October 2022

  • Bulgaria
    • European Commission Proposes to Authorise Bulgaria to Exempt from VAT Taxable Persons Whose Annual Turnover Does Not Exceed EUR 51,130

      On 13 October 2022, the European Commission published a proposal authorising Bulgaria to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 51,130.

      This authorisation would imply that Bulgaria derogates from article 287 of the VAT Directive (2006/112), by increasing the threshold from EUR 25,600 to EUR 51,130. This decision would be applicable until 31 December 2024 since, from that date, EU Member States are to adopt and publish the laws, regulations and administrative provisions necessary to comply with article 1 of Amending Directive to the VAT Directive (2020/285), which lays down simpler VAT rules for small enterprises. From 1 January 2025, EU Member States will be allowed to exempt from VAT taxable persons whose annual turnover does not exceed a threshold of EUR 85,000 or the equivalent in any given national currency.

      The European Commission has published the proposal to accept the measure, since it is expected to reduce VAT obligations, administrative burdens and compliance costs for both small enterprises and the tax authorities and has a minimal impact on the total VAT revenue generated.

    • Bulgaria Seeks Public Input on DAC7 Implementation

      The Ministry of Finance has published a public consultation for implementing the provisions of the Amending Directive to the 2011 Directive on Administrative Cooperation in the Tax and Social Security Procedure Code.

      The main proposed amendments are the following:

      • introduction of a mandatory obligation for digital platform operators to report information on sellers who use the platforms to sell goods and provide certain services; and
      • introduction of joint audits in cooperation with the competent authorities of other EU Member States, as well as the application of specific data protection procedures.

      The proposed measures should enter into force on 1 January 2023.

  • China
    • China Increases Pre-tax Deduction to Support Scientific and Technological Innovation

      The Ministry of Finance ("MOF"), together with the State Taxation Administration ("STA") and the Ministry of Science and Technology ("MOST"), released on September 26, 2022 the Announcement on Increasing Pre-tax Deduction to Support Scientific and Technological Innovation.

      It is clarified that hi-tech enterprises are allowed to make one-off deduction of their full cost for purchase of new equipment and instruments during the period from October 1, 2022 to December 31, 2022 in calculation of taxable income for the current year, and are also allowed to make 100 percent of pre-tax additional deduction. The policy is applicable to all enterprises that are qualified as hi-tech ones in the fourth quarter of 2022. If a qualified enterprise chooses to apply the policy in the current year but the cost does not reach the deductible amount, it can be carried over to following years for deduction according to existing rules.

    • China Continues Tax Exemptions on NEVs Purchases through 2023

      The Ministry of Finance ("MOF") released on September 26, 2022 the Announcement on Continuing Tax Exemptions on Purchases of New Energy Vehicles, which was jointly formulated by the MOF, the State Taxation Administration ("STA") and the Ministry of Industry and Information Technology ("MIIT").

      Purchases of new energy vehicles ("NEVs") during the period from January 1, 2023 to December 31, 2023 will be exempted from purchase tax. NEVs exempted from purchase tax would be subject to management based on the List of NEV Models Exempted from Purchase Tax, which was released by the MIIT and the STA and has been updated to its 58th batch, according to the Announcement, which also continues tax exemptions on purchases of NEVs that have been included in the List before December 31, 2022, and requires handling of other matters in accordance with No.21 Announcement in 2020 and No.13 Announcement in 2021.

    • Corporate Investments in Basic Research Eligible for Pre-tax Full Deduction and Additional Deduction

      The State Council introduced three phased tax reduction policies to support corporate innovation at the executive meeting held on September 7, 2022. The Ministry of Finance ("MOF") and other two authorities clarified two of the policies in their No.28 (2022) Announcement. The MOF and the State Taxation Administration ("STA") jointly released on October 8, 2022 the supporting document for the third policy.

      According to the Announcement of the Ministry of Finance and the State Taxation Administration on the Preferential Tax Policy for Corporate Investment in Basic Research, corporate investments in non-profit scientific and technological R&D institutions, colleges and universities, and government natural science funds for basic research are eligible for pre-tax deduction of the actually incurred amount in the calculation of the taxable income, as well as 100 percent pre-tax additional deduction. The income of non-profit scientific research institutions, and colleges and universities from basic research funds received from enterprises, individuals and other organizations will be exempted from the enterprise income tax.

    • Shanghai Promote Mutual Recognition of Enterprises Eligible for Export Tax Rebate (Exemption) in the Yangtze River Delta Region

      The Shanghai Municipal People's Government released on October 21, 2022 the Guidelines of Shanghai Municipality on Promoting the Stable and Quality Growth of Foreign Trade, to be effective on November 1, 2022.

      The Guidelines rolled out 22 policy measures in five aspects, including ensuring the stable operation of foreign trade firms, increasing financial service support for international trade, optimizing import and export structure of foreign trade, supporting the development of new forms and modes of foreign trade, and strengthening the service guarantee for foreign trade firms.

      It called for facilitating export tax rebate, cutting average processing time of normal export tax rebate (exemption) for exporters subject to Category I and Category II export rebate management to three working days, expanding the coverage of the pilot program of waiving the requirement for filling out the forms for export tax rebate, and promoting the sharing of export information of enterprises at different ports through the "single window" of the Shanghai international trade. It is also required to promote the mutual recognition of the results for the evaluation of enterprises eligible for export tax rebate in the Yangtze River Delta region by Relying on the cooperation mechanism for regional integration in the Yangtze River Delta.

    • Shanghai Rolls out 22 Measures to Help Industries, Enhance Market Entities and Stabilize Growth

      The Shanghai Municipal People's Government released on September 28, 2022 the Several Policy Measures of Shanghai Municipality for Helping Industries, Enhancing Market Entities and Stabilizing Growth, stepping up support in incentives, subsidies and credit support to beleaguered sectors, small businesses and major industries.

      While continuing the subsidies and tax cuts offered to culture, tourism, sports, exhibition, aviation, life services and other sectors that have been in trouble due to the COVID-19 pandemic, Shanghai also strengthened support to micro and small enterprises, small and middle enterprises focusing on specialized areas or with distinctive advantages in select areas, high-tech companies, and high-quality players. According to the document, the government said it would also vigorously promote consumption of big-ticket items, such as housing and automobiles and build more affordable housing for rental, and raised the limit of funding support for major technical upgrading in key industries to 100 million yuan and lowered medical insurance contributions made by employers by 0.5 percentage points. In addition, in the document the government also explored the possibility of optimizing risk compensation for loans, as well as interest or fee discount.

      In the document, the government also stressed the need to ensure prompt implementation of preferential taxation policies. Tax rebates for exports should not take more than five business days to process. Specifically, it should take exporters not more than three business days to go through procedures for tax rebates, and VAT credits shall be immediately refunded to manufacturers upon application and arrive at the recipient's account within two business days.

    • The People’s Daily published a commentary titled “Dynamic Zero Elimination is Sustainable and Must Persist”

      It is the clearest signal from state media about China's policy direction amid recent outbreaks in many parts of the country.

      The article points out that only when the epidemic is prevented can the economy be stable, people's lives be safe, and economic and social development be stable and healthy. The adherence to "dynamic zero elimination" has better balanced the relationship between epidemic prevention and control and economic and social development, enabling us to achieve the maximum prevention and control effect at the minimum cost and minimize the impact of the epidemic on economic and social development. When all is said and done, our containment measures are the most economical and effective.

      It should be noted that "dynamic zeroing" does not mean to pursue zero infection, but to find and extinguish each case, so as to prevent the spread of the novel coronavirus in the place where the epidemic occurs and prevent the spread of the virus to other areas. This means that, on the one hand, we should not relax the prevention and control of the epidemic and "let it go". On the other hand, we should also be vigilant against excessive epidemic prevention and control, and resolutely prevent the phenomenon of simplification, one-size-fits-all, and layer upon layer. To achieve dynamic zero elimination, we must continuously improve the level of scientific and precise prevention and control.

      The article emphasizes at the end that we must unswervingly adhere to the overall strategy of "preventing imports from abroad and preventing rebound at home" and the general policy of "dynamic zero elimination", constantly optimize prevention and control policies and measures in light of the circumstances, and efficiently coordinate epidemic prevention and control with economic and social development.

    • CPC Congress: China to unswervingly expand all-around opening up

      China will unswervingly expand all-around opening up and push economic globalization toward being more open, inclusive, balanced and beneficial to all, an official with the country's top economic planner said Monday.

      There has been misunderstanding about the new pattern of development that is focused on the domestic economy and features positive interplay between domestic and international economic flows, Zhao Chenxin, deputy director of the National Development and Reform Commission, told a press conference on the sidelines of the ongoing 20th National Congress of the Communist Party of China.

      He said it is wrong to think that by focusing on the domestic economy China will scale back its opening-up efforts or even turn to a "self-sufficient economy," said Zhao.

      Economic globalization has become an irreversible trend, he said, adding that China is already deeply integrated into the global economy and the international system, and the industries of China and many other countries are highly interconnected and interdependent.

      He said fostering a new pattern of development is important for China to achieve development that is of higher quality and is more efficient, fair, sustainable and secure.

    • Xi: China to open wider to the world

      China will open its door wider to the rest of the world, Xi Jinping, general secretary of the Communist Party of China Central Committee, said on Oct 23.

