September 2018

On 30 August 2018, the Ministry of Finance published, for public consultation, proposals for amendments to the following tax legislation:

• the Corporate Income Tax Act;
• the Personal Income Tax Act;
• the Value Added Tax Act;
• the Excise Duties and Tax Warehouses Act; and
• the Local Taxes and Duties Act.

The public consultation will run until 29 September 2018. A summary of the main topics of the proposal is set out below.

Corporate Income Tax Act

• Implementing the provisions of the European Anti-Tax Avoidance Directive (EU) 2016/1164 (ATAD); in this respect, new rules are suggested regarding limitation of interest deduction, controlled foreign entities (CFC), exit taxation, general anti-tax avoidance and hybrid mismatches.
• Introducing an option for submission of corporate income tax returns in cases where a taxable person has not performed any activities in the tax year, in order to report tax on expenses, incurred losses, reporting of hidden profit distribution, etc.
• Providing an opportunity to operators of food vouchers to use the amounts collected from employers for payment of VAT (if due).
• Amending rules regarding declaration and payment of corporate income tax, withholding tax, tax on expenses and alternative tax in cases of liquidation or termination for insolvency of a company and where a permanent establishment of a foreign company ceases its activities. In this respect, it is proposed that the last tax period of such companies/permanent establishments be from 1 January of the year of deregistration until the date of deregistration, with the last corporate income tax, withholding tax, tax on expenses and alternative tax being due within 30 days after the date of the deregistration.

Personal Income Tax Act

• The mandatory electronic filling proposal applies to:
  • all declarations and reports of self-insured persons;
  • annual reports for income paid to individuals under article 73, paragraph 1 of the Personal Income Tax Act; and
  • information on income paid by employers to residents of other EU Member States.
• New tax rules for awards are proposed as follows:
  • monetary and non-momentary awards not provided by the employer will be subject to a one-off tax due by the taxpayer; (Currently, such income is reported by the recipient in the annual personal income tax return.) and
  • awards up to BGN 100 are to be exempt from taxation. (Currently, this limit is BGN 30.)
• New administrative simplifications are proposed as follows:
  • abolishment of the requirement for declaration by the spouse stating that he or she will not use a tax relief in the case of application of tax reliefs for young families and children (including children with disabilities);
  • regarding tax reliefs for children (including children with disabilities), the relief may be used by both parents as opposed to one of the parents which is currently the case;
  • exemption from the requirement to submit annual activity reports for traders not performing activities (as per the Accountancy Act) during a tax year; and
  • abolishment of the obligation for employers to provide paper notes on income paid and taxes and social security and health insurance contributions withheld to their employees unless they so request. The information included in these documents must be submitted by employers to the National Revenue Agency.

Value Added Tax Act

Introduction of a threshold for digital services A threshold of BGN 19,558 (EUR 10,000) is to be introduced regarding the place of supply of digital services by EU suppliers to non-taxable persons established in other EU Member States. Under the new rule, if the supplies of telecommunications, broadcasting and electronically supplied services in the current and/or the previous calendar years are below this threshold, these supplies will be deemed to be made where the supplier is established, provided that it is established in only one EU Member State. This proposal implements the provisions of Directive (EU) 2017/2455. Extension of self-assessment possibility It is proposed that the possibility for self-assessment (VAT return) be extended to importers of goods such as aluminium, nickel, sulphur, tin, lead, zinc, organic chemical products, etc. To avail the possibility of self-assessment, importers will have to meet certain criteria: (i) each import must amount to at least BGN 50,000; and (ii) the importer should not have any unsettled tax and social security liabilities. Currently, self-assessment by a taxable person is allowed only in very limited cases (e.g. for large investment projects). Register of e-shops to be created by tax authorities It is proposed that e-shops be obliged to register in a special register that will be created and maintained by the National Revenue Agency. Extension of the list of VAT-exempt supplies It is proposed that the intermediary services related to international adoption under the Family Code. Administrative simplifications

• Abolishment of the requirement for issuing protocols for self-assessment of VAT in cases of intra-community acquisitions and cross-border supplies subject to reverse charge (as from 1 July 2019).
• An opportunity for VAT deregistration within 12 months of the beginning of the year following the voluntary VAT registration. (Currently, this period is 24 months.)
• E-shops to be allowed to issue electronic fiscal receipts in cases where there is no physical contact between the seller and the buyer.

