stock options were exercised after 1 January 2023, but the individual income tax has not yet been paid in full.

Beneficial Owner registration

The People's Bank of China and the State Administration for Market Regulation have jointly issued the "Administrative Measures on Information of Beneficial Owners" which aim to combat money laundry and terrorism practices and appear to be modelled on ultimate beneficial ownership (registration) rules in some other countries.

Under the measures that were issued on 20 April 2024, from 1 November 2024, companies, joint ventures, branches/establishments of foreign companies and other entities prescribed by the People's Bank of China and the State Administration for Market Regulation have to submit certain information on their beneficial owners to the State Administration for Market Regulation or its branches across the country, which in turn will forward the information to the People's Bank of China.

A "Beneficial owner" for the purpose of registration refers to an individual who ultimately owns or exerts effective control over, or ultimately benefits from, income of the filing entity.

Individuals who fulfil certain conditions are beneficial owners of the filing entity.

If none of the conditions apply, the manager in charge of daily operations will be considered to be the beneficial owner for filing purposes. These criteria also apply to the establishments/branches of foreign companies in determining the beneficial owner. An eventual exemption from beneficial owner registration abroad does not apply in China.

Tax-related criminal offences

The Supreme People's Court and Supreme People's Procuratorate have recently issued an explanatory note on the application of the Criminal Law on various tax offences. The explanatory note, which applies from 20 March 2024, clarifies the terms, means and punishment for tax-related offences, including underpayment and evasion of taxes and fraudulent export tax refunds.

Briefly, Criminal Law provides for imprisonment from 3 to 7 years for different tax offences, depending on the seriousness of the crime, in addition to the prescribed fines, while the sentence can be up to 10 years in the case of fraudulent export tax refunds.

Salaries tax

The Inland Revenue (Amendment) (Tax Concessions and Two-tiered Standard Rates) Bill 2024 was passed by the Legislative Council on May 22, 2024. The Bill gives effect to the Government's proposals announced in the 2024-25 Budget and the 2023 Policy Address, which include:

• implementing a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25. In calculating the amount of salaries tax or tax under personal assessment at standard rates, the first $5 million of net income will continue to be subject to the standard rate of 15 per cent while the portion exceeding $5 million will be subject to the standard rate of 16 per cent;
• reducing salaries tax, tax under personal assessment and profits tax for the year of assessment 2023/24 by 100 per cent, subject to a ceiling of $3,000 per case; and
• allowing an additional deduction ceiling amount of $20,000 for home loan interest or domestic rents, on top of the basic deduction ceiling ($100,000), for a taxpayer if specified conditions (including the taxpayer should reside with his/her newborn child in Hong Kong for a continuous period of not less than six months, or a shorter period that the Commissioner of Inland Revenue considers reasonable in the circumstances) are met starting from the year of assessment 2024/25. Each taxpayer may be allowed an additional deduction ceiling amount for a maximum of 19 years of assessment.

Tax treaty with Mauritius

On 7 March 2024, India and Mauritius signed a Protocol (“2024 Protocol”) amending the tax treaty between India and Mauritius. Courtesy ALMT, the key amendments, keeping in line with the minimum BEPS standard, are as follows:

• Preamble – the amended preamble provides that the intention of the tax treaty is to avoid double taxation without creating opportunities of non-taxation or reduced taxation through tax evasion / tax avoidance.
• Introduction of the Principal Purpose Test (“PPT”) – the PPT condition (in line with MLI) would have to be satisfied for availing the beneficial provisions of the DTAC.
• Entry into effect – the 2024 Protocol will be effective once it is notified by India and Mauritius respectively and will come into force from the date of later of the two notifications.

The devil is in the details - what are the ambiguities? Though the draft text of the 2024 Protocol, which was signed, was made available on public domain on 11 April 2024, there are certain details which are not clear. While the Indian tax authority, on 12 April 2024, clarified4 that the concerns raised by taxpayers will be addressed as and when the 2024 Protocol comes into force, there is no clarity yet on the timelines for the notifications by the respective countries.