      "We'll be steadfast in deepening reform and opening-up across the board, and in pursuing high-quality development," Xi said when meeting the press at the Great Hall of the People, noting that a prosperous China will create many more opportunities for the world.

      Just as China cannot develop in isolation from the world, the world needs China for its development, Xi said.

      Through over 40 years of relentless reform and opening-up, China has created the twin miracles of fast economic growth and long-term social stability, he said.

      The Chinese economy has great resilience and potential, Xi said. "Its strong fundamentals will not change, and it will remain on the positive trajectory over the long run".

  • Focus Africa
    • Africa in Review by the Numbers (October 2022)

      $670 million First round funding closed for Afreximbank's Fund for Export Development (FEDA), which will help to finance the equity gap and support foreign direct investment in Africa's trade sector. The financing is split across four funds: direct equity, strategic initiatives, private credit and venture. (Africa Global Funds)

      58,000 Workers likely to get jobs in the renewable energy sector in Kenya as more producers connect to the grid following the saturation of the off-grid market. The growing demand has resulted in companies increasing training opportunities for workers to address skills gap in the sector. (Business Daily)

      50% Stake in GlobalFeed acquired by Morocco's leading fertiliser company OCP Group. The acquisition of the Spanish company will help OCP diversify its phosphate solutions and become a leading player in animal nutrition sector. (CEO Business Africa)

      $1 billion Anticipated amount private equity fund Carlyle Group hopes to raise in the sale of its Gabon-focused oil and gas producer Assala Energy. The sale process is being run by investment bank Citi and is set to be launched in the coming weeks. (Energy World)

      232 million KW Hours of electricity reportedly supplied by state-owned utility in Ethiopia to neigbhouring Sudan and Djibouti. Ethiopian Electric Power reported it earned $13 million through electricity exports, though external sales fell 30% shy of its target. (Africa Energy Portal)

      20% Reduction of iron and steel imports in Kenya reported in the second quarter of the year amid a slowdown in the construction sector. Prices of some steel products in Kenya shot up 40% in the first quarter due to a shortage occasioned by supply fears related to Russia’s war on Ukraine and the shilling weakening. (Business Daily)

      $1.5 billion Green finance facility AfDB plans to launch at next month's COP27 to meet surging demand for funds to develop clean energy and defend infrastructure against storms and floods caused by global warming. (BNN Bloomberg)

      200,000 Houses earmarked for low-income earners to be built annually in Kenya. Financial institutions have been tasked to fund projects that will aid in reducing the housing deficit in the East African country. (KenyaMoja)

      11.5% Turnover growth recorded by South African retailer Pick n Pay in its half year ended in August 2022. This increase in revenue reflects the normalisation of the environment of policies implemented in 2021 which negatively impacted the base. (Food Business Africa)

      $520 million Investment in Special Agro-Industrial Processing Zones launched in Nigeria to transform the country’s agriculture sector and achieve food security. The project is a joint partnership between Africa Development Bank, Islamic Development Bank, International Fund for Agricultural Development and the Nigerian government. (Food Business Africa)

      80 Projects in the transportation sector – covering port development, container terminals, cruise berths, marine passenger terminals, multimodal transport, river ports and metro – set to be launched in Egypt with an estimated investment value of some $6.6 billion. (Hellenic Shipping News)

      72.8% Increase of sales recorded by Kwale miner Base Titanium in the quarter ended September on increased exports and higher prices of the minerals in the international markets. The jump in turnover will boost earnings for the Kenyan government, which is paid royalties at a rate of 5% of sales. (Business Daily)

      Review by Kili Partners . Powered by Asoko Insight
    • South Africa Issues Tax Guide for Small Businesses

      The South African Revenue Service (SARS) has published a tax guide for small businesses. This guide is a general guide dealing with the taxation of small businesses such as sole proprietors, partnerships and companies not part of large groups. Some of the discussions in this guide could, however, be applicable to any type of taxpayer.

      The guide also deals, amongst others, with the following:

      • general characteristics of different types of business;
      • registration as a taxpayer;
      • year of assessment and filing of income tax returns;
      • the SARS eFiling and SARS MobiApp;
      • connection between "net profit" and "taxable income";
      • determination of taxable income or assessed loss;
      • special allowances or deductions and recoupment;
      • deduction of home office expenditure;
      • deductions in respect of expenditure and losses incurred before commencement of trade;
      • ring-fencing of assessed losses of certain trades;
      • duty to keep records, retention period in case of audit, objection or appeal and records
      • appointment of auditor or accounting officer;
      • representative taxpayer;
      • tax clearance certificates and tax compliance status;
      • non-compliance with legislation;
      • interest, penalties and additional tax;
      • request for correction;
      • objection against assessment or decision; and
      • dispute resolution.
      A detailed copy of the guide can be accessed here.
  • Hong Kong
    • Government to stengthen regime against cross-border tax avoidance

      The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (the Bill) will be gazetted on October 28 and will be introduced into the Legislative Council (LegCo) on November 2.

      Through the Bill, Hong Kong's tax regime will be refined and strengthened to better combat cross-border tax avoidance arising from double non-taxation. A package of measures will be correspondingly put in place to minimise the tax compliance burden for corporations, mitigate possible double taxation, enhance tax certainty and maintain Hong Kong's tax competitiveness.

      The Bill creates a new Foreign-sourced Income Exemption (FSIE) regime that will allow tax exemptions for specified foreign-sourced passive income, namely interest, dividends, disposal gains in relation to shares or equity interests (disposal gains) and intellectual property (IP) income, received in Hong Kong by relevant multinational enterprise entities (MNE entities) provided that certain exemption conditions as described below are met.

      The Bill upholds Hong Kong's territorial source principle of taxation to the effect that determination of the source of profits will not be affected by the new regime. Under the new regime, taxpayers can still be exempted from tax in respect of the specified foreign-sourced passive income received in Hong Kong if they have a substantial economic presence in Hong Kong.

      "As an international financial centre, Hong Kong prides itself on being a responsible and co-operative player in international taxation. The Bill aligns with the international tax standard of requiring a corporate taxpayer benefitting from preferential tax treatment in a jurisdiction to have a substantial economic substance in that jurisdiction, and prevents shell companies from deriving tax benefits through double non-taxation," a Government spokesman said.

      The European Union (EU) has placed Hong Kong on a watchlist since October 2021 on the grounds that the non-taxation of foreign-sourced passive income is not accompanied by adequate substance requirements and robust anti-abuse rules. The EU invited Hong Kong to make a commitment to amend its FSIE regime by December 31, 2022, and that the amended regime would take place with effect from January 1, 2023. To avoid Hong Kong being blacklisted by the EU as a non-co-operative jurisdiction for tax purposes, Hong Kong publicly committed in October 2021 to amending its tax law by the end of 2022 with a view to implementing the new FSIE regime in January 2023.

      "The Bill was drawn up based on the legislative building blocks confirmed by the EU Code of Conduct Group (Business Taxation) (COCG) in June 2022. Due regard has been given to the EU's promulgated Guidance on Foreign Source Income Exemption Regimes and the parameters as communicated to us by the COCG," the spokesman added.

      Extensive consultations with tax professionals, local and foreign chambers of commerce, trade and professional bodies and representatives of the financial services sector in respect of the legislative proposals have been held since mid-June 2022.

      "Stakeholders generally recognised the need for undertaking the legislative amendment and welcomed the Government's proactive steps to minimise the compliance burden, provide tax certainty and maintain Hong Kong's competitiveness," the spokesman said.

      The new FSIE regime will put in place an economic substance requirement to safeguard against possible exploitation of Hong Kong's tax arrangement by shell companies to achieve double non-taxation in respect of foreign-sourced passive income.

      Only MNE entities carrying on a trade, professions or business in Hong Kong will be subject to the new FSIE regime. Individuals and local companies will not be affected.

      Taxpayers benefitting from the existing preferential tax regimes will generally fall outside the scope of the new regime.  Foreign-sourced interest, dividend and disposal gains generated by regulated financial entities from the carrying on of their regulated businesses will not be chargeable to tax under the regime in the first place.

      Under the new regime, an MNE entity wishing to claim a tax exemption relating to foreign-sourced interest, dividend and disposal gains will need to meet the economic substance requirement by employing an adequate number of qualified employees and incurring adequate operating expenditures in Hong Kong. An MNE entity that is a pure equity-holding company will be subject to a reduced economic substance requirement involving only the holding and managing of equity participations, and complying with the corporate law filing requirements in Hong Kong.

      For foreign-sourced IP income, taxpayers need to comply with the nexus requirement promulgated by the Organisation for Economic Co-operation and Development in respect of preferential tax regimes for IP under which tax exemption will be substantially tied to the qualifying research and development (R&D) expenditures attributable to a qualified IP asset.

      To mitigate possible double taxation, a range of enhancement and mitigation measures would be introduced:

      •  A participation exemption regime (Note) as an alternative to the economic substance requirement to facilitate taxpayers who receive foreign-sourced dividends and disposal gains to claim tax exemption; and
      • Tax credits for taxpayers who have paid taxes outside Hong Kong in respect of the specified foreign-sourced income, including taxes paid in jurisdictions which have not entered into a tax treaty with Hong Kong.

