Country update: Malaysia, Singapore, Vietnam Benedict Francis Executive Director, PwC Malaysia Tan Tay Lek Partner, PwC Singapore David Fitzgerald Partner, PwC Vietnam www.pwc.com
Country update:Malaysia, Singapore,Vietnam
Benedict FrancisExecutive Director, PwC Malaysia
Tan Tay LekPartner, PwC Singapore
David FitzgeraldPartner, PwC Vietnam
www.pwc.com
Malaysia
Benedict FrancisExecutive Director, PwC Malaysia
PwC
Agenda
1. Goods and services tax
2. Tax incentives
3. Other recent tax developments
3Global Tax Symposium – Asia 2015
PwC
Goods and services tax (GST)
4Global Tax Symposium – Asia 2015
PwC
Introduction of GST and the relief measures
5Global Tax Symposium – Asia 2015
PwC
GST headlines
Goods & services tax
Effective date: 1 April 2015
Standard rate: 6%
Registration: Businesses with annual
sales turnover > MYR500,000
Sales & service tax (SST) abolished
6Global Tax Symposium – Asia 2015
PwC
GST/VAT in ASEAN countries
Source: Royal Malaysian Customs Department
Country Year of implementation Initial rate (%) Current rate (%)
Indonesia 1984 10 10
Thailand 1992 7 7
Singapore 1994 3 7
Philippines 1998 10 12
Cambodia 1999 10 10
Vietnam 1999 10 10
Laos 2009 10 10
Note: No GST/VAT regime in Brunei and Myanmar
7Global Tax Symposium – Asia 2015
PwC
Reduce cost of doing business
• Secretarial fee and tax filing fee tax deductible up to MYR5,000 and MYR10,000 respectively YA 2015
• Accelerated capital allowance for ICT equipment and software extended
YAs 2014 to 2016
• Expenses for GST-related training in accounting and ICT given further deduction
YAs 2014 & 2015
Financial assistance
• Training grant of MYR100m for GST training
• MYR150m allocation for purchase of accounting software by SMEs
2014 & 2015
2013 & 2014
• Reduction in corporate tax rate by 1% • Reduction in cooperatives tax rate by 1% to 2%
YA 2016YA 2015
GST implementation relief packageBusinesses
Description Effective
8Global Tax Symposium – Asia 2015
PwC
Description Effective
Increase disposable income
• Restructuring of income tax bands by increasing chargeable income subject to maximum rate from > MYR100,000 to > MYR400,000
• Personal tax rate reduction across tax bands by 1% to 3%
YA 2015
• Highest marginal tax rate reduced from 26% to 25%
• One-off cash assistance of MYR300 to households who are BR1M recipients
Financial assistance
GST implementation relief packageIndividuals
2015
9Global Tax Symposium – Asia 2015
PwC
Tax incentives
10Global Tax Symposium – Asia 2015
PwC
Principal Hub
11Global Tax Symposium – Asia 2015
PwC
Principal HubOverview
Central sourcing and procurement
Sales and marketing Support
Research and development
Supply chain management
Text
Principal Hub
Centralising high value activities
Guidelines issued by MITI on 6 April 2015
12Global Tax Symposium – Asia 2015
PwC
Traditional model
Global HQ provides services to group companies
Principal Hub
• Transactional principal
• Value added services principal
Traditional model vs. Principal Hub
LEGENDFlow of goods
Management servicesTransaction/ trade
Global Headquarter
Raw materials supplier
Manufacturer Distributor Customer
Global headquarter
Raw materials supplier
Manufacturer Distributor Customer
Principal Hub
13Global Tax Symposium – Asia 2015
PwC
Why choose Malaysia?
The ETP (Economic Transformation Programme) is a comprehensive effort that will transform Malaysia into a high income nation by 2020.
