July 2024

The Finance Minister presented the Finance (No. 2) Bill, 2024 (the Bill) to Parliament on 23 July 2024. The Bill proposes changes to the customs duty rates of various goods and amendments to simplify and rationalize goods and services tax (GST) regulations.

Customs Duties

The Bill proposes to amend the customs duty rate structure for a number of goods. Some of the key rate changes are as follows:

• exemptions for (i) specific cancer medicines; (ii) critical minerals used in sectors such as nuclear/renewable energy, space, defence, telecommunications, etc.; (iii) capital goods for use in the manufacture of solar cells/panels; and
• a reduction of the basic customs duty (BCD) on mobile phones and chargers to 15%; specific seafoods to 5%; and gold and silver to 6%.

Goods and Services Tax (GST)

The Bill proposes to provide that:

• no refund of unutilized input tax credit or integrated tax will be allowed in cases of zero-rated supplies of goods, where such goods are subjected to export duty;
• the apportionment of a co-insurance premium by the lead insurer to the co-insurer for insurance services jointly supplied to the insured in co-insurance agreements will be treated as neither a supply of goods nor a supply of services, provided that the lead insurer pays the tax liability on the entire amount of premium paid by the insured; and
• no GST will be levied on extra neutral alcohol (ENA) used in the manufacturing of alcoholic liquor for human consumption.

The Bill also proposes to amend other administrative and compliance provisions under the GST.

The full text of the Finance Bill is available here, and the memorandum explaining the provisions in the Bill is available here.

Source: IBFD Tax Research Platform News

Micro, small, and medium enterprises (MSMEs) are one of the driving forces propelling the Indian economy towards global greatness. As per the Udayam portal, MSMEs employ over two crore people, firmly establishing themselves as the bedrock of the economy.

Aided partly by supportive and reformatory government initiatives and technological innovations, the MSME sector has grown exponentially, accounting for ~46% of India’s total exports.

What government initiatives have supported MSME growth in India?

To support and foster MSME, the Ministry of MSME has launched and implemented various schemes offering credit support, new enterprise development, formalisation, technological assistance, infrastructural development, skill development and training, and market assistance to MSMEs through initiatives like:

• Udyam Registration Portal The government notified composite criteria for classifying an enterprise as micro, small, and medium based on investment and turnover. To ensure conformity to the new criteria and enhance the ease of doing business, the government launched the Udyam Portal to facilitate the permanent registration of MSMEs. There is no registration fee, and an enterprise is issued a digital certificate based on self-declaration. The Udyam certificate enables MSMEs to access several government initiatives such as:
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) The CGTMSE, operational under the Government of India and the Small Industries Development Bank of India (SIDBI), offers credit guarantees to help MSMEs access bank credit without the hassles of crushing collaterals or third-party guarantees. MSMEs can access collateral-free loans up to INR 5 Cr, with a guaranteed coverage of up to 85% for multiple loan categories under CGTMSE. The scheme has covered over 67 lakh beneficiaries in the first 22 years of its existence and has had a positive impact on six major areas in the MSE sector, viz., technology upgradation, skill degradation, market development, sustainability of the scheme, economic impact, and social impact. During January-November 2023, 12.50 lakh guarantees were approved, amounting to INR 1.46 Lakh Cr.
• The Prime Minister Employment Generation Programme (PMEGP) Established to create employment opportunities for MSMEs in India, the PMEGP provides loans and working capital — INR 25 Lakh for manufacturing and INR 10 Lakh for service sector MSMEs  — through bank disbursal. The scheme is implemented at the national level by the Khadi and Village Industries Commission (KVIC) and at the state and district levels by State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centres (DICs), and banks. Since its inception in 2008 and until 30 November 2023, over 9.29 Lakh micro-enterprises have been supported across the country with the disbursement of a Margin Money subsidy of INR 34,517 Cr, generating a total estimated employment for around 78.36 Lakh persons.
• Raising and Accelerating MSME Performance (RAMP) Launched in July 2022, under the aegis of the Ministry of MSME, the World Bank-assisted RAMP scheme aims to improve the access of MSMEs to both the global market and credit. RAMP aims to foster the sector by accelerating Centre-State collaboration in MSME promotion and development, Enhancing the effectiveness of existing Ministry of MSME schemes for technology upgradation, Strengthening the Receivable Financing Market for MSMEs, Enhancing the effectiveness of Credit Guarantee Trust for Micro & Small Enterprises (CGTMSE), and promoting guarantee for greening initiatives of MSEs, and women-owned MSEs, and Reducing the incidence of delayed payments to MSEs. An outlay of INR 6000 Cr has been assigned for five years to ensure the implementation. The scheme aims to benefit over 5.5 Lakh MSMEs.

