Asia Tax Bulletin - Winter 2024/2025

VAT Law

On 25 December 2024, the much-anticipated Value Added Tax (VAT) Law was formally ratified by the Standing Committee of the 14th National People’s Congress (NPC) of China and subsequently promulgated as Order No. 41 by the President of the People’s Republic of China. This new legislation will come into effect on 1 January 2026, thereby replacing the existing provisional VAT regulations that have been in place for three decades.

VAT-able services

The supply of services will generally be deemed to be carried out in China if the service is consumed in China or if the service provider is located in China. Under the present rules VAT is due if either the seller or the purchaser is located in China. The 'consumption' trigger needs further clarification still.

Withholding agents

Under the new VAT law, a domestic purchaser will generally be a withholding agent for a foreign seller who makes VAT-able supplies in China. An exception applies if a domestic agent has been appointed according to the rules stipulated by the State Council.

Deemed supplies rules

A deemed supply applies if:

• An entity uses self-manufactured goods (including goods consigned to other parties for processing) for personal consumption or for employee welfare.

• An entity provides goods free of charge or

• An entity provides intangible assets, immovable property or financial products free of charge.

Input VAT relating to loan interest

Input VAT relating to loan interest is no longer non-creditable. This may or may not be changed in due course under the State Council regulations.

Mixed supplies

Under the new VAT law, the VAT rate applicable to the principal element in a mixed supply applies, instead of the current rule that one looks for the VAT rate applicable to the main business of the taxpayer.

Electronic VAT invoices

Under the new VAT law, an electronic VAT invoice has the same effect as a paper VAT invoice.

Residential properties

Courtesy IBFD it was reported that China has updated tax policies on residential properties that will apply from 1 December 2024.

Deed Tax

Deed tax on residential properties purchased by individuals as their only family home will be reduced to 1% for properties smaller than 140 square metres and to 1.5% for those beyond 140 square metres. In respect of a second residential property purchased by a family (the family includes the purchaser, their spouse and children aged under 18), the rate will be reduced to 1% for properties smaller than 140 square metres and to 2% for those beyond 140 square metres. The mandatory deed tax rates are from 3% to 5%.

Land Appreciation Tax and Value Added Tax Applicable to Cities That Have Abolished Distinction Between Ordinary and Unordinary (Luxury) Properties

Property developers of ordinary residential properties continue to be exempt from land appreciation tax on the condition that the value appreciation is below 20% of the deductible amount as prescribed in article 11 of the Implementation Regulations of the Land Appreciation Tax Law.

The sale of a residential property by individuals in Beijing, Shanghai, Guangzhou and Shenzhen, who have possessed the property for at least 2 years is exempt from value added tax.

The new policies described above are laid down in Announcement of MoF, STA and the Ministry of Housing and Urban-Rual Development [2024] No. 16. Circular [2016] No. 23 on deed tax in respect of the similar subject will cease to apply on the date of issuance of the Announcement.

Tax amendments passed parliament

Courtesy Yulchon, it was reported that on December 10, 2024, the 2024 tax law amendment bill passed the National Assembly plenary session. The National Assembly approved the 2-year deferral of crypto gains tax and the abolishment of financial investment income tax, but rejected the proposed repeal of the 20% Uplift Rule. The approved amendments will go through deliberation by the Cabinet Meeting before being promulgated, and will mostly become effective from January 1, 2025.

Government Budget tax changes for 2025

The Malaysian Budget was presented on 18 October 2024. The following summarizes the tax changes.

Corporate income tax

• Introduction of the new Incentive Framework, focusing on high-value activities rather than specific products, starting from the third quarter of 2025. The new incentives aim to:

- enhance the cohesion of the electronic and electrical sector, including areas such as integrated circuit (IC) design and advanced materials, by expanding tax incentives for exports to include IC design services; and

- provide special tax deductions to learning institutions for development of new courses in emerging technologies such as digital technology, artificial intelligence, robotics, the Internet of Things (IoT), data science, FinTech, and sustainable technology.

• For supply chain incentives, the government will offer:

- double tax deductions for expenditures incurred by multinational enterprises (MNEs) over 3 consecutive years;

- special tax deductions to MNEs that collaborate with local suppliers; and

- tax incentive packages for local suppliers, subject to conditions.

• For Global Minimum Tax (GMT) purposes, the government will streamline existing incentives, create new non-tax incentives, and study the feasibility of the Strategic Investment Tax Credit.

• A 2-year accelerated capital allowance (ACA) will be granted for expenditures on ICT equipment, computer software, and consultation fees.

