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.

Global Minimum Tax (Pillar 2)

The Inland Revenue Department (IRD) on 27 December 2024 issued a press release stating that the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024 was published in the Gazette on December 27, 2024.

The Bill seeks to implement the international tax reform framework, Base Erosion and Profit Shifting (BEPS) 2.0, promulgated by the Organisation for Economic Co-operation and Development in October 2021, and put in place the global minimum tax and the Hong Kong minimum top-up tax (HKMTT) from 2025. Currently, more than 140 jurisdictions (including Hong Kong) have accepted the reform framework to tackle BEPS risks arising from the digitalisation of the economy.

Under BEPS 2.0, large multinational enterprise (MNE) groups with an annual consolidated revenue of 750 million euros or above (in-scope MNE groups) need to pay a global minimum tax of at least 15 per cent in every jurisdiction in which they operate. This will reduce the incentive for large MNE groups to shift profits to low- or no-tax jurisdictions to evade tax responsibility, and minimise harmful competition among countries/regions to attract investment by lowering profits tax rates, thus creating a fairer taxation environment.

With the implementation of the HKMTT, if the effective tax rate of an in-scope MNE group in Hong Kong is lower than 15 per cent, Hong Kong has the right to collect top-up tax from the group's entities in Hong Kong to bring their effective tax rate up to 15 per cent. Otherwise, according to the BEPS 2.0 rules, other relevant jurisdictions have a right to collect top-up tax in respect of these low-taxed Hong Kong entities. Therefore, implementing the HKMTT can safeguard Hong Kong's taxing rights instead of ceding them to other jurisdictions. In-scope MNE groups will also be spared the need to pay top-up tax in respect of their low-taxed Hong Kong entities in other relevant jurisdictions in which they operate, thereby reducing their compliance burden. It is estimated that the collection of top-up tax will bring to the Government an annual revenue of about $15 billion from 2027-28.

To better help MNE groups ascertain their tax liabilities following the implementation of the global minimum tax and the HKMTT, the Inland Revenue Department has set up a dedicated team to provide technical support and will publish online guidance addressing common concerns.

The Bill will be introduced into the Legislative Council for first reading on January 8, 2025.

Tax rate reductions

In his annual policy address, delivered on 16 October 2024, Chief Executive John Lee introduced the following new tax relief measures to rekindle Hong Kong's reputation as a dining and entertainment leader in the region along with plans to reinvigorate other key industries.

Spirits Tax Cut

To promote the trade of spirits (alc/vol > 30%) and facilitate the coordinated development of logistics, tourism and catering, Hong Kong will, effective immediately, reduce the tax rate of the portion of spirits with the import price of over HKD 200 from 100% to 10%. The tax rate of the portion below HKD 200, and for spirits with an import price below HKD 200, will remain at 100%.

Fertility Tax Deduction

To encourage fertility, the government will set the tax deduction related to reproduction services up to HKD 100,000 under the salaries tax and personal assessment tax from the 2024/25 tax year.

Maritime Tax Benefits

To develop the maritime business, the government will announce the further expansion of tax benefits in the first half of 2025, including a new arrangement of tax deductions for ship leasing under international tax regulations.

Bulk Commodity Trading Incentives

To boost bulk commodity trading and consolidate Hong Kong's position as a global economic, maritime and trade centre, the government expects the research of tax benefits on promoting bulk commodity transactions to be finished in 2025 to attract domestic and overseas enterprises to establish operations in Hong Kong.

Asset Management Tax Relief

To strengthen Hong Kong's role as an international asset and wealth management centre, the government will increase the types of transactions eligible for tax relief for funds and single-family offices.

International tax developments

Bangladesh and Croatia. Hong Kong signed Comprehensive Avoidance of Double Taxation Agreements (CDTAs) with Bangladesh and Croatia in August last year and January 2024 respectively. All signatories have completed the relevant ratification procedures, and the two CDTAs come into force on December 20, 2024. They will be applicable to Hong Kong tax for any year of assessment beginning on or after April 1, 2025.