MSMEs as investment opportunities

As India steadily approaches the threshold of becoming a $5 Tn economy by 2026-27, interest in the nation as an investment destination is soaring. The Indian MSME sector is projected to grow to $1 Tn by 2028. Its many winning advantages encompass a diverse range of investment opportunities across various industries and supply chain ecosystems, including but not limited to textiles, food processing, agriculture, and more. Another distinct advantage that MSMEs offer is the opportunity to invest in enterprises beyond metropolitan cities. Investors can capitalise on the potential of the rapidly expanding rural MSMEs catering to an accelerating consumer base, disposable incomes, and a vibrant domestic market. Moreover, with the relaxation of the FDI policy allowing a 100% FDI inflow under the automatic route for MSMEs and the various tax exemptions and tax holidays that the sector can avail, investments in Indian MSMEs have much to attract astute investors.

The Digital Transformation of MSMEs

MSMEs are moving forward with renewed vim and vigour and a decided focus towards innovation and digitisation of operational procedures. Adopting new tools and systems ensures a sharper edge to their global competitiveness. Moreover, schemes like the Digital MSME Scheme, which empowers all MSMEs registered with the Udyam registration portal to adopt Information Communication Technology (ICT) tools and applications in their production and operations, ensure that the transition from traditional processes to digital ones is as seamless as possible. Furthermore, the Ministry of MSMEs has been allocated INR 22,137.95 Cr under the interim Budget 2024-25 for implementing various schemes and technology upgrades.

The Role of MSMEs in Building a Sustainable and Inclusive Economy

MSMEs' role in fostering sustainability and inclusivity in the Indian economy is irrefutable. 20.5% of the MSMEs registered on the Udyam Registration Portal are led by women, accounting for 18.73% of the total employment generated by Udyam-registered MSMEs. While the numbers speak for themselves, to ensure the growth of the sector and the economy remains inclusive, equitable, and sustainable, the Ministry of MSMEs has undertaken various initiatives to foster MSMEs that value these goals. For example, the Credit Guarantee Scheme for Micro & Small Enterprises offers a 10% concession in annual guarantee fees and up to 85% guarantee coverage for female entrepreneurs. Meanwhile, the SAMARTH initiative provides more than 7500 women from rural and sub-urban areas with skill development and market development assistance to encourage female entrepreneurship.

On the other hand, the MSME Sustainable (ZED) Certification Scheme encourages MSMEs to streamline their processes to transition towards sustainability and reduce environmental costs. Furthermore, the scheme offers a 100% subsidy for ZED Certification for Women-owned MSMEs.

MSMEs and a focus on their growth are critical for the long-term prosperity of India’s economy. MSMEs play a crucial role in the GDP growth, industrial production, and job creation in the nation's economy, and the various initiatives and regulatory reforms fostering them are a step in the right direction to ensure that untapped talent, resources, and growth opportunities are brought to the foreground.

As previously indicated in communications from the Ministry of Manpower (MOM), effective September 1st, 2024, EP holders with expiring passes must not only meet the EP qualifying salary requirement but also successfully undergo the COMPASS assessment to renew their passes.

