April 2023

  • Bulgaria
    • Bulgaria Updates Guidelines on Social Security and Health Insurance Legislation For 2023

      The National Revenue Agency has published an updated version of the guidelines for 2023 on the application of the legislation on mandatory social security and health insurance. The document includes an overview of the applicable legislation, including the calculation of the social security and health insurance contributions; and various reporting obligations.

      The announcement and the applicable guidelines, published on 4 April 2023, are available here (in Bulgarian only).

    • Bulgaria Publishes Updated Manual on Corporate Income Taxation

      The National Revenue Agency has published an updated version of the guidelines on corporate income taxation for 2023. The publication contains an overview of the applicable rules in the Corporate Income Tax Act with many practical examples and explanations. The announcement and the applicable guidelines, published on 3 April 2023, are available here (in Bulgarian only).
    • Bulgaria Publishes Updated Guidelines on Personal Income Taxation

      The National Revenue Agency has published an updated version of the guidelines on personal income taxation for 2023. The publication contains an overview of the applicable provisions of the Personal Income Tax Act, including the recent changes effective as of 1 January 2023. In addition, the guidelines include explanations and many practical examples.

      The announcement and the applicable guidelines, published on 4 April 2023, are available here (in Bulgarian only).

  • China
    • Shanghai has issued two important documents to promote foreign trade and investment

      On April 4, the Shanghai Municipal People's Government published on its website "Measures to attract and utilize more foreign investment" and "Measures to promote steady scale and quality of foreign trade". Both documents will come into effect on April 6, 2023.

      Among them, "Several Measures for Shanghai to Increase the Attraction and Utilization of Foreign Investment" put forward 20 measures, requiring more financial and tax support for the landing of foreign investment projects. The measures will implement the policy of exempting withholding income tax temporarily from foreign investors' direct investment based on profit distribution, optimize the handling process, and make it more convenient for foreign-invested enterprises to enjoy the policy. All districts may, in light of the actual situation and within the scope of their legal authority, reward enterprises with foreign investment, newly invested projects with foreign investment and reinvested projects with profits of enterprises with foreign investment that meet the industrial development orientation of Shanghai Municipality according to their comprehensive contribution to the economy and society of the region.

    • Districts in Shanghai Encouraged to Reward Firstly Recognized High-tech Firms

      The General Office of the Shanghai Municipal People's Government released on April 19, 2023 the Several Guidelines on Further Delegating Power to Boost Science and Technology Innovation, which will take effect on April 20, 2023 and remain valid until April 19, 2028.

      The document stressed the need to enhance the R&D capabilities of technology-based small and medium-sized enterprise ("technology-based SMEs"), urging to foster a number of technology-based SMEs that have strong R&D capabilities, high technical level and intensive network of scientific and technological talents. It encourages various districts in Shanghai to support technology-based SMEs to improve their R&D capabilities by funding them to conduct technological innovation, and reward those enterprises that are recognized as hi-tech ones for the first time and are within the validity periods. It also supports the development of incubators for technology-based SMEs, stressing establishment of a linkage between investment and incubation to enhance the service capacity of the incubators.

    • Shenzhen’s Authority of Qianhai Issues Further Incentive Policies to Support the High-Quality Development of Local Financial Industry

      The Authority of Qianhai in Shenzhen released on April 12, 2023 the revised Special Fund Management Measures for Supporting the High-Quality Development of the Financial Industry in the Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone, which will be effective for three years starting on April 10, 2023.

      Consisting of a total of 45 articles, the revised Measures support the development of the characteristic financial industry. For the first three years of the lease term, companies engaged in specialized aircraft and aviation equipment leasing business will get uncapped annual rewards at a rate not exceeding 2.5 percent of the total contractual rental amount, while companies operating in ship, marine equipment and other businesses can receive uncapped rewards at 1 percent of their actual lease contract amount or the purchase contract amount of leased assets of the concerned year. The Measures also earmark sufficient supporting funds to encourage the development of commercial factoring, support the listing of enterprises to raise funds, and promote financial institutions to better serve the real economy.

    • China to further shorten negative list for foreign investment

      China will appropriately shorten the negative list for foreign investment, as part of efforts to promote high-level opening up.

      Efforts have been made to evaluate the effect of the list over the past few years and learn about the demands of foreign-invested enterprises, Meng Wei, spokesperson of the National Development and Reform Commission, said at a press conference.

      China retains its appeal for foreign investors as the country's long-term economic growth provides opportunities, said Meng, citing the increasing foreign direct investment inflow and frequent business trips of executives from global firms to China in recent months.

      Meng pledged more moves to proactively utilize foreign investment, saying that policies to channel more foreign investment to advanced manufacturing, high-end technologies and modern services, as well as the central, western and northeastern regions of the country, will be fully implemented.

      Special working mechanisms for major foreign investment projects will be further exploited, while development zones will be better leveraged to attract overseas investors, she said, adding that better services will be provided.

      Source: gov.cn 

    • Preferential CIT policies were introduced for small and micro-profit enterprises whose annual taxable income does not exceed 1 million yuan

      On March 26, the Ministry of Finance and the State Administration of Taxation jointly issued a Notice on Preferential CIT policies for small and micro-profit enterprises (SMEs) and individual industrial and commercial households. The notice will be implemented from January 1, 2023 to December 31, 2024.

      The Announcement makes clear that the part of the annual taxable income of small, micro-profit enterprises that does not exceed 1 million yuan shall be included in the taxable income at a reduced rate of 25%, and the enterprise income tax shall be paid at a tax rate of 20%. On the basis of the current preferential policies, individual income tax shall be levied by half on the part of the annual taxable income of individual industrial and commercial households that does not exceed 1 million yuan. We conclude the eventual preferential CIT rates for small, micro-profit enterprises are:

      Taxable profit Final CIT rates Period of Validity
      Total ≤ 3M 5% Valid till 31/12/2024
      Total >3M 25%

      SMEs shall mean enterprises engaging in non-restricted and non-prohibited businesses, which satisfy the three criteria simultaneously:

      Total assets ≤ CNY 50,000,000
      Taxable Profit ≤ CNY 3,000,000
      Number of employees ≤300
    • Two Authorities Optimize Policy of Extra Tax Deduction for Research & Development Expense

      The Ministry of Finance ("MOF") and the State Taxation Administration ("STA") jointly published on March 26, 2023 the Announcement on Further Improving the Policy of Extra Tax Deduction for Research & Development Expenses, effective January 1, 2023.

      "Announcement" makes it clear that for the actual R&D expenses which enterprises actually incurred in the R&D activities, enterprises can enjoy additional 100% deduction for taxable income if the R&D expenses do not form intangible assets but go into the current profit and loss; enterprises can amortize the intangible assets at 200% of its cost if the R&D expenses are formed into intangible assets. The announcement is valid from January 1, 2023.

    • State Administration of Taxation of the Ministry of Finance: Extend the preferential policy of urban land use tax for some land used by logistics enterprises

      On March 26, the Ministry of Finance and the State Administration of Taxation issued the Announcement on Continuing to implement Preferential Policies on urban Land Use tax for bulk commodity storage Facilities used by logistics Enterprises.

      "Notice" makes it clear that from January 1, 2023 to December 31, 2027, the facility lands for bulking commodity which logistics enterprises own (including self-use and rent) or leased, can be reduced by 50% of the applicable tax standard of the land class to calculate urban land use tax. The Notice also regulates logistics enterprises, bulk commodity storage facilities and land use for storage facilities. Taxpayers enjoying the tax reduction policy stipulated in the "Notice" should declare tax reduction and exemption according to the provisions, and keep the real estate ownership certificate, land use certificate, lease agreement and other materials for future reference.

    • The Ministry of Finance: The temporary tariff rate of zero for coal imports will continue until the end of this year

      The Tariff Commission of The State Council recently issued the Notice on Extending the implementation period of the Provisional Zero Tariff Rate on Coal Imports, which decided to continue to apply the provisional zero tariff rate on coal imports from April 1, 2023 to December 31, 2023.

      At the same time, the Announcement released the Provisional Tax Rate Table of Coal Import, which includes seven types of commodities: unmade anthracite, coking coal, unmade other bituminous coal, unmade other coal, coal brick, coal briquettes and similar solid fuels made from coal, unmade brown coal and made brown coal.