Some of the points which need further clarity are:

• Clarity on applicability of the 2024 Protocol – whether the amended provisions can be applied retrospectively in relation to income earned in past years that are still open to assessments or will it only be applied prospectively.
• Impact on the grandfathered investments – will the exemptions to past investments grandfathered, which is already a litigious topic, see further increased investigation on the eligibility for beneficial exemption provisions, which can be denied by the tax authorities if one of the ‘principal purposes’ of the transaction/arrangement is to obtain a tax benefit.
• Interplay between the domestic general anti avoidance regulations (‘GAAR’) and PPT – with the different thresholds for applicability of GAAR and PPT, how will they be used by the tax authorities after the 2024 Protocol comes into effect.

With the conspicuous omission of the phrase "for the encouragement of mutual trade and investment" in the treaty's preamble, the industry sentiments perceive a probable shift in focus towards preventing tax evasion over promoting bilateral investment flows, and only time will tell how the 2024 Protocol and its impact on current and future structures unfolds and whether it is interpreted to be effective retrospectively.

One of the first General Anti Avoidance Rule (GAAR) cases in India

Courtesy Cyril Amarchand Mangaldas, the following case was reported concerning India's GAAR. The provisions of General Anti-Avoidance Rules (“GAAR”) were implemented into Income Tax Act, 1961 (“IT Act”), for the first time with effect from the financial year 2017–18. The GAAR provisions provide the Indian Revenue Authorities (“IRA”) with wide powers, including even recharacterising a transaction, ignoring a part or the whole of a series of transactions, disallowing expenses incurred, etc., if the main purpose of the transaction was to obtain tax benefits. Considering the aggressive nature in which the IRA generally scrutinises the GAAR cases, the industry is always apprehensive that these GAAR provisions could be invoked in a wide-spread manner. However, much to the relief of the taxpayers, the IRA have rarely invoked these provisions.

Seven years since the implementation of GAAR provisions, the Telengana High Court recently dealt with one of the first GAAR provision-related cases. The Court held that the scheme of transactions a taxpayer had undertaken was tantamount to impermissible tax avoidance arrangements. The IRA had alleged that the taxpayer had undertaken a “bonus stripping” transaction, where shares were issued to the taxpayer as bonus shares in the ratio of 5:1 before being transferred to another company, allegedly for the sole purpose of claiming tax losses.

Final Income Tax on investment return from certain financial instruments for exporters

On 20 May 2024, the government issued GR-221 regarding the Final Income Tax on investment return from certain monetary/financial instruments. The funds are sourced from the Foreign Exchange Proceeds from Natural Resources Exports.

Previously, a concession on an investment return, sourced from DHE SDA, was regulated under the general rules on final withholding tax for time deposits and Bank Indonesia Certificates, which was regulated under Article 2 of GR-131 as amended by GR-1232. However, the scope of eligible investment type is limited to time deposits.

GR-22 revokes article 2 of GR-131 as amended by GR-123 and provides a separate legal basis for income received/obtained by exporters from placing DHE SDA in certain monetary/financial instruments in Indonesia. The criteria and scope of the eligible monetary/financial instruments has been expanded, whilst all the relevant income is subject to Final Income Tax.

New Capital Nusantara tax facilities

In May 2024, the Government issued Minister of Finance (“MoF”) Regulation No. PMK-281, which stipulates taxation and customs facilities in the National Capital named “Nusantara” (Ibu Kota Negara bernama Nusantara/”IKN”). PMK-28 serves as an implementing rule of GR-122, which previously governed the facilities in IKN. PMK-28 provides several updates as well as more detailed elaboration of matters related to the administrative procedures, investment provisions, obligations, prohibitions and adding exceptions.

Global Minimum Tax (Pillar 2)

The National Tax Agency (NTA) has released the explanatory notes on the notice on Japanese global minimum tax laws and regulations, following the publication of the notice dated 21 September 2023. The notice contained roughly 90 interpretive positions regarding Japanese global minimum tax laws and regulations (the so-called 'income inclusion rule', or IIR), and the newly released explanatory notes provide additional details on why the NTA came to these interpretive positions. Notices provide the NTA's interpretive positions, which are not legally binding on taxpayers.

