Colombia and the significant changes in accounting and tax matters
In the search for a system of international approval, the process experienced by Colombia in all areas presents the best letter of introduction to join the Organization for Economic Cooperation and Development (OECD), reflecting that Colombia exercises good practices and that our companies have adequate corporate governance schemes, information, and management of companies in their standards. After seven years of the previous government’s accession process, Colombia becomes the 37th member of the organization, reflecting that the country has reached high standards in global public policy on 28 April 2020.
On the other hand, the accounting industry needed to be more dynamic and proactive with current accounting and tax regulations. The regulatory framework causes Public Accountants to improve their profiles as professionals and be even more competitive. The companies must keep their teams updated and pay particular attention to the Government and other high-impact entities such as the National Directorate of Taxes and Customs of Colombia DIAN. Since previously there was no route needed to follow in this field, the map was not very clear regarding compliance with Decree 2649 /2650, the provisions of each of the regulatory and control entities.
We must consider that the adoption of International Financial Reporting Standards (IFRS) led us to implement the International Standards on Auditing (ISA) in Colombia. It is a part of the evolution that our country is undergoing since it actively required the development of a globalized framework, making it necessary to standardize a common accounting and financial language to prepare financial statements. (Law 1314 of 2009).
The real challenge lies in the process of transition from the Latin model to the Anglo-Saxon model; determine its proper direction with all the impact that the country may have due to the participation of the States, companies and professionals who exercise independent Fiscal Auditing practices such as accounting firms, which are ratified in Decree 2420 on 14 December 2015. It is mentioned that accountants must venture into greater regulation and under a more international scheme.
It is clear that this tremendous effort for Colombian accountants translates into speaking the same language internationally, which allows us to be competitive not only locally, but also outside our territory. In addition to the fact that we are tax auditors (only applicable in Colombia), we provide higher quality work and rigorous compliance in terms of regulations for Colombian entities.
We must consider that the adoption of the IFRS in Colombia was part of our country’s evolution in the framework of globalization, characterized by free trade agreements, openness, and access to international markets. These are necessary for the standardization of an accounting and financial language to generate an increase in consulting services. Even though it is necessary to mention that this has gradually decreased, currently, only consulting services are performed to support regulatory updates under IFRS. Regarding ISA, Colombia is also starting with the applicability of ISA 705, already advanced for some sectors, given the importance of issuing an opinion including an emphasis on internal control, which could open more business opportunities for other service areas.
The exercise for business presents different difficulties to our country. Considering the current economic and social circumstances and Colombia as a country with greater participation by small and medium-sized enterprises, it is necessary to continue with the progress that has been achieved in accordance with the reforms that the country made to get where it is today. As they have been very important for the growth and development of our economy. Currently, the government has supported more than 34 reforms since 2006, according to the World Bank’s Doing Business 2018. The government continues to offer incentives for foreign investment and legal stability for investors, taking advantage of the free trade zones established in the region, which also have different tax benefits that may be attractive for future investors.
It is also important to consider that Colombia is currently, as part of the economic development program, promoting the areas that were affected by the armed conflict, given that it is in the Development Plan that addresses the primary needs of the country. This plan is designed and executed to achieve continuous growth and competitiveness.
Contributed by Johana Valencia
Alfredo López y Cia Ltda
(An Allinial Global Member Firm in Colombia)
About the Author:
Public Accountant from Universidad San Buenaventura de Cali, with International ACCA – Association of Chartered Certified Accountants accreditation for International Financial Reporting Standards IFRS. Currently, she is doing a Master in Business Administration with the European University of the Atlantic in Spain, has more than 10 years of professional experience in financial auditing, tax review, evaluation of internal controls, implementation of local and international accounting (full NIIF, Pymes and NICSP).
For more information about this article you can contact Ms. Johana Valencia from Alfredo López y Cia Ltda.
Tax Benefits and New Tax System For Micro-Enterprises In Ecuador
Contributed by Diego Zambrano, Tax Consulting and Practice Manager, Audit Corporate / Tax Corporate
A new tax regime for micro–enterprises was established in 2020 in Ecuador, which applies to those taxpayers (societies or natural persons), including entrepreneurs who fulfill the status of micro–enterprises, i.e. having 1-9 workers and an annual income of less than US$300,000. This regime applies to the following taxes: Income Tax (IR), Value Added Tax (VAT), and Excise Tax (ICE).