      In addition, to minimise the compliance burden and enhance tax certainty, a business-friendly four-pronged approach will be taken:

      • Simplified reporting procedures requiring only essential, high-level information and declarations in the tax return to demonstrate compliance with the economic substance requirement and hence minimise compliance burden;
      • Advance rulings by the Inland Revenue Department (IRD) on compliance with the economic substance requirement, valid for up to five years, to provide more tax certainty;
      • Administrative guidance with illustrative examples, which will be uploaded on the IRD website upon the gazettal of the Bill, to help ascertain tax liabilities, providing more tax transparency; and
      • A dedicated unit within the IRD to provide technical support to taxpayers and respond to enquiries, to assist with compliance.

      To help prepare for the introduction of the new regime after the gazettal of the Bill, taxpayers affected by the new regime may apply for a "Commissioner's Opinion" in respect of their compliance with the economic substance requirement as a transitional measure upon gazettal of the Bill and refer to the specific guidance on the IRD website to better determine tax liabilities.

      The FSIE regime would maintain Hong Kong's competitiveness. Features include:

      • Targeting only four types of foreign-sourced passive income whereas foreign-sourced active income will not be covered;
      • Covering MNE entities only, with stand-alone local companies and purely local groups falling outside the scope of the regime;
      • Exempting foreign-sourced income from tax if the economic substance requirement (applicable to foreign-sourced interest, dividend and disposal gains) or the nexus requirement (for IP income) are satisfied, without a need to consider if such income has been subject to tax elsewhere;
      • Allowing an additional pathway for MNE entities receiving foreign-sourced dividends and disposal gains to claim tax exemption and minimise their tax burden through the participation exemption regime; and
      • Allowing taxpayers to claim tax credits in respect of foreign tax paid on foreign-sourced dividend and the related underlying profits under a business-friendly "look-through" approach which will further reduce the possibility of double taxation and hence tax burden for in-scope taxpayers.

      The Government will continue to look for ways to further enhance the competitiveness of Hong Kong's tax regime, including exploring a preferential tax regime for Hong Kong-sourced IP income to encourage more R&D activities in Hong Kong and appropriate measures to enhance tax certainty for onshore transactions in respect of disposal of shares or equity interests.

      The spokesman said, "We will request the EU to remove Hong Kong from the watchlist once the Bill is passed by the LegCo."

      The full text of the Bill will be available from the Government Gazette website on Friday (October 28).

      Note: The conditions for participation exemption are that the taxpayer is a Hong Kong resident person (or a non-Hong Kong resident person that has a permanent establishment in Hong Kong) which holds at least 5 per cent of the investee company's shares or equity interest for at least 12 months immediately prior to the accrual of the relevant dividends or disposal gains.

      Source: Inland Revenue Department

    • Talent Attraction Measure: Stamp duty refund for eligible incoming talents

      On 19 October 2022, the Chief Executive announced in his 2022 Policy Address that, to encourage incoming talents to stay in Hong Kong for long-term development, the Government would refund the extra stamp duty paid by eligible incoming talents in purchasing residential property in Hong Kong.

      For eligible incoming talents who purchase a residential property in Hong Kong on or after 19 October 2022, and subsequently become a Hong Kong permanent resident after residing in Hong Kong for seven years, they can apply for a refund of the Buyer’s Stamp Duty (15%) and the New Residential ad valorem Stamp Duty (15%) paid for the first residential property purchased and still held, but they still need to pay ad valorem stamp duty (AVD) at Scale 2 rates, such that the overall stamp duty charged will be on par with that charged on first-time home buyers who are Hong Kong permanent residents.  Such arrangement applies to any sale and purchase agreement entered into on 19 October 2022 and onwards.

      Eligible incoming talents include those who enter Hong Kong under designated talents admission schemes (including General Employment Policy, Admission Scheme for Mainland Talents and Professionals, Quality Migrant Admission Scheme, Immigration Arrangements for Non-local Graduates, Technology Talent Admission Scheme, Admission Scheme for the Second Generation of Chinese Hong Kong Permanent Residents and the newly launched Top Talent Pass Scheme).

      For further information about the proposed measure, please refer to the FAQs and illustrative examples.  It should be noted that the measure has to be implemented by way of legislative amendments to the Stamp Duty Ordinance.  Details of the amendments are subject to change during the legislative process.

      Source: Inland Revenue Department

  • India
    • Free Trade Agreements between India and ASEAN Countries

      Free Trade agreements (FTAs) are signed between nations to promote ease of trade and investment by removing restrictions such as tariffs, import quotas, and export limits. India has been actively engaging with other countries to enhance international trade relations and has signed thirteen FTAs with its till date.

      Association of Southeast Asian Nations (ASEAN) region is one of the focus regions for India. India and the ASEAN nations have many similarities in terms of their culture and religion. The region is in close proximity to India especially with North East part of India. Trade and investment ties have also grown during last decade owing to India’s Act East Policy. Merchandise trade between India and ASEAN countries rose to $ 110.40 Bn  during the period 2021-22. There have been a few key agreements that have been linked to this boost in India-ASEAN trade relations.

      India ASEAN Comprehensive Economic Cooperation Agreement (CECA) - Trade in Goods, Services, and Investment Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam). 

      Since trade and investment are priority areas of economic cooperation between ASEAN and India, the ASEAN-India Trade in Goods Agreement (AITIGA), implemented in January 2010, has continually been at the forefront of engagement. In accordance with the Agreement, ASEAN Member States and India have agreed to open their respective markets by progressively reducing and eliminating duties on 76.4 per cent of goods and liberalising tariffs on over 90 per cent of goods. Since AITIGA was put into effect, merchandise trade between ASEAN and India has increased significantly, with increase in exports by 23 per cent and imports by 55 per cent over the past decade. Imports have increased particularly from Cambodia, Singapore, and Vietnam. To ensure balance of trade between the regions, discussions are ongoing.

      India Singapore Comprehensive Economic Cooperation Agreement (CECA) India witnessed a remarkable increase in bilateral trade since the signing of the free trade agreement with Singapore in 2005. To ensure balanced trade, the two countries also agreed to expand tariff concessions for an additional 30 products, liberalizing the rule of origin for exports, rationalizing Product Specific Rules, and including provisions on Certificate of Origin.

      India Malaysia Comprehensive Economic Cooperation Agreement (MICECA) The MICECA was signed between India and Malaysia in 2011. The agreement includes concessions and reductions in tariff for trading certain goods, services, investments, and movement of natural persons. Despite the COVID-19 pandemic, Malaysia and India maintained their strong bilateral trade relations. The total trade, in fact, expanded by 26 per cent in 2021. India’s imports from Malaysia have increased by $ 5.9 Bn and exports have increased by $ 3.12 Bn. With bilateral trade agreement in place, Malaysian companies dealing with palm oil and palm oil products have also benefitted significantly owing to reduction in import duties.

      India Thailand FTA - Early Harvest Scheme (EHS) India and Thailand have implemented Early Harvest Scheme (EHS) in 2006 in order to identify specific products for tariff reduction during the ongoing negotiations on the Free Trade Agreement. This is considered to be the initial phase of the proposed comprehensive FTA. and serves largely as a measure to increase confidence between the two nations. Under Early Harvest Program, tariff reductions have been proposed to be nil for 82 products including fruits, processed food, gems and jewellery, iron and steel, auto parts and electronic goods. The countries have been negotiating the terms with provisions to improve benefits from ASEAN-India FTA.

      Source: Invest India

    • Special Tourism Zones: An Engine of Economic Growth


      India's socioeconomic development, the creation of jobs, and the country's foreign exchange benefit significantly from tourism. Hence, tourism has a massive multiplier effect on the GDP of the country. The Government of India has launched several measures over the past few years to boost tourism in the nation. According to the Budget announcement for 2017–18, the Ministry of Tourism plans to create five Special Tourism Zones with world-class infrastructure around the nation for holistic tourism development.

      What are Special Tourism Zones (STZs)?

      STZs are envisioned as holistic communities with the world's best infrastructure built around strong tourist themes complemented by first-rate amenities to provide unique experiences. The proposed zones aim to establish tourism as a significant driver of economic growth. It seeks to maximise the local community's benefits while focusing on preserving natural resources for future generations. STZs will have a variety of tourist-friendly recreational, leisure, entertainment, educational, and cultural amenities. To provide visitors with a variety of experiences and encourage longer stays, the designated regions are proposed to contain at least three to four major tourism themes such as cultural, wildlife, heritage, adventure, coastal, etc.

      Benefits of STZs

      Tourism has a dynamic labour market, with high labour turnover among organisations and a diverse range of career options with decent wages. An increase in the number of inbound tourists benefits both the economy of the destination and generates employment opportunities.

      One of the most labour-intensive components of the tourism industry is the Hospitality Service. It could potentially be the largest employer within an STZ. Enhancement of employment opportunities of the local community is one of the prime objectives for the development of these STZs.