Japan has promulgated amendments to the ministerial rules to introduce a tax return form covering the Japanese global minimum tax (the so-called income inclusion rule, or IIR).

To file a tax return regarding the Japanese IIR, a taxpayer must submit a form named "Appended Table 20". In addition, the taxpayer must complete the "Supplementary Tables 1, 2, 3, and 4" and attach them to the Appended Table 20.

Innovation box regime

Japan has promulgated governmental regulations on the "Innovation Box", a preferential tax regime for intellectual property income, in the Official Gazette, following the tax law amendments passed by the parliament on 28 March 2024.

The new innovation box provides benefits that are aimed at encouraging companies to conduct their R&D activities in Japan thus strengthening the competitive ability of Japan as a site location for such activities. The innovation box provides for a 30% deduction for qualifying income from domestic transfers or domestic or international licences of intellectual property (IP) rights, provided the company carries out the R&D activities in Japan.

The scope of IP subject to the innovation box includes patent rights and copyrights of AI-related programmes and the scope of qualifying taxable income will be licence income and capital gains arising from IP rights. Capital gains derived from the sale of IP to foreign entities and domestic related parties and license income received from related parties will be excluded from innovation box taxation.

Tax reform

Courtesy Lee & Ko it was reported that the draft presidential decree regulations (Regulation(s)), released on January 23, 2024 following 2023 Tax Law Amendment announced, has been revised, finalized and published by the Ministry of Economy and Finance (MOEF) on February 29, 2024.

Individual Income Tax for Foreigners

Supplemental exclusion requirements for foreign engineers, workers, and returning highly-qualified domestic workers (Articles 16, 16-2, 16-3 of the STTCL-PD)

Non-taxation of corporate housing provided when applying the special flat tax rate for foreigners (Article 16-2 of STTCL-PD)

When implementing the special flat tax rate for foreigners, the tax exemption provisions of the IITL are not applicable. However, an exception to this principle has been introduced with respect to corporate housing provided to foreign employees, which will be tax exempt under this new provision.

Government Fiscal Support for Businesses (Tax Credits and Reductions)

Double taxation avoidance due to Russia’s suspension of tax treaty implementation (Article 117 of the IITL-PD and Article 94 of the CITL-PD)

This particular Regulation allows Korean taxpayers to claim the tax credits for the taxes paid in Russia in excess of the reduced tax rate under the South Korea-Russia tax treaty to load off burdens of taxpayers caused by the unilateral suspension of tax treaty by Russia (effective for foreign taxes paid after August 8, 2023).

Additional Tax Credit Allowed for K-Contents Production Expenses (Article 22-10 of STTCL-PD)

Tax credit for the production expenses of video contents in Korea has been enhanced by introducing an additional tax credit rate. In addition to the existing tax credit of 5% and 10% of the production expenses for large and middle market enterprises, respectively, additional 10% will be credited, in which case total of 15% tax credit is available for large enterprise and 20% for middle market enterprises as a % of eligible production expenses. For small and medium-sized enterprises, additional tax credit of 15% will be provided in addition to the existing 15%, allowing 30% tax credit in total. This additional tax credit is applicable if the proportion of domestic expenses in the total production cost is 80% or more, and if three or more of the specified requirements are met (applicable to production costs incurred on or after January 1, 2024).

Increase Tax Reduction for Businesses Set up in the Jeju Investment Promotion Zone (Article 116-15(1) of the STTCL-PD)

The criteria for tax reduction benefits available to companies operating within the existing Jeju Investment Promotion Zone have been updated to broaden the scope of the food manufacturing industry. This expansion now encompasses the manufacturing of animal and vegetable oils, processing and production of grain/starch products, other food manufacturing, as well as the manufacturing of animal feed and delicatessen products. Furthermore, the beverage manufacturing industry's scope has been extended to include the manufacturing of alcoholic beverages. These modifications aim to encourage more investment into the Jeju Investment Promotion Zone (Effective from the fiscal year to which February 29, 2024 belongs).

