Asia Tax Bulletin - Spring 2024

Import duty benefits via Hainan Free Trade Port

Announcement [2023] No. 75 jointly released by the Ministry of Finance, the Ministry of Ecology and Environment (“MEE”), the Ministry of Commerce (“MOFCOM”), the General Administration of Customs (“GAC”) and the State Administration of Taxation was issued on 27 December 2023.

According to the Announcement, preferential import taxation policies have been given to the goods which enter certain free trade areas temporarily and the goods re-transported back to the Hainan Free

Trade Port (“HNFTP”) after overseas repair.

The HTCZ is situated on the border between Shenzhen and Hong Kong and is a pioneering zone facilitating technological collaboration between Shenzen and Hong Kong for the development of the Guangdong-Hong Kong-Macau Greater Bay Area (GBA). The tax incentives available in the zone focus on key areas and sectors of technological innovation.

Stamp Duty exemption on Entrepot Trade in Shanghai Free Trade Zone and Lin-Gang New Area

From 1 April 2023 to 31 March 2025, enterprises registered in the Shanghai Free Trade Zone and the Lin-Gang New Area will be exempt from stamp duty on purchase and sale contracts with respect to (offshore) entrepot trade.

Advance Pricing Arrangements

The State Taxation Administration has published the annual report on advance pricing arrangements (APAs) for the year 2022. This is the fourteenth report China has published on the latest policies, implementation procedures, statistics and development of its APA programme, and covers the APAs concluded from 2005 to 2022.

According to the report, by the end of 2022, China had concluded 144 unilateral and 116 bilateral APAS. China has not signed any multilateral APA to date.

This report is intended to provide guidance to enterprises interested in entering into APAs with the Chinese tax authority, and to serve as a reference for competent authorities of other jurisdictions and the general public to better understand China's APA programme. The report is, however, not legally binding, and taxpayers and tax administrations may not use the report as a legal basis in negotiations of APAs.

Administrative Guideline on Advance Rulings

The State Taxation Administration (STA) of Shanghai Office published an administrative guideline on advance tax rulings. Although China does not have a national tax rulings system, China has experimented with the ruling practice at the local level. The practice was first introduced in Shenzhen, and is now followed by Shanghai and other cities.

An advance tax ruling cannot be construed as an administrative act that has repercussions on the substantial rights and obligations of an enterprise that can be subjected to an administrative review or a court appeal.

The Shanghai administrative guideline, which contains 26 articles, takes effect on 29 December 2023, the date of publication.

The guideline applies to entities located in the Shanghai municipality.

Tax haven list

The Hong Kong Special Administrative Region (HKSAR) Government on February 20, 2024 announced that Hong Kong has been removed from the European Union (EU)'s tax haven watchlist in recognition of Hong Kong's efforts in ensuring that its foreign-sourced income exemption (FSIE) regime is in full compliance with the EU's relevant requirements.

The OECD's Forum on Harmful Tax Practices (FHTP) has determined that the tax regimes in Hong Kong and the United Arab Emirates (UAE) are not harmful. The annual review of low-tax jurisdictions, released on 6 February 2024, indicates most are meeting the standards for economic activity demonstration. The UAE's recent adoption of a 9% corporate income tax has led to its removal from the list, marking positive advancement, the report shows.

Aircraft leasing

On the enactment of the Inland Revenue (Amendment) (No. 3) Ordinance 2017 (“2017 Amendment Ordinance”) in July 2017, sections 14G to 14N of the Inland Revenue Ordinance (“IRO”) were introduced to provide tax concessions to qualifying aircraft lessors and qualifying aircraft leasing managers in Hong Kong. In general, qualifying aircraft lessors are entitled to a tax concession under which only 20% of the tax base (i.e. gross lease payments less deductible expenses (excluding depreciation allowance)) (net lease payments) is assessed to compensate for their non-entitlement to depreciation allowance on the aircraft. The profits derived by qualifying aircraft lessors and qualifying aircraft leasing managers from qualifying activities are charged at 8.25%, i.e. one-half of corporate profits tax rate.

Details of the Department’s views and practice on the tax concessions for qualifying aircraft lessors and qualifying aircraft leasing managers introduced under the 2017 Amendment Ordinance are set out in Departmental Interpretation and Practice Notes No. 54 – Taxation of Aircraft Leasing Activities.