  • Focus Africa
    • Africa in Review by the Numbers (April 2023)

      $10 billion Funding to be mobilised by African Development Bank to increase food production in Africa for the next five years. AfDB estimated that the region could increase its agricultural output to $1 trillion by 2030. (Food Business Africa)

      1000 MW  Floating solar project proposed by China Energy in Zimbabwe, which is currently meeting less than half of its energy needs. The $1 billion project will comprise 1.8 million solar panels installed at Kariba Dam. (Reuters)

      2500 Charging stations for electric vehicles to be installed in Morocco over the next three years. the facilities will be distributed across major cities to promote import of electric vehicles. (Afrik21)

      $77 million Facility provided to Bank of Africa by the IFC to support SMEs in ten African countries. This financing will support businesses in the agriculture, trade, construction and energy sectors, with a focus on increasing lending to women-led businesses. (Togo First)

      42% Proportion of new micro, small and medium enterprises in Kenya that consider debt funding the preferred method of raising capital, according to a new report by the Kenya Startup Ecosystem. The study found that 36% and 22% prefer grants and equity financing, respectively. (Business Daily)

      400 tonnes Titanium produced by a Chinese mining company being stored in Chibuto district in Mozambique awaiting export to the Asian market. High road transport costs between the southern region and the port at Maputo. Construction of a dock in locally in Gaza province is expected to reduce costs of export in the future. (Club of Mozambique)

      $746 million Fund established by Agriculture Finance Corporation, Financial Sector Deepening Kenya and other partners to boost lending to farmers in Kenya with the objective of reducing food imports, increasing local output and spurring economic growth in the sector. (Business Daily)

      42% Drop in spending on motorcycle imports recorded in Nigeria in 2022 to $458 million. The downward trend can be attributed to by the ban on operations of commercial motorcycles in six local government areas in Lagos State. (Vanguard)

      4 Moroccan banks feature in Forbes' listing of the 50 most valuable lenders in the Middle East and North Africa. Growth in Morocco's banking sector is underpinned by the industry's continental expansion strategy, with the leading banks controlling some 28% of the banking market in West Africa. (Morocco World News)

      $667 million Contracts signed between Tanzania and three Australian firms to mine graphite and rare earths. Th deals are part of the East African country's push to boost the mining sector to contribute to 10% of the economy. (The East African)

      1100 MW Renewable energy production targeted in Zimbabwe after incentives were introduced to attract capital for projects with a less negative impact on climate. The incentives include government guarantees for investors to remit dividends in foreign currency. (The Herald)

      46% Proportion of Spain's vegetables sourced from Morocco, according to new data from Informa's DBK Sector Observatory. Morocco is the largest vegetable exporters to the EU, despite inflation and soaring prices in the country. (Morocco World News)

      Review by Kili Partners . Powered by Asoko Insight

    • Nigeria to Align Tax Incentives with GloBE Rules, Continue Participating in Pillar Two Solution Discussions

      On 13 April 2023, the Federal Inland Revenue Service (FIRS) disclosed plans to continue participating in the OECD/Inclusive Framework discussions to ensure that Nigeria and other developing countries maximize the benefits of the two-pillar solution. This development followed a technical workshop between the OECD and Nigeria which was held on 4–5 April 2023. The workshop focused on examining the benefits of the two-pillar solution and discussing the position of Nigeria regarding the rules being developed under the two-pillar solution.

      Following, the workshop, the FIRS issued a statement making recommendations as follows:

      • Nigeria should engage stakeholders to draw up a national strategy to streamline its tax incentives to avoid ceding its tax base to other jurisdictions owing to the implementation of the Pillar Two rules;
      • Nigeria should take immediate steps to forge and implement tax policy actions in response to Pillar 2, including, but not limited to, changing the income tax rule to increase its effective tax rate to a minimum of 15% or introducing a qualified domestic minimum top-up tax (QDMTT);
      • Nigeria should explore the effective implementation of the Pillar 2 rules for increased tax revenue generation to fund government programmes, boost the economy and ensure that Nigeria remains an attractive investment location; and
      • Nigeria should continue to participate in the rule development to protect national interests and improve understanding of the rules to formulate necessary policy responses.

    • International Monetary Fund Advises Nigeria to Broaden Tax Base and Reduce Debt Burden

      On 13 April 2023, the International Monetary Fund (IMF) reiterated its advice to Nigeria to broaden the tax base (i.e. expand taxable persons and raise taxes) and cut borrowings to reduce its debt burden. The IMF has also advocated for the removal and reallocation of the fuel subsidy to the health and education sectors.

      The IMF's Division Chief, Fiscal Affairs Department, stated that Nigeria needs a medium-term plan to reduce debt vulnerabilities. Tax hikes would facilitate the country's ability to manage debt and reprioritize its expenditure.

  • Hong Kong
    • The Stamp Duty (Amendment) (No. 2) Bill 2023 was gazetted

      The introduction of the Bill aims to implement a measure to trawl for talents as announced in the 2022 Policy Address by introducing a refund mechanism (Proposed Refund Mechanism) under the Buyer's Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) regimes for non-Hong Kong permanent residents (non-HKPRs) who have entered Hong Kong under designated talent admission schemes, purchased a residential property in Hong Kong on or after October 19, 2022, and subsequently become Hong Kong permanent residents (HKPRs).

      A Government spokesman stated that under the Proposed Refund Mechanism, for an eligible incoming talent who acquired a residential property in Hong Kong on or after October 19, 2022, and has subsequently become an HKPR, he/she can apply for a refund of the BSD and the NRSD paid for the residential property which, at the time it was purchased, was his/her only residential property (save for replacing property) and he/she still holds on the date of the application for refund. The Ad Valorem Stamp Duty at Scale 2 rates (i.e. the rates applicable to first-time home buyers who are HKPRs) will still be payable such that the overall stamp duty charged will be on par with that charged on first-time home buyers who are HKPRs. The Inland Revenue Department will start accepting refund applications after the approval and gazettal of the new legislation.

      "The Proposed Refund Mechanism can attract incoming talents to stay in Hong Kong for long-term development by substantially reducing their cost of property purchase, as talents who have a residential property in Hong Kong would have a higher propensity of staying here for good," the spokesman said.

      The Bill will be introduced into the Legislative Council on April 19 for First Reading and Second Reading debate.

        Source: Ird.gov.hk
    • Government welcomes passage of tax concessions and increase in child allowance

       The Acting Secretary for Financial Services and the Treasury, Mr Joseph Chan, welcomed the passage of the Inland Revenue (Amendment) (Child Allowance and Tax Concessions) Bill 2023 by the Legislative Council on April 19. It gives effect to two proposals made in the 2023-24 Budget, including:

      1. the reduction of salaries tax, tax under personal assessment and profits tax for the year of assessment 2022/23 by 100 per cent, subject to a ceiling of $6,000 per case; and
      2. increasing the basic child allowance and the additional child allowance for each child born during the year of assessment under salaries tax and tax under personal assessment from $120,000 to $130,000 starting from the year of assessment 2023/24.

      "The two proposals mainly aim at alleviating the burden of taxpayers. The one-off tax concessions will benefit about 1.9 million taxpayers of salaries tax and tax under personal assessment, and 133 500 tax-paying businesses, with the total government revenue forgone amounting to about $9.2 billion. The increase in child allowance will benefit around 324 000 taxpayers and reduce the tax revenue of the Government by about $610 million a year," Mr Chan said.

      The tax concessions will be reflected in taxpayers' final tax payable for the year of assessment 2022/23. Moreover, the Inland Revenue Department will apply the new level of child allowance in calculating the provisional tax for taxpayers for the year of assessment 2023/24.

      Source: Ird.gov.hk

    • Hong Kong Proposes Stamp Duty Refund Mechanism

      Hong Kong is proposing a refund mechanism under the Buyer's Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) regimes for non-Hong Kong permanent residents (non-HKPRs) who have entered Hong Kong under designated talent admission schemes, purchased a residential property in Hong Kong on or after 19 October 2022, and subsequently become HKPRs. This measure is aimed at attracting incoming talents to stay in Hong Kong for long-term development by substantially reducing their acquisition cost of properties. However, the ad valorem stamp duty at Scale 2 rates (i.e. the rates applicable to first-time home buyers who are HKPRs) will still be payable.

      To this end, the Stamp Duty (Amendment) (No. 2) Bill 2023 was gazetted on 6 April 2023 and will be introduced into the Legislative Council on 19 April 2023.

  • India
    • India Passes Finance Act 2023: Debt Mutual Funds Lose Long-term Capital Gains Tax Benefit, Other Key Amendments

      The Finance Bill 2023 was recently passed by the Lok Sabha (lower house) and the Rajya Sabha (upper house), incorporating changes in the Finance Bill introduced by the Finance Minister on 1 February 2023. The key amendments, in respect of income tax, in the Finance Act 2023 are as follows.

      Marginal relief to resident individuals opting for new scheme

      A rebate will be available to resident individuals opting for the new individual income tax scheme if the total income during the previous year did not exceed INR 700,000. Furthermore, the amended Finance Act provides a marginal rebate to resident individuals whose income marginally exceeds INR 700,000.

      Clarity on capital gains from debt mutual funds

      Debt mutual funds lose their long-term capital gains (LTCG) tax benefit if less than 35% is invested in equity instruments. Hence, any income or gain from sales, redemptions or maturities from these funds will be considered short-term capital gains and taxed at the applicable tax slab of the investor, regardless of the investment's holding period.

      Change in tax rates on specified income

      The amended Finance Act provides the following tax rate changes:

      • a concessional tax rate of 10% on dividends (normally 20%) received from an International Financial Services Centre (IFSC) Unit by a non-resident or foreign company; and
      • royalty and fees for technical services received by a non-resident or foreign company are to be taxed at 20% (previously 10%).

      Applicability of tax deduction at source (TDS) on online gaming winnings from 1st April 2023

      The Finance Act brought forward the applicability of the 30% TDS on winnings from online gaming from 1 July 2023 to 1 April 2023.