Arbitral awards are not 'other income' under tax treaties

Courtesy Majmudar & Partners it was reported that in 1998, Mahanagar Telephone Nigam Limited (“MTNL”) invited tenders for Code-Division Multiple Access (“CDMA”) technology supply on a turnkey basis. In 1999, a contract was awarded to a joint venture between Fujitsu Ltd. (“Fujitsu”), a tax resident of Japan, and Fujitsu India Private Limited (“FIPL”), with FIPL designated as the lead partner. The project involved the supply of equipment and commissioning of a CDMA system for MTNL.

A dispute arose from the non-payment of dues under various purchase orders after commissioning and acceptance testing of the CDMA system by MTNL. In 2009, Fujitsu and FIPL invoked the arbitration clause and commenced arbitration proceedings against MTNL. During the assessment year 2019-20, Fujitsu received from MTNL compensation of the principal amount along with interest. In its tax return, Fujitsu classified the principal amount as “business income” and asserted that it was not taxable in India in the absence of a permanent establishment in India as per Article 5 (that deals with a place of business of a foreign enterprise) read with Article 7 (that deals with business profits of a foreign enterprise) of the double taxation avoidance agreement between India and Japan (the “Japan DTAA”). The interest income was offered to tax at the concessional rate of 10% under Article 11 of the Japan DTAA. The Indian income tax authorities (the “ITA”) disputed this classification and treated both, the principal and the interest component, as “Other Income” under Article 22 of the Japan DTAA.

Generally, income (other than dividend income, interest income, business profits, royalty income, fees for technical services, fees from dependent personal services and fees from independent personal services) that is not explicitly dealt with in a double taxation avoidance agreement gets covered in a distinct residuary section known as “Other Income.” The “Other Income” residuary category encompasses various types of earnings that may not fall under the specific terms of a double taxation avoidance agreement. As per paragraph 3 of Article 22 of the Japan DTAA, the exclusive right to tax “Other Income” has been given to the State of residence of the taxpayer (India, in this case).

The ITA argued that the compensation was a one-time windfall, non-recurring gain that did not arise directly from the regular business operations of Fujitsu. Further, Fujitsu did not incur any business expenses in India in relation to this compensation, which suggests the passive nature of the income as opposed to active business income. On this basis, the ITA alleged that Article 7 of the Japan DTAA relating to “Business Profits” was inapplicable due to Fujitsu’s lack of substantial business operations in India.

After a detailed analysis of the arbitration proceedings and the contract, the Delhi Income-tax Appellate Tribunal (the “Delhi ITAT”) noted that Fujitsu was indeed a necessary and integral party to the project contract. The Delhi ITAT based its assessment on the fact that, since 1998, Fujitsu had been providing telecom and information technology-based solutions to various clients globally. Fujitsu and FIPL formed a joint venture to bid for the MTNL contract, which the joint venture had won, following which Fujitsu had executed the project contract in the ordinary course of its business.

The arbitral award was on account of a dispute relating to the supply of equipment by Fujitsu; and, accordingly, the principal compensation under the award arose from Fujitsu’s core business activities and retained its character as business income under the Japan DTAA. Moreover, as the supply transaction was a trading transaction, and as Fujitsu did not have a permanent establishment in India, this income could not be taxable in India.

The Delhi ITAT followed the Supreme Court’s decision in the Govinda Choudhary tax case and held that the interest income was only an accretion to the taxpayer’s receipt from the contract. Therefore, it shared the same character as the principal compensation under the contract which the taxpayer was entitled to. Thus, the interest income could not be separated from the other amounts granted to a taxpayer under an arbitral award and treated as “Other Income.”

The characterisation of a one-off receipt as coming under the scope of business activities has often been a contentious issue as the tax implications can differ based on the nature of the receipt. In the Glencore International AG tax case, on principles of interpretation, the Delhi High Court, by its order dated July 31, 2019, held that compensation received by a Swiss company (the decree holder) as damages for breach of contract in India was not in the nature of a “windfall gain” and, therefore, not taxable under Article 22 (Other Income) of the India-Switzerland double taxation avoidance agreement. The Delhi High Court also rejected the position taken by the ITA in the Glencore case that the award for arbitration and legal costs constituted fees for technical services as the award was not the income of the decree holder. The Delhi High Court also held, in this case, that the interest paid on the award was not taxable under Article 22(3) of the India-Switzerland double taxation avoidance agreement.

The Delhi ITAT’s ruling has recognized that the compensation under the award was inextricably linked to Fujitsu’s commercial activities in India and has clarified on the manner in which such one-off payments of compensation for breach of contractual rights should be dealt with.