Additionally, MOM has announced that starting January 1st, 2025, the EP qualifying salary for new applications will be adjusted to a minimum of $5,600, with a higher threshold of at least $6,200 for the financial services sector. This updated EP qualifying salary will also apply to EP renewals expiring from January 1st, 2026.

Further details about the Eligibility for Employment Pass can be found in our article.

The new criteria for customs clearance of imported goods valued at 1,500 Baht or less have been established in response to the government's policy aimed at addressing the issue of unfair pricing between overseas and local sellers. Overseas sellers were exempted from paying value added tax (VAT), while local sellers are required to pay it, creating an imbalance.

According to the Customs Department's announcement and effectively from July 5, 2024, imported goods with a total CIF value up to 1,500 Baht, previously VAT exempted, will be subject to 7% VAT. Such temporary measures will be valid until December 31, 2024 when legislation will supposedly close the loophole.

The de minimis regime will be still applied, but on customs duty exemption only.

Source: customs.go.th

On July 16, 2024, Thailand's Cabinet approved a 100 billion baht Soft Loan to facilitate easier access to loans for small and medium-sized enterprises (SMEs). The funds will be lent to commercial banks, enabling them to offer loans to SMEs at below-market rates. Mr. Pornchai Thiraveja, Director General of the Fiscal Policy Office, announced that the Soft Loan project has been in effect since April 2024.

The state-owned Government Savings Bank will provide Soft Loans to commercial banks at an interest rate of 0.01 percent per year for two years. These banks, in turn, will lend to SMEs at an interest rate not exceeding 3.5 percent per year for the same period. The maximum loan amount per SME is set at 40 million baht.

Sources: https://www.thaigov.go.th/news/contents/details/85886

https://www.thaigov.go.th/news/contents/details/85904

On July 9, 2024, Dr. Rak Vorrakitpokatorn, President of Export-Import Bank of Thailand (EXIM Thailand), and Mr. Narit Therdsteerasukdi, Secretary General of the Thailand Board of Investment (BOI), signed a Memorandum of Understanding at EXIM Thailand’s Head Office. This collaboration aims to promote and attract foreign direct investment (FDI) through financial support along the supply chains for Thai entrepreneurs seeking investment promotion from the BOI. The initiative encourages these businesses to enhance production efficiency, reduce greenhouse gas emissions, and transition to a low-carbon society.

Under this cooperation, EXIM Thailand offers financial products to BOI-promoted entrepreneurs with eco-friendly operations at special interest rates, including a 0.5% discount in the first year under the EXIM Green Goal and EXIM Solar D-Carbon Financing schemes. These schemes support investments in solar power generation systems, such as solar rooftops, solar farms, and solar floating systems, and include entitlements for carbon credit registration and certification.

Additionally, the EXIM Extra Transformation scheme targets exporters in S-curve industries, aiming to elevate Thai manufacturing sectors by financing the acquisition or improvement of machinery and equipment, or the extension, renovation, or construction of factory buildings or robotic and automatic systems. This initiative seeks to lower production costs, upgrade businesses, and improve production efficiency and capabilities through the use of new technologies.

Dubai Customs has issued the Customs Policy on the Voluntary Disclosure System which, in summary, allows companies to submit online voluntary disclosures of certain historical errors or violations of customs regulations (the Policy).

The 'Voluntary Disclosure System' is a declaration submitted by a customer to inform Dubai Customs of any errors and/or offences inadvertently committed during customs clearance and the provision of information relating to customs declarations and data.

Submitting a Voluntary Disclosure is a simple process. The electronic submission of the Voluntary Disclosure Form, together with the required supporting documents and records, can be done seamlessly through the electronic customs systems, ensuring a hassle-free experience for businesses.

Voluntary Disclosure applies to the following offences:

• import and export offences;
• customs declaration offences;
• transit offences;
• offences in warehouses;
• offences in areas under customs control;
• offences relating to temporary importation;
• re-export offences; and
• any other customs offence.