      Expansion of meaning of original funds for providing exemption from capital gains

      An investment vehicle in which the Abu Dhabi Investment Authority is the direct or indirect sole shareholder, unit holder, beneficiary or interest holder and such investment vehicle is wholly owned and controlled, directly or indirectly, by the Abu Dhabi Investment Authority or the government of Abu Dhabi shall be eligible for exemption on the transfer of capital assets to the resultant fund formed in India.

      Exemption from capital gains on transferring interest in a joint venture (JV)

      The transfer of interest in a JV by a public sector company in exchange for shares in a foreign company shall not be considered as transfer and hence is exempted from capital gains tax.

      Unit of IFSC may opt for tonnage tax scheme after claiming income-based deduction

      The Finance Act allows a unit of an IFSC that has claimed the income-based deduction benefit to make an application to opt for a tonnage tax scheme within 3 months from the date such income-based deduction benefit ceases.

      Additional benefits for offshore banking units

      Section 80LA previously provided a deduction of 100% of the income from any 5 consecutive assessment years and a deduction of 50% of the income from offshore banking units for the subsequent 5 assessment years. However, the amended Finance Act increased the deduction from 50% to 100% for the subsequent 5 assessment years.

      No surcharge and cess on income from securities held by specified fund

      In respect of income from securities held by a specified fund referred to in section 10(4D), no surcharge and cess shall be levied on income tax calculated on the same. This amendment shall be applicable from 1 April 2023.

      Tax to be collected at source if remittance under liberalized remittance scheme is made within India

      Tax collection at source (TCS) shall be applicable in relation to remittance under the Liberalized Remittance Scheme (LRS), even if the remittance is made within India, at the rate of 20% with effect from 1 July 2023.

      Maximum rate of TCS shall be 20%

      The maximum rate of TCS has been capped at 20% in case of persons not having a valid permanent account number (PAN) and non-filers of returns of income.

      Introduction of new rate of TDS

      Tax shall be deducted at the rate of 9% on sums paid by way of interest on money borrowed from a source outside India by issuing a long-term bond or rupee denominated bond, which is listed only on a recognized stock exchange located in an IFSC, on or after 1 April 2023.

      Exemption on income received by non-resident from portfolio of securities

      Income received by a non-resident from a portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an offshore banking unit in any IFSC is exempt from income tax.

      Benefits in respect of shares of a domestic company engaged in aircraft leasing

      With effect from 1 April 2023, the Finance Act exempts income earned by a non-resident or a unit of an IFSC on the transfer of shares of a domestic company engaged in aircraft leasing, subject to the fulfilment of certain conditions.

      The dividend received by an IFSC unit engaged in aircraft leasing business shall be exempt, provided that the company paying the dividend is also an IFSC unit engaged in aircraft leasing business.

      Taxability of specified sum received from business trust

      The Finance Act provides that a "specified sum" shall be computed as per the computation mechanism provided in the Act, in order to bring the sums received by a unit holder from a business trust into the ambit of taxation. Further, with effect from 1 April 2023, the cost of acquisition of a unit shall be reduced by any sum received from the business trust, subject to specified conditions.

    • Highlights of the performance of the Indian companies with FDI in 2021-22

      The Reserve Bank of India issued information about the FDI companies' financial performance in India during the years 2021–2022. Based on the annual audited financial statements of 2,206 FDI companies in India, the information about financial performance is provided. Here are some of the data's salient features:

      • The majority of investments in 2206 enterprises fell into one of two categories: manufacturing or services. Out of the 2206 companies, 847 were in the manufacturing sector, and the remaining 982 were in the services sector.
      • Japan was the biggest investor in the manufacturing sector, investing in over 157 companies across several sub-industries. Singapore and the USA were the next-largest investors, each investing in 92 and 91 companies, respectively. Singapore was regarded as the main investor in the services industry, investing in 246 firms, followed by the USA and Mauritius, which each made investments in 156 and 194 companies, respectively.
      • Among the 2206 companies 576 (~26.1 per cent) companies were public and 1630 (~73.9 per cent) companies were private. The investments in the private company performed better as the Gross Profit (EBIT) in private companies increased from 2.7  per cent in 2020-21 to 24.0 per cent in 2021-22 whereas in public companies the EBIT grew from 22.3 per cent in 2020-21 to 27.4 per cent in 2021-22.
      • As the COVID-19 pandemic's effects faded and economic activity picked up in 2021–2022 for FDI enterprises, sales of the sample companies increased by 29.7 per cent from growth of 2.0 per cent the previous year. Consequently, from 2.4 per cent the year before to 30.9 per cent in 2021–2022, the value of production has also increased.
      • In order to keep up with the jump in sales, operating costs rose; the proportion of raw material costs to total spending went up from 47.0 per cent to 51.1 per cent. Furthermore, the ratio of gross savings to gross capital formation rose from 55.6 per cent in 2020–21 to 81.2 per cent in 2021–22, demonstrating better money management.
      • Royalty payment by FDI companies increased by 33.4 per cent from 19.7 per cent to 1.35 per cent of their total spending in 2021–2022; research and development accounted for 0.11 per cent of total expenditure. From 3,46,282 crores in 2020–21 to 3,91,545 crores in 2021–22, operating profit increased by 13.1 per cent.
      • The sample companies' operating profit climbed by 21.4 per cent in 2021–2022; manufacturing firms kept their operating profit margin, which fell somewhat for the services sector.
      • Around 36 per cent of the new funds were used in fixed capital formation by the sample enterprises. During 2021–2022, non–current investments, inventory, and receivables were also significant uses of cash.
      • The Profit After Tax (PAT) in companies seeing investment across all industries from Japan increased from -14.5 per cent in 2020-21 to 138.2 per cent in 2021-22. Whereas the PAT in companies from Mauritius across all industries decreased from -62.6 per cent in 2020-21 to -167.9 per cent in 2021-22, thereby making investment from Mauritius loss making on average.

      In summary, the manufacturing and services sectors received the most investments, with Japan, Singapore, and the USA being the major investors. Private companies performed better than public ones, and sales and production values increased as the pandemic's effects subsided. However, operating costs increased, and better money management practices were implemented. Manufacturing firms maintained their operating profit margins, while the services sector saw a slight decline. New funds were primarily allocated towards fixed capital formation, non-current investments, inventory, and receivables. Finally, there were variations in the Profit After Tax (PAT) across investing countries, with Japan seeing a significant increase and Mauritius experiencing a decrease, making their investments less profitable on average.

      Source: Investindia.gov.in

    • India Restricts Reporting of E-invoices, Other Documents to 7-Day Deadline for Large Taxpayers

      On 12 and 13 April 2023, India's Goods and Services Tax Network (GSTN) issued two advisories mandating taxpayers with an annual aggregate turnover (AATO) of INR 1 billion to report e-invoices on the Invoice Registration Portal (IRP) within 7 days of the date of the invoice.

      This restriction applies to invoices as well as all document types for which a unique invoice reference number (IRN) is to be generated, i.e. debit notes and credit notes, as clarified by the advisory dated 13 April 2023.

      Such taxpayers will not be allowed to report invoices older than 7 days from the date of reporting. This restriction does not apply to taxpayers with AATO less than INR 1 billion.

      This restriction comes into effect from 1 May 2023.

    • India’s Strategic Lithium Reserves and the Future of Clean Energy

      Lithium is a critical component used in the production of batteries for electric vehicles, cell phones, computers, and other gadgets. With its use case spanning the domains of defence, aviation and energy, it is viewed as a strategic material. India recently revealed its first significant finding of lithium reserves in Jammu and Kashmir.

      The demand for essential metals like lithium and cobalt is predicted to increase by roughly 500 percent by 2050. Currently, the majority of the world's lithium is supplied by China, Australia, Chile, and Argentina. India imported lithium batteries worth $1.2 billion in 2019–20, up from $384 million in 2017, according to the Ministry of Mines. With 5.9 million tonnes of lithium found in India, the government has announced that the reserve is of exceptional quality. However, the extraction of the metal is expected to be a time-consuming process. As per the officials, the reserve has undergone a G3 level study, which will be followed by a G2 and G1 study before the final extraction of the metal can take place. This detailed approach will ensure that the extraction is done in a careful and systematic manner, with a thorough understanding of the geology and other factors that may impact the process.

      The India Opportunity

      The discovery of Lithium reserves in the Salal-Haimana region in Jammu and Kashmir's Reasi district will have significant implications for the Indian economy, especially the electric vehicle industry and battery manufacturing industry. The global electric vehicle market, heavily dependent on Lithium, is projected to reach $823.75 billion by 2030, registering a Compounded Annual Growth Rate (CAGR) of 18.2 per cent from 2021 to 2030. The Indian electric vehicle market is poised to grow at a CAGR of 23.76 percent by 2028. India is projected to have 6.8 million electric vehicles on its roads by 2030, up from 0.5 million in 2020. Lithium and batteries would be needed in enormous quantities for India to achieve the aforementioned goal.

      Foreign Direct Investment (FDI) in the battery manufacturing sector has been pouring into India, with major companies such as Suzuki, Toshiba, and Denso from Japan having made substantial investments in the Indian market. The government has relaxed FDI norms permitted FDI up to 100 percent under automatic route in the manufacturing of ACC batteries, signalling its commitment to making India a favourable destination for foreign investment in the electric vehicle industry. This move is part of the Indian government's larger vision to make India a global manufacturing hub and a leading player in the electric vehicle market.

