asean investment & tax news - BDO

APRIL 2017 ISSUE 14 PP18667/02/2015 (034129) WWW.BDO.MY/ASEAN

ASEAN INVESTMENT & TAX NEWS FEATURE ARTICLE

NEWS

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FOREWORD

Greetings and welcome to the second 2017 edition of our regional quarterly newsletter – the ASEAN Investment & Tax News (AITN). As we move further into 2017, the Association of South East Asia Nations or ASEAN’s new chair, the Philippines, revealed this year’s six thematic priorities to drive growth and pursue the common goals of the 10-member economic bloc.

Six Priorities

Striving for a peopleoriented and people-centred ASEAN

Peace and Stability in the Region

Maritime Security and Cooperation

On the trade front, ASEAN is moving towards reducing barriers to trade with the six partners of the Regional Comprehensive Economic Partnership (RCEP). Lauded as the alternative to the Trans-Pacific Partnership Agreement (TPPA), the RCEP has received increased focus since the US pull-out from the TPPA. Plans are in place for inking of the pact by the end of 2017. The six partner countries in talks with ASEAN under the RCEP platform are China, Japan, South Korea, India, Australia and New Zealand. The proposed tariff cuts are aimed at 90% of products, amounting to 5,000-6,000 items under the RCEP over the next 15 years. Trade talks have also restarted in early March, for the stalled Free Trade Agreement (FTA) between the European Union (EU) and ASEAN. The FTA talks are aimed at countering a trend toward protectionism and facilitate trade between the economic blocs. Currently the EU has bilateral FTA’s with Vietnam and Singapore and is still negotiating agreements with the other countries in the region. With ASEAN firmly on the roll, our tax experts share with you the latest tax updates and reforms from around the region. In this issue, our feature article delves on the new tax treaty between Thailand and Singapore. The agreement on the avoidance of Double Taxation (DTA) came into effect on 1 January 2017. The new DTA benefits Singaporean investors in a number of areas, including reduced Withholding Tax (WHT) rates on interest and royalties.

Inclusive, Innovationled Growth

A Resilient ASEAN

ASEAN as a model of regionalism and a global player

WHT rates are a recurring theme this issue, as we discuss Myanmar’s move to reduce its WHT rates on payments to non-residents and royalties paid to residents. Further, our Malaysian colleagues look at the expansion of the scope of WHT on royalties and services in the nation - more specifically in relation to broadening the definition of royalty and reinstatement of WHT on payments for services performed outside Malaysia. We also examine the proposed tax reforms in the Philippines to lower the impact of taxation on poor and middle-class individual income earners expand the value-added tax base and adjust excise taxes, amongst others. Meanwhile, our respective colleagues share on the new Transfer Pricing documentation requirements in Indonesia and take a closer look at the new tax compliance regulations introduced for multi-activity enterprises in Cambodia. To top off the newsletter, we scrutinise Singapore’s targeted tweaks to its property cooling measures unveiled 4 years ago via the introduction of a new stamp duty – the Additional Conveyance Duty (ACD). We trust the updates shared here will give you a flavour of the key developments on tax around the region. Please contact us if you would like to have more information or in-depth advice on any of the news or articles presented in this publication.

DATO’ GAN AH TEE DNS JP Regional Senior Partner [email protected]

CONTENTS P1 FOREWORD P2 FEATURE ARTICLE Thailand New Tax Treaty Signed Between Thailand and Singapore

P3 NEWS

Cambodia New Tax Compliance Regulations Introduced for Multi-Activity Enterprises Indonesia New Transfer Pricing Documentation Requirements Malaysia Expansion of the Scope of Withholding Tax on Royalties and Services Myanmar Reduction in Withholding Tax Rates Philippines Proposed Tax Reforms Singapore Additional Conveyance Duties on Residential Properties

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ASEAN INVESTMENT & TAX NEWS

FEATURE: THAILAND NEW TAX TREATY SIGNED BETWEEN THAILAND AND SINGAPORE By Andrew Jackomos & Paul Ashburn