Government’ support and certainty
Best Level of English
proficiency in Asia (Education First)
1.5 hrsJourney time
from Kuala Lumpur to
Singapore via high speed rail
by 2020 (SPAD)
11th world’s busiest airport (ACI)
70 double tax agreements offered in Malaysia (IKL)
110,000 graduates annually in Greater KL (IKL)
Excellent ecosystem
Business potential 10 million –Kuala Lumpur’s population by 2020 – up 40% (IKL)
ASEAN’s market
600 million population, US$2.4
trillion GDP (IKL)
US$47billion in Oil & Gas upstream investment over next 5 years (MPRC O&G Journal, 2014)
US$9Trillion of new Infrastructure in Asia by 2020 (Asian Development Bank)
1.7billion middle class market rising in Asia by 2020 (OECD)
*KV: Klang Valley**Greater KL includes KL city centre and the greater metropolitan area, covering 10 municipalitiesSource: Pemandu, ETP
14Global Tax Symposium – Asia 2015
PwC
Why choose Malaysia?
Competitive economy
Transitioning from an efficiency-driven economy to an innovation-driven one
1
Investor protection
Strong investor protection ahead of countries such as Australia, US and UK
2
Talent availability
Highest talent ranking in South East Asia with good scores in the quality of the labour force and talent environment
3
Quality of living
2nd most liveable city in SEA and only one of two SEA cities that made the top 100
4
Affordable & business friendly
KL scored well in terms of cost and ease of doing business – 8th
and 18th
position in the world
5
WEF Global Competitive Report, 2014-15
World Bank Doing Business, 2015
IMD World Talent Report, 2014
EIU Global Liveability Survey, 2014
EIU Global Liveability Survey, 2014
• Attractive business environment with legal, political and economic stability
• ASEAN Economic Community, OIC, APEC
• Access to USD2 trillion ASEAN’s market size
• No. 12th in competitive index globally
• Stable climate i.e. hot and rainy days
• Extensive logistics
Business environment
15Global Tax Symposium – Asia 2015
PwC
Principal Hub incentive frameworkFiscal and non-fiscal benefits
Fiscal benefits
Non-fiscal benefits
1. Bring in raw materials, components or finished products with customs duty exemption into free industrial zones, LMW, free commercial zones and bonded warehouses for production or repackaging, cargo consolidation and integration before distribution to its final consumers for goods-based companies
2. No local equity / ownership condition3. Expatriate posts based on requirements of applicant’s business plan subject to
current policy on expatriates 4. Foreign Exchange Administration flexibilities will be accorded in support of business
efficiency and competitiveness of companies under the Principal Hub
Tier 1 2 3
Blocks (Year) 5 +5 5 +5 5 +5
Tax Rate 0% 5% 10%
16Global Tax Symposium – Asia 2015
PwC
Principal Hub incentive frameworkEligibility criteria
1. Local incorporation under Companies Act 19652. Paid-up capital of more than MYR2.5m3. Minimum annual sales of MYR300m (applicable only to goods-based
applicant company)4. Serve and control network companies1 in at least three countries outside
Malaysia 5. Carry out at least three qualifying services, of which one of the qualifying
services must be from the strategic services cluster.
1 Network companies refer to related companies (any entity within the group including subsidiaries, branches, joint ventures, franchises) or unrelated companies within the applicants’ supply chain and business with contractual agreements.
17Global Tax Symposium – Asia 2015
PwC
Principal Hub incentive framework
1. Regional P&L/ business unit management
2. Strategic business planning & corporate development
3. Corporate finance advisory services
4. Brand management5. IP management6. Senior-level talent
acquisition and management
1. Bid and tender management 2. Treasury and fund
management3. Research, development and
innovation 4. Project management5. Sales and marketing 6. Business development7. Technical support and
consultancy8. Information management
and processing9. Economic/ investment
research Analysis10. Strategic sourcing,
procurement and distribution
11. Logistics services
1. Corporate training and human resource management
2. Finance and accounting (transactions, internal audit)
3. General administration4. IT services
A. Strategic services B. Business services C. Shared services
18Global Tax Symposium – Asia 2015
PwC
Principal Hub incentive framework
Tier 1 2 3Blocks (Year) 5 +5 5 +5 5 +5
Tax rate 0% 5% 10%Functions Regional P&L + 2 Strategic services + 2
High-value job1
Key positions250(5)
30(4)
15(3)
Local business spend MYR10m MYR5m MYR3m
Countries served outside Malaysia 5 4 3
Annual sales MYR300m (applicable only to goods-based applicant company)
Extension Jobs: Base + 20%Business spend: Base + 30%
Notesa. Applicants will be given till end of Year 3 (valid only for first block) to comply to each tier’s criteria. Failing to do so will result in claw back of tax incentives from Year 1.