      Government Initiatives

      The government’s supportive policies and initiatives have been encouraging the growth of the domestic battery manufacturing. Khanij Bidesh India Ltd (KABIL), a joint venture business with the participation of three Central Public Sector Enterprises has been established to identify, acquire, develop, and process critical minerals and metals such as lithium, cobalt, copper, and nickel, which are essential for the growth of various industries, including electric vehicles and renewable energy. KABIL operates both in India and abroad, and its primary objective is to reduce India's dependence on imports of critical minerals and metals, aligning with the vision of Atmanirbhar Bharat. The company is also expected to contribute to the Indian economy by creating employment opportunities, promoting domestic manufacturing, and enhancing the country's strategic reserves of essential minerals and metals. The government has also launched the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, which provides incentives for the adoption of electric vehicles. The Union Budget 2023 has allocated INR 51.72 billion (approximately $ 631 million) towards its FAME-II scheme to subsidize and promote the adoption of clean energy vehicles. The government has allowed 100 percent FDI in electric mobility and encouraged domestic manufacturing of battery packs. Due to this measure, LiB technology has overtaken lead-acid batteries in mobile and stationary applications. Additionally, the government has established a National Mission on Transformative Mobility and Battery Storage to facilitate research and development in the field.


      In conclusion, India's recent discovery of lithium reserves is a significant step towards achieving energy security and environmentally friendly transportation. The Indian government has taken a comprehensive approach towards the growth of the battery sector, with initiatives such as FAME and KABIL, providing opportunities for foreign investors to invest in this growing sector. India's lithium reserves and the government's initiatives bode well for the country's energy security and economic growth in the coming years.

      Source: Investindia.gov.in

    • Decentralized Export Promotion- Districts as Export Hubs Initiative

      Foreign trade today constitutes 45% of India’s Gross Domestic Product (GDP). Strategies to increase exports need the active assistance of the State Governments, given the variety of factors that go into creating an enabling and favourable foreign trade environment. Therefore, in order for exports to rise exponentially, states must actively participate in export promotion operations.

      The Honble’ Prime Minister of India's aspiration for each district to become an export hub shifted attention to the need for districts to be active stakeholders in the promotion of exports of goods and services produced or manufactured there. To increase local production and make districts active participants in promoting the export growth of local goods/services, the export promotion activity has to be decentralised. Every district has products and services which are being exported, and can be further promoted, along with new products / services, to increase production, generate economic activity and achieve the goal of Atmanirbhar Bharat, Vocal for Local and Make in India.

      The Foreign Trade Policy (FTP) 2023-28 of India has thus taken up the goal to boost India’s foreign trade through decentralized export promotion. One of the strategies outlined in the policy is the Districts as Export Hubs Initiative. This initiative aims to identify potential export products and services in all districts and create institutional mechanisms to promote them.


      • To enable MSMEs, farmers, and small businesses to benefit from export opportunities in foreign markets.
      • To shift focus on District led Export Growth for self-sufficiency and self reliance
      • Attract investment in the District to and boost manufacturing and exports
      • Create a district-level ecosystem for innovation and technology utilisation to increase export competitiveness.
      • Reduce transaction cost for the exporter at various stages of export cycle
      • Handholding and assistance to exporters by doorstep delivery of timely and relevant information
      • Providing platforms for wide and global reach of products and services from the district through E-commerce and Digital marketing which in turn, will promote Artisans, Farmers, Handicraft, Handloom, tourism and other cottage industries


      The Districts as Export Hubs Initiative proposed under the FTP 2023-28 aims to boost India’s foreign trade through decentralized export promotion. The initiative proposes many strategies such as creating an institutional framework, identifying potential export products, capacity building for new exporters, conducting export promotion outreach programs, addressing infrastructure and logistics bottlenecks, and converging ongoing government schemes to support these initiatives.

      The implementation of these strategies is expected to create an enabling environment for exports at the district level, which will lead to increased foreign trade and economic growth for India. It is hoped that the initiative will encourage entrepreneurs and small businesses to explore the potential of exports, thereby contributing to the overall growth of the Indian economy.

      In conclusion, the Districts as Export Hubs Initiative is a step in the right direction towards achieving the goal of boosting India’s foreign trade through decentralized export promotion. It is important that the initiative is implemented effectively to realize its potential in promoting exports and driving economic growth in India.

      Source: Investindia.gov.in

    • Unity in Diversity: India and Italy’s Strong Friendship

      Italy and India may seem like two vastly different worlds, but they share a strong bond of friendship that has spanned over two millennia. The two nations have celebrated 75 years of diplomatic relations, and as the saying goes, "Chi Trova un Amico, Trova un Tesoro" - those who find a friend find a treasure.

      From the rolling hills of Tuscany to the bustling streets of Mumbai, the two countries share a common thread of culture, politics, and economics. Family life is central to both nations, and the importance of regional diversity and language is deeply ingrained in their societies. Even their love for food is strikingly similar, with Italian pasta and pizza finding a place on Indian tables, and Indian spices adding a punch to Italian dishes.

      Our past is alive with moments of appreciation and cross – cultural exchange between India and Italy. The spice route, linking India and Italy for centuries, not only facilitated trade but also shaped our shared heritage. Marco Polo's journey to India in the 13th century left him awestruck by its lavish culture and flourishing trade.

      The world of art is indebted to Italy for its timeless contributions, with the masterpieces of da Vinci, Michelangelo, and Botticelli revered for centuries. In parallel, Indian art's intricate designs, vivid colors, and profound symbolism have bewitched audiences worldwide. We can also discern the subtle nuances of Hellenistic and Greco-Roman art mingling with the ancient Indian art, particularly during the Mauryan epoch.

      As if destiny had woven their paths together, the large Indian diaspora in Italy has only strengthened the Indo – Italian friendship. With over 200,000 Indians living in Italy, the exchange of ideas, traditions, and values continues to flourish.

      Both India and Italy have a rich history and are home to some of the most iconic historical landmarks. The ruins of Pompeii and the majestic Colosseum in Rome stand witness to Italy's glorious past, while the Taj Mahal and Red Fort in India reflect the country's rich cultural heritage. The cities of Venice and Alappuzha, also known as the "Venice of the East," and "Venetian Capital" of Kerala are famous for their beautiful backwaters and houseboats, attracting tourists from all over the world.

      India and Italy also share a common vision for regional stability, international rule of law, innovation, technology, and sustainability. The spirit of cooperation between the two nations is reflected in their strong economic ties. Italy is one of India's top four trading partners in the EU, with over 700 Italian companies operating in India. In turn, over 140 Indian companies have made Italy their home. The "Make in India" initiative launched by Prime Minister Narendra Modi in 2014 has been instrumental in attracting Italian companies to India and making the country a manufacturing hub.

      The India – Italy bilateral relations has grown by leaps and bounds in recent years. The new dimension of their relationship was on full display during the visit of newly elected Italian Prime Minister Georgia Meloni to India on 2nd March 2023. She met with Prime Minister Narendra Modi and was invited as chief guest and keynote speaker at the 8th Raisina Dialogue. During her visit, the two leaders announced elevating the relationship of Italy and India to that of a Strategic Partnership, marking a new chapter in their diplomatic ties. Furthermore, a Startup Bridge was announced between the two nations, for knowledge sharing and market entry support.

      Prime Minister Meloni’s visit extended beyond political commitments. It also encompassed Italy’s optimistic economic outlook towards India. To foster business ties, the India-Italy Business Roundtable was hosted on April 2, 2023, by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce, and the Italian Embassy in New Delhi. Industry leaders from strategic sectors such as infrastructure, automotive, energy transition, defense, finance, and telecom attended the event from both nations. Furthermore, to celebrate and promote the role of Italian manufacturing in India, the Embassy of Italy in New Delhi and the Indo-Italian Chamber of Commerce and Industry organized a unique exhibition titled "ITALIAN TECH in INDIA - Italian Know-How for India’s Energy Transition and Manufacturing Growth." The exhibition displayed the significant contributions of Italian companies to India's economic and technological advancement, accentuating the best of what Italy and India have to offer each other.

      India – Italy friendship is a testament to the power of cultural exchange, economic cooperation, and mutual respect. The ties between the two countries have only grown stronger over the years, and there is no doubt that this friendship will continue to flourish for many years to come.

        Source: investindia.gov.in
    • India launches Foreign Trade Policy (FTP) 2023

      Foreign Trade Policy (2023) is a policy document based on continuity of time-tested schemes facilitating exports as well as a document which is nimble and responsive to the requirements of trade. It is based on principles of ‘trust’ and ‘partnership’ with exporters. In the FTP 2015-20, changes were done subsequent to the initial release even without announcement of a new FTP responding dynamically to the emerging situations. Hereafter, the revisions of the FTP shall be done as and when required. Incorporating feedback from Trade and Industry would also be continuous to streamline processes and update FTP, from time to time.

      The Key Approach to the policy is based on these 4 pillars:

      1. Incentive to Remission
      2. Export promotion through collaboration - Exporters, States, Districts, Indian Missions
      3. Ease of doing business, reduction in transaction cost and e-initiatives and
      4. Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET policy.