A NEW AGREEMENT BETWEEN THAILAND AND SINGAPORE FOR THE AVOIDANCE OF DOUBLE TAXATION (DTA) CAME INTO EFFECT ON 1 JANUARY 2017. The new DTA has improved benefits for Singapore investors in a number of areas, including reduced Withholding Tax (WHT) rates on interest and royalties. In general, the Thai tax breaks granted under the DTA are only available to tax residents of Singapore. A company is a tax resident in Singapore when the control and management of the company is exercised in Singapore. At the same time, it includes language to address treaty shopping, so that only the beneficial owner of the income can access certain benefits from the DTA. TAXATION OF INTEREST AND ROYALTY PAYMENTS The WHT rates applicable to interest and royalties paid to Singapore tax residents have in general been reduced. Payments for the use of or the right to use industrial, commercial, or scientific equipment are however now classified as royalties.

INTEREST

TYPE OF INCOME

WITHHOLDING TAX RATES PREVIOUS DTA RATE

NEW DTA RATE

Paid to a financial institution or insurance company

10

10

Paid with respect to indebtedness arising as a consequence of a sale on credit by a resident of Singapore of any equipment, merchandise or services, except where the sale was between persons not dealing with each other at arm’s length

15

10

Other interest payments (excluding those paid to government bodies exempt under the DTA)

15

15

ROYALTIES

- any copyright of literary, artistic or scientific work

15

5

- any patent, trademark, design or model, plan, secret formula or process

15

8

-

8

15

10

Payment for information concerning industrial, commercial or scientific experience

Whilst capital gains are not taxable in Singapore, in the absence of a DTA, a liability to Thai tax on the gain could arise. For example, Thailand imposes a 15% withholding tax on gains made by overseas corporates from the sale of shares, if the gains are paid from or within Thailand. Thailand has agreed under the new DTA to give up its right to tax gains on share sales in many cases. A major exception though compared to the old DTA is that Thailand now retains its taxing rights when a Singapore tax resident makes a gain from the sale of shares of a company deriving at least 75 per cent of its asset value directly or indirectly from real estate situated in Thailand. This provision is aimed squarely at property rich companies and is meant to counter the tax benefit arising from selling the company’s shares rather than the property it owns. TAXABLE PRESENCE IN THAILAND REDEFINED

Payments for the use of, or the right to use:

- industrial, commercial, or scientific equipment

SALE OF SHARES IN REAL ESTATE COMPANIES

A protocol to the DTA provides that if Thailand agrees in the future to lower WHT rates on interest with another country, the lower rates shall also apply to this DTA. BENEFICIAL OWNERSHIP The provisions regarding the taxation of dividends, interest and royalties now stipulate that the Singapore tax resident must also be the beneficial owner of the income in order to access the benefits of the DTA. Singapore nominee companies are therefore no longer eligible to access the lower WHT rates under the DTA.

Greater clarity is provided in the new DTA regarding situations that will result in a Singapore tax resident carrying on business in Thailand being liable to Thai income tax. The new DTA provides that a building site, a construction, assembly or installation project or supervisory activities in connection therewith will not create a taxable presence in Thailand if such site, project or activities last not more than 12 months. With regard to the furnishing of services in Thailand, a taxable presence will not be created if the services, including consultancy services, are provided within Thailand by employees or other personnel for not more than 183 days within any 12 month period. The act of securing orders for related enterprises is no longer deemed to create a taxable dependent agency under the new DTA.


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NEWS CAMBODIA: NEW TAX COMPLIANCE REGULATIONS INTRODUCED FOR MULTI-ACTIVITY ENTERPRISES ON 11 OCTOBER 2016, THE CAMBODIAN MINISTRY OF ECONOMY AND FINANCE ISSUED PRAKAS 1127 SETTING OUT NEW TAX COMPLIANCE REGULATIONS FOR COMPANIES IN CAMBODIA THAT ARE INVOLVED IN MULTIPLE BUSINESS ACTIVITIES INCLUDING ONE OR MORE QUALIFIED INVESTMENT PROJECTS (QIP). THIS PRAKAS TAKES EFFECT FROM 11 OCTOBER 2016. to claim VAT input and/or a VAT refund will be temporarily suspended for enterprises that have not yet completed the tax update requirement.

The types of businesses (Qualifying Enterprises) affected under this new regulation are:

Besides this, Prakas 1127 also states that Qualifying Enterprises must:

1 1.

1 1.

2 2.