      • The sector gives MSMEs the opportunity to launch their own companies and offers chances to create self-employment. Additionally, people not falling within the conventional employment category also get benefited from the tourism industry. This includes workers with minimal qualifications low-skilled labours, members of ethnic minority groups, immigrants, young people without jobs, and women who can work part-time. This paves the way for eradication of both poverty and unemployment, by enhancing the economic activities for the locals.
      • Construction of world-class infrastructure including new roads and highways, developed parks, improved public spaces, healthcare facilities, and new airports will make an STZ accessible to tourists. The development of STZs will improve the quality and standard of living of the locals living around the site as it aims to improve the overall infrastructure of a place leading to reliability and sustainability of the tourism product.
      • All the components of an STZ such as hotel accommodation, commercial and medical facilities, and tourism products (museums, theme parks etc) have the potential to generate revenue. Therefore, a financially viable STZ can be expected to generate a positive free cash flow during the operating period. It can be estimated that tourists visiting and staying in the STZ will generate significant revenue, leading to an increase in foreign exchange.
      • Tourism facilitates cultural exchange between visitors and locals thereby enriching the host country’s cultural diversity. Brownfield STZs can be potentially developed to utilize additional areas that are in close proximity to existing tourist destinations. In addition to incentivising local and ecosystem players, it will pay for the conservation of archaeological and historic sites.

      Adverse Impact of STZs

      One has to keep in mind that there are two sides to a coin. Hence, there are important considerations that can help regulate and manage any adverse impacts of the STZs.

      • Communities in coastal and hilly regions rely heavily on natural resources like coastlines and forests for livelihood. If a zone is constructed in such areas, it may lead to physical displacement of locals and also causing loss of access to natural resources which can affect the people dependent on those resources. However, The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act of 2013 shall serve as the foundation for the Resettlement and Rehabilitation (R&R) Plan for project-affected families in STZs. It will guarantee an adequate rehabilitation package and protection of the rights of marginal communities. The Act aims to provide a better standard of living and to make efforts to provide sustainable income to the affected families. The proposed STZ shall contribute to the creation of employment possibilities, and additional economic activity for the local community. It will also lead to livelihood enhancement in the region and help raise the standard of living of the local community.
      • There is a risk of damage environment from the creation of an STZ The democratic spaces available to communities under the Environmental Clearance Regulations to decide on tourism development or voice their consent or dissent to projects may not apply in the single window clearance approval mechanism.
      • In the current age of promoting sustainable and responsible tourism, it is of utmost importance to ensure the development of STZ happens in a holistic manner keeping the principles of sustainability in mind. The use of renewable energy, eco-friendly material, e-vehicles, optimizing resource efficiencies, and other similar measures should be encouraged. Special incentives may be given to encourage green investments and intends to integrate open and green places in STZs. Through these sections, environmental consequences can be decreased.


      The benefits of STZs for the Indian economy are numerous which include FDI inflow, employment generation, infrastructure growth and a boost to the service & industrial sectors. However, there is a need to prepare a roadmap to mitigate any adverse impact of STZ on tribals and other settlements living in affected areas. In the long run, STZ can have a positive impact on people living in the region courtesy the following reasons:

      Firstly, developing STZ will increase employment opportunities and generate livelihood for the local community and tribals. They will no longer be solely reliant on natural resources and will be able to make use of all the other opportunities and resources available which will raise their standard of living. One of the guiding principles of STZ should be creation of conditions for environmental protection and socio-economic development of the region through integrated tourism development. This can ensure enhancement of the region and overall development of the economy and the local community.

      Secondly, STZ is proposed to be based on strong themes including tribal and coastal themes. Tourism in tribal areas can have a significant positive impact if done sensitively and responsibly. It will lead to the creation of financial opportunities for locals and help create awareness about indigenous people.

      STZ has the potential to fuel India's development and economy and can lead to tourism becoming an engine of economic growth. The sector has undergone remarkable advancements in recent years including being accorded an industry status in some states like Rajasthan, Gujarat, etc. Given the incredible growth potential of tourism sector, it is crucial that the development of unique regions like special tourism zones leads the next stage of growth.

        Source: Invest India
  • Switzerland
    • Federal Council wishes to increase transparency of legal entities

      During its meeting on 12 October 2022, the Federal Council instructed the Federal Department of Finance (FDF) to draft a bill on increased transparency and easier identification of the beneficial owners of legal entities by the second quarter of 2023. In this way, it wishes to strengthen prevention and prosecution in the area of financial crime, and in turn the integrity and reputation of Switzerland as a financial centre and business location.

      In December 2021, in a status report to the Council of States Economic Affairs and Taxation Committee (EATC-S), the Federal Council observed that there was room for improvement in the measures taken to date with regard to the transparency and identification of the beneficial owners of legal entities. The Federal Council has now instructed the FDF, in collaboration with the Federal Department of Justice and Police (FDJP), to draft a bill by the end of June 2023 at the latest, aimed at increasing transparency and simplifying the identification of the beneficial owners of legal entities. In particular, the bill should introduce a central register for identifying beneficial owners and new obligations are regards the risk-based updating of information on effective ownership. The register will be accessible to the relevant authorities but not publicly available. The aim is to achieve a solution which is as effective and efficient as possible.

      Moreover, the FDF should incorporate measures to strengthen the current mechanisms for combating money laundering into the bill. In particular, it should be assessed, together with the relevant stakeholders, whether further adjustments should be made to the anti-money laundering toolkit, for instance in the area of legal professions.

      By launching this bill, the Federal Council is also taking account of international developments. A growing number of countries around the world – including all EU member states – are turning to register-based solutions to increase the transparency of legal entities. In March 2020, the Financial Action Task Force (FATF) approved the revised Guidance on Transparency and Beneficial Ownership. Implementation in all member countries will be assessed as part of the next mutual evaluation. In addition, the Global Forum on Transparency and Exchange of Information in Tax Matters had already issued recommendations to Switzerland in 2020 on how to further improve transparency regarding the beneficial owners of legal entities.

      The Federal Council places great emphasis on combating financial crime and this bill is a further step towards reinforcing the Swiss mechanisms in this regard. At the same time, it is implementing a measure in the Federal Council's anti-corruption strategy for 2021 to 2024.

      Source: The Federal Council

    • Switzerland Amends List of Jurisdictions Under AEOI-CRS

      On 22 September 2022, the Swiss State Secretariat for International Finance published an updated list of participating jurisdictions under the Automatic Exchange of Information CRS (AEOI-CRS) based on the OECD Automatic Exchange of Financial Account Information Agreement (2014).

      The full list of countries can be found here.

    • Switzerland still the most innovative economy in the world

      For the twelfth time in a row, Switzerland is the most innovative economy in the world. This is according to the Global Innovation Index, which lists the country’s greatest strengths as its economic policy and patents. Its biggest weakness is the flow of direct foreign investments.

      Switzerland is the most innovative economy in the world again in 2022. This is the result of the Global Innovation Index (GII) published on September 29, which is created every year by the World Intellectual Property Organization (WIPO) based in Geneva. This is the 15th year it has been released, with the USA in second place followed by Sweden, the United Kingdom, and the Netherlands. Germany gained two places versus last year to reach eighth place.

      The index measures innovation using criteria such as institutes, human capital and research, infrastructure, investments, adaptation and dissemination of knowledge, and creative performance. According to the country report for Switzerland, its GDP performance is above expectations. The balance is positive with regard to the conversion of innovation investments into innovation output as well.

      From Switzerland, the report’s list of innovative top performers names Roche in eighth place, Novartis in 18th, and Nestlé in 96th. These companies are also the top three in the intangible asset intensity category. Furthermore, the top three companies by global market value come from Switzerland: Nestlé, UBS, and Roche.

      Switzerland’s strongest criteria, i.e. those for which it stands in first to third place, include its economic conditions, number of patents and patent families, expenditure on software, entertainment and media market, high-tech manufacturing, and the complexity of production and exports. Switzerland’s biggest weaknesses comprise the criteria of direct foreign investments (131st place), high-tech imports (109th), and diversification of the domestic industry (69th).

      According to a press release, one of the main findings of the most recent GII is that while investments have “surged” over the past few years, there is “continued underperformance in innovation-driven productivity”. WIPO Director General Daren Tang stated: “This is why we need to pay more attention to not just investing in innovation, but how it translates into economic and social impact. Quality and value will become as critical to success as quantity and scale.”

        Source: Switzerland Global Enterprise
  • United Arab Emirates
    • Federal Tax Authority showcases its latest digital initiatives at GITEX Global 2022

      The Federal Tax Authority (FTA) will be showcasing its latest digital initiatives at the 42nd GITEX Global 2022, which is set to be held over five days starting from Monday, 10 October, at the Dubai World Trade Centre with more than 5,000 companies joining from over 90 countries.

      In a press statement issued today, the Authority revealed that its participation at GITEX will highlight its latest digital initiatives, launched as part of the continuous development plans it carries out in accordance with the best standards. The initiatives are in line with the UAE Digital Government Strategy, designed to drive the smart transformation of all services, and introduce seamless and proactive digital services. The objective is to provide innoVATive models that embody the leadership and excellence of the government systems, and strengthen efforts to meet taxpayers’ aspirations and process their transactions quickly and efficiently.

      FTA Director General His Excellency Khalid Ali Al Bustani said: “Through its participation at GITEX , the world’s largest tech event, the Federal Tax Authority aims to achieve two main objectives. The first is to introduce the FTA’s experts to the latest technologies and smart digital systems in the field of tax administration, which can be built upon to ensure the continuous development and modernisation of the FTA’s services. This, in turn, supports our efforts to fulfil the directives of our wise leadership and make the UAE one of the best countries in the world, safeguarding the Emirates’ advanced competitive position – all in line with the ‘Principles of the 50’, which act as a reference for all activities in the government sector moving forward.”