• Special tax incentives will be announced by the end of the year to attract quality investments and create high-value jobs in the Johor-Singapore Special Economic Zone.

• Deductions will be provided to organizations approved under section 44(6) of the Income Tax Act 1967 (the Act) for payments made to teaching staff, subject to conditions.

• An additional 50% tax deduction will be granted to employers for expenses incurred in implementing flexible working arrangements and for paid extended caregiving leave provided by employers for up to 12 months, for employees caring for a child or a family member who is ill or has a disability.

Personal income tax

• Introduction of a 2% dividend tax on dividend income from Malaysian companies exceeding MYR 100,000 received by individual shareholders, from year of assessment YA (calendar year) 2025 onwards. Exemptions may be granted on dividends from government savings schemes such as the Employee Provident Fund (EPF), Permodalan Nasional Berhad (PNB)-managed unit trusts, and foreign-sourced dividend income.

• The tax relief for education and medical insurance premiums will be increased to MYR 4,000.

• Tax relief for medical expenses (up to MYR 10,000) is proposed to include payments made through medical insurance or takaful with co-payment features.

• The exemption on foreign-sourced income received in Malaysia will be extended from 31 December 2026 to 31 December 2036.

• Tax relief for contributions to the Private Retirement Scheme and deferred annuity premiums will be extended until YA 2030.

• Introduction of income tax relief of up to MYR 7,000 to be granted for 3 consecutive YAs in relation to sales and purchase agreements concluded from 1 January 2025 to 31 December 2027.

• The tax relief for TASKA and TADIKA fees will be extended until YA 2027.

• The tax relief limit for expenses related to the treatment and rehabilitation of children with autism will be increased to MYR 6,000 (from MYR 4,000).

• A revision will be made on the tax relief related to sports activities and healthcare, including expanding tax relief for medical check-up for parents to cover vaccinations, sports expenses for parents, medical treatment for grandparents, and extending tax exemptions and deductions for both childcare and eldercare to cover parents and grandparents.

• The tax relief for persons with disabilities will be increased to MYR 7,000, MYR 6,000 ringgit for spouses with disabilities, and MYR 8,000 for taxpayers with unmarried children with disabilities.

Indirect tax

• The sales tax will be extended to cover non-essential premium goods like imported salmon and avocados.

• The scope of the service tax will be expanded to cover commercial services, including fee-based financial services.

• A multi-tier levy mechanism will be implemented in early 2025 to reduce dependency on foreign workers.

• Carbon tax will be introduced for the steel, iron, and energy industries in Malaysia by 2026.

• The threshold for the imposition of the windfall profit levy on palm oil in Peninsular Malaysia will be raised to MYR 3,150, and to MYR 3,650 for Sabah and Sarawak. The market price range structure and export duty rates for crude palm oil will be revised starting from 1 November 2024. The current treatment for the export of crude palm oil from Sabah and Sarawak will also be maintained.

• The assignment of life insurance policies and family takaful certificates, either through a gift or a trustee, will be subject to a tiered stamp duty ranging from MYR 10 to MYR 1,000, based on the transfer value.

• A gradual increase in the excise duty on sugary drinks by MYR 0.40 per litre will be effective from 1 January 2025.

Global minimum tax (Pillar 2)

Courtesy IBFD, the Inland Revenue Board (IRB) recently issued the Guidelines on the Implementation of Global Minimum Tax (GMT) in Malaysia (the Guidelines), which aims to explain the implementation of the GMT legislation as provided under Part XI of the Income Tax Act 1967 (the Act). The IRB has also updated the frequently asked questions (FAQs) on the implementation of GMT in Malaysia.

