On 8 December 2020, Bulgaria officially implemented the new EU value added tax (VAT) rules concerning distance sales provided in Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC regarding certain VAT obligations for supplies of services and distance sales of goods. The new rules for distance sales will be applied as from 1 July 2021. Below is an overview of the main amendments to the VAT Act.
On 8 December 2020, Bulgaria officially extended the deadline for the payment of the personal income tax (PIT) due and the submission of the PIT returns of persons performing economic activity as traders, as well as registered agricultural producers, on a permanent basis. Consequently, as from the year 2021, the deadline for the submission of PIT returns and the payment of the PIT due will be permanently extended from 30 April to 30 June of the year the PIT returns and payments refer to.
The permanent extension of the PIT deadlines, as well as a number of other amendments to the PIT Act have been promulgated in the State Gazette. Below is a summary of the main changes.
New tax relief for improvements/repair of immovable property
As from 1 January 2021, a tax relief will be introduced for improvements/repairs of an immovable property. Expenses of up to BGN 2,000 (approximately EUR 1,000) for repairs and/or improvements of residential property will be deductible from the annual PIT base of individuals who are tax residents in an EU/EEA country, provided that the following conditions are met:
- the residential property is in Bulgaria;
- the taxable person is the owner or co-owner of the residential property;
- the improvements and/or repairs are performed by EU/EEA residents;
- the residential property is not included in the enterprise of a person who is performing economic activity as a trader under the Commercial Act;
- the taxable person possesses a document (with the required requisites under the Accountancy Act) for the paid labour in relation to the performed improvements and/or repairs of the residential property; and
- the taxable person and the person that performed the repair are not related parties.
The documentation requirements provided in the PIT Act in certain cases of transactions between individuals will be simplified.
The amendments to the PIT Act are included in the additional provisions of the amendments to the Value Added Tax (VAT) Act. The document is available here (in Bulgarian only).
On 8 December 2020, Bulgaria officially extended the deadline for the submission of annual corporate income tax (CIT) returns and payment of the CIT due. Below is an overview of the main changes.
The deadline for the submission of annual CIT returns and payment of the CIT due has been extended from 31 March to 30 June of the year following that in which the CIT returns refer to. The extension of the deadline was initially introduced as a temporary COVID-19 measure in 2020 regarding tax returns referring to year 2019. It will now be a permanent extension.
CIT and withholding tax (WHT) exemption for profits from transactions with shares performed at regulated markets outside the European Union
As from 1 January 2021, profits and losses from transactions with shares performed at markets equivalent to regulated markets outside the European Union (approved by the European Commission in accordance with Directive 2014/65/EC) will not be recognized for CIT purposes and will not be subject to WHT in Bulgaria. Currently, this exemption is applied only in the cases in which such transactions are performed on EU/EEA regulated markets.
Higher exemption threshold for one-off taxation of food vouchers
As from 1 January 2021, social expenses of eligible persons incurred?? for food vouchers of up to BGN 80 (currently, up to BGN 60) per hired person per month will be exempt from one-off taxation.
Amendments to the rules for advance CIT instalments
As from 2021, the deadline for submission of the declaration for the increase/decrease in the amount of advance CIT instalments will be 15 November of the year in which the instalments are due. Default interest will be due only if the amount of the annual CIT due exceeds the amounts of the advance CIT instalments paid by 25% (currently, by 20%).
Also, the advance monthly CIT instalments for December will be due no later than 1 December of the same year (currently, 15 December). The same deadline, i.e. 1 December instead of 15 December, will apply for the payment of CIT instalments for the third quarter (for persons obliged to pay quarterly CIT instalments).
The forecast advance CIT instalments for a year will have to be reported in a new declaration, which should be submitted to the National Revenue Agency between 1 March and 15 April of the year they refer to. Currently, this information is reported in the annual CIT return for the previous year. In addition, the obligation to pay the advance CIT instalments is currently determined based on the net sales revenue from the previous year, whereas, as from 2021, it will be determined based on the net sales revenue for the year before the previous year.
Accelerated tax depreciation for approved software
Persons using approved software for sales management on commercial sites will be able to apply a 100% annual tax depreciation rate in terms of such software, as well as for computers and mobile phones on which such software is installed.
Extension of the period for the application of tax relief for manufacturing activities in municipalities with high unemployment rates
The period for the application of the tax relief for manufacturing activities in municipalities with high unemployment rates has been extended until the end of 2023 (initially, it was until the end of 2020).
The official text of the amendments to the CIT Act is included in the additional provisions of the amendments to the VAT Act and is available here (in Bulgarian only).
The Customs Tariff Commission of the State Council issued a circular on December 23, 2020, saying that from January 1, 2021 China will adjust the most favored nation tariff rates, conventional tariff rates and provisional tariff rates for some import products.
From January 1, 2021 China will adopt provisional tariff rates on 883 import products, and rates are lower than the most favored nation tariff rates. Cancer drugs and materials for making rare disease medicines will be tax-free when they are imported to China; import tariffs on heart valve prosthesis and hearing aid will also be reduced. China will scrap provisional tariff rates on solid waste imports and resume the most favored nation tariff rates. From July 1, 2021 China will trim the most favored tariff rates on 176 information technology products.
Chinese Premier Li Keqiang chaired a State Council executive meeting on December 21, 2020. The meeting decided to continue the policies of allowing small and micro-sized businesses to postpone principal and interest repayments on inclusive loans, and the inclusive credit loan support program.
The meeting pointed out that small and micro-sized firms will be permitted to postpone principal and interest repayments on inclusive loans in the first quarter of next year, and the policy period will be extended as appropriate. Incentives will be put in place for local banks that provide inclusive loans for micro and small enterprises with a deferred repayment period of no less than six months. The incentives will remain at 1 percent of the loan principal. Meanwhile, the inclusive credit loan support programme will be extended from the end of this year as appropriate. Local banks that provide credit loans for micro and small enterprises will be given incentives at 40% of the loan principal.