Taxpayers not included
Taxpayers engaged in activities related to the banana sector, construction contracts, or those whose economic activity involves the provision of professional services, liberal occupation, the relationship of dependency, as well as those who receive exclusively capital income may not be able to access this scheme.
Duration of the regime
Micro-enterprises will remain under this scheme as long as their status and characteristics in income and number of employees remain, in no case will the companies’ permanence be greater than 5 years. Then, they will subsequently be subject to the general regime.
The formal duties of taxpayers under this scheme include:
- Keeping accounts under SME standards (Small and Medium-sized Enterprises), in addition, they must submit declarations and annexes where appropriate.
- Keeping proof of sale that supports their operations for a period of not fewer than 7 years.
- Providing tax information to authorized officials for inspections or verifications and attending to the tax administration offices when required.
- Carrying out ICE, IR and VAT returns on a 16-monthly basis. If the taxpayer has unrecognized income under this scheme, he or she must also carry out the annual IR return.
PAYMENT AND TAX RETURN FEATURES
Income Tax (IR)
- Tax Base: The gross taxed income from business fewer commercial rebates or discounts and deferred tax adjustments will be considered.
- Income not considered: Financial income, asset revaluation, lottery prizes, raffles, royalties, double taxable income, inheritances, dividends, retirement pensions, or those obtained by the occasional disposal of movable and immovable property, or income detailed as not included under the scheme.
- IR Rate: The rate will be 2%, without the right to rebate or decrease.
- Withholdings at source: Taxpayers under this scheme will be subjected to a 1.75% withholding tax. If they have income under the general scheme (e.g. professional services) the retention they are required to make is based on the type of good or service that you sell outside the regime (8% or 10%).
- Six-monthly declaration: Taxpayers will pay the tax exclusively for income subject to this scheme in July and January.
- Annual Declaration: Only in the following cases should the IR’s annual return be additionally filed:
- Companies and permanent establishments of non-resident companies
- Natural persons with incomes other than Business Activity
- Natural persons who require requesting overpaid payment or filing the claim for improper payment.
Value Added Tax (VAT)
- Six-monthly return: Taxpayers will pay the tax in July (first semester) and January (second semester).
- VAT withholdings: Taxpayers under this scheme will not be withholding agents. In special cases in which they must retain, these values will be declared on a monthly basis (the SRI may include micro-enterprises as retention agents).
Excise Tax (ICE)
- Six-monthly return: Taxpayers will pay the tax in July (first semester) and January (second semester). In the event that they make a monthly declaration within the fiscal year, it must be maintained for the rest of the year.
- Taxpayers subject to this scheme who choose to submit the Simplified Transactional Annex (ATS) on a six-monthly basis. They must do so in accordance with the ninth digit of the Single Taxpayer Register (RUC), in the month following the end of the reported semester. For the semester from January to July, the ATS will be presented in August; for the semester from July to December, the ATS will be presented in February.
- The period for the submission of Annex ICE for the taxpayer that is subject to the micro-enterprise tax regime was established on a six-monthly basis. This addendum shall be submitted to taxpayers in accordance with the ninth digit of the RUC within the month following the end of the reported semester.
Benefits for Microenterprises
New micro-enterprises that start their economic activity from the validity of the “Organic Law for the Reactivation of the Economy, Strengthening the Dollarization and Modernization of Financial Management (year 2018)”, will be exempted from income tax for 3 years from the first fiscal year in which operational revenue is generated, provided that they generate net employment and incorporate national added value into their production processes.
The health contingency has knocked on the door worldwide and forced many companies to specialize or generalize activities, make the most of synergies, redistribute benefits, modify cost structure, process outsourcing, process optimization, etc.
If changes are made within the company or the business group to which they belong, the company results in a change in its assets, functions and risks, we are in the presence of a business restructuring.
According to OECD guidelines, company restructuring refers to the cross-border reorganization of commercial or financial relationships between associated companies, including the termination or substantial renegotiation of pre-existing agreements and, in consequence, whether accepted or imposed conditions that differ from those that would be agreed by independent companies exists. The profits of that company should be taxed accordingly.
Before any change within the group in relation to functions, assets and risks, it is important to take into account the current transfer pricing matter legislation which states that; transactions carried out between companies that are related parties must be entered into as if they were agreed with independent third parties in comparable transactions.
