Tax incentives for the tax year 2020
On 16 December 2019, the Legislative Assembly approved certain tax incentives proposed by the Chief Executive of Macau SAR in the Budget for the financial year 2020. The key tax incentives include the following:
- The tax-free income threshold for complementary (corporate) tax has been increased from 32,000 Macanese patacas (MOP) to MOP 600,000 for income derived in the tax year 2019. Taxable income over MOP 600,000 is taxed at 12%.
- There will be enhanced tax deduction for research and development (R&D) expenditure incurred for innovation and technology projects by complementary tax Group A taxpayers for the tax year 2020 (300% tax deduction for the first MOP 3 million of qualifying R&D expenditure, and 200% tax deduction for the remaining amount, subject to a limit of MOP 15 million in total).
- Income received from or derived in Portuguese speaking countries will be exempt from complementary tax for the tax year 2020, provided such income has been subject to tax in its place of origin.
- The standard MOP 3,500 reduction in property tax liabilities will continue to be available in the tax year 2020 for both self-use and rental properties. This incentive does not apply to corporate and non-Macau residents.
- Property tax rate for rental properties will be reduced to 8% for the tax year 2020.
- Restaurants will continue to be exempt from tourism tax in the tax year 2020.
- Insurance policies written or renewed in the tax year 2020 and banking transactions in the tax year 2020 will continue to be exempt from stamp duty.
- Admission tickets for performances, exhibitions, and entertainment programs will continue to be exempt from stamp duty in the tax year 2020.
- Debt instruments issued, sold, or transferred in Macau SAR by the central government, local government, or central enterprises of the People’s Republic of China will be exempt from stamp duty for the tax year 2020.
- Commercial and industrial operations will continue to be exempt from the annual industrial tax in the tax year 2020.
Enhanced tax incentives due to outbreak of COVID-19
Due to the negative impacts of COVID-19 to the economy of Macau SAR, the Legislative Assembly approved additional tax incentives proposed by the Chief Executive in the revised Budget for the financial year 2020 on 16 April 2020. The key additional tax incentives include the following:
- Complementary tax payment will be reduced by MOP300,000 for the tax year 2019.
- Cash or non cash donations to qualifying organisations in Macau SAR or Mainland China for combating COVID-19 will be fully tax deductible for complementary tax purposes for the tax year 2020.
- Aside from the standard reduction of MOP3,500 in property tax liabilities for both self-use and rental properties, there will be enhanced tax deduction of 25% for properties designated for hotel, office, commercial and industrial usage in the tax year 2020.
- Residential properties held by Macau residents will be fully exempted from property tax for the tax year 2020.
- From 1 May 2020 to 31 October 2020, services rendered in hotels, dance halls, bars, gymnasiums, massage/sauna parlours and karaoke lounge will be exempted from the 5% Macau Tourism Tax.
- Initial application and renewal of government license will be exempted from 10% stamp duty for the tax year 2020.
- Business vehicles will be exempted from license taxes for the tax year 2020.
Abolishment of the Macau Offshore Regime
The Macau Offshore Law (Decree-Law 58/99/M) and its supplementary regulations that grant tax incentives to approved offshore institutions will be abolished on 1 January 2021. Existing approved offshore institutions can continue to operate until the end of year 2020 with the following transitional arrangements:
- Income derived from intellectual property (IP) acquired on or after 16 October 2017 is no longer eligible for complementary tax exemption starting from 1 July 2018. Approved offshore institutions with such income from IP are required to file complementary tax returns under Group A taxpayer with the Macau Finance Bureau for year 2018.
- Purchase of office premises after the effective date of the abolishment law are no long eligible for stamp duty exemption.
- Newly approved resident permit holders after the effective date of the abolishment law are no longer eligible for professional tax exemption, while existing approved resident permit holders who continue to work in the approved offshore institutions can continue to enjoy professional tax exemption for the first three years within the license validity period of the approved offshore institutions or up to 31 December 2020, whichever is shorter.
- Disposal of office premises with stamp duty previously exempted are no longer required to be clawed back even if the offshore institution has possession of the concerned property for less than five years.
Existing offshore operating licences will automatically become invalid on 1 January 2021. Approved offshore institutions will transit to Macau onshore entities from 1 January 2021.
Macau SAR signed a comprehensive tax arrangement with Hong Kong SAR
Macau SAR and Hong Kong SAR signed a comprehensive avoidance of double taxation arrangement in November 2019. It represents the seventh comprehensive tax agreement/ arrangement signed by Macau SAR. If the Arrangement is ratified and enters into force within 2020, it will apply from 1 January 2021 in Macau SAR.
Given that there is currently no withholding tax on dividends and interest in Hong Kong SAR, the key benefits for Macau tax residents under the Arrangement are the Hong Kong Profits Tax exemption for enterprises in the absence of a permanent establishment in Hong Kong SAR and the Hong Kong Salaries Tax exemption for individuals (including teachers and researchers) working in Hong Kong SAR, subject to the specified conditions. However, when applying the Arrangement, one should be mindful that it has incorporated quite a number of the latest anti-treaty abuse provisions, including those recommended under the G20/OECD’s BEPS Action Plan. The Arrangement will also provide a legal basis for Macau SAR and Hong Kong SAR to exchange information related to tax matters on a bilateral basis. Careful planning and assessment will therefore be required for taxpayers wishing to enjoy the benefits under the Arrangement.
Amendments to the Macau Complementary Tax Law
To cope with the latest guidance under BEPS Action 13, the Macau Legislative Assembly approved certain changes to the Macau Complementary Tax Law on 16 December 2019. Such changes include:
- A taxpayer that is considered the Ultimate Parent Entity of a multinational enterprise (MNE) would be classified as a Group A taxpayer and would be obliged to maintain proper books and records for tax filing purposes.
- Introduce the Country by Country Reporting (CbCR) requirement, such that an Ultimate Parent Entity would be obliged to fulfil CbCR filing obligation if the total revenue in its consolidated financial statements for the past financial year exceeds a certain threshold (currently set at MOP7 billion). The CbCR will be exchanged with other tax jurisdictions through automatic tax information exchange under the multilateral Convention on Mutual Administrative Assistance in Tax Matters.
In addition, the following changes were approved to cope with the current economic environment and to boost the development of featured finance:
- Increase the average taxable income threshold for classification to Group A taxpayer from MOP500,000 to MOP1,000,000.
- Introduce tax exemption treatment for interest and capital gain derived from debt instruments issued in Macau SAR by the central government, local government, or central enterprises of the People’s Republic of China.