The meeting also adopted the Regulation for Preventing and Handling Illegal Fundraising (Draft) and the Regulation on the Supervision and Administration of Medical Device (Revision Draft).
The General Administration of Customs released on December 23, 2020 the Measures for Customs Administrative Licensing of the People's Republic of China, to be implemented from February 1, 2021.
Customs administrative licensing refers to the approval of customs authorities, based on the application of citizens, legal persons or other organizations to engage in specific activities related to customs supervision and management. The regulation covers administrative licensing items, implementation procedures, standardized management, evaluation and supervision. The regulation is not applicable to the approval of personnel, finance and external affairs by superior customs agency or to public institutions directly affiliated to a customs agency. The Measures of the Customs of the People's Republic of China on Implementing the Administrative License Law of the People's Republic of China, which was published on June 18, 2004, will be revoked when the new regulation takes effect.Source: http://www.customs.gov.cn/customs/302249/2480148/3477654/index.html
The General Administration of Customs released on December 22, 2020 the Administrative Measures on Reduction and Exemption of Tax by Customs of the People's Republic of China for Imports and Exports, to be effective from March 1, 2021. The 2008 version of the Measures will be simultaneously abolished.
The Measures apply to the handling of matters relating to the application for reduction or exemption of tariffs and import taxes on imported and exported goods. An applicant shall apply to the competent customs for handling of the procedures relating to the review and confirmation of its eligibility for the tax reduction or exemption, the guarantee of taxes and the follow-up management of goods that qualify for the tax reduction or exemption. According to the Measures, the supervision period for imported goods that qualify for tax exemption or exemption shall be eight years for ships and aircrafts, six years for motor vehicles and three years for other goods.
The State Taxation Administration issued an announcement on December 20, 2020, saying that it has decided to use electronic invoices for value-added tax to be paid by newly-registered taxpayers across the entire country, based on the successful application of electronic invoices in three cities - Ningbo, Shijiazhuang and Hangzhou.
According to the announcement, from December 21, 2020, new taxpayers in Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Anhui, Guangdong, Chongqing, Sichuan, Ningbo and Shenzhen can issue electronic invoices for value-added tax, and invoice recipients can be entities nationwide. Starting from January 21, 2021, new taxpayers in other places of China can also issue electronic invoices for value-added tax, and invoice recipients can be entities nationwide.
Four Authorities Unveil Preferential Corporate Income Tax Policies for Integrated Circuit and Software Companies
The Ministry of Finance, the State Taxation Administration, the National Development and Reform Commission and the Ministry of Industry and Information Technology recently released the Announcement about Corporate Income Tax Policies for Promoting High-quality Development of the Industries of Integrated Circuit and Software.
According to the announcement, eligible integrated circuit companies can enjoy corporate income tax exemptions for as long as ten years; starting from the year of profitability, eligible integrated circuit design companies and software companies can be exempted from corporate income tax in the first five years and pay a lower tax rate of 10% in the following years.
The Ministry of Finance and the State Taxation Administration released on December 9, 2020 the Announcement about Pretax Deduction of Advertising and Business Publicity Expenses, to be effective from January 1, 2021 until December 31, 2025. The previous edition of the announcement issued in 2017 will be revoked from January 1, 2021.
According to the announcement, advertising and business publicity expenses at cosmetics production or sale companies, pharmaceutical & beverage companies (Excluding alcoholic firms) are tax-deductible if the expenses do not exceed 30% of the sales or operating revenue for the current year; expenses in excess of the figure can be carried over and tax-deductible in the following years. Tobacco advertising expenses and business publicity expenses incurred by tobacco companies are not eligible for tax deductions.
African Continental Free Trade Area Agreement – Angola, Cameroon, Lesotho and Tunisia Deposit Instrument of Ratification
On 4 November 2020, 27 November 2020 and 1 December 2020, Angola, Lesotho plus Tunisia, and Cameroon deposited their instrument of ratification for the African Continental Free Trade Area Agreement (AfCFTA) as 30th, 31st, 32nd, and 33rd country respectively. The AfCFTA has so far been signed by 54 countries and entered into force on 30 May 2019. Further developments will be reported as they occur.
Note: To date, 33 countries (Angola, Burkina Faso, Cameroon, Chad, Republic of Congo, Djibouti, Egypt, Equatorial Guinea, eSwatini, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Ivory Coast, Kenya, Lesotho, Mauritania, Mauritius, Namibia, Niger, Mali, Rwanda, the Sahrawi Arab Democratic Republic, São Tomé and Príncipe, Senegal, Sierra Leone, South Africa, Togo, Tunisia, Uganda and Zimbabwe) have deposited their instruments of ratification.
The worst of the double whammy that has severely disrupted Hong Kong’s exports over the past two years – the China‑US trade dispute and the Covid-19 outbreak – seems to be gradually abating. While local businesses still have to contend with weakened global demand, disrupted supply chains and elevated protectionism, it is now expected that Hong Kong’s exports may rally in 2021, recovering by 5% year‑on‑year, albeit from a relatively low base.