In case these changes are not agreed as with independent parties in comparable operations, the tax law empowers the tax authorities to apply the corresponding adjustments and to submit the imposition of profits obtained from the said business reorganization.
Therefore, it is relevant that if intercompany policies are modified or some types of intra-group restructuring fall into place, they comply with the arm’s length principle or “Arm’s Length” and, all in all, they have a valid and sustainable business reason to carry out the reorganization of functions, assets or risks, in which they demonstrate that benefits are flowing to the entity that carries out the said restructuring. Any change that occurs in the economic, commercial and operational relations, should take into consideration what it is mentioned on the tax legislation.
Written by Carlos Ramírez Gómez, Transfer pricing partner, LawBiz Consulting Group
In Hong Kong SAR, there is no statutory definition of what constitutes a charitable institution or trust of a public character (“Charity”) with a charitable purpose, nor is there a single piece of legislation which governs Charities in Hong Kong and how donations are applied. In 2017, the Hong Kong SAR Government’s Audit Commission reviewed various government departments’ supervisory measures on Charities and it advocated strengthening supervision thereon.
Four heads of charity
According to Section 88 of the Inland Revenue Ordinance (“IRO”), Charities should apply to the Commissioner of Inland Revenue if they wish to enjoy tax exemption. In processing tax exemption applications of Charities, the Hong Kong Inland Revenue Department (“IRD”) has all along made reference to the case law in the common law. In general, tax-exempt Charities must be of a public character and established solely for charitable purposes recognized by the law. According to past case law, “charitable purposes” include (a) relief of poverty; (b) advancement of education; (c) advancement of religion; and (d) other purposes of charitable nature that are beneficial to the community. These are commonly known as the “Four heads of charity”.
According to IRO S.88, where a trade or business is carried on by any Charity, the profits derived from such trade or business shall be exempt and shall be deemed to have been exempt from tax only if such profits are applied solely for charitable purposes and are not expended substantially outside Hong Kong and either: (a) the trade or business is exercised in the course of the actual carrying out of the expressed objects of such institution or trust; or (b) the work in connection with the trade or business is mainly carried on by persons for whose benefit such Charity is established.
Salient points from the revised Tax Guide
In April 2020, the IRD published a revised version of “Tax Guide for Charitable Institutions and Trusts of a Public Character” (“the revised Tax Guide”), giving more comprehensive explanations with examples to its earlier version in September 2019. For the revised Tax Guide, we would like to highlight some salient points:
- Indicia of carrying on business
- Primary purpose or ancillary trade/ business
- Financial investments
- Property letting
1. Indicia of carrying on business
Whilst the totality of facts would be considered, the IRD states that the key indicia in determining whether the activities carried on by the Charity amount to the “carrying on a business” are:
- The intention of carrying on a business;
- The nature of the activities performed, particularly whether they have a profit-making purpose;
- Whether such activities are repeated and regular or organized in a business-like manner;
- The size and scale of the Charity’s activities including the amount of capital employed; and
- Whether the activities are better described as a hobby or recreational activities.
2. Primary purpose or ancillary trade/ business
A charity can be exempt from profits tax in respect of the profits from a trade/ business that contributes directly to an expressed object of the Charity (i.e. a primary purpose of the trade/ business) and/ or an ancillary trade/ business. In the revised Tax Guide, sample activities are enlisted to illustrate what may be exempted from profits tax. It is specifically mentioned in the revised Tax Guide that a Charity’s trading transactions would not be regarded as ancillary simply because its purpose is to raise funds for the Charity.
3. Financial investments
The revised Tax Guide states that a Charity may invest in order to achieve a financial return so that it can further the Charity’s objects and, normally, such an investment is expected to be made in a proper and prudent manner to yield best return within acceptable level of risk. Also, the determination of whether the investments are of capital or revenue nature is a question of fact and degree. The investment mandate, pre-defined model portfolio and the “badges of trade” are all relevant factors to be considered.
4. Property letting
The guide clarifies that if a Charity’s property letting is not carried out in the course of the actual carrying out of its expressed objects, the rental income earned should be chargeable to profits tax.
The IRD’s clarified views on what income is exempt from tax would have significant impact on some Charities. We strongly recommend Charities to seek professional assistance to review their current tax position and consider if a restructuring is needed. This is not only for a Charity to preserve financial capabilities of deploying resources for charitable purposes, but to preserve its reputation.