• For any group of companies in Malaysia to be considered a Multinational Enterprise Group (MNE Group) and subject to GMT legislation, it must have at least one Entity, such as a subsidiary, branch, or permanent establishment (PE) located outside Malaysia (even one that does not earn income). A purely domestic group is not an MNE Group and is not subject to the GMT legislation.
• When applying the consolidated revenue threshold test, the FAQs highlight that whilst the Group must qualify as an MNE Group in the tested year, the threshold would still be met if the consolidated annual revenue is at EUR 750 million or more in at least 2 of the 4 preceding Financial Years (FYs), even if the Group was a purely domestic group during those preceding FYs.
• A sovereign wealth fund that meets the definition of a Governmental Entity in Part XI of the ITA will not be regarded as an Ultimate Parent Entity (UPE) and will not be considered part of an MNE Group.
• The transitional relief for filing obligations applies to the filing of the Global Information Return (GIR), the relevant notification, and the Top-Up Tax Return. Under the transitional relief, the returns must be submitted to the IRB no later than 18 months after the last day of the corresponding Reporting FY. The tax payable for the first filing transition year is due on the last day of the 18th month after the end of that filing transition year. The FAQs further clarify that the MNE Group in Malaysia will still be eligible for transition filing relief in FY 2025 even when the Group's first in-scope FY is FY 2024.
• During a Transition Period (any FYs beginning on or before 31 December 2026 but not including FYs that end after 30 June 2028), no fines or penalties will be imposed if the Constituent Entity (CE) has taken "reasonable measures" to ensure the correct application of the GMT legislation. This is assessed on a case-by-case basis.
• A Filing Constituent Entity can only elect to apply the Qualified Domestic Minimum Top-Up Tax (QDMTT) Safe Harbour where the Top-up Tax computed under QDMTT would be treated as "Qualified Domestic Minimum Top-Up Tax payable". This excludes any amount of QDMTT that:
• the MNE Group directly or indirectly challenges in a judicial or administrative proceeding; or
• the tax authority of the jurisdiction has determined as not assessable or collectible based on constitutional grounds, other superior law, or a specific agreement with the government of the QDMTT jurisdiction limiting the MNE Group's tax liability.

Amended guidelines for intra-group exemption Real Property Gains Tax

The Inland Revenue Board (IRB) issued revised guidelines with regard to the approval application procedure under paragraph 17(1), schedule 2 of the Real Property Gains Tax Act 1976 (the RPGT Act) for transfer of assets between companies in the same group. With approval from the IRB, RPGT will not be imposed on the disposer or liquidator, as the disposed asset is deemed to result in neither gain nor loss to the disposer or liquidator.

• Eligible applicants include companies or company liquidators, subject to conditions.
• To qualify for the RPGT exemption under paragraph 17(1) of the RPGT Act, applications must be submitted and approved by the IRB before asset disposal. In addition, asset disposal encompasses sales, transfers, or any conveyance through agreements or legal compulsion. The acquirer must also be a company established and resident in Malaysia.
• Specific criteria to qualify for the RPGT exemption under paragraphs 17(1)(a), 17(1)(b), and 17(1)(c) of the RPGT Act are outlined in the guidelines, respectively.
• Applicants must submit the following documents to the IRB:

-  The name of the disposer or liquidator and acquirer, as well as the type of business of the disposer and acquirer.

-  The organizational structure of the company before and after the restructuring, where applicable.

-  Complete details of the disposed asset.

-  The disposal price and the basis for determining the disposal price.

-  Details of the consideration for the disposal (whether the consideration is in the form of cash or shares). If in the form of shares, to state the price per share.

-  A copy of the latest relevant audited financial accounts for the disposer company and the acquirer company.

-  A copy of the director's resolution related to the asset disposal.

-  A copy of the draft sale and purchase agreement related to asset disposal.

-  Evidence showing that the disposer company and the acquirer company are within the same group of companies, where applicable.

-  A detailed explanation describing how the asset disposal contributes to enhancing operational efficiency, where applicable.

-  With regard to applications under paragraphs 17(1)(b) and 17(1)(c) of the RPGT Act, the applicant must submit a copy of the approval letter from the Ministry of Investment, Trade and Industry, the Securities Commission, and/or the Foreign Investment Committee (whichever is applicable) related to the restructuring or merger of companies.

The IRB may withdraw the approval within 3 years, subject to conditions. The guidelines replace the previous guidelines issued on 8 January 2015.

Tax changes with effect from 1 January 2025

To facilitate a holistic vision on tax affairs, courtesy Tratax, the following is a list of key tax measures set to be implemented by Malaysia during 2025:

• Introduction of 2% Dividend Tax for dividend income received by individuals effective 1st January 2025.
• e-Invoicing implementation for all taxpayers; effective 1st January for entities with annual revenue of RM25-RM100 million, and 1st July for entities with annual revenue of <RM25 million. With this regard, a Taxpayer Identification Number (TIN) finder has been launched by the tax authority yesterday to allow entities to look up the TIN of the customers.
• Expansion of Sales Tax to include non-essential goods and Services Tax to include commercial service transactions effective 1st May 2025. Details are expected to be announced soon.
• Implementation of Global Minimum Tax (GMT) / Pillar 2 for any financial year commencing on or after 1st January 2025.
• Introduction new Investment Incentive Framework by 3rd quarter of the year.
• Operationalization of the Single Family Office scheme, which entails a 20-year income tax exemption among other benefits, by 1st quarter of the year.
• Implementation of RPGT self-assessment regime effective from 1st January 2025.
• Labuan: Imposition of ‘fit and proper’ criteria for full time employees and, separately, transition from previous year basis to current year basis; resulting in two YAs 2025 and hence cash flow implications for affected taxpayers. This is incidental to the introduction of self-assessment features for Labuan.
• Implementation of XBRL-based reporting (known as Malaysian Income Tax Reporting System (MITRS)) for tax workings by companies effective from tax year 2025.
• Preparation for Stamp Duty self-assessment regime & Carbon Tax implementation in 2026.