The flexibility is not applicable for existing companies who have already enjoyed IPC/RDC/OHQ incentives. b. Income tax exemption threshold – 70% outside Malaysia: 30% inside Malaysia
• Income generated from rendering Principal Hub services to network companies in Malaysia, provided such income does not exceed 30% of the total income, will be tax exempted during the incentive period.
c. At least 50% of the high-value jobs must be Malaysians by end of year 3.
1. Jobs with minimum monthly salary requirement of at least MYR5k that require higher and more diverse set of managerial/ technical/ professional skills such as management, analytics, communication, problem-solving, and proficiency in information technology.
2. Positions with minimum monthly salary requirement of at least MYR25k with key strategic/ management positions.
19Global Tax Symposium – Asia 2015
PwCGlobal Tax Symposium – Asia 2015
Comparison with other countriesWhat are other countries doing? Country Tax incentive and R&D support
Singapore Corp tax DEI (IHQ/RHQ), Pioneer, GTP, etc.
R&D PIC, credits (up to 400%), IA
IP Excellent protection, ARI
Hong Kong Corp tax No incentives – offshore claim on profits
R&D No R&D incentives
IP No credits or protection
Thailand Corp tax Reduction granted by BOI
R&D 200% on qualifying R&D, CIT exemption
IP Credits, embedded in above incentives
China Corp tax WFOE/Shanghai FTZ- 15%
R&D HNTE- 15% on qualifying R&D
IP Minimal
The Philippines Corp tax Philippine Economic Zone Authority (PEZA)
R&D No R&D Incentives
IP No credits or protection20
PwC
Other recent tax developments
21Global Tax Symposium – Asia 2015
PwC
Related party transactions
22Global Tax Symposium – Asia 2015
PwC
Related party transactionsWhat’s new?
W.e.f. 31 Dec 2014Prior to 31 Dec 2014
• DGIR is empowered to raise assessment or additional assessment within 5 years after the expiration of a YA for all cases including TP
• DGIR can raise assessment or additional assessment within 7 years after the expiration of a YA for TP cases
23Global Tax Symposium – Asia 2015
PwC
Related party transactionsWhat is the impact?
Increased uncertainty
Prolonged auditCould potentially complicate Mutual Agreement Procedure (MAP)
24Global Tax Symposium – Asia 2015
PwC
Transfer PricingNew ‘check the box’ requirement
With effect from YA 2014, taxpayers are required to confirm whether transfer pricing documentation has been prepared – there is a new check box in Form C.