      “Our second objective from participating at GITEX is to highlight the FTA’s services for taxpayers and provide an opportunity for participants and visitors to learn about the Authority’s digital service initiatives and its advanced systems through a series of workshops and demonstrations that highlight their importance in meeting taxpayers’ aspirations,” H.E. added, stressing that participation in such important events is in line with the FTA’s efforts to continuously coordinate with its strategic partners, while establishing and maintaining communication lines with government and priVATe sectors to ensure the best results.

      The Authority went on to reveal that it plans to use its platform at GITEX Global 2022 to showcase a range of its smart initiatives, designed to enhance its digital infrastructure. These include the EmaraTax system for electronic tax services, and the corresponding EmaraTax application for smartphones and smart devices, which are scheduled to be launched in the near future. Also included is the FTA’s new and improved digital system for the VAT Refund Scheme for Tourists, which is the first system of its kind in the world, enabling 100% paperless digital transactions.

      Furthermore, the FTA said it would be presenting details of the sustainable improvements the Authority is carrying out to enhance user experience when they avail its services. The team will also give a presentation on the advantages of the upgraded FTA website, which offers visitors an innoVATive digital experience, diverse content, and a clear and seamless browsing experience with advanced electronic display technologies. The presentation also sheds light on the FTA’s Interactive AI-Powered Tax Assistance feature, which is a chatbot service that offers concise answers to all questions visitors to the website may have.

      While taking part in GITEX Global 2022, the FTA team will also be holding awareness workshops for visitors and participants on the VAT Refund Scheme for Tourists, the VAT Refund Scheme for UAE Nationals Building New Residences, the integrated electronic tax system EmaraTax, and the important role that youth play in creating new technologies to develop the FTA’s operations.

      Source: Government of Dubai

    • Council of Ministers Sets Out Criteria For Determining Tax Residence in United Arab Emirates

      The Council of Ministers has taken a decision concerning the tax residence of legal entities and individuals in the United Arab Emirates. Under the decision, and notwithstanding the provisions of tax treaties, the criteria for tax residence are determined as follows:

      Legal entities

      Legal entities are considered resident in the United Arab Emirates if they meet one of the following conditions:

      • they have been established, formed or recognized in the United Arab Emirates. This excludes branches registered by foreign companies; and/or
      • they are considered tax residents under UAE tax laws.


      Individuals are considered residents of the United Arab Emirates if they meet one of the following conditions:

      • if their usual or principal residence and centre of their financial and personal interests are located in the United Arab Emirates, or if they meet the conditions and criteria that would be set by a decision of the Minister of Finance;
      • if they are present in the United Arab Emirates for a period of 183 days or more in any 12-month period; and/or
      • if they are UAE or GCC nationals or hold a UAE residence permit and are present in the United Arab Emirates for a period of 90 days or more in any 12-month period, and meet one of the following criteria:
        • they have a permanent residence in the United Arab Emirates; and/or
        • they are employed or engaged in business activities in the United Arab Emirates.

    • Federal Tax Authority Publishes Amended Excise Duty Limitation Rules

      The Federal Tax Administration (FTA) has published amendments to the Excise Act introduced by Federal Decree-Law No. 19 of 2022 published on 26 September 2022. The main changes introduced by the decree-law are laid out below.

      The first provision concerns the registration of excise duties:

      • the decree law provides that a person importing excisable goods for purposes other than conducting business will be excepted from registration. The person shall, however, remain liable to pay the relevant excise duty on the import.

      The second concerns the payment of the amount collected as excise duty:

      • according to article 19 of the Decree Law, any amount(s) collected or reflected on an invoice as excise duty should be paid to the FTA.

      The third rule concerns the limitation period:

      • the Decree Law has introduced statute of limitation rules that set the maximum timeframe in which the FTA can take actions, such as commencing an audit or issuing a tax assessment; and
      • as an exception to the general rule to conduct a tax audit or issue a tax assessment to the taxable person after 5 years from the end of the relevant tax period, the FTA may extend this right in the following instances:
        • if the FTA notified the taxable person of the tax audit before the expiry of the 5-year period, provided that the tax audit is completed, or the tax assessment is issued within 4 years from the date of the notification of the tax audit;
        • if the tax audit or tax assessment issuance relates to a voluntary disclosure submitted in the fifth year from the end of the relevant tax period, provided that the tax audit is completed or the tax assessment is issued, within 1 year from the date of submission of the voluntary disclosure. No voluntary disclosure may be submitted after 5 years from the end of the relevant tax period;
        • in the case of tax evasion, the FTA may conduct a tax audit or issue a tax assessment within 15 years from the end of the tax period in which the tax evasion occurred; and
        • if a taxable person failed to register for excise duties within the prescribed period, the FTA may conduct a tax audit or issue a tax assessment within 15 years from the date on which the taxable person should have registered excise duties.

      Furthermore, the Cabinet may, according to a suggestion by the Minister of Finance, amend the statute of limitation in respect of instances where a taxable person was notified of an audit before the expiry of the 5-year period, or where a taxable person submitted a voluntary disclosure in the fifth year following the relevant tax period.

      In all cases, the statute of limitation will be interrupted where any of the reasons as stipulated in Federal Law No. 5 of 1985, promulgating the Civil Transactions Law and its amendments, occur.

    • Dubai retains its position as world’s top FDI destination

      Dubai consolidated its status as the world’s leading foreign direct investment (FDI) hub, retaining its first rank globally for attracting FDI projects during H1 2022.

      The news was announced by Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of Dubai Executive Council, on his Twitter.

      Sheikh Hamdan said, “Dubai ranked first globally in term of FDI thanks to the vision and directives of @HHShkMohd. 492 projects opted for Dubai during 1H of 2022, reflecting investors’ strong confidence in Dubai, and its stable and conducive business environment backed with sophisticated infrastructure.”

      Sheikh Hamdan also said, “Our strong partnership with international investment community is growing with a commitment to provide all growth ingredients and protect investors’ interest to achieve win-win situation, which will further raise Dubai’s status as a regional and global investment hub.”

      Dubai also ranked first globally in attracting greenfield FDI projects during the same period this year, according to the Financial Times Ltd’s "FDI Markets”, the most comprehensive online database on cross-border greenfield investments.

      Greenfield projects accounted for a 56 per cent share of Dubai’s FDI projects during the period, according to the Dubai Investment Development Agency (Dubai FDI), a DET entity, using data from its Dubai FDI Monitor.

      Dubai witnessed FDI inflows of Dhs13.72 billion in H1 2022, reflecting a growth of 14.6 per cent compared to the same period last year.

      Source: Gulf Today

  • United Kingdom
    • Government Updates Finance Bill Draft Legislation

      The government's draft proposed clauses and updates for Finance Bill 2022-23 have been published. The new legislation relating to annual taxes, new proposals and the administration of the tax system include the following:

      Individual income tax

      • A "top-up" payment will be made to workers who contribute to a pension scheme, but who do not receive tax relief because their earnings are less than their personal allowance. The payment will equate to the relief they would have received if their income had been higher.
      • If a collective money purchase pension scheme is wound up, new legislation will ensure that savers can continue receiving authorized pension payments or make a transfer to another pension scheme and receive a drawdown pension.

      Corporate income tax

      • A new multinational top-up tax will apply to multinational enterprise groups if a non-UK subsidiary's profits are taxed at less than 15%.
      • Changes to research and development tax relief will expand qualifying expenditure to include data licences and cloud computing and the relief will be focused on UK expenditure.
      • Amendments to the qualifying asset holding companies regime will allow an investment fund to be treated as meeting the diversity of ownership condition if it is closely associated with another investment fund that meets that condition. Some funds will find it easier to access the regime and the anti-fragmentation rule will be extended.
      • Transfer pricing documentation rules will require the largest UK businesses to retain, and produce upon request, a master file, local file and summary audit trail.
      • Double taxation relief rules will be amended to prevent relief some claims if they relate only to deemed amounts of overseas tax.

      Capital gains tax

      • Transfers of assets between spouses and civil partners who are separating will be treated as made on a "no gain/no loss" basis for up to 3 tax years rather than only in the current year as at present.
      • Members of limited liability partnerships and Scottish partnerships will be able to claim capital gains tax relief on an exchange of interest in land or private residences held by the partnership.

      Inheritance tax

      The government will amend the current legislation to ensure that the assets that were transferred to the Dormant Assets Scheme Reclaim Fund and which are subsequently returned receive the correct tax treatment.

      Air passenger duty

      A new domestic band for air passenger duty will be introduced from April 2023 for flights within the United Kingdom and a new ultra-long-haul band will apply to destinations with capitals more than 5,500 miles from London.

      Alcohol duty

      Alcohol duty will be amended to establish common tax bands based on strength. Two new reliefs and a temporary easement for the wine industry are introduced.

      The legislation was subject to consultation until 14 September, although comments on the alcohol duty proposals can be made until 18 November 2022.

    • Gulf Cooperation Council trade negotiations update

      The first round of negotiations for a Free Trade Agreement (FTA) between the United Kingdom (UK) and Gulf Cooperation Council (GCC) took place between 22 August and 29 September 2022. The negotiations were conducted virtually.

      In this round of negotiations, the UK and GCC discussed their objectives for the FTA and exchanged technical information. Technical discussions were held across 29 policy areas over 33 sessions. In total, more than 100 UK negotiators from across government took part in this round of negotiations.