3 3.

Enterprises in Cambodia that contain more than one QIP (Multi-QIP); Enterprises in Cambodia that carry out more than one business activity – where those business activities are subject to different rates of Tax on Profit (Multi-Non-QIP), Enterprises in Cambodia which carry out both a QIP and a non-QIP business activity (Mixed-QIP’s).

Prakas 1127 stipulates that the Qualifying Enterprises must register each of their business activities with the General Department of Taxation (GDT) within 15 days of commencing economic activity and obtain a separate Value Added Tax (VAT) – Tax Identification Number (TIN) for each of their business activities. The Qualifying Enterprises would also need to submit separate monthly and annual tax returns for each registered business activity. Further to the above, Prakas 1127 also provides updates with regards to the Qualifying Enterprises’ VAT obligations. The regulation stipulates that when Qualifying Enterprises purchase or provide taxable supplies, they must: 1. 1

2 2.

Apply the correct VAT TIN for each business activity that imports or exports or that purchases or supplies domestic goods and/or services; Prepare purchase and sales records for each business activity and record VAT input credit and output for each business activity.

2 2.

3 3.

Obtain Patent Tax declaration for each business activity; Each business activity which is carried out by the Qualifying Enterprise must have clearly distinguishable supporting investment capital, assets, fixed assets, liabilities, employees-worker, manager(s) and other financial information; Each Business Activity must maintain separate accounting records and separate income and expenditure on an individual business activity basis.

EXTENSION OF DUE DATE FOR MONTHLY TAX RETURNS The Cambodian Ministry of Economy and Finance issued Prakas No. 1539 on 23 December 2016, highlighting the amendments made with regards to the due date for filing monthly tax returns and making the associated payments. Under Prakas 1539, the due date for filing and payment of all monthly tax returns, except VAT to the GDT has been extended from the 15th to the 20th of the following month.

Should a taxpayer submit input credit claims without an invoice or an invoice in an incorrect format, the claim would be considered as obstruction on the implementation of the Law on Taxation and will be penalized in accordance with Article 133 and 136 of the Law on Taxation. The penalties will include suspension of operations, reassessment of tax, or a fine of KHR 10,000,000 (USD 2,500), or possible imprisonment for one year or both. DEADLINE FOR SUBMISSION AND PAYMENT OF 2016 TAX ON PROFIT RETURN The GDT issued a Notification No. 21588 on 23 December 2016 which informs all the self-assessed regime taxpayers on their obligation of submission and payment of the 2016 Tax on Profit (TOP) as follows: 1 1.

Enterprises that base their financial year ending on the calendar year (1 January to 31 December) must submit and pay the TOP by 31 March 2017.

2. 2

Enterprises whose financial year end does not follow the calendar year must submit and pay the TOP within 3 months after their tax year ends.

3 3.

Enterprises which have many branches must submit a consolidated TOP by attaching the profit and loss statements of each branch.

4 4.

Enterprises which operate multiQualified Investment Project (QIP) or multi-QIP and multi-non QIP that have obtained different TOP exemption periods or different TOP rates shall submit and pay their annual TOP and implement their obligations as stated in Prakas No. 1127.

5 5.

All enterprises which have an obligation to submit and pay TOP shall attach their balance sheet, income statement, and related parties transaction table as per the table format attached in the notification.

CLAIMING VAT INPUT CREDIT On 20 December 2016, the GDT issued Notification 21406 which provides guidelines for a taxpayer to claim VAT input credits. The notification states that when claiming input credits via their monthly VAT returns, the taxpayer must attach a valid invoice issued by the supplier which is in accordance to the format stated in Instruction No. 1127 issued on 26 January 2016. Further to this, the ability

4 ASEAN INVESTMENT & TAX NEWS

NEWS CAMBODIA: NEW TAX COMPLIANCE REGULATIONS INTRODUCED FOR MULTI-ACTIVITY ENTERPRISES (Con’t)

AMENDMENT OF TAX RETURNS On 19 January 2017, the GDT issued Notification no. 1219 which introduces a Penalty Exemption for Voluntarily Amendment Tax Declaration. The notification states that a penalty exemption will be given to any taxpayers who voluntarily disclose and pay their unpaid taxes for the past 3 years by 1 April 2017. PAYMENT OF 2017 PATENT TAX On 31 January 2017 the GDT issued Notification No. 1897 with regards to the submission and payment of 2017 Patent Tax. The notification informs taxpayers to submit and pay their 2017 Patent Tax by 31 March 2017. The amount of Patent Tax for each class of taxpayers are as follows:

Large Taxpayer KHR 3,000,000 (for turnover less than KHR 10,000,000,000) or KHR 5,000,000 (for turnover over KHR 10,000,000,000)

Medium Taxpayer KHR 1,200,000

Small Taxpayer KHR 400,000

AMENDMENTS TO THE LAW ON TAXATION The enactment of the new Law of Financial Management 2017 brings forth several major changes to the Law on Taxation (LOT) in Cambodia. These changes took effect in January 2017.

THE TAX ON SALARIES HAS BEEN REVISED AS FOLLOWS Previous bracket (KHR)

New bracket 2017 (KHR)

Tax Rate (%)

From 0 to 800,000

From 0 to 1,000,000

0%

From 800,001 to 1,250,000

From 1,000,001 to 1,500,000

5%

From 1,250,001 to 8,500,000

From 1,500,001 to 8,500,000

10%

From 8,500,001 to 12,500,000

From 8,500,001 to 12,500,000

15%

Greater than 12,500,000


20%

Another change is with regards to Tax Administration’s right to request information from third parties. The new Article 99 of the LOT grants the tax authorities the right to issue a notification to a taxpayer or a third party to request for information relating to the taxpayer, determining tax payable, collecting taxes, or fulfilling international agreements. Third parties as per the article include banks, insurance companies, and other financial institutions.

The next change is to Tax on Profit for Sole Proprietorships and Partnerships. The new tax rates are as follows: Taxable Profit (KHR)

Tax Rate (%)

From 0 to 12,000,000

0%

From 12,000,001 to 18,000,000

5%

From 18,000,001 to 102,000,000

10%

From 102,000,001 to 150,000,000

15%


20%

The final change is with regards to the Dividend Distributions for Branch of Foreign Company. The amended Article 20 of the LOT states if generally 20% to 30% of the TOP of a company is paid from Cambodian sourced income, then its Branch’s profit is not subject to Additional Tax on Dividend Distribution. A Branch’s profit after tax will still be subject to 14% Withholding Tax if the income is generated from business activities carried on by a non-resident through a permanent establishment in Cambodia, as per Article 26 of the LOT.


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NEWS INDONESIA: NEW TRANSFER PRICING DOCUMENTATION REQUIREMENTS ON 30 DECEMBER 2016, THE MINISTER OF FINANCE REGULATION NO. 213/ PMK.03/2016 (PMK-213) ON THE NEW TRANSFER PRICING DOCUMENTATION (TPD) REQUIREMENTS WERE FINALLY RELEASED. THIS REGULATION IS INTENDED TO ALIGN THE INDONESIAN TRANSFER PRICING REGIME WITH BASE EROSION PROFIT SHIFTING (BEPS) ACTION POINT NO 13 (AP13) ON COUNTRY-BYCOUNTRY REPORTING (CBCR). PMK-213 IS IN FORCE FROM 30 DECEMBER 2016 AND INTRODUCES THE SAME THREE-TIER DOCUMENTATION APPROACH AS CONTAINED IN AP13.

The above thresholds are applied to prior year’s data. For example, in determining the transfer pricing documentation obligation for Fiscal Year (FY) 2016, taxpayers will have to refer to FY2015 data. Preparation of MF, LF and CbCR is mandatory for taxpayers: •

who in previous year have consolidated annual gross revenue exceeding IDR 11 trillion (approximately USD 822 million), and

•

who are the ultimate parent company (of a group).

Both MF and LF must be available at the latest by the end of the fourth month following the closing of book year. Transfer pricing documentation must be prepared in Bahasa Indonesia. If a taxpayer has obtained approval to maintain bookkeeping in English, the documents can be prepared in English but with its Bahasa Indonesia translation. MF and LF are not required to be attached with the Annual Corporate Income Tax Return (CITR), but instead taxpayers must fill out a Summary form (ikhtisar) and attach it with the CITR. CbCR must be available at the latest by the end of twelfth month following the closing of book year.