International Taxation

Allowing Special Rules for CFC (Controlled Foreign Company) Foreign Holding Companies

In determining whether a foreign holding company is exempt from the Controlled Foreign Corporation (CFC) Rule, the criteria for calculating the income ratio (interest and dividend income / gross income) have been made more flexible.

Global Minimum Tax

Detailed provisions for calculating top-up tax for global minimum tax

The provisions for calculating the Global Minimum Tax have been refined to ensure more accurate and effective implementation by taxpayers in Korea (effective for fiscal years beginning on or after January 1, 2024).

The Regulations now include a clarification regarding the special case where permanent establishment (“PE”) losses are incorporated into the calculation of the GloBE income of a headquarter (Article 107-2 of the ITCL-PD);

International tax developments

UAE. On 29 May 2024, Korea and the United Arab Emirates signed a comprehensive economic partnership agreement (CEPA), in Seoul. Once in force and effective, the agreement will foster long-term and sustainable growth through investment, trade and economic diversification between the two countries. The agreement is also the first of its kind signed by Korea with an Arab country.

Income tax exemption on foreign dividends

The Income Tax (Exemption) (No. 6) Order 2022 (Amendment) Order 2024 [P.U.(A) 157/2024] (“Amendment Order”) was gazetted on 12 June 2024 to amend the Income Tax (Exemption) (No. 6) Order 2022 (“Principal Order”), which provides tax exemption on foreign-sourced dividend income (i.e. dividends from foreign companies who do not have a branch or permanent establishment in Malaysia).

Effective from 1 January 2024, a qualifying person must meet either one of the following conditions to qualify for the tax exemption:

• Be subject to tax of a similar character to income tax under the law of the territory which the income arises and the highest rate of tax of a similar character to income tax under the law of the territory which the income arises at that time is not less than 15%; or
• Fulfil the economic substance requirements.

In line with the issuance of PU(A) 157/2024, the IRB has issued the amended guidelines on the tax treatment in relation to income received from abroad which contains the following:-

• Guidance to determine whether specified economic activities are investment holding entities or not;
• Clarification that the foreign country headline tax rate refers to the highest corporate tax rate in the country of origin in:
  • the year that dividends are subject to withholding tax: or
  • in the year that dividends are received in Malaysia;

Strangely and disappointingly, the examples suggest that any income tax incurred by subsidiaries of a foreign subsidiary, even if the headline tax rate in the jurisdiction where the tax is incurred is at least 15%, can not be considered as valid tax for purposes of the 15% headline tax rate exemption unless the foreign subsidiary pays the tax itself or withholds any tax in its country or is the parent company in a tax consolidation. This potentially disqualifies Malaysia as a potential investment holding jurisdiction of foreign subsidiaries unless the foreign subsidiaries themselves meet the headline tax rate and tax incurred requirement or if the Malaysian holding company has sufficient economic substance in Malaysia.

Advance Pricing Agreements

The Inland Revenue Board of Malaysia (IRB) has introduced updated guidelines on advance pricing arrangements on 2 April 2024 ("APA Guidelines 2024"), following the introduction of the Income Tax (Advance Pricing Arrangement) Rules 2023 ("APA Rules 2023"). The APA Guidelines 2024 introduces significant changes to the advance pricing arrangement (APA) landscape, particularly surrounding the eligibility criteria of who may apply for an APA. In this alert, we examine the key changes introduced under the APA Guidelines 2024.

Where a jurisdiction has a Double Taxation Agreement (DTA) with Malaysia or the Malaysian party is a permanent establishment, only a bilateral or multilateral APA may be applied for. Where the jurisdiction of the counterparty of the cross-border transaction does not have a DTA with Malaysia, only a unilateral APA may be applied for.

The 2023 APA Rules introduce:

• a longer timeline of six months for an APA application (in contrast to the previous timeline of two months). A renewal application must be now be made within two months from when the taxpayer is informed that they may renew their APA.
• A rollback mechanism
• Powers to request information and documents.
• Changes to fees.