For any enquiries, please contact our May Tung (T: 36430726: E: firstname.lastname@example.org ).
Written by May Tung, Tax Advisory Services, CW CPA
After more than two years of negotiations, the new trade agreement between Mexico, the US and Canada, now called the T-MEC has entered into force on 1 July 2020. Although most of the agreement did not have significant changes, some modifications will impact the way of operating companies within the region, as well as the performance of the North American economy.
From NAFTA to T-MEC
With the entry into force of NAFTA in 1994, trade within the North American region grew considerably. In 2018, total trilateral merchandise trade (the total of each country’s imports from one another) exceeded US$ 1.1 trillion. From 1994 to 2018, the volume of commercialization between Mexico and the US went from 82 billion dollars to 612 billion dollars, that is an increase of 651%. Also, the exchanges between Mexico and Canada increased 808% in the same period which from a much lower base ($ 2.7 billion). Trades between Canada and the US more than doubled.
Besides, the agreement has gradually eliminated tariffs on most products, the agreement came with investment opportunities, job creation, greater competitiveness, development of a variety of sectors of the regional economy, and mainly, fostering better practices in different sectors.
Despite the economic benefits that NAFTA brought, some important commercial considerations were not included, such as, digital trade, labour, environment, technical standards, etc. This and other aspects led to the renegotiation of the terms of the new trade agreement between Mexico, the United States and Canada for more than two years.
NORTH AMERICA REGION AND THE “NEW NORMAL”
The pandemic and trade war are forcing companies to redesign their supply chains. In this scenario, regional trade and investment agreements provide an ideal infrastructure to shorten and reduce the risk in supply chains. More than ever, companies are in need to have supply options within the same hemisphere of their main consumption centre, to avoid shocks in the supply and demand sides. In this sense, Mexico becomes an excellent opportunity to bring new value chains, new industries and new economic activities.
What are the main provisions on T-MEC that protect free trade and investment within the North America Region?
Chapter 2 on National Treatment and Market Access
- Free trade is maintained for all originating goods, the prohibition of export taxes, regulation for the application of import and export restrictions, refund and deferral of customs duties, and the prohibition of applying performance requirements for exemption from customs duties.
- Disciplines regarding temporary imports of goods, goods reimported after repair or alteration are updated; commercial samples and printed advertising materials.
- New disciplines on import and export license establishing commitments on notification and transparency.
- New disciplines to regulate the trade of remanufactured goods in the region to prevent these products.
Chapter 14 on Investment
- This Chapter updated the NAFTA disciplines on the protection of North American investors and outlined the mechanisms through which foreign investors may resolve differences that may arise from the alleged violation of the provisions of the Agreement.
Chapter 15 on Cross-Border Trade in Services
- The principles applicable to trade in services include: National Treatment, Most Favoured Nation Treatment, Market Access (prohibiting the implementation of quantitative limitations, economic necessity tests) and Local Presence (to avoid the obligation to establish or maintain a representative office or a company in a respective territory as a condition for the cross-border supply of service).
- Support for the development of trade in services for the benefit of Small and Medium-sized Enterprises (SMEs).
- Free and immediate transfers and payments related to the cross-border supply of a service.
There is no doubt that T-MEC will not only strengthen the North America regional economic integration but will also create opportunities for foreign companies to make successful investments in manufacture, financial and services sectors. As the trade war continues, companies need to redefine their business strategy taking advantage of the multiple trades and investment benefits included in regional free trade agreements.
IF YOU WANT TO KNOW MORE ABOUT COMMERCIAL REPRESENTATION SERVICES IN ASIA, DO NOT HESITATE TO CONTACT US.
Written by Susana Muñoz Enríquez, Managing Director in GBA LatAm Trade and Investment Advisors
According to the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, one of the region’s strategic positioning is to grow into an international scientific and technological innovation center with global influence. As talent is the basic driving force for science and technology development and innovation, the development of the Guangdong-Hong Kong-Macao Greater Bay Area will rely on innovative system and mechanism to stimulate the innovation vitality of talents.