Excise Duties and Tax Warehouses Act

• Introducing a special notification procedure for bottled alcoholic beverages and cigars used for collections.
• Introducing a new procedure for cancellation/de-activation of incorrectly submitted documents in relation to excise duty labels.
• Extending the scope of commercial sites where tobacco products can be sold.
• Banning publishing advertisements and notifications for e-sales of excisable products (with some exceptions, such as goods with excise duty labels or in cases where the excise duty has been paid).
• Clarifying that the consumption of energy products, within the curtilage of an establishment that has produced them, for the purpose of producing other energy products is not exempt from excise duties.
• Extending the situations in which joined liability for excise duties will be applied.
• Introducing new administrative simplifications for licensed warehouse keepers and registered consignors/consignees, i.e. abolishing the requirement to provide to the customs authorities the names and signature specimens of the persons authorized to sign electronic administrative documents.

Local Taxes and Duties Act

Amendments to tax relief for main home If more than one main home is declared, the full amount of the real estate tax due for all homes of the taxable person will be charged. In addition, there will be no reduction of the garbage collection duty applied in such cases. Changes to determining the taxable base for immovable property It is proposed to abolish the increase in real estate tax for immovable property with features such as aluminium joinery, air conditioning, etc. Administrative simplifications In the case of transactions involving motor vehicles, public notaries are required to check the relevant registers for any unpaid tax on the vehicles. In addition, the public notaries will be obliged to inform the local municipalities of any completed transfers of immovable property and motor vehicles, as well as of the taxable base and local tax paid, within 7 days.    

SAT published that newly purchased equipment and instrument are allowed to be included in the current costs and expenses at one time and deducted in the calculation of taxable income, instead of being depreciated annually from 2018 to 2020. The equipment and instrument refer to fixed assets other than houses and buildings. And the deduction cap is no more than CNY 5 Million.

Shanghai Administration for Industry and Commerce issued on September 6, 2018 the Guideline about Further Reforming the Exit Mechanism for Market Entities. According to the guideline, traditional problems that have obstructed business cancellations will be addressed, and fewer documents will be required for simple cancellation procedures. After an one-stop business cancellation platform is launched, the time for business cancellation is expected to be halved. It's learned that the city's industry & commerce administration is working with tax, customs, financial and human resources authorities to build the online business cancellation platform, which is expected to be operational by the end of this year. After the platform opens, the time for business cancellations for Chinese companies will be reduced by 14 business days, and the time will be cut by 17 working days for foreign enterprises to be canceled.

The Ministry of Finance, the Ministry of Science and Technology and the State Administration of Taxation recently released the Circular about Increasing Pretax Deductions for R&D Expenses. According to the circular, if an enterprise spends R&D expenses that have yet to become intangible assets, the expenses can be deducted at a percentage of 175% between January 1, 2018 and December 31, 2020; if the R&D expenses have developed into intangible assets, the expenses shall be amortized at 175% of the asset cost in the period.

At a State Council executive meeting on September 18, 2018, Premier Li Keqiang stressed that the existing tax and fee reduction policies must be put in place as soon as possible, and policies on social security contributions should remain stable. The meeting decided that inspections should be conducted to examine whether these favorable policies have been fully and timely implemented. Based on the principle that corporate burdens would not increase, relevant authorities should not make radical policy changes to social security payments and must not ask employers and employees to make up for contributions they were supposed to make in the previous years. In the meantime, authorities should work out plans to reduce social security contributions. In order to expand opening up and maintain steady foreign trade growth, the meeting said new measures would be rolled out later this year, including cutting the time and cost of customs clearance, streamlining port services and improving the export tax rebate policy.