      The FTP 2023 aims at process re-engineering and automation to facilitate ease of doing business for exporters. It also focuses on emerging areas like dual use high end technology items under SCOMET, facilitating e-commerce export, collaborating with States and Districts for export promotion.

      The new FTP is introducing a one-time Amnesty Scheme for exporters to close the old pending authorizations and start afresh.

      The FTP 2023 encourages recognition of new towns through “Towns of Export Excellence Scheme” and exporters through “Status Holder Scheme”. The FTP 2023 is facilitating exports by streamlining the popular Advance Authorization and EPCG schemes, and enabling merchanting trade from India.

      Process Re-Engineering and Automation

      Greater faith is being reposed on exporters through automated IT systems with risk management system for various approvals in the new FTP. The policy emphasizes export promotion and development, moving away from an incentive regime to a regime which is facilitating, based on technology interface and principles of collaboration.Considering the effectiveness of some of the ongoing schemes like Advance Authorisation, EPCG etc. under FTP 2015-20, they will be continued along with substantial process re-engineering and technology enablement for facilitating the exporters. FTP 2023 codifies implementation mechanisms in a paperless, online environment, building on earlier 'ease of doing business' initiatives. Reduction in fee structures and IT-based schemes will make it easier for MSMEs and others to access export benefits.

      It is proposed to reform the e-Certificate of Origin platform to allow self-certification of Certificate of Origin (CoO) and its automatic approval, where feasible. Another initiative being considered is the electronic exchange of CoO data with partner countries.

      Duty exemption schemes for export production will now be implemented through Regional Offices in a rule-based IT system environment, eliminating the need for manual interface. During the FY23-24, all processes under the Advance and EPCG Schemes, including issue, re-validation, and EO extension, will be covered in a phased manner. Cases identified under risk management framework will be scrutinized manually, while majority of the applicants are expected to be covered under the 'automatic' route initially.

       Towns of Export Excellence

      Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns. The TEEs will have priority access to export promotion funds under the MAI scheme and will be able to avail Common Service Provider (CSP) benefits for export fulfillment under the EPCG Scheme. This addition is expected to boost the exports of handlooms, handicrafts, and carpets.

       Recognition of Exporters

      Exporter firms recognized with 'status' based on export performance will now be partners in capacity-building initiatives on a best-endeavor basis. Similar to the 'each one teach one' initiative, 2-star and above status holders would be encouraged to provide trade-related training based on a model curriculum to interested individuals. This will help India build a skilled manpower pool capable of servicing a $5 Trillion economy before 2030. Status recognition norms have been re-calibrated to enable more exporting firms to achieve 4 and 5-star ratings, leading to better branding opportunities in export markets.

      Promoting export from the districts

      The FTP aims at building partnerships with State governments and taking forward the Districts as Export Hubs (DEH) initiative to promote exports at the district level and accelerate the development of grassroots trade ecosystem. Efforts to identify export worthy products & services and resolve concerns at the district level will be madethrough an institutional mechanism – State Export Promotion Committee and District Export Promotion Committee at the State and District level, respectively.District specific export action plans to be prepared for each district outlining the district specific strategy to promote export of identified products and services.

      Streamlining SCOMET Policy

      India is placing more emphasis on the "export control" regime as its integration with export control regime countries strengthens. There is a wider outreach and understanding of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) among stakeholders, and the policy regime is being made more robust to implement international treaties and agreements entered into by India.A robust export control system in India would provide access of dual-use High end goods and technologies to Indian exporters while facilitating exports of controlled items/technologies under SCOMET from India.

      Facilitating E-Commerce Exports

      E-commerce exports are a promising category that requires distinct policy interventions from traditional offline trade. Various estimates suggest e-commerce export potential in the range of $200 to $300 billion by 2030. FTP 2023 outlines the intent and roadmap for establishing e-commerce hubs and related elements such as payment reconciliation, book-keeping, returns policy, and export entitlements. As a starting point, the consignment wise cap on E-Commerce exports through courier has been raised from ₹5Lakh to ₹10 Lakh in the FTP 2023. Depending on the feedback of exporters, this cap will be further revised or eventually removed.Integration of Courier and Postal exports with ICEGATE will enable exporters to claim benefits under FTP. The comprehensive e-commerce policy addressing the export/import ecosystem would be elaborated soon, based on the recommendations of the working committee on e-commerce exports and inter-ministerial deliberations.Extensive outreach and training activities will be taken up to build capacity of artisans, weavers, garment manufacturers, gems and jewellery designers to onboard them on E-Commerce platforms and facilitate higher exports.

      Facilitation under Export Promotion of Capital Goods (EPCG) Scheme

      The EPCG Scheme, which allows import of capital goods at zero Customs duty for export production, is being further rationalized. Some key changes being added are:

      • Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been added as an additional scheme eligible to claim benefits under CSP (Common Service Provider) Scheme of Export Promotion capital Goods Scheme(EPCG).
      • Dairy sector to be exempted from maintaining Average Export Obligation – to support dairy sector to upgrade the technology.
      • Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling, Rainwater harvesting system and Rainwater Filters, and Green Hydrogen are added to Green Technology products – will now be eligible for reduced Export Obligation requirement under EPCG Scheme

      Facilitation under Advance authorization Scheme

      Advance authorisation Scheme accessed by DTA units provides duty-free import of raw materials for manufacturing export items and is placed at a similar footing to EOU and SEZ Scheme. However, the DTA unit has the flexibility to work both for domestic as well as export production. Based on interactions with industry and Export Promotion councils, certain facilitation provisions have been added in the present FTP such as

      • Special Advance Authorisation Scheme extended to export of Apparel and Clothing sector under para 4.07 of HBP on self-declaration basis to facilitate prompt execution of export orders – Norms would be fixed within fixed timeframe.
      • Benefits of Self-Ratification Scheme for fixation of Input-Output Norms extended to 2 star and above status holders in addition to Authorised Economic Operators at present.

      Merchanting trade

      To develop India into a merchanting trade hub, the FTP 2023 has introduced provisions for merchanting trade. Merchanting trade of restricted and prohibited items under export policy would now be possible. Merchanting trade involves shipment of goods from one foreign country to another foreign country without touching Indian ports, involving an Indian intermediary. This will be subject to compliance with RBI guidelines, andwon’t be applicable for goods/items classified in the CITES and SCOMET list. In course of time, this will allow Indian entrepreneurs to convert certain places like GIFT city etc. into major merchanting hubs as seen in places like Dubai, Singapore and Hong Kong.

      Amnesty Scheme

      Finally, the government is strongly committed to reducing litigation and fostering trust-based relationships to help alleviate the issues faced by exporters. In line with "Vivaad se Vishwaas" initiative, which sought to settle tax disputes amicably, the governmentis introducing a special one-time Amnesty Scheme under the FTP 2023 to address default on Export Obligations. This scheme is intended to provide relief to exporters who have been unable to meet their obligations under EPCG and Advance Authorizations, and who are burdened by high duty and interest costs associated with pending cases. All pending cases of the default in meeting Export Obligation (EO) of authorizations mentioned can be regularized on payment of all customs duties that were exempted in proportion to unfulfilled Export Obligation. The interest payable is capped at 100% of these exempted duties under this scheme.  However, no interest is payable on the portion of Additional Customs Duty and Special Additional Customs Duty and this is likely to provide relief to exporters as interest burden will come down substantially. It is hoped that this amnesty will give these exporters a fresh start and an opportunity to come into compliance.

      Sources: Press Information Bureau ; DIRECTORATE GENERAL OF FOREIGN TRADE - Government of India

  • Singapore
    • Singapore updates the e-Tax guide on the general anti-avoidance provision

      The e-Tax guide on the general anti-avoidance provision under section 33 of the Income Tax Act 1947 (ITA) has been revised by the Inland Revenue Authority of Singapore (IRAS) to include two new examples of tax avoidance arrangements. These are:

      • setting up of a conduit entity to obtain a treaty benefit for the purpose of avoiding withholding tax;
      • assignment of debt to an offshore jurisdiction for the main purpose of obtaining a tax advantage.

      Since the list of tax avoidance arrangements in the e-Tax guide is not exhaustive, IRAS has clarified that the absence of a specific arrangement in the guide does not fall outside the scope of section 33(1) of the ITA.

      The e-Tax guide updated by IRAS includes details regarding the Section 33A Surcharge, which will come into effect from YA 2023. The guide outlines how the surcharge will be imposed, the remission, and payment of the surcharge.

      You can refer to the e-Tax guide on IRAS website

  • Switzerland
    • Federal Council, Parliament Recommend Accepting OECD Corporate Minimum Tax; Referendum Set for 18 June

      The Swiss Federal Council and Parliament has encouraged voters to implement the OECD/G20 reform on minimum taxation for large multinational enterprises. The electorate will vote on the requisite constitutional amendment on 18 June 2023. In a press conference on 24 April 2023, Federal Councillor Karin Keller-Sutter presented arguments in favour of accepting the proposal.

      Switzerland has signed up to the OECD/G20 minimum taxation project for large multinational enterprises, together with around 140 other countries. The aim is for these companies to pay at least 15% tax on profits in each jurisdiction if their annual turnover exceeds EUR 750 million. According to an estimate by the Federal Tax Administration (FTA), the OECD/G20 reform affects only a few hundred Swiss and a few thousand foreign corporate groups directly. The OECD/G20 minimum tax rate is to be introduced through a constitutional amendment, which will be subject to a vote by the people and the cantons.