Income tax reform

The government has recently gazetted Income Tax (Amendment) Act 2024 and Labuan Business Activity Tax (Amendment) Act 2024, which received Royal Assent on 9 May 2024. The Bills were passed by the Senate on 3 April 2024. The Amendment Acts 2024 are largely the same as the Amendment Bills 2024 passed by the Senate. The amendments proposed are mainly related to capital gains tax, e-invoicing, and the revision of tax payable estimates. For further details we refer to the previous edition of this bulletin.

Implementation timeline Global Minimum Tax

The Inland Revenue Board has recently issued the implementation timeline and the Frequently Asked Questions (FAQs) for the implementation of the Global Minimum Tax (GMT) in Malaysia. The GMT legislation was introduced via the Finance (No. 2) Act 2023 on 29 December 2023.

Tax treatment for construction contract

The Inland Revenue Board has recently issued a practice note to explain the tax treatment for the recognition of actual gross profit or loss from a construction contract.

• a construction contract will be deemed to be completed:
  • on the date when a Certificate of Practical Completion (CPC), or any other certificate having the same effect, is issued by an authorized person or body; or
  • on the date when the contract is substantially completed, if no such certificate is issued. This means that 95% of the total estimated construction costs have been incurred;
• where in a basis period for a year of assessment (YA) a construction contract is deemed to be completed, the contractor must determine the actual gross profit or loss from the construction contract based on the actual income and contract costs incurred during that basis period; and
• effective from YA 2023, where the final accounts of a construction contract are finalized after the basis period where the date of completion is determined, the contractor is allowed to determine and recognize the actual gross profit or loss in the earliest basis period between the following periods:
  • 12 months after the completion date of a construction contract; or
  • on the date the final accounts of a construction contract are agreed upon between the contractor and the client.

Digital tax incentives

The Malaysia Digital Economy Corporation Sdn Bhd (MDEC) recently announced the details of the Malaysia Digital (MD) tax incentives that are available to MD companies engaged in qualifying activities, offering a reduced tax rate of up to 0% for a period of up to 10 years or an investment tax allowance of up to 100%.

The MD tax incentive is an outcome-based measure available to eligible MD companies that engage in qualifying activities using one or more of the following promoted technologies: artificial intelligence and big data analytics, Internet of Things, cybersecurity, cloud, blockchain, drone technology, creative media technology, integrated circuit design with embedded software, robotics and/or automation, and advanced network connectivity and/or telecommunications technology.

International tax developments

Russia. On 17 May 2024, Malaysia and Russia signed an income tax treaty, in Putrajaya. Once in force and effective, the new treaty will replace the Malaysia - former USSR Income Tax Treaty.

Transfer of shares by foreign company

The Court of Tax Appeals (CTA) has granted the refund of capital gains tax (CGT) paid by a non-resident foreign corporation on the transfer of shares it owned in a domestic corporation, ruling that such transfer is exempt from CGT under the tax treaty between Germany and the Philippines.

The taxpayer-petitioner was a non-resident foreign corporation organized and existing under the laws of Germany. It owned 100% of the shareholdings of a domestic corporation. By virtue of a Share Transfer Agreement dated 3 February 2020, the petitioner transferred said shares to a transferee in exchange for the transferee's shares of stocks. On 2 March 2020, the petitioner filed its CGT return and paid the CGT of PHP 41,456,894.68 on the transfer.

On 29 December 2021, the petitioner filed a tax treaty relief application (TTRA) for exemption from the payment of CGT on said transfer with the tax authority, requesting official confirmation that the sale or transfer of its shares in the domestic company is exempt from CGT under the tax treaty. Thereafter, the petitioner filed an application with the tax authority for a tax credit/refund on 27 January 2022 to recover the CGT paid, and a supplemental TTRA on 11 February 2022.

The CTA ruled for the taxpayer. The CTA determined that the petitioner satisfied the necessary requirements.

The petitioner's capital gain from the transfer of shares is therefore exempt from CGT in the Philippines under the tax treaty. Taking all the circumstances together, the Court found that the petitioner is entitled to a refund of erroneously paid CGT.

Real Property Valuation and Assessment

The President of the Philippines has signed into law the Real Property Valuation and Assessment Reform Act (Republic Act 12001) which aims to, among other purposes, adopt market value as the single valuation base for real property-related taxes and the valuation of real property for various transactions by all government agencies, to address multiple, overlapping and/or outdated valuations in the current system. The Act also grants a 2-year tax amnesty covering penalties, surcharges and interests on all unpaid real taxes.

