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In this issue China: New tax incentive for Henggin, Pingtan and Qianhai released .................................................. 1 Hong Kong: Fraudulent knowledge of directors can be attributed to a company .................................. 2 India: Clearing the route for Consortiums of Turnkey Projects .............................................................. 2 Myanmar: Introduction of tax relief ....................................................................................................... 3 Singapore: GST changes for Fund Management Industry ................................................................... 3 Vietnam: Incentives of Corporate Income Tax (“CIT”) .......................................................................... 4

China: New tax incentive for Henggin, Pingtan and Qianhai released On 25 March 2014, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2014] No. 26 (“Circular 26”). Based on the Circular, a reduced Corporate Income Tax rate (“CIT”) of 15% will be offered. This is a considerable reduction from the standard rate of 25%. This incentive shall encourage certain industries (see below) in Henggin New Area, Guangdong province, Pingtan Comprehensive Pilot Zone, Fujian Province, and Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone. Enterprises can enjoy the reduced CIT rate if the following preconditions are fulfilled: » »

The enterprise has been established within Henggin, Pingtan or Qianhai; and The main business of the enterprise falls under the scope of the released CIT incentive catalogue of the specific area.

The CIT incentive catalogues for the three areas have already been published as well and include the following industries:

Claus Schuermann Partner Unit 031,29F, Hang Seng Bank Tower No.1000 Lujiazui Ring Road, Pudong New Area, Shanghai, 200120 China T: +86 21 5047 8665 F: +86 21 3882 1211 [email protected]

Area

Henggin

Main industry categories

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High and new technology

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Science and technology services

   

Commercial services

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Modern logistics services

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Cultural innovation

Cultural innovation Education and R&D Pharmaceutical industry and healthcare

Qianhai

Pingtan

  

High technology



Ecological and environmental protection



Public facility management

Information services

Services Agricultural and marine sectors

The issuance of Circular 26 brings great benefits in the form of tax savings to investors who are interested in investing in Henggin, Qianhai and Pingtan. However, a lack of detailed regulations of each specific zone still creates uncertainties. We recommend that investors keep a close eye on regulatory developments in the zones.

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Hong Kong: Fraudulent knowledge of directors can be attributed to a company In the case Moulin Global Eyecare Trading Limited (in liquidation) v The Commissioner of Inland Revenue FACV 5/2013., the former directors of a Hong Kong Trading Company inflated the profits of the Company. Consequently, Profits Tax of almost HKD89 million had been paid to the Inland Revenue Department (“IRD”). After appointing a liquidator, a correction of the respective Tax Assessment Notices where applied for at the IRD on the basis that the Company had not made any taxable profits in the relevant years. The Commissioner however resisted any repayment of excess tax paid on the grounds that the Profits Tax Returns were filed by the company with knowledge of fraud.

Claus Schuermann Partner Unit 1004, Kinwick Centre 32 Hollywood Road Central, Hong Kong T: +852 2528 1229 F: +852 2541 1411 [email protected]

The question the Courts had to decide was whether the Company should be attributed to the director’s knowledge of the fraudulent profits when it filed the Profits Tax Returns. The Court of Final Appeal upheld that a Commissioner makes assessments on the basis of submitted Profits Tax Returns and that the exemptions under which such attribution is denied were not applicable to this case. Therefore, the fraudulent inflation of profits must be attributed to the Company. The decision of the Court of Final Appeal provides helpful clarification in terms of recovering tax paid on the basis of false profits. The implication of the court‘s decision also shows that companies, even in cases of liquidation, may be liable for the actions of their directors.

India: Clearing the route for Consortiums of Turnkey Projects In the case of Linde AG, Germany, Linde and Samsung agreed to form a consortium in order to carry out and execute the design, engineering, procurement, construction, installation, commissioning and handing over of the plant. The Authority for Advance Rulings („AAR”) with its ruling dated 20.03.2012 in this case, entrapped companies executing turnkey projects and determined that the Consortium of two companies to be an Association of Persons (“AOP”) instead. AAR also concluded that the income or profits in relation to offshore supply of goods and for rendering of offshore services were taxable in India. On a written petition filed before High Court („HC”) of Delhi, it was concluded that: » » Sapna Gupta Head of Indo German Desk 1 H Vandhna, 11 Tolstoy Marg New Delhi 110001 India T: +91 11 4710 3388 F: +91 11 2331 3908 [email protected]

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The Consortiums do not constitute as AOPs considering various factors as highlighted by the HC Offshore supplies were not taxable in absence business connection (of Linde) in India Offshore services in the form of drawings and designs are:  not taxable in India if inextricably linked to offshore supply of equipment.  taxable as Fee for technical services if not so linked inextricably to supply or alternatively  as business profits by virtue of Article 12 (5) of Indo-German Double Taxation Avoidance Agreement, if offshore services are effectively connected with PE(of Linde) in India. www.wts-alliance.com