      An FTA will be a substantial economic opportunity, and a significant moment in the UK - GCC relationship. Government analysis shows that, in the long-run, a deal with the GCC is expected to increase trade by at least 16 percent, add at least £1.6 billion a year to the UK economy and contribute an additional £600 million or more to UK workers’ annual wages.

      Both sides have committed to secure an ambitious, comprehensive and modern agreement fit for the 21st century.

      The government remains clear that any deal will be in the best interests of the British people and the UK economy. We will not compromise on our high environmental and labour protections, public health, animal welfare and food standards, and we will maintain our right to regulate in the public interest. We are also clear that during these negotiations, the NHS and the services it provides is not on the table.

      Source: Government of UK

    • Rishi Sunak’s first speech as Prime Minister: 25 October 2022

      Rihi Sunak gave his first speech as Prime Minister in Downing Street.

      Good morning,

      I have just been to Buckingham Palace and accepted His Majesty The King’s invitation to form a government in his name.

      It is only right to explain why I am standing here as your new Prime Minister.

      Right now our country is facing a profound economic crisis.

      The aftermath of Covid still lingers.

      Putin’s war in Ukraine has destabilised energy markets and supply chains the world over.

      I want to pay tribute to my predecessor Liz Truss, she was not wrong to want to improve growth in this country, it is a noble aim.

      And I admired her restlessness to create change.

      But some mistakes were made.

      Not borne of ill will or bad intentions. Quite the opposite, in fact. But mistakes nonetheless.

      And I have been elected as leader of my party, and your Prime Minister, in part, to fix them.

      And that work begins immediately.

      I will place economic stability and confidence at the heart of this government’s agenda.

      This will mean difficult decisions to come.

      But you saw me during Covid, doing everything I could, to protect people and businesses, with schemes like furlough.

      There are always limits, more so now than ever, but I promise you this

      I will bring that same compassion to the challenges we face today.

      The government I lead will not leave the next generation, your children and grandchildren, with a debt to settle that we were too weak to pay ourselves.

      I will unite our country, not with words, but with action.

      I will work day in and day out to deliver for you.

      This government will have integrity, professionalism and accountability at every level.

      Trust is earned. And I will earn yours.

      I will always be grateful to Boris Johnson for his incredible achievements as Prime Minister, and I treasure his warmth and generosity of spirit.

      And I know he would agree that the mandate my party earned in 2019 is not the sole property of any one individual, it is a mandate that belongs to and unites all of us.

      And the heart of that mandate is our manifesto.

      I will deliver on its promise.

      A stronger NHS.

      Better schools.

      Safer streets.

      Control of our borders.

      Protecting our environment.

      Supporting our armed forces.

      Levelling up and building an economy that embraces the opportunities of Brexit, where businesses invest, innovate, and create jobs.

      I understand how difficult this moment is.

      After the billions of pounds it cost us to combat Covid, after all the dislocation that caused in the midst of a terrible war that must be seen successfully to its conclusions I fully appreciate how hard things are.

      And I understand too that I have work to do to restore trust after all that has happened.

      All I can say is that I am not daunted. I know the high office I have accepted and I hope to live up to its demands.

      But when the opportunity to serve comes along, you cannot question the moment, only your willingness.

      So I stand here before you ready to lead our country into the future.

      To put your needs above politics.

      To reach out and build a government that represents the very best traditions of my party.

      Together we can achieve incredible things.

      We will create a future worthy of the sacrifices so many have made and fill tomorrow, and everyday thereafter with hope.

      Thank you.

      Source: Government of UK

    • Less than one month left for VAT businesses to be ready for Making Tax Digital filing

      VAT-registered businesses must use Making Tax Digital compatible software for their VAT returns from 1 November 2022.

      HM Revenue and Customs (HMRC) is reminding businesses that from Tuesday 1 November 2022, they will no longer be able to use their existing Value Added Tax (VAT) online account to submit VAT returns.

      By law, all VAT-registered businesses must now sign up to Making Tax Digital (MTD) and use compatible software to keep their VAT records and file their returns.

      MTD’s aim is to help businesses get their tax right first time by reducing errors, making it easier for them to manage their tax affairs by going digital, and consequently helping them to grow.

      More than 1.8 million businesses are already benefitting from the service, and more than 19 million returns have been successfully submitted through MTD-compatible software so far.

      In less than one month, businesses who file their VAT returns on a quarterly and monthly basis will no longer be able to submit them using their existing VAT online account, unless HMRC has agreed they are exempt from MTD.

      If businesses do not file their VAT returns through MTD-compatible software, they may have to pay a penalty. Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD before filing their next return.

      Richard Fuller MP, Economic Secretary to the Treasury, said:

      Making Tax Digital can help businesses get their tax right first time, which cuts the administration burden and frees up time for them to get on with what matters most to them – growing their business.

      I encourage any VAT-registered businesses still to register for Making Tax Digital to get online and sign up.

      If a business hasn’t already signed up to MTD or started using compatible software, they must follow these steps now:

      1. choose MTD-compatible software – a list of software, including free and low-cost options, can be found on GOV.UK
      2. check the permissions in the software – once a business has allowed it to work with MTD, they can file VAT returns easily. Go to GOV.UK to learn how to do this and search ‘manage permissions for tax software’
      3. keep digital records for current and future VAT returns – a business can find out what records need to be kept on GOV.UK
      4. sign up for MTD and file future VAT returns using MTD-compatible software – to find out how to do this, go to GOV.UK and search ‘record VAT

      If a business is already exempt from filing VAT returns online or if their business is subject to an insolvency procedure, they will automatically be exempt.

      A business can check if they can apply for an exemption from MTD on GOV‌‌‌.UK if it is not reasonable or practical for them to use computers, software or the internet. HMRC will consider each application on a case-by-case basis.

      If a business is new and is not yet registered for VAT, they will automatically be signed up for MTD while registering for VAT through HMRC’s new VAT Registration Service (VRS). Registering via this online service not only means a faster VAT registration and improved security, but also helps new businesses to be fully compliant with MTD requirements from Day 1 – although they will still need to get the right software to submit their VAT returns.

      A range of accessible help is available online through GOV.UK, webinars and videos as well as through HMRC’s Extra Support Service. Thousands of people have also benefitted from HMRC’s live webinars, which offer support on filing digitally and explain how it can help businesses. HMRC is continuing to communicate directly with businesses and agents to support them as they transition to MTD for VAT.

      Source: Government of UK
  • United States
    • Economy Statement by Benjamin Harris, Assistant Secretary for Economy Policy, for the Treasury Borrowing Advisory Committee

      The U.S. economy showed continued signs of strength in the third quarter of 2022 and resilience in the face of global headwinds and persistent pandemic-related economic headwinds.  The combination of continued growth in real gross domestic income (GDI) in the first half of the year and a strong rebound in real gross domestic product (GDP) in the third quarter after modest declines in the first two quarters of 2022 collectively suggest sustained growth in the US economy, despite slow growth in private domestic final demand.  Labor markets remained tight—with employers adding a robust 372,000 jobs per month on average and the unemployment rate returning to the pre-pandemic, half-century low—though there also were some signs of easing, which would reduce inflationary pressures as labor demand and supply realign.  With respect to prices, headline inflation slowed in the third quarter, largely reflecting falling energy prices, but core services inflation remained brisk.  As a result, monetary policy tightened significantly in the third quarter as the Federal Open Market Committee (FOMC) strengthened resolve to subdue inflationary pressures in the U.S. economy.  Meanwhile, the housing market correction accelerated in the third quarter due to depressed demand from rapidly rising mortgage rates and still-high home prices.

      Looking ahead to the fourth quarter, there are upside and downside risks to the outlook.  Supply-chain disruptions are easing, which could relive upstream price pressures on inflation, and wage growth is beginning to slow to a pace more consistent with the FOMC’s 2-percent inflation target.  However, global economic growth is threatened by Russia’s invasion of Ukraine, impending oil production cuts by OPEC+, financial instability in certain major international economies, and renewed supply-chain disruptions due to resurgent COVID-19 in Asia.  The International Monetary Fund (IMF) now projects subpar global growth, which may feed back into the U.S. outlook by weakening international demand for U.S. goods and service exports.  Nonetheless, the U.S. economy has exhibited remarkable resilience in the face of headwinds in recent years, and the Administration’s economic policies will promote sustainable and equitable growth.


      Real GDP rose 2.6 percent at an annual rate in the advance estimate of third quarter economic activity.  The quarterly gain returned the economy to positive, year-to-date growth.  Expansion was propelled primarily by a strong contribution from net exports—particularly trade in goods—and private consumption to a lesser extent.  Business fixed investment in equipment and intellectual property products and total government spending also made smaller, positive additions to growth.  By contrast, residential investment posed the largest drag on growth, followed by slower growth in inventories.  Over the most recent four quarters, real GDP was up 1.8 percent, matching the pace over the four quarters through the second quarter.

      Real private domestic final purchases (PDFP)—the sum of personal consumption, business fixed investment, and residential investment—ticked up 0.1 percent in the third quarter, slowing from a 0.5 percent gain in the second quarter.  This measure excludes government spending, international demand for goods and services, and the change in private inventories; it is typically considered an accurate indicator of the private sector’s capacity to generate self-sustaining growth.