On 14 March 2019, China’s Ministry of Finance and State Administration of Taxation jointly issued a Notice on Individual Income Tax Incentives for Guangdong-Hong Kong-Macau Greater Bay Area. Guangdong Province and Shenzhen Municipality shall grant subsidy overseas (including Hong Kong, Macau and Taiwan, same hereinafter) high-end talents and talents in short supply working in the Greater Bay Area, and such subsidy, equivalent to the individual income tax difference between Mainland and Hong Kong, will be exempted from individual income tax.
Following the above policy, Shenzhen Municipality issued two documents detailing the implementation of the IIT subsidy application for high-end talents and talents in short supply working in Shenzhen:
- Notice on the Implementation of Preferential Individual Income Tax Policies for the Guangdong-Hong Kong-Macau Greater Bay Area, effective since 27 March 2020.
- Notice on Promulgation of the Guidelines for the Application for Individual Income Tax Subsidies for Overseas High-end Talent and Talent in Short Supply in Shenzhen for Tax Year 2019, effective since 10 July 2020.
Based on the instructions given by the government of Guangdong Province, the preferential policy refines the detailed conditions and criteria for applicants according to the actual situation in Shenzhen. The promulgation of the above two documents marks the official landing of the Greater Bay Area (GBA) Individual Income Tax rebate in Shenzhen, which will effectively help Shenzhen acquire more talents.
To be eligible for the IIT subsidy, an applicant should first meet the basic requirements in terms of identity and his/her employment condition. Under the guidelines provided by the Shenzhen Government, an applicant should fall in one of the following categories:
- A permanent resident of Hong Kong or Macao;
- A mainland resident having settled down in Hong Kong or Macao (having deregistered his Mainland household registration)
- A Hong Kong resident under admission schemes for talent, professionals and entrepreneurs;
- A resident in Taiwan region;
- Foreign nationals;
- An overseas returnee who has obtained the right of long-term residence in a foreign country;
- Overseas Chinese.
In addition, the applicant should prove that he/she has entered into an employment contract with an employer in Shenzhen or has signed a dispatch agreement with an overseas employer and an entity in Shenzhen. For certain qualified applicants who provide independent personal services in Shenzhen, they must provide their corresponding service contract with a taxpayer in Shenzhen.
Besides the above basic requirements, an applicant should meet any of the following conditions:
- Being selected for national, provincial or municipal major talent projects;
- Being an overseas high-level talent recognized by the State, the Province or the Municipality.
- Obtaining a Guangdong Superior Talent Card of Guangdong Province;
- Talent with permanent residency in China, work permit for foreigners working in China (Type A and Type B) or confirmation letter for foreign high-end talent;
- Any member of a scientific research team or manager at or above the middle level of a national, provincial, or municipal major innovation platform;
- Any member of a scientific research and technology team or manager above the middle level in an institution of higher learning, scientific research institute, hospital or any other relevant institution, or any member of a team undertaking a major vertical project under research at or above the municipal level, or any leader for a key discipline or key specialty at or above the municipal level.
- Managers above the middle level, scientific research team members, technical and skill backbones and excellent young talent of headquarters enterprises, top global 500 enterprises and their branches and high-tech enterprises, large backbone enterprises, listed enterprises and enterprises included in the pool for cultivation and innovation-oriented high growth sci-tech SMEs;
- Managers above the middle level, members of scientific research team, technical and technical backbones and excellent young talent who start business or are employed in key industries and fields to be developed in Shenzhen, and have not passed or failed to pass within the time limit the acceptance inspection of a project supported by the special fund for the development of a strategic emerging industry in Shenzhen that they are responsible for or participate in within the latest three years.
Key Points on the Guidelines for Application in Shenzhen
- It should be noted that the subsidy is only granted to applicants paying taxes exceeding 15% of the taxable income. Foreign nationals are, in addition, subject to a minimum annual taxable income threshold of RMB500,000.
- Once the eligible applicants are identified, proper travel schedules should be maintained by the applicants to ensure that they stay in Shenzhen for at least 90 days during a tax year.
- Successful applicants cannot enjoy other IIT-related talent preferential policies in Shenzhen. Meanwhile, the details of IIT policy in GBA may vary in different cities. The criteria, requirements, calculation methods and procedures in Shenzhen may not be applicable to other cities in the GBA.
- The applicant’s credit information may be inquired through channels such as Shenzhen Credit Platform.