Suspension MFN clause in tax treaty by Switzerland

In 1994, India and Switzerland entered into a DTAA, an agreement for avoidance of double taxation and prevention of fiscal evasion. Notably, the DTAA contains an MFN clause, which guarantees that both nations treat investors from other nations equally to those from any other third country.

On December 11, 2024, the Swiss Government decided to suspend the MFN clause under the DTAA. This move stems from a judgment rendered by the Supreme Court of India in 2023, on the interpretation of the MFN clause in India’s treaties with member nations of the Organisation for Economic Co-operation and Development (“OECD”).

Immediate Impact of Suspension

The suspension of MFN status by Switzerland is expected to impact Indian investments in Switzerland. For example, dividends paid to Indian entities from Swiss sources will be subject to higher taxes. However, the tax position remains unaffected for Swiss entities with investments in India.    The suspension could also impact investment decisions, increase tax liabilities, and create shortterm uncertainty for businesses engaged in cross-border activities in Switzerland.

The root cause of Switzerland’s suspension of the MFN clause lies in the decision given by the Apex Court in the case of Assessing Officer (I. T.) v. Nestle SA. (“Nestle Judgement”), 1 which provided a clarification on the application of the MFN clause under the DTAA.

Tax holidays and Pillar 2

The Minister of Finance (“MoF”) has issued Regulation No.PMK-69 as the latest update/revision of the Tax Holiday incentive for substantial new investment in designated Pioneer industries. This regulation extends the granting period to be applicable for Tax Holiday proposals submitted to the Online Single Submission (“OSS”) system up to 31 December 2025.

Whilst the eligibility and benefits of the Tax Holiday facility remain largely the same as in the previous version, this update contains new provisions related to the implementation of Pillar Two, as follows:

• A taxpayer who has obtained a Tax Holiday facility but also falls under a qualifying taxpayer being part of a multinational enterprise group that is subject to Global Minimum Tax under Pillar Two rules, is subject to an additional domestic top up tax under this rule.
• This domestic top up tax would also apply to those who have obtained the Tax Holiday facility prior to the effective date of PMK-69.

Although the MoF has not issued the domestic regulation to implement the Global Anti-Base Erosion (“GloBE”) rules in Indonesia, it is expected that the Qualified Domestic Minimum Top-up Tax (“QDMTT”) will be adopted under the upcoming regulation. PMK-69 also provides some eligibility, procedural, and administrative changes as follows:

• A taxpayer who has obtained Tax Holiday facility under the National Capital “Nusantara” (Ibu Kota Negara bernama Nusantara/”IKN”) facility cannot apply for this Tax Holiday.
• The applicant now needs to submit its own Tax Clearance Letter (Surat Keterangan Fiskal/”SKF”) in the online application to use the Tax Holiday facility. Previously, SKF was required for their domestic shareholder. Domestic shareholder is still required to have an automated SKF but no longer needs to be submitted in the application.
• Manual application submission is no longer available, meaning that all application must be submitted only through OSS.
• Reporting obligations for capital investment and production realisation must now be submitted online through OSS.

Tax facilities for government projects financed by foreign grants or loans

On 18 October 2024, the Minister of Finance (“MoF”) issued PMK-80 to update the procedures for applying for the Value-Added Tax (“VAT”)/Luxury-goods Sales Tax (“LST”) and Income Tax facilities for government projects financed by foreign grants/loans, revoking KMK-239 and its amendments. Although the facilities given under GR-42 include Import Duty facilities, PMK 80 only covers the procedures for VAT/LST and Income Tax facilities. PMK-80 provides more certain procedures by defining each relevant party and their roles as well as introducing certain documents to be used to validate the eligibility of the tax facilities. The parties and documents introduced in this regulation are as follows:

• Grant/Loan Recipient (i.e. government ministries and institutions) and Grant/Loan Forwarding Recipient (i.e. Regional Government receiving the passed-on grant/loan from the Grant/Loan Recipient). Hereinafter, these parties are collectively referred to as “Implementing Agency”.
• Grant/Loan Provider (i.e. foreign party/creditor providing the grant/loan to the government).
• Registration Number (i.e. decree of registration number of the grant/loan agreement issued under the foreign grant/loan procurement regulations).
• Main Contractor Certificate (i.e. document to validate the Main Contractor’s eligibility to enjoy the tax facilities).
• Taxable Goods/Services Registration Proof (i.e. document to validate the taxable goods and services’ eligibility to enjoy the VAT/LST facilities).
• Non-Collection Certificate (Surat Keterangan Tidak Dipungut/”SKTD”) for VAT/LST facilities.
• Certificate of Income Tax Facility for the Main Contractor.