As shown by the uptick in the latest HKTDC Export Index (conducted in mid‑November), Hong Kong exporter sentiment has now improved for three consecutive quarters across all major industry sectors and markets. In all, the Index rebounded from its record low of 16.0 in 1Q20 to 36.2 in 4Q20, although it still remains very much in contractionary territory. More specifically, while 29% of Hong Kong exporters anticipate their total sales to remain unchanged over the coming year, 27% of them expect an increase. The survey also indicated that a possible resurgence of the Covid-19 pandemic (cited by 55% of respondents) and diminishing global demand (24%) remained the two key concerns of exporters over the near‑term.2020: Weak but Resilient Export Performance Globally, widespread business lockdowns and the shutting of national borders in a bid to contain the Covid-19 outbreak triggered the worst recession since the Great Depression of the 1930s. Already suffering on account of the ongoing China‑US trade dispute, the unprecedented pandemic, which seriously disrupted global supply chains and dampened worldwide demand, resulted in Hong Kong exports continuing to decline in 2020. Indeed, the first 10 months of the year saw total exports fall by 3.7% compared with the same period in 2019. The overall export performance has, however, been improving, rising to +1.3% in 3Q20 from ‑9.7% in 1Q20. Tellingly, it has also out‑performed the global average, while doing notably better than a number of neighbouring economies, underlining the resilience of the local export sector. Over the same period, for instance, South Korea’s exports were down by 8.2%, while Japan’s suffered a 13.7% decline.Summary of Hong Kong's External Trade
Source: Hong Kong Trade Statistics, HKSAR Census and Statistics DepartmentIn terms of export destinations, Hong Kong’s exports to mainland China increased by 3.4% in the first 10 months of 2020, a development driven by the resumption of manufacturing from the end of March onwards. Hong Kong’s exports to markets with strong supply chain connections, including Taiwan and Vietnam, also grew, increasing by 8.8% and 3.1% respectively. Hong Kong’s Total Exports by Primary Destination
January - October 2020
(1) Hong Kong Trade with E.U. will exclude United Kingdom due to Brexit. Source: Hong Kong Trade Statistics, HKSAR Census and Statistics DepartmentIn terms of major industry sectors, electronics exports, which constitute about 70% of Hong Kong’s total exports, increased by 1.8% for the period January‑October 2020, was the only industry sector to record positive growth. Largely on account of both the well‑established electronic manufacturing production network in the region and strong inter‑regional trade, Hong Kong’s exports of electronics to mainland China rose by 5.5%, to Taiwan by 10.8% and to Vietnam by 34.4% in the first 10 months of the year. Hong Kong's Total Exports by Selected Industry Sector
January - October 2020
Watches & Clocks
Household Electrical Appliance
Source: Hong Kong Trade Statistics, HKSAR Census and Statistics DepartmentMainland China to Lead Recovery According to the IMF, the global economy will have contracted by 4.4% by the end of 2020, the worst outcome since the 2009 financial crisis. In 2021, however, global economic growth is expected to rebound to 5.2%. Such a rally, however, is contingent on a number of factors, including a revival in consumer and business confidence and government moves to protect jobs and boost demand. In the more advanced economies, growth is expected to slowly rebound as the initial shock of the pandemic dissipates, allowing business operations and daily activities to begin to return to normal. In the developing economies, by contrast, growth will only resume once external demand accelerates and global financial conditions ease.
Output Growth of Advanced Economies vs Developing EconomiesAmong its principal markets, mainland China, the first major economy to recover from the pandemic, has become the most promising driver of Hong Kong’s exports. The latest IMF figures indicate that the mainland’s GDP will have expanded by 1.9% by the end of 2020 and will then rise by 8.2% in 2021. In a bid to help facilitate this, the country’s 14th Five-Year Plan, which covers the period 2021 to 2025, advocates a new “dual circulation” development model aimed at reinforcing domestic demand as the main growth driver. Inevitably, this is expected to create increased opportunities for Hong Kong exporters, especially in the Greater Bay Area and within the Belt and Road economies.Despite having the world’s highest number of confirmed Covid-19 cases and related deaths, the US, too, saw economic growth resume in the third quarter of the year. In all, its annualised GDP growth rebounded by 33.1% quarter‑on‑quarter, following a 5% fall in its GDP in 1Q20 and a massive 31.4% slump in 2Q20. Starting April 2020, retail sales and the unemployment rate both showed distinct signs of recovery. In the case of retail sales, these rebounded from ‑15.3% (year‑on‑year) in April to 8.5% in October, while the unemployment rate dropped from its post‑war high of 14.7% in April to 6.9% in October. Looking to the future, meanwhile, uncertainties created for local exporters by the newly introduced US Customs’ requirement that goods produced in Hong Kong must be marked ‘Made in China’ is seen as unlikely to have a significant impact as it affects just 0.1% of Hong Kong’s total exports. Such an outcome is supported by the findings of the most recent HKTDC Export Index survey, which showed that just 1.2% of respondents saw the requirement as a cause for concern. Turning to the EU, its economic activity picked up in the third quarter as containment measures throughout the bloc were eased. In all, EU GDP growth rallied to 11.6% (quarter‑on‑quarter) in 3Q20, having declined by 3.3% in 1Q20 and by 11.4% in 2Q20. In terms of forthcoming developments, the EU has agreed a €750 billion recovery plan tailored to tackle the pandemic‑related crisis. Currently negotiating its way through various legislative stages, the package is expected to be in place next year. In light of this, the European Commission’s Autumn 2020 Forecast predicts the EU economy will grow by some 4.1% in 2021. Crucially, as manufacturing within the bloc is expected to rise as more factories come back online, demand for Hong Kong‑sourced parts and components is also expected to rise. Looking to other key markets, in Japan the new Prime Minister, Yoshihide Suga, is widely seen as likely to adhere to many of the policies of his predecessor, Shinzo Abe, a development that will see the country’s highly accommodating financial conditions likely to persist. At present, Suga and his cabinet are said to be preparing a supplementary budget – the country’s third – for the current financial year with a view to putting in place an additional economic stimulus package in order to further mitigate the worst economic consequences of the pandemic. This is likely to boost both private investment and consumer