PMK-213 presents the same three-tiered structure to transfer pricing documentation as AP13, which consists of: • A Master File (MF), containing general information on the group; •

•

A Local File (LF), containing specific information on operations in Indonesia; and

Preparation of MF and LF is mandatory for taxpayers with related party transactions and meet the following criteria: a. a

Who in previous year have annual gross operating revenue that exceeds IDR 50 billion; or

b b.

Who in previous year have a related party transaction with a value that exceeds: 1. IDR 20 billion for tangible goods transactions; or 2. IDR 5 billion for each transaction in relation to services, interest, intangible goods, or other related party transactions; or

c c.

Who have transaction with a related party that is domiciled in a country or jurisdiction with corporate income tax rate that is less than the prevailing Indonesian corporate income tax rate (of 25%).

A Country-by-Country Report (CbCR), containing detailed financial and other information on each member of the group. PMK-213 also introduces new materiality thresholds to determine: aa their transfer pricing documentation obligation and b whether there is a requirement to file b) CbCR.

Under PMK-213, documentation will require more coordinated effort between taxpayers and their affiliates to gather the necessary information and ensure consistency in disclosing information. The increase in the amount of information required in the CbCR together with the fact that this report is intended to be shared with other tax jurisdictions throughout the world represents a significant increase in transfer pricing risk for taxpayers. Taxpayers are advised to take this opportunity to examine and revisit their transfer pricing policies to proactively manage transfer pricing issues and related exposure to ensure compliance with the new TPD requirements.

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NEWS MALAYSIA: EXPANSION OF THE SCOPE OF WITHHOLDING TAX ON ROYALTIES AND SERVICES WITH THE COMING INTO OPERATION OF THE FINANCE ACT 2017 ON 17 JANUARY 2017, SEVERAL AMENDMENTS TO THE INCOME TAX ACT 1967 (ITA) THAT AFFECTS THE SCOPE OF WITHHOLDING TAX IN MALAYSIA CAME INTO EFFECT ON THAT DATE. The said amendments are: • Broadening of the definition of royalty. • Reinstating withholding tax on payments for services performed outside Malaysia.

REDEFINITION OF ROYALTY In the new definition, “royalty” includes: Any sums paid as consideration for, or derived from – (a) the use of, or the right to use in respect of, any copyrights, software, artistic or scientific works, patents, designs or models, plans, secret processes or formulae, trademarks or other like property or rights; (b) the use of, or the right to use, tapes for radio or television broadcasting, motion picture films, films or video tapes or other means of reproduction where such films or tapes have been or are to be used or reproduced in Malaysia, or other like property or rights; (c) the use of, or the right to use, know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (d) the reception of, or the right to receive, visual images or sounds, or both, transmitted to the public by – (i) satellite; or (ii) cable, fibre optic or similar technology; (e) the use of, or the right to use, visual images or sounds, or both, in connection with television broadcasting or radio broadcasting, transmitted by –

(i) satellite; or (ii) cable, fibre optic or similar technology;

The new definition differs from the previous definition in the following aspects: •

The word “software” is now included in paragraph (a) of the new definition. There is some concern that the Malaysian Inland Revenue Board (MIRB) may take a broad interpretation of “use of software” such that the new definition would apply even to payments for the purchase of a software product, or where there is no exploitation of copyrights involved. This interpretation appears to go against tax case decisions and the Commentaries on the Articles to the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. The MIRB has stated its intention to align the provisions of the ITA with advancements in technology and that it does not subscribe to the stand of the OECD, but instead makes references to the United Nations Model Tax Convention.

•

The addition of paragraphs (d), (e) and (f) in the new definition, which would mainly affect broadcasters, music/ video streaming services and telecommunications service providers.

•

Paragraph (g) is added in the new definition to close what is viewed as a potential loophole, whereby payments for forbearance (which means the act of not exercising a legal right) were previously not regarded as royalty.