The UK Prime Minister Theresa May has announced a range of measures to boost much-needed investment in businesses and infrastructure across Africa, including an additional £4bn of private sector investment into the continent. As part of this, CDC, the UK’s Development Finance Institution, will significantly increase its investment into Africa – aiming to invest up to £3.5bn in businesses on the continent over four years. This will support hundreds of thousands of jobs, build stability and trigger growth in some of the poorest and most fragile countries. A new investment of up to £500m of UK aid invested through the Private Infrastructure Development Group (PIDG) will build essential infrastructure such as power, roads and water, that will lay the foundations for new trading and business opportunities across Africa in places businesses previously would not have been able to operate. Philippe Valahu, PIDG CEO, said: “We are delighted to announce this additional funding, which will enable us to do more, better. Our pioneering approach has seen significant success; with a successful track record we have supported 170 infrastructure projects, mobilised $22.9bn from the private sector and benefited an estimated 231 million people." In addition to announcing a substantial scale up of investment through CDC and PIDG, the UK is setting a clear ambition to mobilise £4bn of private investment, particularly from the City of London. In total, UK initiatives will generate up to £8bn (around $10bn) of investment for African countries between 2018 and 2021. The Prime Minister has also set a new ambition for the UK to be the largest G7 foreign direct investor in Africa by 2020. Africa’s population is set to double by 2050 and as many as 18 million extra jobs a year will be needed. There is a chronic need for private and public investment to create better opportunities in Africa to prevent the next generation falling further into poverty, potentially fuelling instability and mass migration with direct consequences for Britain. International Development Secretary Penny Mordaunt said: “Africa’s emerging markets offer huge untapped potential to the UK. There is a massive shortage of investment, infrastructure and jobs in these markets, and the City of London is uniquely placed to help fill this gap while earning benefits for the UK economy.” The City of London manages over £8trn of assets but at the moment only around 1% of those assets are invested in Africa. This partnership will mobilise further capital from pension funds, insurance companies and other investors, enabling the City to take on an even greater role as Africa’s partner of choice for financial services as the UK leaves the EU. This will create the opportunity to boost investment returns for the UK’s pension pot, while triggering essential long-term investment for African businesses, transforming the world’s poorest nations into the UK’s trading partners of the future. “We’re building mutually beneficial partnerships which are helping to stimulate long-term transformational growth and create good jobs for people in the world’s poorest countries, while also allowing UK investors to access the wealth of opportunity offered by African countries,” said Mordaunt.

Egypt’s credit outlook was raised from stable to positive by Moody’s Investors Service, which cited progress in implementing a program backed by the International Monetary Fund to bolster economic growth and repair public finances. The country’s long-term rating was kept at B3, six levels below investment grade. The positive outlook signals that a downgrade is currently very “unlikely,’’ Moody’s said in a statement late on Tuesday. “The substantial progress made by the government in implementing reforms agreed with the IMF has imparted a degree of financial stability not present earlier in the decade,” Moody’s said. That has helped offset debt refinancing risk, which “remains a key credit challenge for the sovereign in an increasingly turbulent global financial environment,” it said. Egyptian authorities in 2016 launched an aggressive effort to end a crippling dollar shortage that had stymied business activity and limited investor interest. The lifting of exchange rate restrictions, accompanied by the slashing of fuel and utility subsidies, were key parts of the broader effort to shrink the budget deficit and revive economic growth.

Moody’s also said:

• Egypt’s strengths arise mainly from its large and diverse economy, while weaknesses include high debt burden and “very large” annual financing needs
• Signs of business environment reforms “offer the prospect of a sustainable, inclusive growth path capable of improving competitiveness and absorbing the country’s rapidly expanding labor force”
• Government-led infrastructure projects, such as the new administrative capital, contribute to “fostering growth and employment in the construction sector”
• Political stability that has been achieved “seems likely to be sustained,” raising the likelihood of the government continuing along the current policy path