Before amendment After amendment
√
25Global Tax Symposium – Asia 2015
PwC
Requirements and penalties
Type of
penaltyCondition
Penalty rates (%)
Normal case
Voluntary disclosure after taxpayer has been
informed but before commencement of the
audit visit
Voluntary disclosure
before case is selected for
audit
1 Understatement or omission of income 45 35 15
2 Taxpayer did not prepare transfer pricing documentation 35 30* 15*
3
Taxpayer prepared transfer pricing documentation but did not fully comply with the requirements under the Transfer Pricing Guidelines
25 20 10
4
Taxpayer prepared a comprehensive, good quality, contemporaneous transfer pricing documentation in accordance with existing regulations
0 0 0
* Upon voluntary disclosure, transfer pricing documentation are still required to be prepared
26Global Tax Symposium – Asia 2015
PwC
Landmark tax cases
27Global Tax Symposium – Asia 2015
PwC
Entertainment — tax cases
Case Items challenged Decision
2012 Amount paid for advertising exposure and expenses for business promotion and marketing strategy
Both expenses incurred for promoting of business and are not sponsorship/ entertainment in nature – deductible(Court of Appeal)
2007 Promotional gifts with logo given to customers
Promotional gifts incurred solely for the purposes of business promotion – deductible(Court of Appeal)
28Global Tax Symposium – Asia 2015
PwC
Amendment to definition of ‘entertainment’
Entertainment includes:
a) The provision of food, drink, recreation or hospitality of any kind; or
b) The provision of accommodation or travel in connection with or for the purpose of facilitating entertainment of the kind mentioned in paragraph (a),
by a person or an employee of his with or without any consideration paid whether in cash or in kind, in promoting or in connection with a trade or business carried on by that person
Effective from YA 2014
29Global Tax Symposium – Asia 2015
PwC
Rationale
With or without any consideration paid whether in cash or in kind Company C vs. Company B (High Court)
Company A vs. Company B (Court of Appeal)
Company D vs. Company B (Court of Appeal)
Company E vs. Company B (Court of Appeal)
Company F vs. Company B (Court of Appeal)
In promoting
30Global Tax Symposium – Asia 2015
Singapore
Tan Tay LekPartner, PwC Singapore
31
PwC
Agenda
1. Supporting growth– Mergers and acquisitions– International growth scheme– Double tax deduction for internationalisation
2. Supporting enterprise growth
3. Tackling rising business costs– Transition support package
4. Financial services and maritime sectors
5. Rationalisation and review
6. Changing assessment environment
32Global Tax Symposium – Asia 2015
PwC
Supporting growth
33Global Tax Symposium – Asia 2015
PwC
Supporting growthMergers & acquisitions
34
Global M&A deals to hit USD4.1 trillion in 2015 from
USD3.6 trillion in 2014Source: J.P. Morgan
January 2015
Global Tax Symposium – Asia 2015
PwC
Supporting growthMergers & acquisitions
35
1. M&A allowance cap 2. Stamp duty
relief
3. Shareholding requirement
4. Look-back
Changes effective from 1 April 2015 to 31 March 2020Global Tax Symposium – Asia 2015
PwC
Supporting growthMergers & acquisitions
3636
SG CoAcquirer
Target Co Max value $100m
Current rules
Max M&A allowance per YA
5% of $100m = $5m
SG CoAcquirer
Target Co
New rules
Max M&A allowance per YA
25% of $20m = $5m
• No change in overall allowance cap ($5m)
• Higher M&A allowance rate and lower shareholding thresholds will benefit smaller sized deals.
Max value $20m
Global Tax Symposium – Asia 2015
PwC
Supporting growthMergers & acquisitions
Global Tax Symposium – Asia 20153737
Lower relief affects local acquisitions
Current rules New rules
Relief cap $200,000(acquisition
value capped at $100m)
Relief cap $40,000
(acquisition value capped at $20m)
Reduced
PwC
New rules
Acquisition that results in ownership of:
• More than 50% [Previous ownership 50% or less]
• At least 75%[Previous ownership more than 50% but less than 75%]
Acquisition that results in ownership of:
• At least 20%[Previous ownership less than 20%]
• More than 50%[Previous ownership 50% or less]
Supporting growthMergers & acquisitions
38
Current rules
Global Tax Symposium – Asia 2015
PwC
New rules
Acquisition that results in ownership of:
• More than 50% [Previous ownership 50% or less]
• At least 75%[Previous ownership more than 50% but less than 75%]
Acquisition that results in ownership of:
• At least 20%[Previous ownership less than 20%]
• More than 50%[Previous ownership 50% or less]
Supporting growthMergers & acquisitions
39
Current rules
Global Tax Symposium – Asia 2015
IRAS – additional conditions:
The acquiring company must have:
1. at least 1 director represented on the board of directors of the target company; and
2. company is considered an associate of the acquiring company under Singapore FRS rules.