      Real PCE—the largest component of PDFP and roughly two-thirds of real GDP—rose by 1.4 percent in the third quarter on an annualized basis, slowing from a 2.0 percent pace in the second quarter.  The third quarter reading suggested that households are slowing rotating consumption patterns towards pre-pandemic patterns, in which services dominate—though the adjustment remains slow.  Although the share of services has risen from 60 percent in early 2021 to 62 percent in the third quarter, it remains below the pre-pandemic average of about 65 percent.  Consumption of services rose 2.8 percent, led by demand for health care services and other services, including financial services, restaurants, and travel-related businesses.  Meanwhile, consumption of goods fell by 1.2 percent, reflecting lower spending on both durable and nondurable goods.

      Business fixed investment (BFI) surged by 3.7 percent at an annual rate in the third quarter, after ticking up by 0.1 percent in the second quarter.  The reading marked the ninth consecutive quarterly increase in BFI.  Third quarter BFI growth was led by a 10.8 percent rebound in equipment investment, following a 2.0 percent decline in the previous quarter.  Investment in intellectual property products rose 6.9 percent—strong but somewhat slower than the second quarter’s 8.9 percent pace.  By contrast, investment in structures posed a drag on growth for the sixth consecutive quarter, dropping 15.3 percent in the third quarter after a 12.7 percent drop in the second quarter.

      Real residential investment—the third and final component of PDFP—dropped 26.4 percent at an annual rate in the third quarter, after falling 17.8 percent in the second quarter.  The contraction in this sector, which started in the second quarter of 2021, is accelerating.  In the third quarter, lower investment was led by less new single-family construction.  Single-family structures spending fell 36.3 percent while multi-family structures investment was down 5.5 percent.  Other structures investment—which includes manufactured homes, group housing, and ancillary spending like brokers’ commissions—dropped 21.5 percent in the third quarter.

      The remaining components of GDP comprise public sector demand, international demand, and buildup or drawdown of private inventories.  The change in private inventories (CIPI) continued to pose a drag on the economy’s performance in the third quarter.  Although firms added $100.2 billion (constant 2012 dollars) to inventories in the third quarter, the buildup slowed from a $145.4 billion increase in the second quarter.  As a result, CIPI subtracted 0.7 percentage points from real GDP growth in the third quarter.  Inventories tend to be a volatile component of GDP and became even more so through the pandemic, given changing household consumption patterns and supply-chain disruptions.

      On the international side, the narrowing of the trade deficit was the largest driver of GDP growth in the third quarter.  Net exports increased by $156.5 billion to -$1,274.0 billion, adding 2.8 percentage points to third quarter GDP growth.  Total exports of goods and services surged by 14.4 percent at an annual rate, led by exports of industrial supplies and materials (especially petroleum, petroleum products, and other nondurable goods) as well as exports of services (including travel and financial services).  Meanwhile, total imports decreased -6.9 percent.  The increase in net exports was the second consecutive quarter of improvement.

      After subtracting from GDP growth in each of the previous five quarters, public-sector demand for goods and services rose by 2.4 percent at an annual rate.  Federal government consumption and investment grew by 3.7 percent, driven by defense spending, while state and local government consumption increased 1.7 percent, mainly reflecting increases in compensation for state and local government workers.


      Tight labor markets persisted in the third quarter—though there were some signs of easing at the margins.  Following a record 6.7 million payroll job gain in 2021, the economy has added an additional 3.8 million through September 2022—including 1.1 million during the third quarter alone.  Notably, during the third quarter, the economy surpassed pre-pandemic employment levels as of August 2022.  The unemployment rate, meanwhile, has fluctuated in a very low range of 3.5 percent to 3.7 percent since the first quarter; as of September, the unemployment rate had fallen again to 3.5 percent—the half-century low seen just before the onset of the pandemic.  The broadest measure of unemployment—the U-6 rate, a measure of labor underutilization that includes underemployment and discouraged workers in addition to the unemployed—has also trended lower this year; the U-6 stood at 6.7 percent in September, the lowest U-6 rate in the history of the series (starting at January 1994).  In addition, the long-term (27 or more weeks) unemployment rate declined to 0.65 percent of the labor force in September 2022, matching the almost two-decade low seen near the start of the pandemic.

      On the supply side, labor force participation has held within a relatively narrow band since January, fluctuating between 62.2 percent and 62.4 percent of the labor force.  By the end of the third quarter, the labor force participation rate (LFPR) stood at 62.3 percent, marking a 0.4 percentage point gain since the end of 2021but slightly below pre-pandemic expectations given the aging of the U.S. population.  For prime-age (ages 25 to 54) workers, the LFPR in September was 82.7 percent, up 0.4 percentage points above June 2022 and approaching the nearly twelve-year high of 83.1 percent reached in January 2020.  The LFPRs of both women and men were up over the quarter by 0.2 percentage points and 0.4 percentage points, respectively.  Even for workers aged 55 years and older, the LFPR improved during the third quarter, increasing by 0.2 percentage points to 38.8 percent in September.  Participation rates for this cohort remain lower than before the pandemic; for the three years before the pandemic, the LFPR for workers aged 55 years and older averaged 40.1 percent but the LFPR fell to dropped precipitously and has only recovered 0.6 percentage points since its low in March 2021.  The slow recovery may reflect lingering concerns about COVID or excess retirements—those above what one would expect given demographic trends.

      Although the gap between labor supply and demand remains significant, there are some signs of easing at the margins: labor force participation has been trending higher, and labor demand is starting to soften.  Even so, the demand for labor has hovered near record highs for the past eighteen months.  Before the pandemic, the record for job openings was 7.6 million in November 2018.  Yet openings peaked in March 2022 at 11.9 million, or roughly 57 percent above the pre-pandemic high.  Although job openings have declined in the intervening months, they remain elevated at 10.1 million as of the end of August 2022 (latest available data)—still 33 percent above the pre-pandemic peak.  The excess demand for labor has provided workers consequential leverage in terms of job mobility and wage demands.  For example, the quits rate remains exceptionally strong: by the end of August 2022, the number of job quits was at 4.2 million, still nearly15 percent above the pre-pandemic high despite decreasing by 7 percent since March.  Moreover, although the official number of unemployed persons per job opening ticked up in August to 0.6, it remains just 0.1 unemployed worker above the record low and is significantly below the ratio of 1.0 that prevailed during the three years before the pandemic.

      Although potentially easing, this tightness in labor markets continues to manifest in higher than typical nominal wage growth.  For production and nonsupervisory workers, nominal average hourly earnings increased 5.8 percent over the year through September 2022.  Although still brisk, this pace was nonetheless the first time since October 2021 that nominal wage growth was below 6 percent.  The Employment Cost Index (ECI), which better controls for changes in labor composition and is a more comprehensive measure of total compensation, showed private sector wages increasing 5.2 percent over the twelve months ending in September 2022, decelerating from the previous quarter’s twelve-month pace of 5.7 percent.


      Inflation remained elevated in the third quarter—though monthly increases at the headline level were noticeably slower compared with the second.  In July and August, monthly headline consumer price index (CPI) inflation was 0.0 percent and 0.1 percent, respectively, as falling energy prices offset still-strong price growth for food and core goods and services.  In September, CPI inflation picked up to 0.4 percent—though still at least half the monthly rates seen in the first and second quarters.  The CPI for energy goods and services declined in each month of the third quarter, dropping a cumulative 11.3 percent since June.  By contrast, food price inflation remained elevated, declining only modestly from 1.1 percent in July to 0.8 percent in September.

      Meanwhile, core CPI inflation (which strips out the volatile energy and food components) started the third quarter at a somewhat slow pace—increasing just 0.3 percent in July—but subsequently rose by 0.6 percent in both August and September.  Price growth for services was the largest driving force behind core CPI inflation in the third quarter.  Core services rose 6.9 percent at an annual rate in the third quarter, slowing modestly from 8.0 percent growth in the second quarter.  Core services inflation has a high floor due to persistent and strong growth of shelter prices, such as rents and owners’ equivalent rents.  In the third quarter, the CPI for rents rose 9.2 percent at an annual rate, picking up from 7.1 percent in the second quarter.  Similarly, the price growth for owners’ equivalent rent accelerated from 6.3 percent to 8.5 percent in the third quarter.  Inflation for other core services, however, weakened in the third quarter.  Excluding shelter, core services inflation dropped from a 10.0 percent annualized growth rate in the second quarter to a 4.8 percent growth rate in the third quarter.  Core goods prices, meanwhile, were another key contributor to core inflation in the third quarter, stepping up from a 3.1 percent annualized growth rate in the second quarter to 5.3 percent in the third.  This acceleration followed spiking prices from May to August, but monthly core goods inflation was flat by September.

      On a twelve-month basis, inflation readings have been mixed.  Over the year ending September 2022, CPI inflation was 8.2 percent—almost a full percentage point slower than the pace recorded over the year through June.  Energy price inflation was 19.8 percent over the twelve months ending in September, well-below the 41.6 percent twelve-month growth seen in June—the peak of which followed the Russian invasion of Ukraine.  Food inflation, by contrast, saw a further increase in the third quarter, running at 11.2 percent over the twelve months through September, up from 10.4 percent.  Meanwhile, core inflation picked up to 6.6 percent over the year ending September, from 5.9 percent in June.  Like with monthly inflation, price growth of core services—driven by strong shelter inflation—was the primary driver of faster core inflation.