Budget – tax changes 2024

Hong Kong's government issued its budget for 2024 with the following proposed tax changes:

Salaries tax. With a view to increasing government revenue, the Budget proposed to implement a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25. The first HKD5 million of net income will continue to be subject to the standard rate of 15%, while the portion of net income exceeding HKD5 million will be subject to the standard rate of 16%.

Residential property stamp duty. Shortly after the adjustments announced in the 2023 Policy Address, the Budget proposed to remove all demand-side management measures for residential properties, including Buyer's Stamp Duty (BSD) (which is applicable to non-Hong Kong permanent resident buyers), New Residential Stamp Duty (NRSD) (which is generally applicable to buyers that own other residential property in Hong Kong) and Special Stamp Duty (SSD) (which is applicable to those who dispose of his/her residential property within 2 years after acquisition), with immediate effect. It ends the demand-side management measures for residential properties which have lasted for over 13 years. This means that stamp duty on sale of immovable property in Hong Kong would only be subject to ad valorem stamp duty ranges from HKD100 to 4.25% of the consideration or value of the property, no matter the buyer is a Hong Kong or non-Hong Kong resident, with or without another residential property on hand. The removal of the demand-side management measures may attract more investors to purchase residential properties.

Stamp duty. Stamp duties payable on the transfer of REIT units will be waived.

Profits tax. The government proposes to allow a tax deduction for expenses incurred in reinstating the condition of the leased premises to their original condition.

Profits tax. Removal of the time limit for claiming commercial building allowance (CBA) and industrial building allowance (IBA) with effect from the year of assessment 2024/25. Currently, there is a 25-year time limit for claiming CBA and IBA.

Asset management. The government proposes to extend the Grant Scheme for Open-ended Fund Companies and Real Estate Investment Trusts for three years and to further enhance the preferential tax regimes for funds, single family offices and carried interest, including reviewing the scope of the tax concession regimes (which presently focuses on gains only), increasing the types of qualifying transactions and enhancing flexibility in handling incidental transactions.

Maritime business. The government will commence studies on further enhancements on the tax concession for the maritime industry. Over the past few years, new tax legislation has been enacted to provide tax concessions for ship leasing, marine insurance, ship agency, ship management and shipbroking.

Tax deductions for spectrum utilization fees

The Legislative Council has passed the tax deduction for spectrum utilization fees (SUF) payable by mobile network operators (MNOs) on the radio spectrum. The Inland Revenue (Amendment) (Tax Deductions for Spectrum Utilization Fees) Ordinance 2024 was gazetted on 19 January 2024 and took effect from the same date. Under the Amendment Ordinance, the SUF payable by MNOs for the radio spectrum acquired on or after 19 January 2024 are fully deductible, and the tax deduction will be spread over the spectrum assignment term (which is generally 15 years).

Residential property stamp duty reduction

The Legislative Council has passed measures reducing the stamp duty on residential property applicable to instruments or agreements executed or made on or after 25 October 2023.

International tax developments

Bahrein. On 3 March 2024, Hong Kong SAR signed a double tax agreement with Bahrein. The treaty will take effect once both jurisdictions have ratified the treaty and exchanged the instruments of ratification.

Income of non-residents from investment in IFSC-based intermediaries tax exempt

The Central Board of Direct Taxes (CBDT) has issued notification 4/2024 exempting from tax the income of a non-resident from investment in any financial product of a capital market intermediary which is a unit of an International Financial Services Centre (IFSC).

Interim Budget 2024

Courtesy Nishith Desai Associates it was reported that in the backdrop of the national elections to be held later this year, the Indian Finance Minister, Ms. Nirmala Sitharaman presented the interim budget for financial year 2024-25 on February 1, 2024. This is a temporary Budget until the new Government is elected, which will release the full Budget in July 2024. Keeping in line with the convention for interim budgets, no major reforms or tax policy changes have been announced. Instead, the Budget has only set out the estimated receipts and expenditure fiscal deficit targets, outlay for capital expenditure (capex), and the vision of the current Government for India’s economic and social growth.