PwC
New rules
Acquisition that results in ownership of:
• More than 50% [Previous ownership 50% or less]
• At least 75%[Previous ownership more than 50% but less than 75%]
Acquisition that results in ownership of:
• At least 20%[Previous ownership less than 20%]
• More than 50%[Previous ownership 50% or less]
Supporting growthMergers & acquisitions
40
Current rules
Global Tax Symposium – Asia 2015
Intro 20% - encourage strategic stakes (with influence) as an alternative to consolidation (control)
PwC
New rules
Acquisition that results in ownership of:
• More than 50% [Previous ownership 50% or less]
• At least 75%[Previous ownership more than 50% but less than 75%]
Acquisition that results in ownership of:
• At least 20%[Previous ownership less than 20%]
• More than 50%[Previous ownership 50% or less]
Supporting growthMergers & acquisitions
41
Current rules
Global Tax Symposium – Asia 2015
No further incentive for acquisitions of higher level of control where >50% ownership is present
PwC
Supporting growthMergers & acquisitions
Global Tax Symposium – Asia 201542
Current rules New rules
12-monthlook-back period
12-monthlook-back period
Stepped/ phased acquisitions requiring the 12-month look back period
PwC
Supporting growthDouble tax deduction for internationalisation (DTD)
43
Current scheme • 200% tax deduction for qualifying expenses for qualifying
market expansion and investment development activities.
• Approval from IE Singapore.
• Automatic deduction up to $100,000 per YA for certain qualifying activities
Global Tax Symposium – Asia 2015
airfare hotel
meals roadshows
freight consultants
Examples
Budget 20121. Overseas trips/ missions for
• business development• investment study• trade fairs
2. Local trade fairs approved by IE Singapore or STB
PwC
Supporting growthDouble tax deduction for internationalisation (DTD)
44
Enhancement
• Qualifying manpower expenses (1 July 2015 to 31 March 2020) for Singaporeans posted to new overseas entities
• Capped at $1 million per approved entity per year
• Approval from IE Singapore
Clarity by May 2015 ?
• New overseas entities
- representative offices, branches, companies, partnerships, joint ventures ?
• Qualifying manpower expenses
- where costs are borne by the overseas entities?- where costs are recharged by the overseas entities?- where partial costs are absorbed by Singapore entity?
Global Tax Symposium – Asia 2015
PwC
Supporting growthInternational Growth SchemeKey features
• 10% concessionary tax rate • Larger Singapore companies/ high potential companies• Incremental income from qualifying activities• Not more than 5 years
(approval 1 April 2015 – 31 March 2020)• IE Singapore (further details – May 2015)
45
Overseas expansion milestones? e.g. • New markets
penetrated• Singaporeans
based overseas
Global Tax Symposium – Asia 201545
PwC
Supporting growthInternational Growth SchemeKey features
• 10% concessionary tax rate • Larger Singapore companies/ high potential companies• Incremental income from qualifying activities• Not more than 5 years
(approval 1 April 2015 – 31 March 2020)• IE Singapore (further details – May 2015)
46Global Tax Symposium – Asia 2015
46
Internationalisationefforts take time – too short ?