The Rocky Mountain Institute (RMI) in collaboration with the Nigerian Economic Summit Group (NESG) this week released a report entitled, Minigrid Investment Report: Scaling the Nigerian Market, which shows how mini-grids can improve business profitability. According to the report, mini-grids could also stimulate a $20 billion investment opportunity throughout Nigeria. At present, only 45% of the Nigerian population has access to electricity, and only 36% of the population in rural areas has access to a centralised power source. Mini-grids can provide a cost-effective solution to the demand for rural electrification, which could help businesses tap into a revenue opportunity of up to N2.8 trillion ($8 billion) per year. “The Nigerian mini-grid space is ready to take off, and there is a huge opportunity for investment to scale the market,” said Sachi Graber, an associate at Rocky Mountain Institute and co-author of the study. “These mini-grids could drive a significant economic change in rural Nigeria,” Graber added. The research presents the following findings to show how necessary mini-grids are to the future of Nigeria’s business structure:

• Scaling mini-grids could create a $20 billion investment opportunity
• Over 80% of Nigerian business owners cite electrification challenges as their most significant obstacle, and mini-grids could solve the most common challenges through high reliability and consistent quality

The report also provides recommended best practices for the mini-grid sector, based on current operating mini-grid projects, which can ensure success from both a business and development perspective. The Mini-grid Investment Report presents a clear pathway to scale in Nigeria, where the mini-grid market is taking off. RMI and NESG hope that this industry will be able to provide power to millions of individuals and small businesses within the next several years. Download the full report here.

The African Union has launched a representational office in China’s capital, Beijing. The Chinese-funded building was unveiled in the presence of Chadian politician/ Chairperson of the African Union, Moussa Faki Mahamat, the Chinese State Councilor and Foreign Minister Wang Yi. According to Mahamat, “China welcomed the planned establishment of an African Union Office in Beijing to ensure effective and timely follow-up of the China-Africa partnership and committed to supporting the setting up of this Office. This representation will also support the work of the African Group of Ambassadors in Beijing, to ensure alignment with African Union positions.” Similarly, the African Union’s Ethiopian headquarters which cost $200 million (£127m) was funded by China as a gift to the AU; most of the materials used were imported from China and even the furnishings were paid for by Beijing. The construction, which began in January 2009 and involved 1,200 Chinese and Ethiopian workers, took three years to finish. The building is said to be a symbol of China’s drive for influence in Africa. In 2011, the AU headquarters was hacked, and China was the major suspect. French newspaper Le Monde stated that data from computers in the Chinese-built building had been transferred nightly to Chinese servers for five years. The hack wasn’t detected until January 2017 when technicians noticed a peak in data usage between midnight and 2 am every night. After a thorough investigation, it was discovered that African Union’s confidential data was being copied on to servers in Shanghai. China denied the allegations. Although the AU acquired its own servers and refused Chinese offers to reconfigure them after the hack discovery, the bugging, data theft and the alleged Chinese involvement did not put a strain on the AU-China relationship as the commission still let the Asian country build its Beijing office. The AU’s Ethiopian headquarters and Beijing office is far from the only government building China has constructed in Africa. Recently, China inked deals to build and finance parliament buildings in Zimbabwe and the Republic of Congo. Also, the entire Central Business District of Egypt’s new administrative capital was handled by China. Finished projects include parliament buildings in Malawi, Seychelles, Guinea-Bissau, and Lesotho as well as a renovation of the parliament building of Sierra Leone.

South African President Cyril Ramaphosa unexpectedly suffered the same false start as his predecessor nine years ago: a recession in his first six months in office. The economy contracted an annualised 0.7 per cent in the second quarter from the previous three months, pushing Africa's most-industrialised economy into its first recession in almost a decade. The rand, which has already been under pressure in recent weeks as part of a rout in emerging-market currencies, extended declines after the data.

The news is a setback to the new president, whose ascent in the wake of the corruption-plagued era of Jacob Zuma initially aroused such optimism that it was dubbed "Ramaphoria."

Slack farming output and soft consumer spending have put pressure on the economy. Ramaphosa's rise to power since December initially boosted sentiment and the rand following Zuma's tenure of almost nine years. That optimism has faded as structural reforms weren't implemented fast enough and global trade wars and turmoil in other emerging markets such as Argentina and Turkey soured sentiment.