      By implementing the minimum tax rate, the Federal Council and Parliament want to ensure internationally stable framework conditions for Switzerland as a business location, and secure Swiss tax revenues and jobs. If Switzerland does not introduce minimum taxation, other jurisdictions could collect the difference between the lower tax burden in Switzerland and the minimum tax rate of 15%. Thus, introducing the minimum tax rate ensures that the tax revenues remain in Switzerland. Moreover, the legal framework creates legal certainty for the affected companies in Switzerland.

      Under the proposed constitutional amendment, Switzerland will implement the minimum tax rate through a supplementary tax. This covers the difference between the current tax burden and the minimum tax rate of 15%. The FTA estimates that the revenues from the supplementary tax will amount to CHF 1 - 2.5 billion in the first year. Of the revenues from the supplementary tax, 75% will go to those cantons in which the current tax burden for the companies concerned is less than 15%. The Confederation will be entitled to 25% of the revenues. The parliament decided on such a distribution ratio that is based on a compromise reached between representatives of the Confederation, cantons, cities, and municipalities.

      The cantons will decide independently on the use of their revenues, taking due account of the municipalities. The supplementary revenues will be used for national fiscal equalization. This ensures that all cantons benefit from the tax revenues, including the financially weaker cantons. Around one-third of the federal share will also flow into the national fiscal equalization. The Confederation will use the remaining funds for the nationwide promotion of locational appeal. This could, for example, involve fostering research or measures to achieve a better work/life balance.

      Since several jurisdictions are planning to bring the minimum tax rate into force by 2024, the proposal which will be submitted to a popular vote ensures that Switzerland will be ready at the same time, by allowing the Federal Council to temporarily introduce the minimum tax rate by ordinance. Subsequently, the Federal Council will submit a respective implementation law to the parliament within 6 years, which will replace the ordinance.

    • Investment promotion 2022: positive settlement figures despite challenging market environment

      The statistics for investment promotion by the federal government, cantons and regions conclude positively overall in 2022. A total of 265 companies were able to settle in Switzerland, creating 1,199 new jobs in the first year of operation. Over the next three years, these companies plan to create a total of more than 3,100 new jobs in Switzerland. In geographical terms, around half of the companies that have settled come from the USA, Germany and France.

      Once a year, the Conference of Cantonal Directors of Economic Affairs (VDK), in cooperation with the cantonal economic development agencies and regional organizations, collects figures on new settlements of foreign companies in Switzerland. These are settlements achieved through the cantonal, regional and national location promotion agencies. Even though the number of companies settling in Switzerland has dropped by 17 to 265 compared to the previous year, the development of new settlements has remained relatively stable over the last 10 years (between 220 and 280 settlements per year). Due to the numerous environmental influences, the settlement business is subject to considerable annual fluctuations in some cases. As in previous years, most of the companies that have settled in the cantons are from the information and communications technology (ICT) or life sciences sectors.

      Strengthening Switzerland as a center of innovation and technology

      National investment promotion in Switzerland is a joint task of the federal government and the cantons. These mandate the official Swiss organization for export promotion and investment promotion, Switzerland Global Enterprise (S-GE), with the promotion activities with a national approach. The representations of S-GE abroad are part of the Swiss embassies or consulates general and are managed as "Swiss Business Hubs". The Swiss Business Hubs market Switzerland as a leading innovation and technology location and identify and advise high-value-added companies with settlement potential. S-GE forwards concrete settlement projects to the regions and cantons, which then lobby for a settlement in their canton in the federal competition.

      The current 2020-2023 strategy of the national investment promotion of the federal government and cantons positions Switzerland with a clear focus on innovative companies from technologies with future potential. This is with the aim of sustainably strengthening the innovative power of the Swiss economy as a whole and keeping it competitive. In doing so, these companies also contribute to strengthening regional and local value creation as well as the SME landscape with their innovative know-how in their network. In principle, the federal government and the cantons want to continue to pursue this strategic thrust in the years 2024-2027. The Federal Council has also stated this in its dispatch on investment promotion 2024-2027.

        Source: s-ge.com
  • United Arab Emirates
    • Ministry of Finance Issues Decision on Small Business Relief for Corporate Tax Purposes

      The Ministry of Finance has issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”).

      The decision is issued in accordance with Article 21 of the Corporate Tax Law, which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold.

      Small Business Relief is intended to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs. The Ministerial Decision on Small Business Relief specifies the revenue threshold and conditions for a taxable person to elect for Small Business Relief and clarifies the provisions of the carried forward Tax Losses and disallowed Net Interest Expenditure under the Small Business Relief scheme.

      The Ministerial Decision on Small Business Relief stipulates the following:

      • Taxable persons that are resident persons can claim Small Business Relief where their revenue in the relevant tax period and previous tax periods is below AED3 million for each tax period. This means that once a taxable person exceeds the AED3 million revenue threshold in any tax period, then the Small Business Relief will no longer be available.
      • The AED3 million revenue threshold will apply to tax periods starting on or after 1 June 2023 and will only continue to apply to subsequent tax periods that end before or on 31 December 2026.
      • Revenue can be determined based on the applicable accounting standards accepted in the UAE.
      • Small Business Relief will not be available to Qualifying Free Zone Persons or members of Multinational Enterprises Groups (MNE Groups) as defined in Cabinet Decision No. 44 of 2020 on Organising Reports Submitted by Multinational Companies. MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED3.15 billion.
      • In tax periods defined in the decision where businesses do not elect to apply for Small Business Relief, they will be able to carry forward any incurred Tax Losses and any disallowed Net Interest Expenditure from such tax periods, for use in future tax periods in which the Small Business Relief is not elected.
      • With regard to the artificial separation of business, the Ministerial Decision specifies that where the Federal Tax Authority (FTA) establishes that taxable persons have artificially separated their business or business activity and the total revenue of the entire business or business activity exceeds AED3 million in any tax period and such persons have elected to apply for Small Business Relief, this would be considered an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article 50 regarding the general anti-abuse rules of the Corporate Tax Law.

      All Cabinet Decisions and Ministerial Decisions issued relating to the Corporate Tax Law are available on the Ministry of Finance’s website.

        Source: mof.gov
    • Dubai’s real estate sector sees transactions worth AED157 billion in the first quarter of 2023

      • Dubai’s real estate sector sees transactions worth AED157 billion in the first quarter of 2023, an 80% rise from Q1 2022
      • Maktoum bin Mohammed: Outstanding performance of Dubai’s economic sectors reflects Mohammed bin Rashid’s vision and foresight
      • “As one of the most important pillars of the Dubai economy, the real estate sector is a major contributor to the emirate’s efforts to achieve the goals of the Dubai Economic Agenda D33”
      • Dubai records 38,700 real estate transactions in Q1 2023, a 49% increase from Q1 2022
      • Value of real estate sales reaches AED89 billion in Q1 2023, a 62% year-on-year growth
      • Number of new investors entering the emirate’s real estate market in Q1 2023 rises to 13,338, a 12% growth from Q1 2022
      • Non-resident investors account for 45% of total acquisitions in Q1 2023, an increase of 25%

      His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai and Deputy Prime Minister and Minister of Finance of the UAE, said the outstanding performance of Dubai’s economic sectors reflects the vision and foresight of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, and the goal of the Dubai Economic Agenda D33 to consolidate the emirate’s position as one of the world’s top three cities.

      HH Sheikh Maktoum’s comments followed a review of the performance of Dubai’s real estate sector in the first quarter of 2023. The sector recorded a total transaction value of AED157 billion in Q1 2023, an 80% increase from the same period in 2022. The sector had recorded annual transactions worth a total of AED528 billion in the year 2022.

      “Dubai’s real estate sector is one of the key drivers of economic growth and a major factor in maintaining Dubai’s position in the global economy,” HH Sheikh Maktoum said. “As one of the most important pillars of the economy, the sector is a vital contributor to the emirate’s efforts to achieve the goals of the Dubai Economic Agenda D33. We remain committed to further raising the investment attractiveness of Dubai’s real estate sector and its emergence as one of the world’s pre-eminent real estate investment destinations,” His Highness added.

      Exceptional performance Dubai’s real estate sector maintained its high growth momentum in Q1 2023, recording 38,700 transactions worth AED157 billion, an 80% increase in value and 49% increase in volume from Q1 2022, which saw 26,000 transactions worth AED87 billion. The growth supports the objectives of the Dubai Economic Agenda D33, announced by HH Sheikh Mohammed bin Rashid Al Maktoum, to increase private sector investments and place Dubai at the forefront of global cities.

      Key measures undertaken by the Dubai Land Department to ensure the sustainable growth of the sector helped achieve real estate sales worth AED89 billion in Q1 2023, a 62% increase from the same period in 2022 that saw sales worth AED55 billion. The number of new investors entering the emirate’s real estate market in Q1 2023 rose to 13,338, a 12% growth from Q1 2022. Non-resident investors accounted for 45% of total acquisitions, an increase of 25%.