Base income concept from DEI
PwC
Supporting enterprise growth
47Global Tax Symposium – Asia 2015
PwC 48
Supporting enterprise growth
2014
Crowdfunding
Co-investment Programme by SPRING (Phase 2)
Micro Loan Programme Enhancements Capability
Development Grant (CDG)
Venture Debt Risk Sharing Programme
SPRING StartupEnterprise Development Scheme (SEEDS) & Business Angel Scheme (BAS)
Angel Investors Tax Deduction Scheme
Venture Capital Funds and Fund
Manager
2015
New
Global Tax Symposium – Asia 2015
PwC
Tackling rising business costs
49Global Tax Symposium – Asia 2015
PwC
Transition support packageWage Credit Scheme (WCS)
50
Budget 2013
2013–2015
40% 20%
2016–2017
Co-funding of qualifying wage
Budget 2015
Global Tax Symposium – Asia 2015
PwC
Transition support packageWage Credit Scheme (WCS)
51
Budget 2013
2013–2015
40% 20%
2016–2017
Co-funding of qualifying wage
Budget 2015
33% 17%
Global Tax Symposium – Asia 2015
PwC
Transition support packageWage Credit Scheme (WCS)
52
Illustration
Gross Monthly Wage Increase $500 $500
$200
$500
$200
$200
2015 2016 2017
Govt co-funds 40% per month $200
$140(20% of [$500+$200])
$180(20% of [$500+$200+$200])
Govt co-funds 20% per month
- -
- $100 $100
Global Tax Symposium – Asia 2015
PwC
Transition support packageCorporate income tax rebate
53
0
20
40
YA 2013 - 15YA 2016 - 17
Maximum rebate of 30% tax payable or:
$30kper YA $20k
per YA
$’000
Global Tax Symposium – Asia 2015
PwC
Transition support packageProductivity and innovation credit (PIC) bonus
54
• Dollar-for-dollar matching cash bonus for YAs 2013 to 2015
• Overall combined cap of $15,000 for 3 YAs
PIC bonus
Global Tax Symposium – Asia 2015PwC
EXPIRED
PwC
Transition support packageProductivity and innovation credit (PIC) bonus
55
0%10%20%30%40%50%60%70%80%90%
100%
YA 2011 YA 2014
33%46%
Active companies benefiting from PIC
Press release by the Ministry of Finance issued on 12 February 2015,
Global Tax Symposium – Asia 2015PwC
PwC
Financial services and maritime sectors
56Global Tax Symposium – Asia 2015PwC
PwC 57
Positioning SG among Asia and global leaders –five growth clusters of the future
Growth clusters
1
5
4
2
3
Advancedmanufacturing
Smart and sustainable urban solutions
Asian and global financial
services
Logistics and
aerospace
Applied health sciences
“Being small, we cannot achieve expertise and advanced capabilities in every area. We have to build on strengths we have already developed. We must also focus on areas in growing demand, and where Singapore have the capacity to excel. We are well positioned to be amongst the leaders in Asia and globally in five growth clusters of the future”
Mr Tharman Shanmugaratnam,Deputy Prime Minister and Minister for Finance
Global Tax Symposium – Asia 2015
PwC 58
Maritime sector – tax concessions
Owners/ operators
MSI – Shipping Enterprise (SG Flag)
(MSI-SRS)
Tax exemption
MSI – Approved International
Shipping Enterprise
(Foreign-Flag)(MSI-AIS)
Tax exemption
MSI – Maritime Leasing (Ship)
(MSI-ML)Tax Exemption on
leasing income and 10% on managing shipping
investment enterprise
MSI – ML (Container)
5% or 10% on leasing income
and 10% on managing container
investment enterprise
MSI – Shipping Related Support Services
(MIS-MSS)
10% on incremental
qualifyingincome
Automatic WHT
exemption for qualifying financing
arrangements
Financing
ChangeChange
Change
Lessors Service providers
Global Tax Symposium – Asia 2015
PwC
Asset managementEnhanced tier fund tax incentive
59
Singapore Fund
Investment entity (IE) IE IE
• Waiver of separate tax exemption application by each IE
• Remove conditions at IE level (e.g. fund size and spending)
Proposed
• Separate tax exemption application to be made by each entity.
• Conditions for tax exemption applied at each entity level.
• Each entity is subject to compliance obligations.
Current treatment
New
Global Tax Symposium – Asia 2015
PwC 60
REITSTax concessions for listed REITS/RBTs
Asset
Investors
Singapore REITs
SPVs
Current treatment
10% withholding tax rate on distribution
N.A.
S13(12) qualifying foreign sourced income and GST remission (REITS and RBT)
Level
Investors
SPV
Trust level
Proposal
Extended for 5 years
GST remission for SPVs used for funding (REITS/RBT)
Extended for 5 years
Others Stamp duty remissions Stamp duty remissions removed
New!