Calculation of IIT Subsidy
The basic formula is that the IIT subsidy should equal to the tax paid according to the PRC IIT Law deducted by the estimated tax calculated at 15% of the taxable income, so that the taxpayer would have an effective IIT rate of 15%:
IIT Subsidy=Tax Paid – (15% x taxable income)
Taxable Income refers to the following income categories according to the Individual Income Tax Law of the People’s Republic of China:
- Income from wages and salaries;
- Income from remuneration for labor services.,
- Income from authorial remuneration;
- Income from royalties;
- Business income;
- Subsidized income from the talent projects.
Estimated tax amount means the tax amount payable for the taxpayer’s individual income derived in Shenzhen within the tax year computed pursuant to the tax laws of Hong Kong. It will be calculated according to the standard tax rate method, which is, estimated tax amount = taxable income of the taxpayer in Shenzhen x 15%.
What CW Can Offer
Our multilingual professionals can help to facilitate communications throughout the application process and enable us to provide tailored services to our clients. We offer:
- Guidance throughout the whole application process;
- Professional consultation services to help you resolve your concerns and difficulties;
- Collect, review and file documents and materials according to the specific policy requirements;
- Organize training sessions for each client before submitting their online applications.
If any assistance is required, we are here to listen and help. Please do not hesitate to get in touch if you have any questions.
Written by China Consultancy Team, CW CPA
The Greater Bay Area (GBA) initiative is an ambitious scheme to link the nine cities in Mainland and 2 Special Administrative Regions, namely Hong Kong and Macau, into an integrated economy and world-class business hub.
In 2019, by deepening reform, prioritizing innovation, and accelerating connectivity, the development of GBA has gained considerable momentum. Having the right talent to help develop the GBA economy is important. To address this issue, for “High-end Talents” and “Talents in Short Supply”, the Municipal Governments in the GBA will grant subsidies to the residents for the Individual Income Tax (IIT) paid exceeding 15% of the taxable income.
IIT subsidy application criteria
To be eligible for the IIT subsidy application, ALL the following 3 Basic Conditions must be met:
- Hong Kong or Macau permanent residents, Hong Kong residents under the Hong Kong Immigration Admission Schemes for Talents, Professionals and Entrepreneurs, Taiwan residents, foreigners, or Chinese students or overseas Chinese who obtained long term residency abroad;
- Work in one of the nine GBA cities and pay taxes according to the IIT law; and
- Compliance with laws and regulations, ethics and integrity relating to scientific research.
The definitions of “High-end Talent” and “Talent in Short Supply” vary among the nine Mainland GBA cities, of which only Guangzhou and 3 other cities have finalized the local implementation rules.
Guangzhou rules provide a detailed list of both “High-end Talent” and “Talent in Short Supply.” The “Talent in Short Supply” spans 16 industries with a wide spectrum of work types and seniority. However, the annual taxable income subject to IIT of the applicants in Guangzhou must be more than RMB 300,000.
The following is a selection of professions or positions included in the list:
- Chartered financial analyst, certified public accountant
- Private banker, fund manager, insurance actuarial talents, risk management talents
- Senior management (e.g. chairman, vice chairman, general manager, deputy general manager, director, chief economist, chief accountant, etc.)
- Software engineer
- Construction (including planner, designer, engineer, etc.)
- Professional service (including person with legal professional qualifications, registered surveyors, tax agents, translators, etc.)
- Product manager or project manager in new generation information technology industry
- New energy/new material engineer
- Logistics manager in modern e-commerce
- Performing artist
- Specialist doctor
Subsidy application procedures
Once the eligible employees are identified, proper travel schedules should be maintained by the employees to ensure that they meet the specific thresholds for applying the IIT subsidy (eg. Guangzhou requires the IIT subsidy applicants to stay in the city for at least 90 days during a tax year).
If the individual taxpayer’s IIT is withheld by a withholding agent, it is preferable for the application for the IIT subsidy to be submitted by the agent. If not, the individual taxpayer would need to submit their application himself or herself. Whilst the process can vary among the nine Mainland GBA cities the following table illustrates the general application procedures:
- Application submitted to Human Resources and Social Security Bureau (HRSSB) and Science and Technology Bureau (STB).
- Assessment of “High-end Talent” by STB, and “Talent in Short Supply” by HRSSB.
- Examination of the application materials and approval of subsidy by Finance Bureau (assisted by STB, HRSSB and Taxation Bureau).