Customs fines may be waived in whole or in part in the case of a customs offence if voluntary disclosure is made before the offence is discovered by Dubai Customs.

The policy stipulates that the customer must pay the customs duties due within 30 days of receiving notification of the financial claim. In the event of non-payment of the financial claim within the period, the voluntary disclosure request and decision shall be deemed null and void, in which case Dubai Customs reserves the right to take any other necessary action.

Customs Policy No. 58/2024 on the Dubai Customs Voluntary Disclosure Scheme came into force upon its publication.

Source: IBFD Tax Research Platform News

The UK Treasury has published a policy paper, "2024: Non-UK domiciled individuals – Policy Summary", which sets out the changes to be made to the taxation of non-UK domiciled individuals. From the start of the next tax year, i.e. from 6 April 2025, the concept of "domicile" will be removed as the basis for taxing non-domiciled individuals on their income and gains from non-UK sources and assets. Instead, a new residence-based regime will be introduced.

The previous Conservative government had announced that an individual who has not been resident in the UK for tax purposes for the past 10 years will be eligible for tax relief on foreign income and gains (FIG) for 4 years. However, the Labour government believes that several advantages for existing non-domiciled individuals remain and the government is committed to ending these.

From 6 April 2025, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the 4-year FIG regime.

There will also be a review of offshore anti-avoidance legislation, including the transfer of assets abroad and settlements legislation to remove ambiguity and uncertainty and make the rules simpler to apply. A form of overseas workday relief will be retained. Further details on the review will be provided in due course, but any changes are not expected to apply before the start of the 2026/27 tax year.

Further information on transitional arrangements for affected non-UK domiciled individuals and a new residence-based regime for inheritance tax are contained in the policy document, dated 29 July 2024, which can be found here.

Source: IBFD Tax Research Platform News

The Financial Crimes Enforcement Network (FinCEN) has released new frequently asked questions (FAQs) specific to companies formed before 1 January 2021. The new guidance is issued in response to inquiries received by FinCEN relating to the Beneficial Ownership Information Reporting Rule implemented by the Corporate Transparency Act (CTA) of 2021.

According to the updated FAQs, the following guidance has been added:

• C. 12. – beneficial ownership information (BOI) reporting requirements do apply to companies created or registered before the CTA was enacted on 1 January 2021, unless specifically exempt or ceased to exist as legal entities before 1 January 2024;
• C. 13. - a company is not required to report its beneficial ownership information to FinCEN if it ceased to exist as a legal entity before 1 January 2024, meaning that it entirely completed the process of formally and irrevocably dissolving;
• C. 14. – a reporting company is still required to submit an initial report if it was created or registered in 2024 or later winds up its affairs and ceases to exist before its initial BOI report is due to FinCEN; and
• D. 17. – entities fully or partially owned by Indian tribes will report beneficial owners, depending in part on the nature of the entity owned by the Indian Tribe. However, in general, the company must report all individuals who, directly or indirectly, exercise substantial control over the company, as well as individuals who directly or indirectly own or control at least 25% of the company's ownership interests.

The IRS has addressed which entities must apply for registration for the clean fuel production credit. The IRS issued answers to frequently asked questions (FAQs) on 10 July 2024, also discussing whether disregarded entities that produce clean fuel must register under Notice 2024-49, and how claim procedures will work when the registrant is a disregarded entity.

According to the FAQs, each business unit that has, or is required to have, a separate employer identification number (EIN) and is a producer of clean fuel is treated as a separate person for registration purposes. As a result, two related business units that have separate EINs must separately apply for registration using Form 637 if they are each producers of clean fuel.

In addition, the FAQs provide that a producer of clean fuel that is a disregarded entity for income tax purposes is not treated as a disregarded entity for purposes of clean fuel production credit registration. Thus, clean fuel producers that are disregarded entities must separately apply for registration using Form 637.

Moreover, the FAQs state that an owner of a disregarded entity that is registered for the clean fuel production credit, but that is not itself registered, would be able to claim the credit using the registration number of the disregarded entity.