Global Tax Symposium – Asia 2015
PwC
Rationalisation and review
61Global Tax Symposium – Asia 2015
PwC
Rationalisation and reviewInvestment allowance – energy efficiency schemes (IA-EE)
Current
1. IA-EE Scheme – Singapore Economic Development Board, National Environmental Agency
2. IA-EE for Green Data Centres Scheme – Infocomm Development Authority of Singapore
Both scheduled to lapse after 31 March 2015
62
New
• From 1 March 2015 – The two schemes will be combined into one scheme, IA-EE scheme.
• Extended to 31 March 2021
• Singapore Economic Development Board
Global Tax Symposium – Asia 201562
PwC
Rationalisation and reviewInternational telecommunications submarine cable system
Current• Section 19D
• Writing down allowances for capital expenditure incurred on the acquisition of an IRU of any international telecommunications submarine cable system
63
New• Review date – 31 December 2020
Global Tax Symposium – Asia 201563
PwC
Rationalisation and reviewApproved Foreign Loan (AFL) and Approved Royalties Incentive (ARI)
Current• ARI – tax exemption or concessionary rate
Approved royalties, technical assistance fees or contributions to R&D costs made to non-tax residents for providing cutting-edge technology and know-how
• AFL incentive – tax exemption or concessionary rateInterest payments made to non-tax residents for loans to purchase productive equipment. Minimum loan quantum $200,000.
64
New• The minimum loan quantum under the AFL incentive will be $20 million from 24
February 2015. Other loan quantum may be approved by the Minister for Trade and Industry
• Review date – 31 December 2023
Global Tax Symposium – Asia 201564
PwC
Rationalisation and reviewPhasing out
Offshore leasing – withdrawn from 1 January 2016• 10% concessionary tax rate on income derived by a leasing company in
respect of offshore leasing of machinery and plant
65
Operational headquarters – withdrawn from 1 October 2015• Scheme was introduced to encourage companies to use Singapore as a base to
conduct headquarter management activities by providing tax exemption or a concessionary tax rate of 10% on income from qualifying HQ services
• HQ companies may still qualify for DEI, subject to conditions
Royalties – withdrawn from YA 2017• Section 10 (16) of the ITA provides a tax concession on royalties and other
payments from approved intellectual property or innovation
Global Tax Symposium – Asia 201565
PwC
Changing assessment environment?
66Global Tax Symposium – Asia 2015
PwC
Changing assessment environment?
GST ACAP
• IRAS’ letters to ‘encourage’ tax payers to voluntarily undertake a GST ACAP review or be subject to IRAS audit
Internal controls for corporate tax
• Taking the lead from ACAP, IRAS appears to be moving to focus on the internal controls relating to corporate income tax reporting and other tax-related areas, e.g. withholding tax
Contemporaneous documentation for transfer pricing
• Need I say more?
67Global Tax Symposium – Asia 2015
67
Vietnam
David FitzgeraldPartner, PwC Vietnam
Global Tax Symposium – Asia 2015PwC
Economic overview
• Fitch rating: stable, BB-
• Continued moderation in inflation ~5.5%
• Trade balance improving
• Currency generally stable, although continued minor devaluations
• GDP growth: over 6% for 2014
• FDI: USD20bn in 2014
• New Law on Investment and Law on Enterprise this July
69
Global Tax Symposium – Asia 2015PwC
Corporate income tax
• Corporate tax rate – reduced to 22% for 2014-2015 and to 20% from 2016
• Revamped CIT incentive regime – broader scope and also applied to business expansion
• Advertising and promotion (A&P) cap removed from 2015
• Capital gains tax
− Foreign companies taxed on sale of Vietnamese companies at 22% of gain
− Targeting offshore sales?
70
Global Tax Symposium – Asia 2015PwC
Foreign contractor tax
• Remains the method used in practice to tax foreign companies
• PE is on the statute book but not invoked
• FCT places filing payment obligations exclusively on the Vietnamese customers
• New FCT Circular 103 applicable to foreign entities which:
− “carry out part or all of the activities of distributing goods….in Vietnam where foreign entity….is still owner of goods ”
− “incur expenses for distribution, advertising and marketing, or are responsible for the quality of services or goods……or set prices for selling goods or providing services”
− “authorise or hire a number of Vietnamese organisations to provide part of the distribution service or other services related to sale of goods in Vietnam”
• What is the objective of these provisions?