(f) the use of, or the right to use, some or all of the part of the radiofrequency spectrum specified in a relevant license; (g) a total or partial forbearance in respect of – (i) the use of, or the granting of the right to use, any such property or right as is mentioned in paragraph (a) or (b) or any such knowledge, experience or skill as is mentioned in paragraph (c); (ii) the reception of, or the granting of the right to receive, any such visual images or sounds as are mentioned in paragraph (d); (iii) the use of, or the granting of the right to use, any such visual images or sounds as are mentioned in paragraph (e); or (iv) the use of, or the granting of the right to use, some or all such part of the spectrum specified in a spectrum license as is mentioned in paragraph (f); or (h) the alienation of any property, know-how or information mentioned in paragraph (a), (b) or (c) of this definition.


Notwithstanding the above, the definition of royalty and/or reduced withholding tax rate on royalty specified in the tax treaties signed by Malaysia will take precedence where it is applicable. SERVICES PERFORMED OUTSIDE MALAYSIA The ITA has been amended such that payments to non-residents for services performed outside Malaysia are now deemed to be derived from Malaysia. Previously, only payments for services performed in Malaysia were deemed to be derived from Malaysia. The Malaysian tax legislation has come full circle on this, as the position now is the same as that prior to 21 September 2002. The MIRB’s rationale for said amendment is again to align the provisions of the ITA with technological advancements which enables services to be conducted from anywhere in the world.

NEWS

MYANMAR: REDUCTION IN WITHHOLDING TAX RATES ON 10 JANUARY 2017, THE MINISTRY OF PLANNING AND FINANCE OF MYANMAR ISSUED NOTIFICATION 2/2017 (NOTIFICATION 2) WHICH INTRODUCES A LOWER WITHHOLDING TAX (WHT) RATE ON PAYMENTS TO NON-RESIDENTS AND ROYALTIES PAID TO RESIDENTS. ADDITIONALLY, NOTIFICATION 2 ALSO PROVIDES CLARIFICATION WITH REGARDS TO ISSUES ON THE IMPOSITION OF WHT ON OFFSHORE SERVICES AND LEASES. NOTIFICATION 2 COMES INTO EFFECT ON 1 APRIL 2017 AND REPLACES NOTIFICATION 41-2010 AND ITS AMENDMENT NOTIFICATION 167-2011.

Malaysia imposes a 10% withholding tax on payments for services made to non-residents that are deemed to be derived from Malaysia. The MIRB takes the position that this withholding tax is applicable on payments for all types of services other than payments for day-to-day administrative and routine services. Relief from the above withholding tax may be available in some of the Malaysian tax treaties through a “technical fees” article, which provides a definition of “technical services” for the purposes of the tax treaty, the jurisdiction in which such fees may be taxed and the maximum withholding tax rate that may be applied on such fees. However, most of the Malaysian tax treaties do not have a “technical fees” article. In the past, the MIRB has taken the position that the provisions of the “business profits” article in the Malaysian tax treaties do not apply as payments for services made to non-residents are classified as “special classes of income” in the ITA. The “business profits” article in the

tax treaties would generally give taxing rights to Malaysia in respect of business profits only if it is attributable to a permanent establishment in Malaysia. It is understood that the MIRB would be updating its Public Ruling No. 1/2014 Withholding Tax on Special Classes to Income, and will clarify the transitional rules for services performed outside Malaysia spanning the effective date in a Practice Note to be issued in due course. NEXT STEPS Existing arrangements for payments by Malaysian residents/permanent establishments in Malaysia to non-residents should be reviewed to determine whether the expanded scope of withholding tax is applicable. Proper identification of the transitional tax treatment for royalty or service contracts spanning the effective date of 17 January 2017 is critical to ensure compliance with the withholding tax provisions and to mitigate the exposure to penalties.

Under Notification 2, the new WHT rates are as follows:

TYPE OF PAYMENT

INTEREST

Arising from the new definition, more types of payments to non-residents will be subject to the 10% withholding tax on royalty that is deemed to be derived from Malaysia.

7

Percentage to be deducted from payments to Residents

Non-residents

Interest payment for a loan or indebtedness or a transaction of a similar nature.

None (no change)

15% (no change)

Royalties for the use of licenses, trademarks, patent rights, etc.