- Distribution of subsidy by Finance Bureau
The subsidy is exempt from PRC IIT, and is calculated and distributed once a year.
Claiming tax credit for Hong Kong salaries tax
For Hong Kong residents who hold Hong Kong employment and are required to work in other Mainland Greater Bay Area cities, the Hong Kong residents will be entitled to claim credit in respect of foreign tax payable on the income under Section 50 of the Inland Revenue Ordinance.
Please note that the Inland Revenue Department is authorized to issue additional assessments when the amount of relief from double taxation given to the Hong Kong residents become excessive.
To secure the IIT subsidy as a measure to attract or retain talents and to minimize their tax exposures and, it is important for both businesses and individuals to stay tuned for the policy updates and implementation details. CW CPA can assist you in both the updates and the application process.
Written by Rosanna Choi, Partner, CW CPA
To alleviate the impact of the COVID-19, the Chinese government has introduced a series of supporting policies at both central and local level. In the following, we have summarized some of the key relief measures.
Measures at Central Level
Policies Related to Foreign Investment
Tariff on self-use equipment imported for foreign investment projects encouraged by the Catalogue of Industries Encouraging Foreign Investment will continue to be waived within the investment quota. For projects beyond the investment quota, project companies can make applications with the provincial development and reform commission to enjoy tariff exemptions.
Postponement in Principal and Interest Repayment for Loans to SMEs and Micro Enterprises
SMEs and micro businesses affected by the epidemic can make applications with banks to defer repayment of principal and interest expenses payable from 25 January to 30 June 2020. Overdue loan repayments in the period will not be subject to penalties. Before the end of June, enterprises can also apply for deferred payment of the housing fund.
Extension of Tax Filing Deadline
According to the latest Circular issued by China’s State Administration of Taxation, the tax declaration deadline in May is postponed to 22 May 2020, nationwide. Taxpayers who still have difficulties in meeting the new deadline due to the severe impact of the epidemic can apply to the relevant tax authorities for further extensions.
Supporting the “Difficult Industries”
Transportation, catering, accommodation, tourism industries are categorized as “difficult industries”. For losses incurred by enterprises in difficult industries seriously affected by the epidemic in 2020, the maximum carryover period may be extended from five years to eight years.
Measures at Local Level (Selected cities in Guangdong Province)
Local governments mainly formulate policies from the following two aspects:
- Reducing labor cost, social insurance premium and housing fund, e.g. SMEs are exempted from pension, unemployment and industrial injury insurance expenses borne by enterprises from February to June 2020.
- Launching preferential tax policies, e.g. the VAT rate of small-scale taxpayers will be reduced from 3% to 1%; Measures for tax deduction and exemption will be provided for manufacturers of key materials for epidemic prevention and control.
- Enterprises producing epidemic prevention materials are encouraged to expand investment in technological transformation. The enterprises can receive a maximum subsidy of 20 million yuan for not exceeding 50% of the investment in equipment.
- The housing provident fund contribution rate is reduced, in which the minimum deposit rate is reduced from 5% to 3%; the housing provident fund payment is also postponed. The period of enjoyment cannot exceed 12 months.
- Require all banking institutions to ensure that the credit balance and the number of households of small and micro businesses and individuals in the first half of 2020 are not lower than that of the same period in 2019.
- For catering, accommodation, tourism, trade, transportation and other industries that are greatly affected by the epidemic, banks are encouraged to reduce the original loan interest rate by more than 10%.
- Policy-based financing guarantee companies at the municipal and district levels will cancel the counter-guarantee requirements, and the guarantee rate of the affected enterprises will be lowered by 1% point compared with the same period last year.
- In 2020, the Bank of Guangzhou and the Rural Commercial Bank of Guangzhou plan to increase loans to micro, small and medium-sized enterprises by 57 billion yuan and cut the interest rate for new loans to micro, small and medium-sized enterprises across the board, by no less than 10% compared with the same period last year.
- The qualified enterprises, including the “Made In Dongguan” brand exhibition and sales center outside the province, shall be given subsidies of up to 1 million yuan.
- Provide employment subsidies to enterprises that directly recruit employees who are employed in Dongguan for the first time, expand social insurance subsidies for small and micro enterprises to college graduates within two years after graduation, and provide one-time employment subsidies to enterprises that recruit employees who register unemployment for more than half a year.