Provincial assessors, together with municipal assessors, and city assessors, shall prepare the schedule of market values (SMV) for different classes of real property situated in their local government units, pursuant to the Philippine Valuation Standards and other rules and regulations set by the Department of Finance.

Pillar 2 minimum global tax

On 10 June the Ministry of Finance issued a statement seeking public feedback (by 5 July 2024) on the proposed Income Tax (Amendment) Bill 2024 ("Bill"), which provides for proposed amendments to the Income Tax Act 1947 (ITA) as announced in Budget 2024 and other changes arising from the Ministry's periodic review of Singapore's income tax regime.

The Ministry is also consulting on the proposed Pillar 2 legislation (which relates to the global community's introduction of a global minimum tax rate for large multinational groups, also referred to as Pillar 2), which will, if passed:

• apply the income inclusion rule and a domestic top-up tax to in-scope multinational groups for financial years starting on or after 1 January 2025;
• amend the income tax law to provide clarity and certainty on the income tax treatment of taxes imposed by Singapore and foreign jurisdictions under Pillar Two; and
• provide details on the adjustments to the financial accounting net income or loss and the qualifying tax expenses for the purposes of calculating the effective tax rate and top-up tax according to the GloBE Model Rules.

Special income tax exemption

On 10 June 2024, the IRAS issued a new e-tax guide on the conditions for the special income tax exemption under s.13(12) Income Tax Act including Real Estate Investment Trusts and Qualifying

Offshore Infrastructure Project/Assets. The guide covers situations which do not satisfy the general participation exemption conditions but do satisfy them indirectly. Various scenarios are discussed where dividends originate from taxed jurisdictions that reach a Singapore company via intermediary holding companies.

E-invoicing will be required from 2025

On 14 April 2024, the IRAS made the announcement that e-invoicing through a prescribed system will become necessary for newly incorporated Singapore companies who voluntarily register for GST from 1 November 2025.

InvoiceNow is the nationwide e-invoicing network based on an international standard called “Peppol”. It was introduced by the Infocomm Media Development Authority (“IMDA”) in 2019. InvoiceNow enables businesses to easily send and receive invoices in a structured digital format. This digital invoicing method reduces the need for manual processing and recording of invoices in accounting systems, which helps businesses avoid tedious work and errors.

Income tax advance ruling on adequacy of economic substance

The foreign-sourced disposal gains tax regime provided in section 10L of the Income Tax Act 1947 took effect from 1 January 2024 (we refer to the previous edition of this bulletin for a discussion about the new capital gains tax). Under the tax regime, certain gains from the sale or disposal of foreign assets are treated as income chargeable to tax when received or deemed received in Singapore. Foreign-sourced disposal gains from the sale or disposal of a foreign asset (not being an intellectual property rights) will not be treated as income chargeable to tax in Singapore if the entity has adequate economic substance in Singapore.

Taxpayers may apply for an advance ruling to seek certainty on the adequacy of economic substance if the proposed sale or disposal of foreign asset is expected to occur within one (1) year from the date of the application.

Taxpayers may make an application on an entity basis or submit a group application. In the case of a group application, the application must be made jointly by all entities of the group to be covered under the advance ruling.

Transfer pricing

On 14 June 2024 the IRAS issued the 7th edition of Singapore's Transfer Pricing Guidelines. The previous edition was from 10th of August 2021.

The new transfer pricing guidelines includes changes on the following matters:-

• Guidance on the making of a working capital adjustment.
• An update on:

• New Transfer Pricing Documentation-exemption rules for related party domestic loans which are entered into on or after 1 Jan 2025. Over time, especially with the introduction of the IRAS indicative margin since 2017, the restriction of the deductible interest approach (where one Singapore resident company borrows money in order to provide a related party loan to a related Singapore resident company at a low or excessive interest rate) has become less relevant to achieve arm’s length outcome.
• The guidelines contain various criteria for determining whether a loan should for tax purposes be characterised as equity.
• Increase in the threshold for exemption from TP documentation for services, rentals, lease and any other related party transactions other than loans or the purchase/sale of goods, from S$1 million to S$2 million.