Note:  The Inflation Reduction Act of 2022 (IRA) enacted the Internal Revenue Code section 45Z credit for the production of clean transportation fuels, which would be available from 1 January 2025.

Source: IBFD Tax Research Platform News

The Department of the Treasury and the IRS have published final regulations setting final regulations on required minimum distributions (RMD) for beneficiaries under certain qualified plans. These include IRC section 403(b) annuity contracts, individual retirement accounts and annuities (IRAs), custodial accounts, and certain deferred compensation plans.

The final regulations "generally follow" the IRS's originally proposed regulations issued in 2022, though with several changes in response to comments. Specifically, the IRS reviewed comments suggesting that a beneficiary of an individual who has started required annual distributions should not be required to continue those annual distributions if the remaining account balance is fully distributed within 10 years of the individual's death as required by the SECURE Act (the "10-Year Rule").

However, Treasury and IRS determined that the final regulations should retain the provision in the proposed regulations requiring such a beneficiary to continue receiving annual payments.

The final regulations further:

• raise the starting age for RMDs;
• simplify rules for older beneficiaries;
• require minor child beneficiaries to continue to take annual payments from ages 21 to 31;
• update the spousal IRA rollover rule; and
• provide relief from the multiple beneficiary rule for certain look-through trusts.

The IRS further updated the regulations' application to RMDs beginning 1 January 2025.

Simultaneously, Treasury and IRS issued additional proposed regulations, addressing additional RMD issues under the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act. The proposed regulations addressed additional questions that weren't covered in the final regs regarding the RMD provisions enacted in SECURE 2.0, including outright distributions to trust beneficiaries, spousal elections for spouses to be treated as the deceased employee for distributions, and corrective distributions.

The final and proposed regulations are effective 17 September 2024, with the proposed regulations scheduled for a public hearing on 25 September 2024.

On July 2^nd, 2024, the Ministry of Finance (MOF) and four other authorities have jointly released the Circular on Implementing Relevant Tax Policies for the Temporary Entry for Repair on a Trial Basis in the China (Shanghai) Pilot Free Trade Zone (the "Circular"), with effect on the date of release.

The Circular stipulates that, within the special customs supervision areas of the China (Shanghai) Pilot Free Trade Zone (including the Lin-gang Special Area) and from the date of implementation of the Circular, goods temporarily allowed to enter the pilot area from abroad for repair will be subject to bonded measures, and will be exempt from customs duties, import value-added tax (VAT), and consumption tax when re-exported; if such goods are not re-exported and are instead sold domestically, import procedures shall be handled as required, and import duties, import VAT, and consumption tax will be levied based on the actual declaration status of the repaired goods and according to relevant regulations. According to the Circular, this policy only applies to the Yangshan Special Comprehensive Bonded Zone, the Shanghai Pudong Airport Comprehensive Bonded Zone, the Shanghai Waigaoqiao Port Comprehensive Bonded Zone, the Shanghai Waigaoqiao Bonded Area, and other special customs supervision areas within the China (Shanghai) Pilot Free Trade Zone (including the Lin-gang Special Area) approved by the State Council.

On July 12th, 2024, the Ministry of Finance (MOF) and the State Taxation Administration (STA) have jointly released the Announcement on Enterprise Income Tax Policies for the Digital and Intelligent Transformation of Specialized Equipment for Energy Conservation, Water Conservation, Environmental Protection, and Work Safety  (the "Announcement").

The Announcement stipulates that for enterprises' input in the digital and intelligent transformation of specialized equipment incurred between January 1, 2024, and December 31, 2027, the portion not exceeding 50% of the original tax base at the time of purchase of the specialized equipment can be deducted from the enterprise's current year taxes payable at a rate of 10%. If the enterprise's payable taxes for the current year are insufficient for deduction, the excess can be carried forward to subsequent years, with a maximum carry-forward period of five years. Furthermore, the Announcement clarifies that the transformation input eligible for tax incentives refers to the expenditures incurred by enterprises during the digital and intelligent transformation of specialized equipment that contribute to the fixed asset value of the specialized equipment. This excludes value-added tax (VAT) refunds according to relevant regulations and the costs related to transportation, installation, and commissioning of the specialized equipment.