The Budget does not seek to make any major changes on the tax front. The tax rates for individuals and corporate taxpayers are not being changed.

Based on the Finance Act 2023, the withholding tax rate on royalty and fees for technical services will be increased from 10 per cent to 20 per cent (plus surcharge and cess tax) with effect from 1 April 2023.

Furthermore, the Government has acknowledged the challenges stemming from numerous small, unverified tax disputes, the oldest dating back to the 1960s. The Government has sought to provide amnesty for such disputes by declaring the withdrawal of all tax demands up to INR 25,000 (for periods up till FY 2010), and up to INR 10,000 (for periods up till FY 14-15). This move is a relief not only to the taxpayers (facing unnecessary tax procedures), but also to the tax authorities (allowing them to focus on more legitimate concerns). This should also help clean the government’s balance sheets and allow ease of processing refunds to small taxpayers.

In conclusion, while the Budget makes no significant announcements, it sets out the path that the current Government envisages for India’s future. Other than the economic reforms, the focus of this Budget has been proposals pertaining to social justice, inclusive development, empowerment of the (youth, poor, women and farmers), physical and social infrastructure, digitization, green energy etc. Given that India prides itself on being a mixed economy, the focus on social welfare measures is commendable and if implemented effectively, India should have a bright future in terms of inclusive growth.

Lower withholding tax rate under tax treaty due to Most Favoured Nation clause

On 19 March 2024, the Indian Income Tax Department published Notification No. 33/2024, announcing that the conditions for the activation of the most favoured nation clause (MFN) on royalties and fees for technical services specified under paragraph 7 in the final protocol of India's tax treaty with Spain had been met.

Computation of capital gain

The Mumbai Income Tax Appellate Tribunal (ITAT) has ruled, in the case of Citicorp International Finance Corporation v. ADIT (ITA No. 2545/Mum/2011), that for the purpose of computing capital gains, the date of sale of shares must be the date of the actual transfer of shares rather than the date of execution of the share purchase agreement (SPA) which is subject to conditions precedent. In other words, for purposes of computing the amount of the gain one should not look at the date of signing the share purchase agreement, but the date of closing.

Transfer pricing

Courtesy IBFD, the Minister of Finance (MoF) has issued a regulation regarding the implementation of the arm's length principle in related party transactions that provides guidance on the application of the arm's length principle, transfer pricing documentation requirements, corresponding adjustments, advance pricing agreements and mutual agreement procedures.

New monthly wage tax calculation system

On 27 December 2023, the government issued regulation No.GR-581 concerning the monthly wage tax to be deducted by employers (PPh 21 or article 21 of the Income Tax Act) in respect of the income from employment, service or other active income received by individuals. This regulation took effect on 1 January 2024 and aims to simplify the monthly withholding tax calculation in relation to the above types of income.

The monthly Article 21 withholding tax calculation for the months of January to November is to be performed using an effective tax rate (“ETR”) and that annual calculation carried out in December is to still be performed using the normal Article 21 progressive income tax rate regulated under Article 17(1)(a) of Income Tax Law. The final tax underpayment will be based on the December recalculation amount minus the tax that has been withheld from January to November.

Tax Reform Bill

The Japanese government has submitted the 2024 tax reform bill to parliament. The bill covers various tax areas, and includes the following items related to corporate tax and international taxation:

• introducing new tax credit incentives for promoting domestic production in electric vehicles, semiconductors, and other strategic sectors;
• introducing a new tax break for intellectual property income named the "innovation box" regime;
• some scaling down of the current research and development tax credit regime;
• reflecting additional OECD guidance into the Japanese global minimum tax legislation;
• expanded reporting obligations to implement the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) proposed by the OECD;
• introducing the so-called "full VAT liability regime" whereby intermediate digital platform operators, rather than foreign operators, become fully liable for VAT on cross-border digital transactions to Japanese consumers; and
• limiting the small business VAT exemptions to foreign businesses to close loopholes.

Platform operators subject to consumption tax

Courtesy Nagashima Ohno & Tsunematsu, it was reported that on February 2, 2024, the Cabinet of Japan submitted 2024 tax reform bills to the Japanese National Diet. The bills include the introduction of the taxation on platform operators, under which, certain platform operators are taxed with Japanese consumption tax (JCT) as if they were the providers of digital services provided from outside Japan through the platforms operated by them.