CFC changes

The controlled foreign company (CFC) rule in article 43-3 of the Income Tax Act has taken effect. To facilitate the implementation of the CFC rule, the Ministry of Finance has referred to public opinions to amend the "Regulations Governing Application of Recognizing Income from Controlled Foreign Company" (CFC Regulations). The amendments are applicable to 2023 CFC income that should have been reported in the income tax returns by 31 May 2024.

Tax Reliefs for taxpayers affected by earthquake

Following the devastating earthquake in Hualien county, the National Taxation Bureau of the Southern District of the Ministry of Finance announced several measures to assist affected taxpayers including income tax, business tax and excise tax reliefs. The 7.4 magnitude earthquake on 3 April 2024 was the strongest one to hit the country in 25 years.

Income Tax

Affected persons can, within 30 days after the disaster, submit a list of losses and supporting documents to the local tax bureau or branch. After inspection and verification by the tax collection office, the losses may be reported when making the comprehensive income tax or profit-seeking enterprise income tax settlement declaration for that year. Factories or branches in the disaster area can also report the losses even if their head offices are in a different county or city. An application can be made to the nearest branch of the National Taxation Bureau or tax collection office where the factory or branch is located to send personnel to conduct an inspection of the damages.

Business Tax

If a small-scale business operator is unable to operate due to the impact of the earthquake, it may apply to the local branch of the State Administration of Taxation or the tax collection office to be allowed to deduct the number of days it has not been in business and calculate business tax based on the actual number of business days.

Commodity Tax

A disaster-stricken manufacturer whose excise taxed or excise tax-exempt goods are destroyed or damaged and cannot be sold can, within 30 days after the disaster, submit a list of losses and relevant supporting documents to the competent state tax bureau and apply for a refund or cancellation of taxes paid.

Tobacco and Alcohol Tax

A disaster-stricken tobacco and alcohol product manufacturer or importer whose taxed or duty-free products have been destroyed or damaged and cannot be sold can, within 30 days after the disaster, submit a list of losses and relevant information to the competent state tax bureau to apply for a refund or cancellation of the tobacco and alcohol taxes and tobacco product health and welfare surcharges.

Administration

The application form for disaster losses can be downloaded from the "Disaster Loss Reporting Area" of the bureau's website and can be submitted to the nearest State Taxation Bureau with relevant supporting documents. Applications for tax relief can also be made online through the Ministry of Finance's tax portal.

Tax incentives

Thailand's Board of Investment (BOI) has approved incentives to encourage investment in the organization of world-class events in Thailand, such as large international concerts, sporting activities, and festivals. It has also extended the tax incentives for the printed circuit boards (PCB) industry to more businesses.

Incentives for Event Organizers

The aim of the incentives is to support the Thai government's vision to boost Thailand's status as a tourism hub and aid the recovery of the tourism and entertainment sectors following the COVID-19 crisis. Tourism accounts for around 20% of Thailand's GDP.

Organizers of large international events that require an investment, or expenses, of no less than THB 100 million (USD 2.8 million), will be granted an import duty exemption on equipment and will receive assistance to facilitate the temporary entry of foreign staff into the country. The organizer will need to prove their ownership of the rights to organize the project or event. Conferences or trade shows are not eligible for these incentives.

Support for PCB Supply Chain

To further promote foreign investment in the manufacturing of PCB and to cover the entire supply chain, the BOI has approved a modification of the definition of PCB businesses to include the following activities:

• manufacturers of parts and providers of related services such as lamination, drilling, plating, routing, and electrical testing, among others;
• producers of PCB parts such as copper clad laminate, flexible copper clad laminate and prepreg; and
• producers of raw materials such as dry film, transfer film, and back up board.

Tax incentives offered to PCB businesses include an import duty exemption on raw materials used for production and export, and a corporate income tax exemption for up to 8 years.