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Myanmar: Introduction of tax relief Recent amendments were made to Myanmar’s Income Tax Law, which, from 1 April 2014, results in significant changes to the country’s tax regime. With regards to corporate income tax, whilst no amendments were made to the rate (which remains 25%), tax reliefs were introduced for newly established small and medium sized enterprises. Such entities will not be subject to tax during their first three years or until they achieve revenue of over MMK 5 million, whichever occurs first. The Stamp Act was reformed as well, changing the way stamp duty is levied e.g. by altering the valuation of documents displaying amounts in foreign currency. Till Morstadt Partner 27/F, Bangkok City Tower 179 South Sathorn Rd. Sathorn, Bangkok 10120 Thailand T: +66 2287 1882 F: +66 2287 1871 [email protected]

Significant amendments have also been made to commercial tax, which as of 1 April 2014, will now not only apply to manufacturing, importation, sale and trading of goods and a selected list of services, but all services rendered within the country. Exceptions are made for a limited list of exclusions for goods and services. Services exempt from commercial tax under the new tax regulations include, inter alia, life insurance, health care, education, banking, house rental and transportation of goods. No tax is imposed if the revenue for a financial year is less than MMK 15 million (approx. USD15,000). The standard tax rate on services is 5%. Some higher rates imposed on luxury goods were reduced under the tax reforms.

Singapore: GST changes for Fund Management Industry In the 2014 Budget statement, it was announced that the Goods and Services Tax (“GST”) remission for prescribed funds managed by prescribed fund managers in Singapore will be extended by 5 years until 31 March 2019. In addition, clarification is also made on belonging status of a fund as follows: » »

Steven Luk Director 10 Anson Road No. 12-14 International Plaza Singapore 079903 T: +65 6220 9884 F: +65 6225 9890 [email protected]

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A fund in the form of a trust is treated as “belonging in Singapore” if its trustee belongs in Singapore. A fund, other than a trust fund, is treated as “belonging in Singapore” if it has :  A business establishment (“BE”) or some other fixed establishment (“FE”) in Singapore and no such establishment elsewhere;  No BE or FE in any country but it is incorporated or registered in Singapore; or  A BE or FE outside of Singapore and another BE or FE in Singapore, and the establishment at which the services are most directly used or to be used is in Singapore.

Therefore, a fund belongs in Singapore if the fund has an administration office with employees in Singapore, or if it wholly relies on a Singapore fund manager to carry out its business activities. Hence, all services made to the fund will be standard-rated. However, if the fund’s board of directors conducts meetings at a fixed place on a regular basis outside Singapore, services made to the fund can be zero-rated. For funds that are incorporated or registered in Singapore and who are non-residents for income tax purposes, the above rules apply as of 1 April 2014.

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#2 June 2014

Vietnam: Incentives of Corporate Income Tax (“CIT”) Decree No. 218/2013/ND-CP dated 26 December 2013 states new CIT incentives effective from 1 January 2014. The normal rate is 22% (from 1 January 2016: 20%): CIT rate of 10% for 15 years for new investment projects in: » certain areas: with extremely difficult socio-economic conditions, economic zones, high technology zones; » or in fields of business: scientific research, high technology, significant infrastructure, software production, production of composite, light building and rare materials, production of energy, biotechnology development, environmental protection; production; » conditions: investment capital of at least 6 trillion VND (about 300 million USD) and minimum total revenue of at least 10 trillion VND (about 500 million USD) per year or at least 3,000 employees working full-time for at least 1 year in the project. CIT rate of 10% for incomes of enterprises (also already existing) from activities in: » education, health, culture, sports and environment; » publication, printed newspapers; » social housing; » agriculture; » production, mining and refining of salt.

Wolfram Gruenkorn Partner 6-8 Doan Van Bo Street District 4, Ho Chi Minh City Vietnam T: +84 862 618 231 F: +84 862 618 218 [email protected]

CIT rate of 20% (from 1 January 2016: 17%) for 10 years applied for new investment projects in: » areas with difficult socio-economic conditions; » or in these fields of business: production of high-quality steel, energy saving products, machinery & equipment for agriculture; production of irrigation and drainage equipment; development of traditional industries. CIT rate of 20% (from 1 January 2016: 17%) for incomes of (also already existing) enterprises from activities in the field for micro finance, esp. the people’s credit fund. The duration of the incentives is calculated from the first year of revenue or the date officially recognized as beginning of implementation of high-tech.

w o l f r a m Editorial team . wts consulting (Hong Kong) Limited g r www.wts.com.hk • [email protected] u e The above information is intended for general information on the stated subjects and is not exhaustive treatment of any subject. n Thus, the content of this Tax k Letter is not intended to replace professional tax advice on the covered subjects. WTS Alliance cannot take responsibility forothe topicality, completeness or quality of the information provided. None of the information contained in this Tax Letter is meant tor replace a personal consultation. Liability claims regarding damage caused by the use or disuse of n any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected. If you wish @ to receive the advice of WTS Alliance, please make contact with one of our advisors. All copyright is strictly reserved by WTS l Alliance. a w y Page 4 of 4 www.wts-alliance.com e r v