Stock Options

The Japanese tax authority has released updated FAQs regarding the tax treatment of stock options, offering guidance on recent legislative changes. These updates reflect amendments enacted in March 2024 that broaden the scope of qualified stock options following the Prime Minister's announcement on his economic stimulus plan. Additionally, the tax authority clarified its stance on certain matters. Notably, the revised FAQs introduce a new example illustrating that stock options will not lose their qualified status even if the granting agreement between the option holder and the issuing company is subsequently modified.

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.

Tax Incentives

On 11 November 2024, Republic Act (RA) 12066 also known as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act was signed into law. This law further lowers the standard corporate income tax rate applicable to income derived from registered projects and activities of registered business enterprises (RBEs) that benefit from the enhanced deductions regime (EDR) under section 294(C) of the National Internal Revenue Code, as amended, to 20% (see Congress Approves Bill to Further Amend National Internal Revenue Code, Enhance Tax Incentives for Registered Projects and Activities (11 September 2024)).

RA 12066 also makes further amendments to incentives, such as increasing the rate of additional deductions on power expenses from 50% to 100% and increasing the EDR or special corporate income tax (SCIT) period to up to 27 years (currently, capped at 10 years). RBEs will have the option under the new law to apply the EDR or the 5% SCIT from the beginning of their commercial operations (currently, an income tax holiday precedes the EDR or SCIT regime).

Under RA 12066, VAT exemption on importation and VAT zero-rating on local purchases will be allowed on goods and services "directly attributable" to the registered project or activity, including incidental expenses, of a registered export enterprise or a registered high-value domestic market enterprise. Currently, VAT incentives can be claimed on goods and services that are "directly and exclusively used" in the registered project or activity of an RBE.

Similarly, duty exemption will be allowed on importations of capital equipment, raw materials, spare parts or accessories directly attributable to (instead of "directly and exclusively used in") the registered project or activity of an RBE, including goods used for administrative purposes, subject to conditions.

RA 12066 also addresses local taxation during the income tax holiday or EDR, providing for an optional RBE local tax that will be levied in lieu of all local taxes, fees and charges during the incentive period. Implementing rules and regulations are expected to be issued within 90 days from the effective date of the law.

VAT imposed on Digital Services in the Philippines

On 2 October 2024, the Philippines enacted Republic Act (R.A.) No. 12023, which amended its tax code, or the National Internal Revenue Code (NIRC), to impose value-added tax (VAT) on digital services. Under the new law, digital service providers (DSPs) shall be liable for assessing, collecting and remitting VAT on digital services consumed in the Philippines. Since this amendment also applies to businesses that do not have an office in the Philippines, all businesses transacting business in the Philippine market should be aware of it.

“Digital service” is defined as any service that is supplied over the internet or other electronic network with the use of information technology and where supply of the service is essentially automated. It shall include online search engine, online marketplace or e-marketplace, cloud service, online media advertising, online platform or digital goods.

Digital service providers (DSP) are resident or non-resident suppliers of digital services to a consumer who uses digital services subject to VAT in the Philippines. A non-resident DSP (NRDSP) is a digital service provider that has no physical presence in the Philippines.

DSPs, whether resident or non-resident, shall be liable for assessing, collecting and remitting the VAT on digital services consumed in the Philippines.

Any person who, in the course of trade or business, sells, barters, exchanges or leases goods or properties, including those digital in nature, or renders services, including digital services, shall be liable to register for VAT, if:

• The gross sales for the past 12 months have exceeded Php 3 Million; or
• There are reasonable grounds to believe that the gross sales for the next 12 months will exceed Php3 Million.
• A resident DSP shall register in accordance with the ordinary procedures of the Bureau of Internal Revenue (BIR).

However, the BIR is required to establish a simplified automated registration system for NRDSPs.