Tanzania is set to receive US $1.46bn loan from the Standard Chartered Group, the British multinational banking conglomerate towards construction of phase II of the Standard Gauge Railway (SGR). Minister for Finance and Planning Phillip Mpango, confirmed the news and said the Standard Chartered Bank Group Chief Executive, Bill Winters is in agreement to grant the loan for the SGR which will begin from Morogoro to Makutupora in Dodoma Region. “We are currently building Phase I of the SGR project that runs from Dar es Salaam to Morogoro. Afterwards we will extend it to Makutupora in the second phase. In the later phases, we will connect the SGR to Isaka and Mwanza and, ultimately, to Rusumo, working in close cooperation with our Rwandan counterparts until it reaches Kigali,” said Phillip Mpango. “As a bank, we have the noble duty of ensuring that we play a significant role in financing (the country’s socioeconomic development),” said Bill Winters . High-speed electric railway The Minister added that works on the the US $1.92 bn high-speed electric railway which is part of phase one at Dar es Salaam-Morogoro  is progressing well, with the Turkish firm Yapi Merkezi Insaat VE Sanayi As building the 422 km part of the line. In March this year, President John Magufuli laid the foundation stone for the Morogoro-Makutupora section, covering 426 km.It is estimated that the Standard Gauge Railway upon completion,  will create 30,000 direct employment opportunities and some 60,000 indirect jobs. Other projects Additionally, Dr Mpango briefed the visiting CEO Mr. Winters on a number of development projects that the government is undertaking to improve the country’s economic infrastructure. The projects include the purchase of state-of-the-art passenger aircraft for the national carrier, Air Tanzania Company Limited (ATCL) and the 2,100MW Stiegler’s Gorge hydroelectric project. “Tanzania is only second to Brazil in terms of having the highest number of tourist attractions in the world. However, we currently receive less than two million visitors a year. This calls for prompt action so that the tourism sector brings in more of the much-needed foreign exchange earnings for the general good of the economy,” clarified Phillip Mpango.

Data from the Central Bank of Nigeria (CBN) annual report for 2017, show that equities have dominated transactions on the Nigerian Stock Exchange (NSE) in the last half-decade. Here are key highlights from the report:

The volume of securities traded

Equities accounted for 99.3% of the 656 billion securities that were traded on the NSE between 2013 and 2017. The markets are, however, far from the peak of the last 5 years as the total number of stocks traded from 2015 to 2017 were nearly equivalent to the volume traded in 2013. 267 billion stocks were traded in 2013. 93.6 billion shares were traded in 2015, 95.8 billion in 2016 and 93.2 billion in 2017.

Number of deals

7,108,046 deals took place on the NSE between 2013 and 2017. 2013 had the highest number of transactions in the last five years at 3,224,639 deals. 2016 was the year with the least number of transactions at 837,421 deals. Equities again dominated activities on the NSE, accounting for 99.9% of the transactions.

Value of securities traded

A total of N6.2 trillion worth of securities have been traded in the last 5 years, with equities taking the lion share. 2013 recorded the highest value with N2.3 trillion worth of equities traded. 2016 had the least value with N576 billion worth of securities traded.

How has the market fared in the last half a decade?

From a high of 41,329.19 basis points in 2013, the All-Share Index dipped to 26,847.72 in 2016 before recovering to 38,243.19 basis points in 2017.

Why were 2015 and 2016 lean years?

2015 saw the economy slipping into a recession, for the first time in nearly three decades. The drop in crude oil prices and production volumes led to a foreign exchange crisis. This, in turn, led the Central Bank of Nigeria (CBN) to place supply control measures. Foreign investors, who are dominant players on the NSE, then exited the markets. A devaluation of the Naira and improved oil revenues led the apex bank to relax the controls and gave foreign portfolio investors the needed confidence to enter the market.

How will 2018 fare?

Barely four months to the end of the year, and 2018 numbers may not beat the performance of 2017. The All Share Index is currently at 32,292.79 basis points, 15.56% lower than last year’s closing figure of 38,243.19 basis points. While oil prices remain stable, approaching elections and a crisis in emerging markets have led to foreign investors exiting the capital market.