10% (currently 15%)

15% (currently, 20%)

Payment for the purchase of goods, work performed or supply of services, and hiring arrangements within the country under a tender, contract, quotation or other modes

2% (no change)

2.5% (currently 3.5%)

Notification 2 also includes the phrase “hiring” or “hiring arrangements” to the scope of taxable transactions. With this inclusion, the scope of WHT in Myanmar now clearly applies to rental or lease payments which were previously ambiguous and incited arguments from landlords and lessors of equipment. Further to the above, under Notification 2 sale of goods, provision of services and leases performed outside Myanmar will not be subjected to WHT. WHT also does not apply to payments in local currency of less than MMK 500,000 within a financial year. The WHT requirements under Notification 2 will also not apply to payments among government organisations, state owned enterprises or interest payments made to branches of foreign banks. Notification 2 also stipulates that a person or entity disbursing money will not be exempted from deducting WHT even though the payee refuses to accept payment with WHT deductions and the WHT must be reported within seven days of payment, although payment of WHT is allowed on a monthly basis. Finally, Notification 2 allows WHT on payments to residents to be factored into the respective resident’s Corporate Income Tax computation while WHT on payments to non-residents will be regarded as a final settlement of income tax.

8 ASEAN INVESTMENT & TAX NEWS

NEWS PHILIPPINES: PROPOSED TAX REFORMS

THE DEPARTMENT OF FINANCE HAS SUBMITTED A TAX REFORM PACKAGE TO CONGRESS WHICH AIMS, AMONG OTHER THINGS, TO LOWER THE IMPACT OF TAXATION ON POOR AND MIDDLE-CLASS INDIVIDUAL INCOME EARNERS, EXPAND THE VALUE-ADDED TAX (VAT) BASE BY REDUCING THE COVERAGE OF ITS EXEMPTIONS, ADJUST EXCISE TAXES IMPOSED ON PETROLEUM PRODUCTS AND RESTRUCTURE THE EXCISE TAX ON AUTOMOBILES WITH THE EXCEPTION OF BUSES, TRUCKS, CARGO VANS, JEEPS, JEEPNEY SUBSTITUTES AND SPECIAL PURPOSE VEHICLES. The major revamp embodied in the tax package is the revision of the personal income tax rates and bases with a view towards shifting to a simpler and modified gross system of taxation. The existing maximum income tax rate of 32%would be gradually reduced to 25% over a certain period of time. Adjustments in the income tax brackets were likewise proposed. At present, no tax exemptions are granted to income tax earners. Under the National Internal Revenue Code, the minimum net taxable income of P 10,000 is taxed at the rate of 10%. With the proposed adjustments, individuals deriving net taxable income of P 250,000 or below would be exempted from the payment of income tax. Ultimately, the low and middle-income earners will enjoy an

increase in their take-home pay as a result of said tax reform. The personal exemption/ deduction of P 50,000 and exemption of 13th month pay and other bonuses of P 82,000 per annum, however, would be removed as well as the provision on the income tax exemption for minimum wage earners. The expansion of the VAT base is also proposed. This means that the tax exemptions given to taxpayers would be limited only to raw food and other necessities, such as education and health, etc. The following VAT exempt transactions will be removed: (a) importation of personal household effects of persons coming to settle in the Philippines; (b) cooperatives, except those selling raw agriculture produce; (c) low cost and socialised housing; (d) lease of residential units, domestic shipping importation; (e) power transmission. In addition, VAT exemptions granted through special laws, except those granted to senior citizens and persons with disability, will likewise be removed from the coverage of the exemption. With regard to excise tax, adjustments shall be made from zero to P 6 per liter on a staggered basis from July 2017 to 2019 for diesel, kerosene, bunker fuel and liquified petroleum gas. Staggered adjustments shall also be implemented from July 2017 to 2019 for gasoline, aviation turbo fuel and other non-essentials from P 4.35 per liter to P 10.

Starting in 2020, the excise tax on fuel will be indexed annually to inflation by 4%. In addition, excise tax on automobiles will also be adjusted from 2% to 4% for cars with a net manufacturing or import price of up to P 600,000. Vehicles above P 600,000 will be taxed at a higher rate. Those automobiles with the net manufacturing or import price of over P 2.1 million will be charged P 1.224 million plus 200% in excess of P 2.1 million. As part of the tax package, sugar-sweetened beverages or SSBS will be taxed at P 10 per liter. Administrative reforms particularly in the Bureau of Internal Revenue and the Bureau of Customs will also be implemented to eliminate, if not totally eradicate, the rampant problem of tax evasion. Measures will be undertaken through the adoption of fuel-marking to prevent smuggling, use of electronic payment receipts, compulsory connection of the point-of-sale system to the BIR and the relaxation of bank secrecy laws in the course of investigation. With the simplified and efficient tax system, the Duterte administration is hopeful that the tax reforms will attract foreign investment, create jobs, curb tax fraud and evasion, improve the lives of the Filipino people and transform the Philippines into a high middle income and globally competitive nation.