The Customs Tariff Commission of the State Council has recently issued the Announcement on the 15th List of US Goods Granted the Extension of Exclusion from the Additional Tariffs (the "Announcement") on July 23^rd, 2024.

The Announcement specifies that, according to the Announcement of the Customs Tariff Commission of the State Council on the 13th List of US Goods Granted the Extension of Exclusion from the Additional Tariffs, the 13th list of US goods granted the extension of exclusion from the additional tariffs will expire on July 31, 2024. The Customs Tariff Commission of the State Council has decided, as per procedure, to extend the period of exclusion for the relevant goods. Regarding the goods listed in the appendix to the Announcement, China will continue the exclusion of the tariffs imposed to counter the Section 301 tariffs imposed by the US, from August 1, 2024, to February 28, 2025.

Announcement: https://www.mof.gov.cn/jrttts/202407/t20240724_3940201.htm

The Government announced the Inland Revenue (Amendment) (Tax Concessions for Intellectual Property Income) Ordinance 2024. The Amendment Ordinance, which amends the Inland Revenue Ordinance (Cap. 112) to implement the "patent box" tax incentive to provide tax concessions for qualifying profits sourced in Hong Kong and derived from eligible intellectual properties (IP) created through research and development (R&D) activities, comes into operation.

The Amendment Ordinance mainly covers the following five key areas:

1. eligible IPs covered are patents, copyrighted software and new plant variety rights;
2. eligible IPs can be registered in different places around the world and their related profits sourced in Hong Kong can benefit from the "patent box" tax incentive;
3. the concessionary tax rate is set at 5 per cent, which is substantially lower than the existing normal profits tax rate in Hong Kong (i.e. 16.5 per cent);
4. eligible IPs must be developed by taxpayers themselves. If the R&D process involves acquisition of other IPs, or outsourcing part of the R&D activities, the amount of profits eligible for the concessionary tax rate may be reduced proportionally; and
5. enterprises need to obtain local registration for their inventions or new plant varieties in order to enjoy the "patent box" tax incentive. This requirement will only start to be implemented two years after the "patent box" tax incentive comes into operation.

The Government has spared no effort in protecting IP rights and promoting IP trading to tie in with the national strategy to develop IP, and has been implementing a series of short, medium and long-term measures from various aspects, including enhancing the IP regulatory regime, to promote the development of Hong Kong into a regional IP trading center.

Source: info.gov.hk

The Inland Revenue Department (IRD) sent out about 2.44 million tax returns for individuals for the year of assessment 2023/24. The filing deadline for general cases was June 3 while for sole proprietors of unincorporated businesses, a three-month period is allowed. Those filing via eTAX will be automatically granted a one-month extension (i.e. the deadline for general cases is July 3 and for sole proprietors is September 2).

The Commissioner of Inland Revenue, Mr. Tam Tai-pang, hosted a press conference on the completion of tax returns for individuals for the year of assessment 2023/24 and the tax collection of 2023-24, and also introduced new features of e-filing of profits tax returns.

Mr Tam referred to two tax measures proposed in the 2024-25 Budget, that is:

• the reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2023/24 by 100 per cent, subject to a ceiling of $3,000 per case
• and implementing a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25.

In addition, the 2023 Policy Address announced that the deduction ceiling amounts for home loan interest and domestic rents will be raised for taxpayers who reside with their newborn children. Starting from the year of assessment 2024/25, the deduction ceiling for home loan interest or domestic rents will be raised from $100,000 to $120,000 for eligible taxpayers of salaries tax and tax under personal assessment who are residing with children born on or after October 25, 2023.

Source: info.gov.hk