71
Global Tax Symposium – Asia 2015PwC
Foreign contractor tax
8
Overseas goods provider
Overseas goods provider
Vietnamese distributorVietnamese distributor MarketMarket
Sales subject to FCT?
VN Rep officeVN Rep office
Control / Distribution / A&P / Quality / Pricing
Sales
• 1% CIT, VAT exempt applied to gross sales
• CIT may be avoidable if overseas seller is located in a tax treaty partner country, but an application is needed and commercial challenges exist
• Circ 103 is likely to increase focus on activities of representative offices
Control / Distribution / A&P / Quality / Pricing
72
Global Tax Symposium – Asia 2015PwC
Value added tax
• Exported services: services must be “consumed” outside Vietnam to be eligible for zero rating
• VAT creditability requires payment via bank and registered bank account
• Removal of 6 month limit to claim input VAT
• Waiting time for VAT refunds increased to 1 year; or VND300 million for new projects/export
• Funding is no longer VAT exempt if provided in return for services
73
Global Tax Symposium – Asia 2015PwC
Transfer pricing – developments
• Ministry of Finance’s “Action Plan on Transfer Pricing Management” – stated goal of 20% of all tax audits to focus on transfer pricing by 2015. Now striving for consistency in transfer pricing audit process:
− Strategic risk assessment / profiling still under development
− Front line auditors lack knowledge / experience
− Aggressive positions (e.g. MOTC of 25% for a contract manufacturer) taken where no documentation exists and / or tax return filings are incomplete or inaccurate
• Focus on ‘transparency and completeness’ of information through detailed disclosure requirements and other measures:
− Revised transfer pricing declaration form effective for 2014 filings onwards –requires companies to declare their compliance with the arm’s length principle at the time of filing
− Enhanced focus on maintenance of TP documentation
− Objective measures (i.e. caps / safe-harbours) are in place or contemplated
• GDT is closely watching other authorities in the region (particularly China) and developments elsewhere
74
Global Tax Symposium – Asia 2015PwC
Transfer pricing – APAs and MAP
• APA programme established in February 2014, four major taxpayers have lodged official (bilateral) applications. PwC assisting with three of these.
• Key insights from initial cases:
− GDT is still developing competency and leaning on the taxpayer to drive the process
− Significant information hurdle to obtain approval into the programme
− Need to engage multiple stakeholders with the MoF and GDT
− Due to the nature and complexity of the interactions with the Government, generally only suitable for larger taxpayers
• Taxpayers have lodged applications for MAP to resolve Vietnam transfer pricing disputes (one with Japan, one with Korea), along with other tax issues:
− Pilot MAP cases will help shape the process, however, MAP is seen as a realistic option to resolve disputes.
75
Global Tax Symposium – Asia 2015PwC
Enforcement and implementation
• Active tax audit programme
− Tax incentives is a key focus
− Tougher dispute resolution environment
− Tougher enforcement – individuals stopped at airport, bank accounts frozen, penalties and interest applied
− Tax issues increasingly going to court
• Structural issues with the tax system. What may the Government do?
− Re-introduce a dividend withholding tax?
− Introduce a thin capitalisation rule?
− Increase SST rates already increased – now proposed changes to taxable price
− Increase VAT rate?
− More consistent application of the existing rules?
− Apply FCT to distribution arrangements
− Anti treaty shopping regulations
76
Global Tax Symposium – Asia 2015PwC
Contact us
Benedict Francis
Executive Director, PwC [email protected]
Tan Tay Lek
Partner, PwC Singapore +65 6236 [email protected]
David Fitzgerald
Partner, PwC [email protected]
7777
Thank you.
The information contained in this presentation is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PricewaterhouseCoopers Ltd. ("PwC"). PwC has no obligation to update the information as law and practices change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other advisers.
The materials contained in this presentation were assembled in May 2015 and were based on the law enforceable and information available at that time.
© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.