demand, developments set to create enhanced opportunities for Hong Kong exporters. The disruptions to supply chains caused by the pandemic and the ongoing China‑US trade disputes have already incentivised Japanese companies to diversify their manufacturing facilities away from mainland China in favour of more competitive countries, a trend that has particularly benefitted the ASEAN bloc. Inevitably, this will lead to an increased flow of capital goods and components within the region. In other developments, however, the overall growth of the ASEAN bloc is expected to have stalled in 2020, largely on account of its vulnerability to supply chain disruptions. In 2021, though, this downturn is predicted to reverse due to the substantial raft of stimulus measures being put in place. At the same time, Hong Kong’s ties with the region are set to benefit from the Hong Kong-ASEAN Free Trade Agreement, which nine ASEAN member states are currently a party to. Apart from market opportunities, ASEAN is also seen as representing a diverse manufacturing and investment landscape. In another move, Hong Kong is expected to be among the first additional signatories to the Regional Comprehensive Economic Partnership (RCEP) agreement. With the 10 ASEAN member states already on board, as well as Australia, China, Japan, South Korea and New Zealand, the agreement is seen as all but certain to bolster investor sentiment and drive trade flows across the region, outcomes seen as highly likely to benefit Hong Kong. In the case of a number of other developing economies, it is anticipated that while the export outlook may improve in 2021, it will remain relatively subdued. This is borne out by the economy of Latin America, which the IMF expects to have shrunk by 8.1% for 2020 as a whole, the worst outcome of any of the developing regions. By contrast, a mild recovery of 3.6% is predicted for 2021, one driven by both resurgent overseas demand and an uptick in domestic economic activity. In an earlier development, the central banks of Brazil, Chile and Colombia all held the policy rate stable at a multi‑year low in a bid to jump‑start an economic recovery. Some of the region’s more debt‑laden and cash‑poor countries (such as Argentina) and its more industrialised economies (such as Mexico) are, by contrast, likely to face a tougher route to recovery, with a reduced global appetite for risk set to rein in fiscal policies and dwindling demand expected to stall production on a worldwide basis. Switching the focus to emerging and developing Europe, the IMF is expecting a 4.6% contraction in 2020, prior to a 3.9% rebound in 2021. While the Covid-19 outbreak has been contained in many of the region’s economies, the shocks to global supply and demand have taken a heavy toll, with both Poland and Hungary, for example, facing rising unemployment as their respective recessions deepen. More optimistically, the EU’s €750 billion stimulus package is expected to deliver much‑needed grants and loans to member states in the region, allowing them to ride out the worst of the pandemic’s legacy. The Middle East, too, has been subject to considerable economic turmoil, with the Covid-19 outbreak only adding to the already significant problems arising from the drastic decline in oil prices from the beginning of 2020 onwards. In the case of Saudi Arabia, the world’s largest oil exporter, this has resulted in severe economic contraction, triggering a scaling‑down of its Vision 2030 reforms and an increase in the local VAT rate to 15% from 5%. The UAE, the region’s logistics and export‑processing hub, has fared little better, with the global lockdown widely seen as having weighed heavily on its economy. In light of this, the IMF has forecast that total 2020 output in the Middle East and Central Asia region will have shrunk by 4.1% by the end of the year. It is, however, expected to rebound by 3% in 2021.Risks and Challenges: Resurgent Pandemic and Heightened Protectionism Overall, it is undeniable that the pandemic and its consequences remain the biggest threat to Hong Kong’s export outlook. This is confirmed by the latest HKTDC Export Index, which showed that 81% of exporters believed their businesses had already suffered on the account of the Covid-19 outbreak. By contrast, just 63% saw the ongoing China‑US trade dispute as posing a similar threat. Since late 2019, the pandemic has spread to more than 200 countries and territories. Although many governments have at least partially lifted their containment measures, the re‑emergence of Covid-19 is still seen as the key risk for many economies. Should such concerns become a reality, the problem of virus‑related global supply chain disruptions may be somewhat mitigated by the fact that many companies have already restructured their supply chains and sourcing networks in order to cope with the earlier outbreak. Despite this, the logistics bottlenecks created by border closures and reduced land, sea and air freight capacity could still have a negative impact on trade in terms of both monetary and time costs. In other concerns, protectionism is also seen as continuing to pose a threat to Hong Kong’s exports over the next 12 months. There is, however, some hope that the lingering China‑US trade dispute may come closer to resolution in the wake of January 2020’s phase‑one trade agreement. That aside, rising trade protectionism has prompted some companies to re‑consider their sourcing arrangements, including reviewing the viability of relocating their manufacturing facilities to their home countries, or to other ASEAN countries. Such developments are also seen as likely to create further uncertainties for Hong Kong exporters over the near term.Hong Kong Exports: Gleams of Hope in 2021 Due to the generally accommodating policy environment and improving responses to the pandemic, the world economy is expected to stabilise and rebound – albeit mildly and unevenly – in 2021. Similarly, Hong Kong exports are expected to return to moderate year‑on‑year growth over the next 12 months, although admittedly from a relatively low comparison base. Perhaps most reassuringly, it is anticipated that Covid-19 vaccines will become available in 2021, a development that will play a key role in the ultimate resumption of normal business operations and economic activity over the longer term. Taking into account all of these various global, regional and local factors, the HKTDC Research forecast for Hong Kong’s 2021 exports is year‑on‑year growth of 5%. Growth Forecast for Hong Kong Exports
Source: Hong Kong Trade Development CouncilThis forecast is in line with the latest HKTDC Export Index survey, which revealed that 55% of participating exporters saw a resurgent pandemic as the biggest threat to their export performance over the next six months (slightly up from the 52% recorded for the previous quarter). The survey also found that 29% of Hong Kong exporters anticipated that their total sales level would remain unchanged in the coming year, while 27% of them anticipated an increase.