      Record results His Excellency Sultan Butti bin Mejren, Director General of the Dubai Land Department, said: “We are strongly committed to the comprehensive development of the sector as part of our efforts to ensure Dubai reinforces its position as one of the world’s best real estate investment destinations.

      “The sector saw record results last year, an achievement made possible by Dubai’s robust infrastructure, as well as its sound legislative framework and the visionary initiatives of HH Sheikh Mohammed bin Rashid Al Maktoum,” he added.

      Dubai’s real estate sector registered AED528 billion worth of transactions in the year 2022, a 44.7% increase in volume and 76.5% increase in value compared to 2021.

      The Dubai Land Department continues to work to maintain the growth momentum of the emirate’s real estate sector by providing proactive and streamlined real estate services backed by integrated legislation, productive partnerships, a state-of-the-art digital infrastructure, and a highly qualified team.

      Source: Media Office - Government of Dubai 

    • Ministry of Finance Sets Conditions for Federal and Local Government Entities To Be Considered Single Taxpayers

      The United Arab Emirates Ministry of Finance has set the conditions for federal and local government entities to be considered single taxpayers.

      Federal government entities will be treated as a single taxpayer if the following conditions are met:

      • the application to be treated as a single taxpayer must include all businesses and business activities of the federal government entities;
      • the businesses and business activities of the federal government entities must be carried on under a licence issued by a licensing authority; and
      • the application to the authority to be treated as a single taxable person can be made only by the representative federal government entity.

      Local government units will be treated as a single taxpayer if the following conditions are met:

      • the application to be treated as a single taxpayer must cover all the businesses and business activities of the local government entities;
      • the businesses and business activities of the local government entities must be carried on under a licence issued by a licensing authority;
      • the businesses and business activities of the local government entities must be carried on within the same emirate; and
      • the application to the authority to be treated as a single taxpayer can be made only by the representative local government entity.

      Upon submission of the application to the Federal Tax Authority (FTA), the taxpayer will be treated as a single taxpayer from the beginning of the period for which the application has been submitted or any other period determined by the FTA.

      All enterprises and business activities attributable to the single taxpayer will be consolidated by the representative federal or local government body for the relevant tax period, eliminating transactions between enterprises forming part of the single taxpayer.

      In addition, the decision provides that any new business or business activity of the federal/local government entity that meets the above conditions will be considered part of the single taxable person, and the representative government entity must notify the FTA within 20 business days of the occurrence of such an event. Similarly, if a government entity or licensing authority ceases to carry on business or perform a business activity, the representative government entity must notify the FTA within 20 business days of the change.

      Decision No. 68 of 2023 was issued on 29 March 2023 for the purpose of the provisions of article 5 of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

    • Dubai Customs: Foreign trade sector on track to achieve D33 with 7 million transactions in 3 months

      The foreign trade sector in Dubai is actively pursuing the goals outlined in the Dubai Economic Agenda D33. This initiative was launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, with the objective of doubling Dubai's economy over the next decade and solidifying its position as one of the world's top three economic cities.

      In the first quarter of this year, there has been a notable increase in customs transactions, with a record of 7 million transactions, according to Ahmed Mahboob Musabih, Director General of Dubai Customs and CEO of the Ports, Customs and Free Zone Corporation. Dubai Customs' smart services and projects support Dubai's journey to becoming one of the fastest growing cities in the world, with its ability to automate customs procedures, enhance business operations and increase returns on commercial activities, attracting more investments and companies in the commercial sector. Dubai Customs values continuous communication and interaction with its clients, as evidenced by the Consultative Council's first meeting this year, which included business groups and trade representatives discussing the ambitious goals of the Dubai Economic Agenda. Additionally, a Ramadan gathering for clients was held to exchange opinions and ideas towards maximizing the role of the commercial sector as one of Dubai's most important economic resources.

      9.6 million counterfeit goods

      Dubai Customs has intensified its efforts to combat counterfeit goods and protect intellectual property rights. In the first quarter of 2023, the government department handled 112 cases of intellectual property disputes, involving 9.6 million counterfeit goods with a total value of AED 28.85 million. The government department also continued to organize recycling operations for counterfeit goods, completing 24 recycling processes involving 43.78 thousand counterfeit goods.

      In addition, Dubai Customs has carried out three awareness campaigns aimed at raising awareness about the dangers and negative impacts of counterfeit goods. These initiatives were attended by 91 participants and were presented at two community events, 11 events for schools and universities, and five events for customs administrations and centers. Furthermore, Dubai Customs organized three workshops in partnership with trademark owners. In addition, the department registered 91 trademarks and 86 commercial agencies.

      502 seizure reports

      During the first quarter of this year, Dubai Customs made 502 seizure reports. These efforts are part of Dubai Customs' commitment to protecting the community and the economy, and promoting security and stability as the first line of defense for society. Dubai Customs also strives to play its vital role in supporting the national economy by contributing effectively to an attractive investment environment, and enhancing the country's position as a leading global business and trade hub. These efforts are in line with the directives of the leadership to advance the country's global standing in all areas and strengthen its position on global competitiveness indices.


      In recognition of its commitment to promoting a culture of innovation in customs work, Dubai Customs honored 25 creative employees with disabilities for their innovative ideas and solutions presented during the Innovation Month. More than 10 initiatives were organized and managed at department and customs centers levels, strengthening Dubai Customs' leadership in driving innovation in the customs sector both locally and globally. Dubai Customs is the world's first customs reference in innovation, where three customs organizations including New Zealand Customs, South Korea Customs, and Abu Dhabi Customs, have benchmarked with Dubai Customs to benefit from its innovative experience, skills, and expertise in translating its innovative ideas into tangible reality.

      67 community initiatives

      As part of its annual strategy that supports the launch of sustainable development initiatives, the department has successfully targeted approximately 17,500 beneficiaries during the first quarter of this year through 67 community and volunteering initiatives.

      740 training courses

      Dubai Customs, represented by its Customs Training Center, conducted 740 training courses, both in-person and online, during the first quarter of this year. These courses covered a diverse range of topics, including security, information technology, dealing with people of determination, SIMFOX simulation system for training inspectors on scanning devices, customer service, innovation, inspection, occupational safety and health, general administrative skills, human resources, leadership development, intellectual property protection, data science, artificial intelligence, and many public awareness workshops. Additionally, Dubai Customs has maintained its commitment to providing the best work environment for the third consecutive year (2022-2023), as recognized by the American organization, Great Place to Work. This commitment is demonstrated through several initiatives that enhance the work environment, such as electronic systems for managing human resources services, a 100% transition to the GRP system, completion of more than 3 million electronic transactions, and setting up an electronic archiving system for employee files.

      Source: Media Office - Government of Dubai

    • Dubai’s VARA sets regulations deadline for virtual assets operators

      Dubai’s DET and Free Zone Council activate applications for legacy virtual Assets operators to become fully regulated under VARA

      • Virtual Assets (VA) Sector including all businesses offering products, services, and associated activities, is fully regulated and falls under the purview of VARA in the Emirate of Dubai
      • All existing businesses operating in, or providing services associated with the VA Sector are required to respond to an Initial Disclosure Questionnaire (IDQ) by the deadline of 30-April-2023

      All entities that qualify for a regulated Full Market Product (FMP) Licence will commence their transition to a VARA regulated regime by 31-August 2023

      The Virtual Assets and Related Activities Regulations 2023, establishes clear requirements for the VA sector to be fully regulated under VARA in the Emirate of Dubai, including all businesses offering products and services associated with the sector. VARA is working closely with Dubai’s Department of Economy and Tourism (DET) and Free Zone Authorities (FZAs), towards meeting the set deadline of 30 April for all initial disclosure questionnaires (IDQs) across the sector to be received as the first step towards the migration of the market to a regulated regime.

      Under Cabinet Resolution No. 111 of 2022 Concerning the Regulation of Virtual Assets and their Service Providers, which came into effect on 15 January 2023, all companies operating in or seeking to operate in this sector in or from the Emirate of Dubai must be licensed by VARA. VARA has been actively engaged, with DET and Dubai’s numerous FZAs to facilitate the seamless transition of existing Virtual Asset Service Providers (VASPs) into the VARA regulatory regime as well as formalise the application process for new regulated licences.

      His Excellency Helal Saeed Almarri, Director General Dubai’s Department of Economy & Tourism said: “Under the directive of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Executive Council, we are making progress with Dubai’s D33 Agenda which outlines our mission to establish the Emirate as the capital of the Future Economy anchored by Metaverse, AI, Web3.0 and Blockchain. The virtual assets sector that spans all these pillars is integral to the strategy presenting a dynamically evolving ecosystem that fuels all aspects of sustainable economic growth. Ensuring that our marketplace is secure, participants are responsible, and investors and consumers are effectively protected is our top priority.  With key stakeholders responsible for commercial licensing across the Emirate working closely to deploy VARA’s full market regulatory construct, we aim to set a benchmark that positions the Emirate of Dubai as a global role model for VA sector development”.

      Legacy market operators carrying out VA activities in Dubai (excluding DIFC) are required to declare their desire to undertake regulated activities by submitting an IDQ to their current licensing authority – DET or any of FZAs, by the final deadline of 30-April 2023. Upon subsequent receipt of an Application Acknowledgement Notice (AAN), operating VASPs will commence the appropriate course of action for those requiring to be regulated or registered under VARA by 31 August 2023.