Global minimum tax (Pillar 2)

The Multinational Enterprise (Minimum Tax) Act 2024 has been published in the Singapore Government Gazette. The Act implements the Global Anti-Base Erosion Model Rules (Pillar Two, GloBE Rules) of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) by providing for (i) a multinational enterprise top-up tax (MTT) (which gives effect to the income inclusion rule or IIR); and (ii) a domestic top-up tax (DTT) (which is intended to be a qualified domestic minimum top-up tax or QDMTT within the meaning of the GloBE Rules).

The Act has come into operation on January 1, 2025. The Minimum Tax Act 2024 was published on 27 November 2024. Regulations setting out detailed rules and requirements for implementing the GloBE rules had yet to be published in the Official Gazette at the time of this report being published.

On the 31st of December 2024, the IRAS issued an e-Tax guide about the new Pillar 2 rules.

Tax incentives

Parliament has recently passed the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 2024. This concerns the Development and Expansion Incentive (DEI).

• a concessionary rate of tax of 15% may be specified, in addition to the current concessionary rates of tax of 5% and 10%, as a base rate on or after 17 February 2024, for qualifying income derived on or after 1 January 2024 by a company awarded the DEI; 
• extensions of the tax relief periods of relevant DEI recipients can be granted up to 31 December 2028; and 
• the scope of a "relevant development and expansion company" will be expanded. 

The Bill also provides amendments to sections 41 and 43 which relate to investment allowances of the Economic Expansion Incentives (Relief from Income Tax) Act 1967. The DEI enhancement was announced in Budget 2024.

Crypto asset reporting

On 26 November 2024, Singapore, with 60 other jurisdictions at the 17th Global Forum Plenary Meeting in Asunción, Paraguay, committed to the implementation of the Crypto-Asset Reporting Framework (“CARF”). Under the Global Forum’s CARF Commitment Process, Singapore has been identified as one of the 52 jurisdictions relevant to the CARF in 2024 and is expected to commence exchanges under the CARF by 2027 or 2028 at the latest. The Global Forum will closely monitor and update the list of jurisdictions to reflect the evolution of the crypto-asset sector.

In line with Singapore’s commitment to international tax transparency, we signed the Multilateral Competent Authority Agreement on Automatic Exchange of Information pursuant to the Crypto-Asset Reporting Framework (“CARF MCAA”) and the Addendum to the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“the Addendum to the CRS MCAA”). This further strengthens our reputation as a trusted and responsible business hub.

These agreements provide for: (a) automatic exchange of tax relevant information on Crypto-Assets between the tax authorities of signatory jurisdictions; and (b) amendments to the Common Reporting Standard (“CRS”) such as strengthening of due diligence and reporting requirements. Like other exchange of information agreements that Singapore has entered into, the agreements incorporate internationally agreed standards on confidentiality and data safeguards.

The signing of the CARF MCAA and the Addendum to the CRS MCAA follows Singapore’s earlier endorsement of the CARF Joint Statement on 10 November 2023, where jurisdictions stated their intention to work towards swiftly transposing the CARF into domestic law and activating exchange agreements in time for exchanges to commence by the agreed timeline, and to implement the amended CRS under the same timeline.

Major financial centres and digital asset hubs, including France, Japan, Germany, Switzerland, United Arab Emirates, United Kingdom and United States of America, have also committed to implement the CARF.

Securities lending arrangements

The IRAS issued an e-Tax guide on the tax aspects of securities lending arrangements. Key aspects are the following:-

When a person needs certain securities for the purpose of, say covering short sale, it can enter into a securities lending arrangement to borrow the securities. It is obliged to provide collateral and return the borrowed securities at a later date. 

On the other hand, when a person has certain securities but needs cash, it can enter into a securities repo arrangement to sell the securities for cash with the agreement that the securities will be sold back to it at a later date. 

Both arrangements involve transferring of ownership of the securities but only temporarily. If the arrangement is a qualifying arrangement, the person who originally owns the securities will not be treated as having sold the securities. 