How do you expect the total sales to change in 2021 as compared to 2020?With particular regard to the key industries, traders in the electronics sector – which accounts for 70% of Hong Kong’s total exports – are optimistic about growth opportunities in the coming year. Due to the implementation of social‑distancing measures and the wide adoption of work‑from‑home / e‑learning arrangements, manufacturers of a number of items – including computers, webcams, microphones and medical devices – have all seen growing demand.
The outlook among clothing exporters, however, is notably less upbeat. This is, in part, due to the fact that the continuing relocation of production facilities away from mainland China and towards South and Southeast Asia has led to a fall in Hong Kong’s clothing exports. In terms of product categories, with work‑from‑home expected to be the new normal, demand for formal business suits looks likely to be subdued, while smart casual and easy‑care clothing will see an uptick in sales.
More positively, the level of Hong Kong’s toy exports is expected to rise, buoyed by the increased demand stemming from the intermittent lockdowns of schools and other social‑distancing measures. Inevitably, this will see more children and teenagers staying at home and indulging in toy‑related leisure activities. At the same time, the growing popularity of electronic gadgets, e‑sports products / equipment and peripheral toy accessories are also seen as potential future drivers of Hong Kong’s toy exports.
In the case of the watches and clocks sector, this continues to be impacted by the ever‑widening adoption of smart, digital devices. This has seen smartwatches with health‑monitoring and built‑in fitness‑tracking functions become the key growth engine for Hong Kong watch exports, a development accelerated by the increased health consciousness spurred by the pandemic.
Finally, any growth in Hong Kong’s jewellery exports looks likely to remain sluggish at best, particularly in the case of high‑end items. The demand for luxury jewellery (including gold and diamond items) has been notably weakened, possibly on account of the mass cancellation / postponement of weddings and other celebrations triggered by the pandemic. It is, however, hoped that purchasing intent with regard to fashion jewellery and designer pieces may prove to be a little more resilient.
Full article: https://research.hktdc.com/en/article/NjA2NzU4MzE3
The Inland Revenue Department (IRD) has published its views and practice in respect of the profits tax concessions for ship leasing and ship leasing management businesses. The profits tax concessions were granted with the enactment of the Inland Revenue (Amendment) (Ship Leasing Tax Concessions) Ordinance 2020 in June 2020 and took effect from 1 April 2020.
In this regard, the IRD has issued the Departmental Interpretation and Practice Notes No.62 (DIPN 62) on 7 December 2020 that sets out in detail the various tax concessions available and the applicable conditions. DIPN 62 also provides additional clarification in specific areas, including the following:
- ship leasing activity:
- the meaning of different types of leases and financing agreements, including operating and funding leases, hire purchase agreements and conditional sale agreements; and
- the requirement for a ship leasing activity to be carried out in the ordinary course of the qualifying ship lessor's business carried on in Hong Kong, in respect of which the tax authorities will examine the terms of the lease and financing arrangement and all other relevant circumstances to prevent artificial transactions structured with a view to shifting profits from other tax jurisdictions;
- determining the tax base for a qualifying ship lessor: the operation of the 20% tax base concession in the case of operating leases, the calculation of net finance charges or interest payments for funding leases and the allocation of gross lease or interest payments where terms of the lease and other dealings are negotiated together resulting in non-market payments;
- deduction of notional annual depreciation allowances for ships that are subsequently used in another trade, profession or business to produce chargeable profits;
- consideration of the totality of facts and case law principles in determining whether a ship is a capital asset(the disposal of which is not taxable);
- qualifying ship leasing managers and ship leasing management activities, and the application of the safe harbour rule on qualifying profits;
- losses sustained in the year of assessment by qualifying ship lessors and qualifying ship leasing managers are generally not deductible against the assessable profits for any subsequent year of assessment;
- ensuring a substantial business presence in Hong Kong by qualifying ship lessors and qualifying ship leasing managers under Action 6 of the BEPS Project on tax treaty abuse, determination of central management and control to qualify for the concessions, satisfying the substantial activities requirement (including qualified full-time employees, adequate operating expenditure incurred and others) under Action 5 of the BEPS Project on harmful tax practices;
- anti-avoidance provisions including the arm's length principle, main purpose tests, anti-tax arbitrage, limitation of interest deduction and restriction of a lessee's capital allowances; and
- advance ruling applications and issuance of residence certificates.
The full details of DIPN No.62 are available here.
- ship leasing activity:
Italy and Switzerland Sign New Agreement on Taxation of Frontier Workers and Exchange of Letters Under Tax Treaty
On 23 December 2020, Italy and Switzerland signed a new agreement on taxation of frontier workers and exchange of letters under the Italy - Switzerland Income and Capital Tax Treaty (1976), as amended by the 1978 and 2015 protocols, in Rome. Once in force and effective, the new agreement will replace the agreement on taxation of frontier workers between Italy and Switzerland, signed on 3 October 1974. Further developments will be reported as they occur.
On 22 December 2020, the competent authority of Switzerland published a report containing statistical data on the mutual agreement procedures under the double taxation agreements concluded by Switzerland. The data relates to the year 2019. The report can be found here.