Enhancement of tax relief for investment in Thai ESG Funds

On 25 June 2024, the Ministry of Finance announced proposed changes to the conditions for personal income tax deductions related to the purchase of investment units in Thai ESG Funds. ESG funds are portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.

• the minimum period that the investment units must be held is reduced from 8 years to 5 years; and
• the maximum tax deduction allowed in a year is increased from THB 100,000 to THB 300,000, but not exceeding 30% of the investor's assessable income.

The proposed changes would be effective retroactively from 1 January 2024 and are part of a package of measures announced to support the Thai stock market. Investment rules for ESG-focused funds will also be eased.

VAT rate reduction

In late May 2024, the Government approved the proposal to implement a resolution to extend the cut in VAT from 10% to 8% on specific groups of goods and services from 1 July until the end of 2024. The proposed resolution to reduce the VAT rate by 2% in the last 6 months of 2024 is expected to be passed at the 7th Meeting of National Assembly XV. In the meantime, the Government also published a draft Decree on 2% VAT reduction.

The 2% VAT reduction will be applicable to goods and services which are currently subject to 10% VAT (with certain exceptions). Compared with previous Decrees i.e. Decree 15/2022, Decree 44/2023, Decree 94/2023, the draft Decree does not extend the scope of application of the VAT rate reduction.

The draft Decree also provides the lists of goods and services not entitled to the 2% VAT reduction with details of product codes and HS codes. Similar to the previous reduction periods, the 2% VAT reduction for eligible goods/ services will be consistently applied for all stages from importation, manufacturing, processing and trading, except for coal exploitation. For companies declaring VAT under the deduction method, on VAT invoices, the VAT rate will be stated as “8%”. Where goods/services sold are subject to different VAT rates, the VAT rate of each goods/services must be clearly indicated on an invoice.

Where the seller has issued VAT invoices for eligible goods/ services with the normal VAT rate without taking into account this 2% VAT reduction, then the seller and the buyer must handle this according to the invoicing regulations and adjust the output VAT and input VAT accordingly. The goods/ services subject to 2% VAT reduction shall be declared on Form 01 promulgated under the draft Decree which will have to be submitted together with the VAT returns.

Extended tax payment deadlines in 2024

The government has extended the tax payment deadlines in 2024 with the issuance of Decree 64/2024/ND-CP of 17 June 2024. The approved extensions are:

• corporate income tax for the second quarter of 2024: 3 months from the statutory deadline;
• VAT:
  • May, June and second quarter of 2024: 5 months from the statutory deadline;
  • July 2024: 4 months from the statutory deadline;
  • August 2024: 3 months from the statutory deadline; and
  • September and third quarter of 2024: 2 months from the statutory deadline;
  • the deadline for the taxable month of May is not later than 20 November 2024; for June, July, August and September, 20 December 2024; and for the second and third quarter, 31 December 2024
• personal income tax and VAT of business households and individuals for 2024: by 30 December 2024; and
• land rent (50% of the 2024 land rent, for the second half): 2 months from 31 October 2024.

International tax developments

Russia. On 20 June 2024, Russia and Vietnam signed a memorandum of understanding (MoU) in the field of tax policy and tax administration, in Hanoi, on the sidelines of the state visit of the President of Russia to Vietnam. The MoU aims to strengthen cooperation between the tax authorities of the two countries through the exchange of expertise and best practices. There will be a focus on digitalization and the automatic exchange of information (AEOI) for tax purposes in line with the global trend in tax administration and the growing importance of international cooperation in combating tax evasion.

The MoU establishes a framework for the exchange of experience and know how in the following priority areas:

•  Use of Big Data: applying advanced data analytics to improve the efficiency of tax control and administration;
• Digital Services for taxpayers: developing online platforms and tools to simplify taxpayer interaction with tax authorities;
• AEOI: establishing mechanisms for AEOI for tax purposes, promoting transparency and combating tax evasion; and
• Tax administration of E-commerce and retail trade: developing effective approaches to taxation in e-commerce and retail, taking into account the rapid growth of these sectors.

New capital gains tax for foreign shareholders

There is a proposal to replace the current capital gains tax on net gains by a 2% tax on gross sales proceeds.