On 20 September 2018, the Federal Parliament (Nationalrat) approved a bill to amend the withholding tax refund procedure to limit forfeited refunds to cases of actual tax evasion. The amendments thus provide taxpayers with the opportunity to request refunds in cases where taxpayers had been negligent when not declaring income subject to withholding tax. The relaxed refund procedures will be applicable retroactively from 1 January 2014.

On 9 September 2018, the Federal Tax Authority issued a Public Clarification on the requirements for the issuance of value added tax (VAT) invoices as required by article 59 of the Executive Regulations, which was issued pursuant to the VAT Decree-Law. The Public Clarification specifies that:

• a VAT invoice must be issued and delivered to the recipient of a taxable supply in all cases. This includes supplies that meet the conditions for which a simplified VAT invoice is to be issued;
• where simplified VAT invoices are issued regarding the supply of multiple items, the net value (i.e. the amount excluding the VAT) does not need to be indicated for each invoice item;
• each line item must show the VAT amount and net value where full VAT invoices are issued (the gross value is not mandatory on the invoice);
• VAT invoices issued in a foreign currency must show the VAT amount converted to AED and the exchange rate used for the conversion; and
• rounding off VAT invoices must be performed on a line item basis to the nearest Fils (i.e. two decimal places).

On 11 September 2018, HMRC launched a technical consultation to seek comments on a draft HM Treasury order for changes to the VAT treatment of business to consumer supplies of digital services across the European Union, VAT: changes to the supply of digital services 2019. The proposed measures seek to:

• introduce a (sterling equivalent) GBP 10,000 threshold for total supplies to the European Union in a year of sales of digital services; and
• allow non-EU businesses, which are registered for VAT for other purposes, to use the Mini One Stop Shop (MOSS) scheme to account for VAT on sales of digital services to consumers in EU Member States.

The consultation runs to 8 October 2018.

On 17 September 2018, HMRC published information for VAT businesses and other VAT entities on what they need to do to prepare for Making Tax Digital.

On 26 September 2018, The Chancellor of the Exchequer announced that the Budget 2018 will take place on 29 October 2018. The Budget is expected to build upon:

• the Spring Statement 2018; and
• the Autumn Budget 2017.

On 7 September 2018, the US Internal Revenue Service (IRS) issued Revenue Ruling 2018-25 with the announcement of the interest rates on tax overpayments (i.e. tax refunds) and tax underpayments (i.e. tax assessments and late tax payments) for the calendar quarter beginning 1 October 2018. The IRS also issued an accompanying News Release (IR-2018-181) dated 7 September 2018. The interest rates, which apply to amounts bearing interest during that calendar quarter, are as follows:

• 5% for non-corporate overpayments;
• 4% for corporate overpayments up to USD 10,000;
• 2.5% for corporate overpayments to the extent in excess of USD 10,000;
• 5% for non-corporate and corporate (other than large corporate) underpayments; and
• 7% for large corporate underpayments (i.e. underpayments in excess of USD 100,000).

Revenue Ruling 2018-25 also includes:

• interest factors for daily compound interest for an annual rate of 0.5% (Appendix A); and
• tables including overpayment and underpayment interest rates for prior periods.

The interest rates on overpayments and underpayments for the fourth quarter of 2018 are unchanged from the rates announced for the third quarter of 2018.

A tax treaty is a bilateral agreement made by two countries to resolve issues involving double taxation of passive and active income. Treaties Update – September 2018

Date	Country A	Country B	Object	Status
04.09.18	Bulgaria	Saudi Arabia	Income Tax Treaty	Ratified by Bulgarian Parliament
01.09.18	Hong Kong	Saudi Arabia	Income Tax Treaty	Entered into force
14.09.18	Hong Kong	India	Income Tax Treaty	Gazzetted by Hong Kong
14.09.18	Hong Kong	Finland	Income Tax Treaty	Gazzetted by Hong Kong
03.09.18	Latvia	Switzerland	Income and Capital Tax Treaty	Entered into force
24.09.18	Switzerland	Zambia	Income Tax Treaty	Approved by Swiss Council of States
03.09.18	Switzerland	Ecuador	Income and Capital Tax Treaty	Approved by Swiss Council of States