In its decision of 27 November 2020 (case 2C_835/2017), the Swiss Federal Supreme Court decided a case relating to the refund of Swiss dividend withholding taxes by claiming the benefits under the Switzerland - United States Income Tax Treaty (1996) (as amended through 2009). (a) Facts. The plaintiff, an individual, received from his participation in a Swiss corporation dividend distributions in the years 2008 and 2009. The distributing corporation deducted 35% anticipatory tax on the gross dividend payments and remitted it to the Federal Tax Administration. On 13 January 2011, the plaintiff filed a form requesting the refund of CHF 4,550,000, equalling 20% of the gross dividend distributions. On the refund form, he indicated a residence address in the United Kingdom. The Federal Tax Administration approved the request and remitted the full refund claimed to the plaintiff. On 12 August 2012, the plaintiff filed a further form requesting the refund of CHF 1,174,491.80 anticipatory tax deducted for dividend distributions he had received from various Swiss corporations in 2010. Again, he indicated a residence address in the United Kingdom. Upon request by the Federal Tax Administration, the plaintiff clarified that he was resident in the United Kingdom but not domiciled. He would benefit from a taxation on a remittance basis, i.e. he would only be taxed on income remitted to the United Kingdom. He added that, due to his US citizenship, he would be taxed in the United States on a worldwide basis and that he would also be entitled to benefits granted under the Switzerland - United States Income Tax Treaty (1996) (as amended through 2009). After a further exchange of letters, the Federal Tax Administration rejected the application and denied the refund. The Federal Tax Administration was not convinced that the plaintiff met the conditions of article 4(1)(a)(second sentence) of the Switzerland - United States Income Tax Treaty (1996) (as amended through 2009). Consequently, the plaintiff would not be entitled to treaty benefits. Moreover, in a formal decision, the Tax Administration obliged the plaintiff to pay back the refund of anticipatory tax for CHF 4,550,000 related to the years 2008 and 2009. In addition, the payment of debit interest of 5% per year would be due on the outstanding claim. Upon the plaintiff's objection, the Federal Administrative Court confirmed the decision of the Federal Tax Administration. The plaintiff filed an appeal to the Federal Supreme Court. (b) Issue. Switzerland levies a withholding tax of 35% on dividend payments made by Swiss corporations (anticipatory tax, Verrechnungssteuer). A partial or full refund of withholding taxes is granted in accordance with applicable tax treaties. The issue was whether the recipient was entitled to claim the treaty benefits under the Switzerland - United States Income Tax Treaty (1996) (as amended through 2009) to obtain a refund of 20% anticipatory tax calculated on the gross dividends. The plaintiff never claimed the application of the Switzerland - United Kingdom Income Tax Treaty (1977) (as amended through 2017). Among other conditions, the application of the treaty to a US citizen that is not a resident of Switzerland requires a substantial presence, a permanent home or an habitual abode of the plaintiff in the United States (article 4(1)(a)(2nd sentence) of the Switzerland - Unite. The Federal Tax Administration held that the condition was not met, even though the plaintiff argued to dispose of a permanent home at the home address of his parents in said country. The tax administration argued that the effective arrangement in the home of his parents did not fulfil the requirement of having a permanent home in the United States. (c) Decision. The Federal Supreme Court rejected the appeal and confirmed the decision taken by the Federal Administrative Court and the argumentation submitted by the Federal Tax Administration. The Court saw no reasons to deviate from the merits of the case prepared by the Federal Tax Administration.
United Arab Emirates
Companies and certain other UAE business forms that undertake a Relevant Activity must comply with the Economic Substance Regulations, which includes the annual submission of a Notification and Economic Substance Report.
To support businesses that may have been impacted by COVID-19 and temporary inaccessibility of the MoF Economic Substance Filing Portal, the Ministry of Finance has extended the deadline for businesses to submit their Notification and Economic Substance Report to 31 January 2021.
The revised filing deadlines for the 2019 Reportable Period are as follows:
- Notification: The later of six months after the financial year end, or 31 January 2021
- Economic Substance Report: The later of 12 months after the financial year end, or 31 January 2021
This is an exceptional, one-off extension of the filing deadline for businesses with a 2019 Reportable Period and businesses with a 2020 Reportable Period that are required to file their Notification by 31 December 2020. No further extensions will be granted, so businesses should make every effort to file as soon as possible and not wait until the end of the extended deadline.
Failure to submit your Notification and Economic Substance Report on time will result in the application of penalties.
As a reminder, businesses should submit their Notifications and Economic Substance Reports on the MoF Portal that is accessible on the following webpage: https://bit.ly/2TayKBu
As part of the economic stimulus package, the Dubai Customs provides an 80% discount on fines for customs cases and violation detected or committed before 31 March 2020.
To avail of the discount, businesses and individuals must settle their customs cases and pay any charges due, including customs duties resulting from the cases, if any is due, before 31 December 2021. Eligible businesses are required to submit an online application with all relevant information specified in the Customs Notice No. 07/2020.
The fine reduction initiative applies to the following:
- uncollected customs fines imposed by the judicial judgement;
- remaining unpaid instalments where the customs fines are paid in instalments to Dubai Customs; and
- remaining payable amounts for the cases under execution at the Dubai Courts.
The initiative was announced by the Dubai Customs on 25 November 2020.
The UAE Federal Tax Authority (FTA) has announced a temporary zero-rated VAT applicable to specific medical equipment imported and used for COVID-19 protection purposes.
The medical equipment imports to which the temporary zero-rated rules apply are personal protective equipment used for the protection from COVID-19, which contain the features and meet the specifications determined and specified by Ministerial Decision. The medical equipment is limited to:
- medical face masks that are not included in Cabinet Decision No. 56 of 2017 on Medications and Medical Equipment Subject to Tax at Zero Rate (under approved standards 14683 and UAE.S ASTM F2100);
- half-filtered face masks (UAE.S EN 149);
- non-medical "community" face masks made from textile (UAE.S 1956);
- single-use gloves (UAE.S ISO 374-2); and
- chemical disinfectants and antiseptics intended for use on the human body, excluding detergents, cosmetics and personal care products (UAE.S EN 1276, EN 1650, and EN 14476:2013+A2).
The application of the zero-rated VAT is limited to medical equipment imported or made at the disposal of suppliers during the period between 1 September 2020 and 28 February 2021. However, the FTA provided that where a supplier has charged a 5% VAT on a supply which was eligible for zero-rating and the supplier is aware of the identity of the recipient, the supplier will issue and deliver a tax credit note to the recipient in order to refund the VAT overcharged on the supply.