- 30 million yuan arranged for the development of local mask production equipment enterprises, providing subsidies for enterprises to produce and sell mask machine.
- Set up 10 million yuan of special funds, giving no more than 12% of the subsidies to insurance products related to resuming work and production of the enterprise products.
Following the implementation of various measures, we believe that China’s domestic market and its competitive advantages in attracting foreign investment will remain unchanged. The central and local governments are expected to roll out further stimulus measures for various industries. Companies should keep a close eye on these developments, evaluate their operations in China, and make prompt applications if they are eligible to benefit from these incentives and supporting measures.
Written by Delilah Li, China Consultancy Team, CW CPA
On 26 February 2020, the Financial Secretary of the Hong Kong Special Administrative Region, Mr. Paul Chan Mo-po, delivered the 2020-21 Budget Speech.
Faced with the Sino-US trade conflict, other external factors and unexpected outbreak of the novel coronavirus, the Financial Secretary’s 2020-21 budget is focused on supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden.
2020-21 Budget Highlights
We summarize the 2020-21 budget’s key highlights relating to salaries tax, profits tax, measures to smoothen livelihoods, support enterprises and achieve diversified economy, as follows:
a) HK$10,000 cash payout to Hong Kong permanent residents aged 18 or above
b) Salaries Tax and tax under personal assessment for 2019-20 will be reduced by 100%, subject to a ceiling of HK$20,000 (2018-19: HK$20,000). The reduction will be reflected in the final tax payable for the year of assessment 2019-20
a) Profits Tax for 2019-20 will be reduced by 100%, subject to a ceiling of HK$20,000 (2018-19: HK$20,000). The reduction will be reflected in the final tax payable for the year of assessment 2019-20
b) Concessionary low-interest loan
c) Waive rates for non-domestic properties for 2020-21, subject to a ceiling of HK$5,000 per quarter in first two quarters and HK$1,500 per quarter for remaining two quarters
d) Waive the business registration fees for 2020-21
e) Waive registration fees for company annual returns for 2 years
Continue to implement relief measures announced last year
f) Electricity charges for non-residential account: subsidise 75% of charges for 4 extra months, subject to a monthly cap of HK$5,000
g) Water and sewage charges of non-domestic households: waive 75% of charges for 4 extra months, subject to a monthly cap of HK$20,000 and HK$12,500 respectively
Achieve diversified economy, Innovation and technology
a) Issue inflation-linked retail bonds and Silver Bonds totalling not less than HK$13 billion
b) Issue green bonds totalling HK$66 billion in next 5 years
c) Waive stamp duty on stock transfers paid by the Exchange Traded Fund (ETF) market makers when creating and redeeming ETF units listed in Hong Kong
d) Establish a limited partnership regime and provide tax concession for carried interest issued by private equity funds to attract them to domicile and operate in Hong Kong
e) Earmark HK$3 billion to take forward Phase 2 of the Science Park Expansion Programme
f) Increase the grant ceiling under the Technology Voucher Programme to HK$600,000 and raise the Government’s funding ratio to 75%
g) Inject HK$345 million for a pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology
h) Additional funding of HK$150 million for the Hong Kong Trade Development Council to assist Hong Kong enterprises in exploring business opportunities
Hong Kong expects a record deficit of HK$139 billion for 2020-2021 that is mainly due to the one-off relief measures of around HK$120 billion. However, the forecast of deficits over the next 5 years, ranging from HK$7 billion to HK$17 billion, means that a holistic review of Hong Kong taxation system is a top priority for the Hong Kong Government to attain Hong Kong’s fiscal health.
Written by May Tung, Tax Advisory Services, CW CPA
Proposed Budget and Summary of Hong Kong Taxes 2020-21
*For 2019-20, the profits tax is proposed to be reduced by 100%, subject to a ceiling of HK$20,000. (2018-19: HK$20,000)
- Salaries tax is charged at the lower of net chargeable income (Total Income – Deductions – Allowances) at progressive rates or net total income (Assessable Income – Deductions) at standard rate.
- Standard rate remains the same at 15%.
- Progressive rates are as follows:
*For 2019-20, the salaries tax and tax under personal assessment are proposed to be reduced by 100%, subject to a ceiling of HK$20,000. (2018-19: HK$20,000)
The standard rate (for non-corporate owners) remains at 15% for 2020-21.