JCT is a value-added tax assessed on sellers or providers of basically all kinds of goods and services. Services provided from outside Japan were initially made not subject to JCT, but as the digital economy grew, digital services provided to Japanese consumers from outside Japan became non-negligible. In response, services provided to businesses or consumers in Japan through electric communication lines, typically the Internet (e-services), were made subject to JCT from October 2015. Examples of e-services are the provision of e-books, digital newspapers, music, videos, software and online games through the Internet.

2023 tax changes promulgated

The 2023 tax law amendment proposals have been formally implemented in the Korean tax laws and became effective from 1 January 2024.

Law for Coordination of International Tax Affairs (LCITA) – transfer pricing documentation

In the final amendment implemented into the LCITA, the due date for the submission of local files and master files remains unchanged (i.e. 12 months after the end of the fiscal year). The Korean Ministry of Economy and Finance (MOEF) had initially proposed to shorten the due date for submission of local files and master files from within 12 months after the end of the fiscal year to 6 months after the end of the fiscal year.

Tax Preferential Control Act (TPCA) – concessional personal income tax rate

The final amendment implemented into the TPCA provides that only foreign employees who start working in Korea on or before 31 December 2026 can apply the concessional flat tax rate of 19% for 20 years. The MOEF had originally proposed to extend the timeline for the application of the concessional flat tax rate for foreign employees such that foreign employees who start to work in Korea on or before 31 December 2028 can apply the concessional flat tax rate of 19% for 20 years.

Pillar 2 global minimum tax

The Ministry of Economy and Finance has enacted the Presidential Decree to introduce a new chapter to the Enforcement Decree of the Law for the Coordination of International Tax Affairs (LCITA) and to set out the details of the Korean Global Anti-Base Erosion (GloBE) rules, such as the scope of excluded entities and computation of GloBE income or loss.

Tax Incentives for defence contractors

Korea has recently promulgated the Enforcement Decree of the Restriction of Special Taxation Act, which provides that companies in the defence industry are eligible for tax credit incentives for investments in related technologies that will be implemented retroactively from 1 January 2024.

The defence industry will be added to the list of new growth/new technologies that will be eligible for investment tax credits ranging from 6% to 18% on investments in research and development and facilities related to the relevant technology. The three relevant technologies recognized are propulsion systems, military satellite systems and manned and unmanned complex systems.

International tax developments

Taiwan. The Korea/Taiwan tax treaty took effect on December 26, 2023 following endorsement by the National Assembly. For Korea taxpayers, the benefits the Arrangement apply in respect of taxes subject to withholding, on or after January 1, 2024, and in respect of other taxes, for tax years commencing on or after January 1, 2024.

Although the Korea-Taiwan Tax Arrangement holds a formal status below the level of a Tax Treaty, its practical effects are equivalent to those of a treaty. This parity arises from the fact that the implementing legislation was passed by the National Assembly in the last December, ensuring the domestic implementation of the Arrangement.

Capital gains tax on listed shares for significant interest shareholders

The Ministry of Economy and Finance has announced that the share value threshold for large shareholders who are subject to capital gains tax on the transfer of listed shares will be increased to KRW 5 billion from KRW 1 billion, effective 1 January 2024. Previously, only large shareholders holding a certain stake (shareholding of at least 1% (2% for KOSDAQ shares)) or shares of a single company worth at least KRW 1 billion, are subject to the capital gains tax of 20% to 25%.

Capital Gains Tax Return form filing programme

As reported in the previous edition of this Bulletin, Malaysia introduced a capital gains tax on 1 January 2024. However any transfers of shares of Malaysian companies or foreign companies which qualify as Real Property Company prior to 1 March 2024 are exempt from the new tax. The Inland Revenue Board (IRB) has recently introduced guidelines for the Capital Gains Tax Return Form Filing Programme, which clarifies that, among other things, companies, limited liability partnerships, trust bodies, and cooperative societies who dispose of: (i) shares of a company incorporated in Malaysia not listed on the stock exchange; or (ii) shares of a controlled company incorporated outside Malaysia that owns real property situated in Malaysia or shares of another controlled company, or both; and are exempt from capital gains tax (CGT) between 1 January 2024 and 29 February 2024. In this regard, the taxpayer is not required to submit the CGT return during the exemption period.

E-Invoice Software Development Kit

Courtesy IBFD, the Inland Revenue Board (IRB) has uploaded the beta version of the Software Development Kit (SDK) to assist taxpayers in preparing for the upcoming MyInvois System. In addition, the IRB has published the updated e-invoice guidelines (version 2.2) and the e-invoice specific guidelines (version 2.0). The main amendments were made for clarification purposes, including clarifying the application of e-invoices for e-commerce transactions.

Are cross-border services subject to withholding tax and VAT?

On 10 January 2024, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 5-2024 to clarify whether cross-border services are subject to final withholding tax and final withholding VAT. RMC No. 5-2024 is based on the Supreme Court's decision in the case of Aces Philippines Cellular Satellite Corp. vs. Commissioner of Internal Revenue (G.R. No. 226680, 30 August 2022). It is effective immediately upon issuance.

Withholding tax for E-Marketplace Operators and digital financial services providers

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) No. 8-2024 on 15 January 2024 to clarify the provisions of Revenue Regulations (RR) No. 16-2023, which imposes a withholding tax on the gross remittance of e-marketplace operators and digital financial services providers to online sellers.

The circular also lists the obligations of e-marketplace operators and digital financial services providers and the penalty for non-compliance.

Free Trade Agreement between ASEAN and Hong Kong

On 14 February 2024, the Philippines signed the amending protocol to update the 2017 free trade agreement (FTA) between the Association of Southeast Asian Nations (ASEAN) member states and Hong Kong. The protocol was first signed by ASEAN member states and Hong Kong on 9 January 2024.

The protocol will take effect 60 days following the deposit of the instrument of ratification by the final party. Further developments will be reported as they occur.

Budget for 2024 – tax proposals

The Singapore government presented Budget 2024 to the Singapore parliament on 16 February 2024.

Corporate Income Tax

• Companies will be granted a 50% corporate income tax rebate in year of assessment (YA) 2024. Additionally, companies that have employed at least one local employee in 2023 will receive a cash payout of at least SGD 2,000. The maximum combined benefit that companies may receive under these schemes is subject to a cap of SGD 40,000.
• Under Pillar Two Global Anti-Base Erosion (GloBE) rules of the OCED Base Erosion and Profit Shifting (BEPS) 2.0 project, a multinational enterprise (MNE) group that is in scope of the GloBE rules (with an annual consolidated revenue exceeding EUR 750 million) will be subject to a minimum effective tax rate (ETR) of 15%.
• A new refundable investment credit (RIC) scheme targeted at investments that generate high-value and substantive economic activities in Singapore will be introduced. A company that incurs qualifying expenditures in respect of a qualifying project may be eligible to claim RIC of up to 50% of qualifying expenditures over a period of up to 10 years to offset against its corporate income tax liabilities. Any unutilized RIC will be refunded to the company in cash within 4 years from when it satisfies the conditions for receiving the RIC.

Companies that incur qualifying expenditures in respect of qualifying projects may, upon approval, be awarded RIC to offset against their corporate income tax liabilities. The amount of RIC will depend on such pre-determined percentage (up to 50%) for each type of qualifying expenditure incurred during the qualifying period, the duration of which is determined by the relevant agencies (up to 10 years). The support rates will depend on the category of qualifying expenditure and the economic or decarbonization outcomes expected. Any unutilized RIC will be refunded to qualifying companies in cash within 4 years from the date they satisfy the conditions for receiving the RIC.

• The tax incentive schemes for investment funds managed by Singapore-based fund managers under sections 13D, 13O and 13U (the latter two generally functioning as Singapore funds) of the Income Tax Act 1947 of Singapore (ITA) will be extended to 31 December 2029 (from 31 December 2024).
• Budget 2024 introduces an alternative basis of tax in respect of tax incentive schemes under the Maritime Sector Incentive programme, under which the qualifying income of qualifying shipping entities will be taxed by reference to net tonnage of their ships from YA 2024.
• Additional concessionary tax rate tiers have been announced in respect of the Finance and Treasury Centre (10% of qualifying income), Aircraft Leasing Scheme (10% of qualifying income), Development and Expansion Incentive (15% of qualifying income), Intellectual Property Development Incentive (15% of qualifying income) and Global Trader Programme (15% of qualifying income) with effect from 17 February 2024.
• From YA 2025, the tax deduction scheme for renovation and refurbishment expenditures under section 14N of the ITA will be enhanced.

Individual Income Tax

• Individuals will be granted a 50% individual income tax rebate in YA 2024, subject to a cap of SGD 200.
• From YA 2025, the annual income threshold for an individual's dependent or caregiver (including spouse, parent, parent-in-law, grandparent, grandparent-in-law, great-grandparent, great-grandparent-in-law, child, step-child or legally adopted child, etc.) will be raised to SGD 8,000 (from SGD 4,000) for the Spouse Relief, Parent Relief, Grandparent Caregiver Relief, Qualifying Child Relief and Working Mother's Child Relief schemes.
• From YA 2029, the income tax concession on royalty income accorded to authors, composers and choreographers, under which such income is taxed at the lower of: (i) the net amount of royalties; and (ii) 10% of the gross amount of royalties, will lapse. The concession will be gradually withdrawn over YAs 2027 and 2028 and, from YA 2029, taxpayers must report their royalty income based on the net amount of royalties received.

Property Tax

• From 1 January 2025, the annual value (AV) bands for owner-occupied residential property tax rates will be adjusted.

Stamp duty on immovable property

• Additional buyer's stamp duty (ABSD) is levied on a purchase of residential property in Singapore. With effect from 16 February 2024, ABSD remission will be extended to non-married Singapore citizens aged 55 years and above purchasing a replacement residential property, provided among other things that the original residential property is disposed within 6 months from: (i) for a completed property, the date of purchase of the replacement residential property; or (ii) for an uncompleted property, the earlier of the date of issuance of the Temporary Occupation Permit or the Certificate of Statutory Completion, and the replacement residential property is of a lower value than the original residential property.
• Housing developers purchasing residential land in Singapore are currently subject to ABSD at the rate of 40% (i.e. 5% non-remittable and 35% remittable components). If housing developers fail to sell five or more units within 5 years from the date of acquisition of the residential land, the 35% remittable component will be clawed back with interest. From 16 February 2024, projects with at least 90% of units sold at the 5-year sale timeline will be subjected to a lower ABSD remission clawback rate (reduced by 1% to 10%, depending on the proportion of units sold at the 5-year mark), subject to satisfying the applicable conditions.

Other Budget measures are listed as follows:

• Budget 2024 introduces a new Overseas Humanitarian Assistance Tax Deduction Scheme under which a tax deduction of 100% is granted to individual and corporate donors for qualifying overseas cash donations made through designated charities towards a fund-raiser for emergency humanitarian assistance with a valid "fund-raising for foreign charitable purposes" permit from the Commissioner of Charities.
• From 1 January 2025, the monthly Central Provident Fund (CPF) contribution rates in respect of employees aged above 55 to 65 years will be increased.

Anti avoidance and medical practitioners

On 1 March 2024, the IRAS issued a circular in which it explains its views on when the corporatisation of their personal practices by medical practitioners may be challenged under the anti avoidance rule of s.33 of the income tax law.

Financial account information (CRS)

On 12 January 2024, the Inland Revenue Authority of Singapore (IRAS) published an updated version of its e-Tax Guide on the Common Reporting Standard.

International tax developments

Korea. The Tax Arrangement between Taiwan and Korea took effect on 1 January 2024 – please refer to the Korea section of this Bulletin for more details.

VAT Relief for digital assets trading

The Thai cabinet has resolved to approve in principle a draft law to extend the VAT exemption for the sale of cryptocurrency and utility tokens through licensed digital exchanges, as well as expand the exemption to sales made through licensed brokers and dealers, effective from 1 January 2024 onwards. The VAT exemption for sales made through licensed digital exchanges expired on 31 December 2023.

Pillar 2 global minimum tax

The Revenue Department has published the principles of a draft law to support a global minimum tax based on the Pillar Two Global Anti-Base Erosion (GloBE) model rules and invited stakeholders to provide their input by 15 March 2024.