The President of the European Council and the President of the European Commission has signed the EU-UK Trade and Cooperation Agreement, on behalf of the European Union, on 30 December 2020. The agreement aims at ensuring a robust level playing field by maintaining high levels of protection in areas such as State aid, tax transparency, VAT, customs and social security coordination. The agreement has been brought to the United Kingdom to be signed before being provisionally applied as of 1 January 2021.
The process for importing and exporting goods will change from 1 January 2021. Use this page to find guidance from the Department for International Trade.
The US Congress has passed ground-breaking legislation aimed at ending the practice of using anonymous shell companies to engage in money laundering and to hide income from tax authorities. Through an unusual parliamentary manoeuvre, Congress included the legislation in a must-pass bill that funds the Department of Defense for fiscal year 2021. (H.R. 6395).
US Representative Carolyn B. Maloney (D-NY) introduced the legislation, known as the National Defense Authorization Act, which includes the ban on anonymous shell companies – a provision she has championed since 2009. According to the text of the legislation, the anti-money-laundering rules will "discourage the use of shell corporations as a tool to disguise and move illicit funds" by establishing beneficial ownership reporting requirements (Division F section 6002(5)(B) of H.R. 6395). If enacted, the reporting requirements will apply to all US corporations and limited liability companies, and will mandate disclosure of an entity's true owner(s) to the US Treasury Department.
In years past, the shell company ban languished in Congress, without gaining majority support. But this year Congress tacked the beneficial ownership rules onto the annual defence bill in what is called the Corporate Transparency Act (Title LXIV of H.R. 6395). Under current law, most US states do not require the full disclosure of an entity's true owner(s), which has allowed for the increased use of anonymous shell companies for illegitimate activities. The proposed anti-money-laundering rules will ultimately eliminate that practice in those states and, as a result, reduce the ability of criminals to disguise illegally obtained funds as legitimate income. The bill will also increase coordination and information sharing among federal agencies tasked with administering the United States' anti-money-laundering laws.
For a number of reasons the bill gained bipartisan support, passing both chambers of Congress (the House of Representatives and the Senate) with veto-proof margins. The bill is now on its way to President Trump's desk to be signed into law. If the President vetoes the bill, as he has publicly threatened, Congress can override the veto by a two-thirds majority vote in each chamber.
On 28 December 2020, the US House of Representatives passed a bill (H.R. 9501) to increase the second round of coronavirus-related economic impact payments from USD 600 to USD 2,000 for individuals. The bill is entitled the "Caring for Americans with Supplemental Help Act of 2020" or the "CASH Act of 2020".
This second round of the economic impact payments (EIPs) was authorized under the COVID-related Tax Relief Act of 2020, which President Trump signed into law on 27 December 2020 as part of the Consolidated Appropriations Act, 2021 (H.R. 133).
The bill, if passed by the Senate and signed into law by the President, would allow the EIPs of up to USD 2,000 (up from USD 600) for individuals, or USD 4,000 (up from USD 1,200) for married couples filing a joint return, and up to USD 2,000 (up from USD 600) for each qualifying child.
The Chairman of the House Ways and Means Committee announced the passage of the bill through the House in a Statement of 28 December 2020. The Chairman also issued a statement of 29 December 2020 urging the Senate to conduct a standalone vote on the bill after Senate Majority Leader Mitch McConnell introduced different legislation that combines the increased EIPs with provisions regarding the freedom of speech on the Internet and election integrity.
The Treasury Department (Treasury) and the Internal Revenue Service (IRS) issued a News Release of 29 December 2020 (IR-2020-480) to announce that the second round of EIPs began to be issued on 29 December 2020 and that any additional amounts will be paid as quickly as possible.
The News Release of 29 December 2020 further states that the EIPs referred to as the recovery rebate credit (RRC) will appear on IRS Form 1040 (US Individual Income Tax Return) or IRS Form 1040-SR (US Tax Return for Seniors) for the 2020 taxable year because the EIPs are an advance payment of the recovery rebate credit. Taxpayers who did not receive the economic impact payments in 2020 are urged to review the eligibility criteria when they file their 2020 tax returns.
On 27 December 2020, President Trump signed into law the legislative package, including coronavirus-related tax relief and economic stimulus, and extensions of tax and health care policies, as well as to keep the government funded for the fiscal year ending 30 September 2021.
The omnibus legislative package (H.R. 133) is entitled the "Consolidated Appropriations Act, 2021" (the Act). The Act contains the 12 regular appropriations (i.e. government funding) acts for fiscal year 2021, coronavirus relief provisions, and other matters including tax extension provisions.
The US Senate and House of Representatives had passed the legislation on 21 December 2020.
The coronavirus relief provisions include the following tax relief:
- a refundable tax credit in the amount of USD 600 per eligible family member;
- the extension of the repayment period for deferred withholding of employees' share of social security taxes or the railroad retirement tax equivalent from the original period of 1 January 2021 through 30 April 2021 to the new period of 1 January 2021 through 31 December 2021;
- the treatment of personal protective equipment and other supplies used to prevent the spread of Covid-19 as eligible expenses for the educator expense deduction;
- the exclusion from gross income for a forgiven Paycheck Protection Program (PPP) loan;
- the deductibility for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven;
- the exclusion from gross income of college and university students for certain emergency financial aid grants under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act);
- the exclusion from gross income for forgiveness of certain loans, emergency Economic Injury Disaster Loan (EIDL) grants, and certain loan repayment assistance under the CARES Act, without reducing tax basis and other attributes; and
- the deductibility for otherwise deductible expenses paid with the proceeds of the above-mentioned loans and grants that are forgiven.