The new law imposes value-added tax equivalent to 12% of gross sales derived from the sale or exchange digital services. NRDSP shall not be allowed to claim creditable input tax.

A non-resident digital service provider required to be registered for value-added tax shall be liable for the remittance of VAT on digital services that are consumed in the Philippines, if the consumers are non-VAT registered.

A VAT-registered taxpayer shall be liable to withhold and remit the VAT due on its purchase of digital services consumed in the Philippines from NRDSPs within 10 days following the end of the month the withholding was made.

If a VAT-registered NRDSP is classified as an online marketplace or e-marketplace, it shall also be liable to remit the VAT on the transactions of non-resident sellers that go through its platform, as long as it controls key aspects of the supply, and either (a) sets, either directly or indirectly, any of the terms and conditions under which the supply of the goods is made; or (b) it is involved in the ordering or delivery of goods, whether directly or indirectly.

A digital sales or commercial invoice shall be issued for every sale, barter, or exchange of digital services made by a VAT-registered NRDSP. Such invoice shall contain the date of transaction, reference number, identification of the consumer, brief description of the transaction, and the total amount with the indication that such amount includes the VAT. However, unlike other persons subject to VAT, VAT-registered NRDSPs are not required to maintain a subsidiary sales journal and subsidiary purchase journal.

The BIR is empowered to penalize failure to register with the blocking of digital services performed or rendered in the Philippines by a DSP. This shall be implemented by the Department of Information and Communications Technology (DICT), through the National Telecommunications Commission (NTC).

The implementing rules of this law shall be issued within 90 days from its effectivity, or 16 January 2025. Thereafter, NRDSPs shall be immediately be subject to VAT after 120 days from the effectivity of the such rules.

Persons and companies who are engaged in the business of selling or exchanging digital services, especially non-resident digital service providers, should closely monitor the issuance of the implementing rules for R.A. 12023. DSPs covered by this law are advised to ensure compliance with the forthcoming regulations, especially registration and timely remittance of taxes due, in order to avoid penalties that may be imposed by tax authorities.

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: 

Global Minimum Tax (Pillar 2)

Thailand is actively pursuing membership in the Organisation for Economic Co-Operation and Development (“OECD”) to foster economic and social development and enhance its global standing. As part of this effort, Thailand is aligning its tax system with OECD standards by adopting Pillar 2. Pillar 2 comprises tax rules implemented by the OECD to prevent Multinational Enterprises (“MNEs”) from avoiding higher tax rates by shifting profits to low-tax jurisdictions. Pillar 2 applies to MNEs whose consolidated financial statements show annual profits of €750 million (approximately THB 28 billion) or more. It imposes a 15% global minimum tax rate on MNEs’ profits, known as the “Top-up Tax.”

To implement these rules, Thailand must enact domestic legislation to create a concrete legal framework for public compliance. Due to time constraints, Thailand is expediting the implementation process through emergency decrees rather than regular legislative acts. On 11 December 2024, the Cabinet approved two draft emergency decrees which are:

The Draft Emergency Decree on Top-up Tax, proposed by the Ministry of Finance: This draft outlines the rules and procedures for collecting top-up tax from legal entities within MNE groups whose consolidated financial statements show total revenue of at least €750 million (approximately THB 28 billion).

The Draft Emergency Decree Amending the National Competitiveness Enhancement for Targeted Industries Act, proposed by the Board of Investment: This draft amends existing law to address Pillar 2 by introducing measures to regulate the utilization of both tax and non-tax benefits.

Both drafts will be submitted to the Office of the Council of State for detailed review. Upon approval, they will be proposed to the Cabinet again and then to the House of Representatives. The public will be notified of the final versions before they become effective, with enforcement projected for 2025. These changes are expected to generate additional government revenue, ensure fair competition, and provide clearer guidelines for investors regarding their tax responsibilities.

The implementation through draft royal decrees introduces top-up tax and measures to regulate tax and non-tax incentives for targeted industries. These changes will contribute to a more level playing field for businesses, attract foreign investment, and ensure MNEs pay their fair share of taxes. The implementation is expected to strengthen Thailand’s economic competitiveness and sustainable development. Stakeholders should closely monitor the draft emergency decrees to prepare for the new laws taking effect in 2025.

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.