Briefly, this is the tax position for qualifying arrangements: 

Value added tax

During the eighth session of Vietnam's National Assembly, which concluded on 30 November 2024, new VAT and tax administration regulations were enacted. These changes affect businesses, particularly in the e-commerce and digital sectors. Key amendments include withholding tax obligation for e-commerce platform operators, 0% VAT for export services, new VAT refund conditions, and increased VAT rates for foreign suppliers through e-commerce platforms. These changes start in early 2025.

The new VAT Law and Amended Law on Tax Administration will take effect in early 2025, introducing updates that could affect businesses, particularly in the e-commerce and digital sectors. Taxpayers should review these changes and assess potential impacts to prepare for future compliance.

VAT Law No. 48/2024/QH15

The scope of taxpayers for Vietnam VAT purposes has expanded to the following, among others:

• Foreign suppliers that have no permanent establishment in Vietnam and engage in e-commerce businesses and digital-based businesses with organizations, individuals in Vietnam.
• Organizations being operators of foreign digital platforms conducting withholding, paying tax obligations on behalf of foreign suppliers.
• Organizations being the operators of e-commerce trading platforms and digital platforms with payment functions, which withhold, declare and pay taxes on behalf of business households, business individuals on the e-commerce trading platforms, digital platforms.

The sale of debts, including the sale of accounts payable and accounts receivable, is VAT-exempt.

The annual revenue threshold triggering VAT and personal income tax for business households and business individuals is increased from more than VND 100 million to more than VND 200 million.

Invoice issuance is supplemented as a point triggering VAT liability for the supply of goods.

Outbound services are zero rated for VAT. "Exported services eligible for 0% VAT" is defined as services provided directly to organizations and individuals abroad and consumed outside of Vietnam, and services provided directly to organizations in non-tariff zones and consumed within these zones for directly serving export production activities. With the adoption of the new law, the application of 0% VAT for export services in Vietnam remains a complex and controversial issue as "consumed outside of Vietnam" and "directly serving export production activities" are not defined.

Foreign suppliers that provide services through e-commerce and digital platforms were subject to 5% VAT on the revenue received by such foreign suppliers. Under the new VAT Law, this rate is increased to 10%, and the direct calculation method no longer applies to such foreign suppliers. However, the new VAT Law does not clearly stipulate the calculation method and taxable base for calculating the VAT of foreign suppliers.

The VAT refund now extends to business establishments that only produce goods or provide services subject to 5% VAT and satisfy certain conditions. If business establishments provide goods or services subject to various VAT rates, VAT refund will be prorated according to the government's guidance.

The new VAT Law stipulates, among others, a new condition for VAT refund procedures. Accordingly, sellers have declared and paid VAT for those invoices being requested to refund VAT by applicants (i.e., buyers).

The new VAT Law will take effect on 1 July 2025, except for item (iii) above, which will enter into force on 1 January 2026.

Withholding tax for e-commerce platform operators

Amended Law on Tax Administration No. 56/2024/QH15 ("Amended LTA")

Under the current Law on Tax Administration, foreign suppliers that have no permanent establishment (PE) in Vietnam and engage in e-commerce and digital-based business in Vietnam have the obligation to register, declare and pay tax in accordance with the regulations of the Minister of Finance. By removing the "having no PE" feature, the registration requirement does not depend on whether foreign suppliers have a PE.

Local or foreign organizations being the operators of e-commerce trading platforms and digital platforms with payment functions are required to withhold, declare and pay taxes on behalf of business households and business individuals. The government will provide further guidance in an implementing decree.

Taxpayers can supplement their tax declaration only before tax authorities or competent authorities announce an audit decision and with respect to the tax declaration that are not in the scope of an audit.

Legal representatives of enterprises that have outstanding tax liabilities may in certain circumstances be subject to a temporary suspension of exiting from Vietnam.

The Amended Law on Tax Administration will take effect on 1 January 2025, except for item (ii) above, which will enter into force on 1 April 2025.

Global minimum tax (Pillar 2)

Although Vietnam previously announced that Pillar 2 applies with effect from 1 January 2024, the Ministry of Finance has opened a consultation on a draft decree to implement Resolution 107/2023/QH15 on the application of top-up tax under the global anti-base erosion rules.

The draft decree, which comprises 24 articles (i.e. articles 1-3 on general provisions; articles 4-5 on the QDMTT; articles 6-7 on the IIR; articles 8-13 on transitional provisions and reduction of liability; articles 14-22 on tax registration, payment and management; article 23 on entry into force; and article 24 on responsibility of implementation), explain in greater detail how the IIR and QDMTT will be implemented in Vietnam. Additional information on terminologies used in the draft decree according to the GloBE rules and rules relating to the calculation of the top-up tax are included in appendices.