The tax extension provisions include the following tax relief:
- the permanent extensions of:
- the deduction for energy efficiency improvements to commercial buildings;
- the exclusions for qualified state or local tax benefits and qualified reimbursement payments provided to firefighters and emergency medical responders;
- the credit for qualified railroad track maintenance in the amount equal to 50% of maintenance expenditures prior to 1 January 2023, and 40% thereafter; and
- the reduction of certain excise taxes and simplified record-keeping requirements related to the taxation of beer, wine and distilled spirits;
- the extensions through 2025 of:
- the look-through treatment for payments of dividends, interest, rents and royalties between related controlled foreign corporations (CFCs);
- annual USD 5 billion allocations of the New Markets Tax Credit;
- an elective general business credit to employers hiring members of ten targeted groups under the Work Opportunity Tax Credit (WOTC) program;
- the exclusion from gross income of up to USD 750,000 for a discharge of indebtedness incurred for acquisition, construction or substantial improvement of primary residence;
- the deduction of up to USD 15 million (USD 20 million for certain areas) in the aggregate cost for qualified film, television and theatrical productions;
- the excise tax of USD 0.09 per barrel on crude oil received at a refinery and petroleum products entered into the United States which is deposited into the Oil Spill Liability Trust Fund;
- tax benefits for certain businesses and employers operating in empowerment zones; and
- the employer credit as an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave;
- the extensions through 2021 of:
- the production tax credits for renewable power facilities beginning construction by the end of 2021;
- the treatment of qualified mortgage insurance premiums as interest for the mortgage interest deduction;
- the credit of up to USD 2,000 for qualified new energy efficient homes; and
- the USD 0.50-per-gallon excise-tax credit for alternative fuel and USD 0.50-per-gallon credit for alternative fuel mixtures;
- a 100% deduction for business meal food and beverage expenses incurred in 2021 and 2022; and
- the use of 2019 earned income in determining the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) in 2020.
The Chairman of the Senate Finance Committee issued a Statement dated 21 December 2020, which included section-by-section summaries of the COVID-related tax relief policies and the tax extension provisions.
The House Committee on Appropriations issued a Press Release dated 21 December 2020, which included division-by-division summaries of the coronavirus relief provisions and the authorizing matters, as well as one-page fact sheets on the coronavirus relief provisions and the authorizing matters.
The Treasury Department issued a Statement dated 22 December 2020.
The Congressional Research Service (CRS) of the US Library of Congress has released a report to provide an overview of the general tax treatment of corporate and pass-through businesses. The CRS report is entitled "A Brief Overview of Business Types and Their Tax Treatment."
The income of subchapter C corporations, also known as regular corporations, is taxed once at the corporate level according to the corporate tax system, and then a second time at the individual shareholder level according to the individual tax rates when dividends are paid or capital gains are recognized.
Businesses that choose any other form of organization are, in general, not subject to the corporate income tax. Instead, the income of such businesses passes through to their owners and is taxed according to the individual income tax rates. Such pass-through businesses include sole proprietorships, partnerships, subchapter S corporations, and limited liability companies (LLCs).
The CRS report is dated 9 December 2020 and is designated R43104 (Version 8).
Note: The CRS is an agency within the US Library of Congress and serves the US Congress throughout the legislative process by providing legislative research and analysis for an informed national legislature.
The Retail market in India has undergone a major transformation and has witnessed tremendous growth in the last 10 years. The Overall Retail market is set to cross the $1.75 tn mark by 2026 from $795 bn in 2017. India’s e-commerce retail market which stood at $30 bn in 2019 is also set to grow at a CAGR of 30% for gross merchandise value to be worth $200 bn by 2026. Direct-to-Consumer segment could have a US $100 billion addressable market by 2025.
India ranks among the best countries to invest in Retail space. Factors that make India so attractive include the second largest population in the world, a middle class of 600 mn people, increasing urbanisation, rising household incomes, connected rural consumers and increasing consumer spending.
- India ranked No. 2 in Global Retail Development Index (GRDI) in 2019.
- Retail is India's largest industry, currently accounting for over 10% of the country's GDP and 8% of total employment.
10%Contribution to India's GDP
8%Share in India's employment
4XRise in consumption
3XGrowth in organized retail
Recent policy changes allow 100% FDI under the automatic route for single-brand retail trading.
For further details, please refer FDI Policy
The Retail industry in India has experienced a healthy growth over last few years achieving a total market size of $795 bn in 2017.India’s retail market is estimated to reach $1.75 tn by 2026, from $0.79 tn in 2018, growing at a CAGR of 9-11%, driven by socio-demographic and economic factors such as urbanisation, income growth and rise in nuclear families. On the other hand, the Indian e-commerce industry is expected to cross $200 bn mark by 2026. The E-commerce market in India is also set to grow at a CAGR of 30% for gross merchandise value to reach $200 bn by 2026, and have a market penetration of 12% compared to 2% currently. India is largely an unorganized retail market, contributing 88% to the total retail sector in India. The organized retail market is currently valued at $60 bn, while the unorganized market holds the rest. The share of the organized retail market is projected to increase to 22-25% by 2021, thereby reducing the unorganized retail market’s share to 77%. The organized retail market, therefore, has the potential to reach approximately $140-160 bn.
Growing income3X increase in average household income to reach $18,448 in 2020, from $6,393 in 2010
Increased online spendingOnline buyers to be 350 million by 2025 from existing 90 million, with digital spending Projected to increase more than tenfold to $550 bn & account for 35% of all retail sales by 2025
Growth of rural consumptionRural per capita consumption will grow 4.3 times by 2030, compared to 3.5 times in urban areas
Young millennial householdsIndia will add nearly 90 million new households headed by millennials, who were born into liberalized India. The average age of the country by 2025 will be 29 with the world’s largest skilled manpower pool of 600 million+ by 2025.
For more about Retail & E-Commerce in India, please refer here