      The Federal Reserve’s preferred measure of inflation is the PCE price index, with a target rate of two percent.  The PCE price index typically has slower growth than the CPI as it assigns different weights for different components than does the CPI and uses a different methodology in its calculation, but the drivers of both measures remain similar.  Over the year ending September, the headline PCE price index rose 6.2 percent while the core PCE price index was up 5.1 percent.


      The correction observed in housing markets in the second quarter became more pronounced in the third quarter, as rising mortgage rates and high house prices depressed demand.  Since the start of this year, existing and new home sales have trended lower.  In September, existing home sales—which account for 90 percent of all home sales—declined 1.5 percent over the month and were down 23.8 percent on a twelve-month basis.  Similarly, new single-family home sales dropped 10.9 percent in September, declining for the seventh month of the past nine.  New home sales were 17.6 percent lower year-to-date.  Given falling sales, inventories of homes available for sale have risen from all-time lows.  The months’ supply of existing homes for sale stood at 3.2 months in September, or 0.3 percentage points above June’s supply and fully double the supply available at the beginning of the year—but still below the average 3.9 months of supply in 2019.  Inventories have also surged for the new homes market.  Months’ supply stood at 9.2 months in September—though down 0.2 months from June, inventories were still up from 5.7 months of sales in January.

      Measured with a lag, house prices remain elevated after accelerating sharply over the past two years.  Twelve-month rates have remained in the double-digits for nearly two years.  Nonetheless, those rates have slowed in recent months; on a monthly basis, house price indices have declined outright as demand has declined.  The Case-Shiller national house price index—which measures sales prices of existing homes—was up 13.0 percent over the year ending in August 2022, slowing markedly from the 20.0 percent advance of the year through August 2021 but still more than double the 5.8 percent advance over the year through August 2020.  Similarly, the FHFA house price index was up 11.9 percent over the year ending in August, down from 19.3 percent pace dur the previous year through August

      Meanwhile, new construction starts and permits for future starts weakened further in the third quarter.  Single-family housing starts dropped 11.9 percent over the three months ending in September, after retreating by 14.9 percent in the second quarter.  Single-family permits also were down over the quarter, decreasing 10.3 percent from June to September after dropping 16.6 percent in the second quarter.  Construction also declined the volatile multi-family sector.  After rebounding by 7.0 percent in the second quarter, multi-family starts declined 2.7 percent in the third quarter.  In addition, multi-family permits decreased 4.4 percent from June to September, after rising 1.4 percent from March to June.

      Although starts and permits fell in the third quarter, activity in the housing sector remains elevated as builders work through construction backlogs.  The number of total homes under construction—both single-family and multi-family—rose to a series high of 1.71 million in September (data series begins in 1970).  Although the number of single-family homes under construction slipped by 15,000 to 800,000 from June to September, the number of multi-family homes under construction rose by 50,000 to 910,000 over the same period.  Despite the large number of projects under way, builders are pessimistic about the conditions of single-housing markets.  The National Association of Home Builders’ housing market index dropped to 38 in October on a preliminary basis, less than half the level of 84 at the end of last year, suggesting that home builder sentiment has deteriorated sharply in the wake of higher mortgage rates and rising materials costs.


      COVID-19: The third quarter saw COVID-19 begin to transition from pandemic to endemic, with fewer cases and hospitalizations.  As of late October, over 80 percent of the U.S. population have received at least one dose of the COVID-19 vaccines, and the administration of bivalent vaccines should reduce the prevalence and severity of Omicron subvariant cases.  Even so, cases may rise again in autumn and winter, meaning COVID-19 could still be a potential headwind in the near term.

      Inflation: As stated previously, inflation has continued at historically atypical rates thus far in 2022.  Although not the sole source, Russia’s illegal invasion of Ukraine has added upward pressure to inflation since February, raising the prices of energy and food prices.  Food prices are sensitive to movements in energy prices due to passthrough to agriculture supply chains.  Excluding food and energy prices, core inflation is likely to stay above the Federal Reserve’s 2-percent target through at least 2023, reflecting in part elevated shelter inflation.  However, with signs that rents on new leasing agreements are decreasing and home prices are beginning to fall, inflationary pressures from shelter prices may ease in coming months.

      Energy Commodity Prices:  Headline inflation was elevated in the first half of this year by energy prices.  Although there was some relief from gas prices over the summer, energy prices have started to rise again.  Russia’s unlawful invasion of Ukraine is the primary cause of high global energy prices, but OPEC+’s announcement to cut production by 2 million barrels per day starting in November has also elevated prices, which will ultimately help Russia fund its illegal war.  Accordingly, the United States has been cooperating with the G-7 to implement price caps on Russian oil exports, representing a significant step in advancing the Administration’s twin goals of sharply reducing Russian revenue and avoiding further disruptions to global energy supplies.

      Geopolitical Risks: Russia’s war against Ukraine has increased uncertainty to the medium-run outlook.  Due to the war, Europe has shifted its supply of energy goods from Russia, which may elevate energy and food prices in coming months.  High cost-of-living, tightening financial conditions, and the energy crisis in Europe caused by Russia’s invasion of Ukraine have all contributed to an erosion of the global economic outlook.  According to the IMF’s latest World Economic Outlook, global growth is expected to slow to 3.2 percent in 2022 and just 2.7 percent in 2023.  At the same time, central banks around the world are tightening monetary policy to fight high global rates of inflation.  In addition, there has been financial instability in certain major world economies, and there is potential further risk from China’s continuing Zero-COVID policy.  These rising risks to the global growth outlook may feed back into the U.S. outlook by weakening international demand for U.S. goods and service exports.


      There are still challenges as the economy faces high inflation and significant global headwinds.  But even in the face of these challenges, the economy remains resilient, bolstered by President Biden’s economic plan.  Over the past two years, the Biden Administration has made significant investments to strengthen the foundations of our post-pandemic economy.  The Bipartisan Infrastructure Law is modernizing our nation’s physical and digital infrastructure.  The CHIPS Act is growing semiconductor manufacturing here at home.  And the Inflation Reduction Act is living up to its name while also being our nation’s largest-ever investment in clean energy.  These investments in infrastructure will boost economic potential as well as help our economy be more resilient to future unexpected shocks—like pandemics or climate disasters.

      Source: U.S. Department of the Treasury

    • IRS Issues Draft Guidance on Taxation of Digital Assets

      The US Internal Revenue Service (IRS) has issued draft guidance on the taxation of digital assets (2022 Tax Year Instructions for 1040 (and 1040-SR)). The draft guidance was published as part of the draft instructions for 2022 individual income tax returns, dated 17 October 2022.

      Under the draft guidance, digital assets are "any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology". The guidance provides that digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. In addition, the IRS will treat a particular asset as a digital asset for federal income tax purposes, if it has the characteristics of a digital asset.

      The draft guidance, when finalized, would clarify that taxpayers must indicate "yes" to the question on digital assets of IRS Form 1040 or 1040-SR, if they, at any time in 2022:

      • received (as a reward, award, or payment for property or services); or
      • sold, exchanged, gifted, or otherwise disposed of a digital asset (or any financial interest in any digital asset).

      Under the draft guidance, taxpayers have a financial interest in a digital asset if they:

      • are owners of record of a digital asset;
      • have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest; or
      • own a wallet that holds digital assets.

      The draft guidance also lists some examples of transactions that would require taxpayers to check "yes" on the question on digital assets. However, the draft guidance also clarifies that the following transactions, alone, do not generally require taxpayers to check "yes":

      • holding a digital asset in a wallet or account;
      • transferring a digital asset from one wallet or account a taxpayer owns or controls to another wallet or account that the taxpayer owns or controls; and
      • purchasing digital assets using US or other real currency, including through the use of electronic platforms (e.g. PayPal and Venmo).
    • FinCEN Issues Final Rules on Beneficial Ownership Information Reporting Requirements

      The Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department issued a final rule which requires companies to disclose information about their "beneficial owners," in a move to combat money laundering. These rules were enacted to implement section 6403 of the Corporate Transparency Act (CTA) of 2021.

      According to the FinCEN's Beneficial Ownership Information (BOI) Reporting Rule Fact Sheet, "this rule will enhance U.S national security by making it more difficult for criminals to exploit opaque legal structures to launder money, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American taxpayer."

      The final rule describes:

      • who must file a BOI report;
      • what information must be reported; and
      • when a report is due.

      Moreover, the final rule requires reporting companies to file reports with FinCEN that identify two categories of individuals:

      • the beneficial owners of the entity; and
      • the company applicants of the entity.

      According to the final rule, a beneficial owner includes any individual who, directly or indirectly, either:

      • exercises substantial control over a reporting company; or
      • owns or controls at least 25% of the ownership interests of a reporting company.

      Further, the term company applicants are defined as:

      • the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States; or
      • the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

      The BOI Reports require a reporting company to identify itself and report four pieces of information about each of its beneficial owners:

      • name;
      • birthdate;
      • address; and
      • unique identifying number from documents like passports.

      Lastly, in terms of filing requirements, "reporting companies created or registered before 1 January 2024 will have 1 year (until 1 January 2025) to file their initial reports, while reporting companies created or registered after 1 January 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports."