This content is from: Local Insights

Macau: New tax standards and exemptions

Macao SAR has been under pressure in recent years to adjust its tax laws to international standards. While a long overdue, wide Macao SAR tax system reform continues to be delayed, some new laws and several adjustments to the existing laws are being introduced to meet up with the undertakings assumed by Macao SAR and its motherland in the international spectrum.

In order to meet up with Action 13 of the Base Erosion and Profit Shifting (BEPS) package approved by the Organisation for Economic Cooperation and Development (OECD) and the G20 leaders, new changes to the Macao SAR Complementary Tax Regulation (CTR) and to Law 5/2017 (Tax Information Exchange Law) will soon be introduced. The aim of these changes is to subject certain entities that qualify as 'mother entities' of a multinational group to taxation in Macao SAR in accordance with their effective income (as determined in accordance with financial statements prepared under the applicable international financial standards). They will also, most importantly, be subject to a three-tiered approach on transfer pricing documentation: first, special information obligations will be imposed on these entities to disclose their global business operations; secondly, they will be obliged to provide certain financial and tax information in respect of each country in which the group has business; and, thirdly, they will be obliged to maintain the relevant documentation for a period of seven years. This information will be subject to an international automatic information exchange mechanism, making it potentially available to all relevant tax administrations. Together, the aim of these requirements is to provide relevant information on transfer pricing positions and determine where more effective audits can be effectively deployed.

On the other hand, substantial tax exemptions are being proposed for inclusion in the CTR. Interest resulting from bonds issued by the PRC's central government, state-owned enterprises and PRC's local governments will be exempted from the CTR. This exemption comes as part of an ambitious policy package that aims to establish the city as an international financial hub to capture investment for the PRC government and state-owned enterprises' bonds. We really see some potential in this plan and look forward to seeing the package unfold further.

Riquito
João Nuno RiquitoRui Filipe
Oliveira

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