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CONTACTS


For more information, please contact the following BDO offices in ASEAN.

NEWS SINGAPORE: ADDITIONAL CONVEYANCE DUTIES ON RESIDENTIAL PROPERTIES SINGAPORE ANNOUNCED ON 10 MARCH 2017 A TARGETED TWEAK TO ITS PROPERTY COOLING MEASURES UNVEILED 4 YEARS AGO VIA THE INTRODUCTION OF A NEW STAMP DUTY – THE ADDITIONAL CONVEYANCE DUTY (ACD) - Aimed at residential properties in singapore.

BRUNEI Tel: +673 333 6589 Fax: +673 334 0010 E-mail: [email protected] www.bdo.com.bn CAMBODIA Tel: +855 23 218 128 Fax: +855 23 993 225 E-mail: [email protected] www.bdo.com.kh INDONESIA Tel: +62 21 5795 7300 Fax: +62 21 5795 7301 E-mail: [email protected] www.bdo.co.id LAO PDR Tel: +856 21 265 608 Fax: +856 21 265 609 E-mail: [email protected] www.bdo.com.la MALAYSIA Tel: +603 2616 2888 Fax: +603 2616 2970 E-mail: [email protected] www.bdo.my MYANMAR Tel: +95 977 6915183 E-mail: [email protected] www.bdo.com.mm PHILIPPINES Tel: +63 2 844 2016 Fax: +63 2 844 2045 E-mail: [email protected] www.bdoalbaromeo.ph SINGAPORE Tel: +65 6828 9118 Fax: +65 6828 9111 E-mail: [email protected] www.bdo.com.sg THAILAND Tel: +66 2 260 7290 Fax: +66 2 260 7297 E-mail: [email protected] www.bdo.co.th

Prior to 11 March 2017, the effective date of the law, a direct purchase of residential property attracted stamp duty of 3% payable by the buyer, and depending on the buyer’s citizenship, up to 15% Additional Buyer’s Stamp Duty (ABSD).

For sellers who are significant owners, disposing of their equity stake within three years of acquisition will incur a flat 12% levy. The ACD does not affect ordinary share transactions in listed companies by retail investors.

However, if the buyer chooses to acquire equity interest of a Property Holding Entity (PHE) which owns the property, he would only incur a stamp duty on the transfer of shares at just 0.2% of the PHE’s net asset value. Similarly, the seller’s stamp duty applying to the sale of residential property within a stipulated holding period, also did not apply to selling of shares of a PHE.

If a buyer who is currently a minority owner acquires interest in a PHE on or after the effective date such that his holding in the PHE is equal to or more than 50%, he/she will be levied ACD on a pro-rated basis on the equity that puts him/her over 50%, on top of the share duty of 0.2%. If a buyer is already a significant owner before the effective date, any additional equity interest acquired by him on or after the effective date will be subject to the ACD.

To better align the rates, the Government has imposed the ACD, on the purchase and sale of residential property in PHE. For buyers, in addition to the 0.2% stamp duty on the transfer of shares, they must pay the ACD comprising 1 to 3% on the value of the underlying residential property and a flat 15% on the value of those assets, irrespective of whether he/she is a Singaporean, permanent resident, foreigner, or non-individual entity.

The new tax is aimed at entities - including firms, trusts and partnerships - that hold at least 50% of its total tangible assets in residential property in Singapore.

VIETNAM Tel: +84 8 3911 0033 Fax: +84 8 3911 7439 E-mail: [email protected] www.bdo.vn ASEAN Investment & Tax News is published by: BDO Tax Services Sdn Bhd Level 8, BDO @ Menara CenTARa, 360 Jalan Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia Tel: +603 2616 2888 Fax: +603 2616 3195 Email: [email protected]

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