      H. E. Dr. Mohammed Al Zarooni, Secretary-General of the Dubai Free Zones Council, remarked: “Dubai’s Free Zones have been an integral part of the business landscape for decades, providing start-ups, entrepreneurs and overseas companies looking to establish regional headquarters with access to a geographically strategic, multicultural, dynamic and bureaucracy-free environment. We have witnessed growing interest from virtual assets-focused entities who are keen to adhere to the VARA licensing regime. Adopting the new regulations, provides a safe and sustainable operating environment for VA companies and further establishes Dubai as a credible destination for this sector”.

      Ahmad Al Falasi, CEO, Department of Economy and Tourism, said: “Dubai’s reputation as an easy-to-navigate, pro-business destination home to over 200 nationalities, is an attractive proposition for virtual asset companies, looking for a safe, regulated environment. DET is working closely with VARA to ensure that all existing VA services providers will be in full adherence to the regulations within the defined timelines”.

      A total of seven distinct types of regulated VA activity licences can be applied for:  Advisory Services, Broker-Dealer Services, Custody Services, Exchange Services, Lending and Borrowing Services, Transfer and Settlement Services and Management and Investment Services.

      Commenting on the imminent April deadline to receive all legacy operator IDQs as the first phase of the migration plans, Henson Orser, Chief Executive Officer, VARA, said: “VARA has been working closely with both DET and the emirate’s Free Zone Authorities in order to ensure a smooth transition for legacy Virtual Assets Service Providers (VASPs) in Dubai, many of whom were at the forefront of innovation in this space. This transition was further supported by VARA’s Minimum Viable Product (MVP) programme, a timebound initiative that enabled new applicants to set up operations and become market ready until official release of our full suite of regulations on 7 February 2023. The introduction of the Virtual Assets and Related Activities Regulations gives the existing companies, a clear timeline to ensure that they submit their initial disclosures by the end of April.”

      VARA’s Full Market Product (FMP) Regulations are designed to specifically cater for the provision of permissible activities and services to customers and investors, by operators from the Emirate of Dubai. With bespoke rules and guidelines designed to provide clarity, assure certainty, and mitigate market risks, VARA seeks to develop a model framework for global economic sustainability within an innovation-centric environment that is truly borderless, technology agnostic, and future-focused.

      More details of the VARA’s licensing process for both legacy market operators and new applicants are available at vara.ae

      Source: Media Office - Government of Dubai 

  • United Kingdom
    • HMRC publishes simplified VAT guidance for overseas sellers

      HMRC has published new simplified VAT guidance for overseas sellers sending goods to the UK.

      HM Revenue and Customs (HMRC) has published simplified VAT guidance for overseas sellers, with a new translation aimed at Chinese retailers that sell goods online into the United Kingdom.

      The guidance, Selling goods using an online marketplace or direct to customers in the UK has been translated into simplified Mandarin to support sellers exporting goods from China to comply with UK import and VAT regulations.

      In 2022, the UK imported £83.3 billion in goods and services from China and Hong Kong. Online shopping accounted for 26.5% of all UK retail sales in 2022, with a substantial number of goods being bought from international sellers via online marketplaces.

      HMRC is encouraging UK agents and shipping companies to share the simplified guidance with their customers.

      The information explains when and how VAT and import duties must be charged to customers by international sellers. It explains the different processes for direct to customer sales, and for sellers using online marketplaces.

      Marc Gill, HMRC’s Director for Individuals and Small Business Compliance, said:

      We have been working closely with international partners to better understand what information overseas sellers need in order to comply with their UK tax obligations. We have acted on feedback from businesses to simplify and compile this online guidance into one, easily accessible place on GOV.UK. We have also recently published a simplified Mandarin translation of our guidance following research conducted with Chinese businesses.

      By making our VAT and import duty rules easier to understand, we will be able to increase tax compliance levels for online sellers. We are asking UK freight, customs and shipping agents to help us reduce the tax gap by sharing this simplified guidance with their customers. By working together, we can help everyone pay the right amount of tax at the right time.

      HMRC’s updated guidance has been published following detailed consultation and research with overseas sellers and brings together all relevant guidance in one place on GOV.UK. By making the process clearer and easier to follow, it will support overseas sellers to comply with their tax obligations and help HMRC to reduce the tax gap.

      In 2018, HMRC signed an updated Memorandum of Understanding (MOU) with the General Administration of Customs China (GACC). During the 10th UK-China Economic and Financial Dialogue in 2019, HMRC agreed to provide Chinese businesses with appropriate tax and customs guidance.

      In 2020, HMRC commissioned research with Chinese online sellers. The report, Knowledge and attitudes of online sellers in China to UK tax compliance, was published in 2021. Recommendations from that research led to the development of new guidance and its translation into simplified Mandarin.

      Further information

      International sellers sending goods to customers in the UK have different VAT and import obligations depending on whether the goods are sold directly through their own website, or via an online marketplace. There are also different tax rules for goods under the rateable value of £135 and goods exceeding that value.

      In 2015, a MOU and Operational protocol between HMRC and the GACC was signed during the Chinese state visit to the UK. This was in the presence of former Prime Minister, David Cameron and President Xi Jinping during talks at No.10. The updated MOU was signed in 2018 by HMRC’s Director General for Customer Compliance Group, Penny Ciniewicz, and Customs Minister YU Guangzhou in the Great Hall of the People, Beijing.

      In 2020, HMRC commissioned research with Chinese businesses who sell goods online to the UK. The research sought to gain a greater understanding of their knowledge, attitudes and behaviours in relation to their UK tax and customs obligations. The report, Knowledge and attitudes of online sellers in China to UK tax compliance, was published in 2021.

      In 2022, the value of goods and service imports from the USA was £101.2 billion, from China and Hong Kong was £83.3 billion, and from Germany was £79.1 billion UK trade in numbers (updated 17 March 2023).

      Source: Gov.uk
    • HMRC launches the Advance Valuation Ruling Service to make importing easier for UK traders

      HMRC launches the Advance Valuation Ruling Service to give importers legal certainty that their chosen customs valuation method is correct.

      Hundreds of thousands of UK traders are set to benefit from a new service that makes it easier to import goods.

      HM Revenue and Customs (HMRC) has launched on 27 April 2023 the Advance Valuation Ruling Service (AVRS), a new service that gives importers legal certainty that their chosen customs valuation method is correct.

      When importing goods into the UK, traders must work out the value of their goods to calculate their Customs Duty and import VAT.

      Traders will apply online for an Advanced Valuation Ruling where HMRC will confirm the method used to calculate the value is correct. It is legally-binding for 3 years and the trader will use this information to calculate the value of their goods on their import declaration.

      The system is part of the government’s vision to deliver a modern, digital customs service, providing traders with peace of mind and making it simpler to work out costings ahead of shipments.

      Aidan Reilly, HMRC’s Director of Customs Policy and Strategy, said:

      AVRS will make a real difference to UK importers by stripping away uncertainty and reducing their administrative burden. The new service legally guarantees the trader’s valuation method is correct making it quicker and easier to manage customs.

      It will complement our existing tariff and origin services to give traders more certainty on the cost of importing their goods, making it easier for them to budget.

      The AVRS brings the UK in line with other countries, including some Free Trade Agreement (FTA) partner countries, who already offer such a service.

      The UK currently offers legally-binding decisions for:

      • Advance Tariff Rulings – these provide legal certainty on the correct commodity code, which can then be used to determine the correct duty and taxes.
      • Advance Origin Rulings – these provide certainty on the economic nationality of goods, when importing and exporting. For imports, this provides legal protection against any UK customs authority challenging the country of origin of the product. There are two types of origin: preferential (which feature in the UK’s trade agreements) and non-preferential.
      • Binding Tariff Rulings – these provide legal certainty on the correct commodity code for importing into the EU or Northern Ireland.
      • Binding Origin Rulings – these provide legal certainty on the economic nationality of goods when importing or exporting from Northern Ireland.

      Using AVRS is not mandatory. After an application is made for AVRSHMRC will confirm the application has been accepted within 30 days and the correct valuation method within 90 days.

      Source: Gov.uk
    • Financial Reporting Council Proposes to Temporarily Waive Deferred Tax Accounting Requirement Under Pillar Two Rules

      The Financial Reporting Council (FRC) has issued a financial reporting exposure draft (FRED) on the reporting of deferred tax. The FRC approach in the proposal mirrors the suggestion of the International Accounting Standards Board (IASB) to amend IAS 12. This introduces a temporary exception from the requirement to account for deferred taxes arising from the Pillar Two rules.

      Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – International tax reform – Pillar Two model rules sets out the text of the proposed accounting standard. The FRC proposals are to amend Section 29 Income Tax of FRS 102, The Financial Reporting Standard, applicable in the UK and Republic of Ireland with a temporary exception from the requirement to account for deferred taxes arising from the Pillar Two rules. A decision will be made in future whether to remove this exception or make it permanent. The FRED follows the publication by the Organisation for Economic Co-operation and Development (OECD) of its Pillar Two model rules which aim to ensure that large multinational groups pay a minimum amount of tax on income arising in each jurisdiction in which they operate.

      The proposals are subject to consultation which ends on 24 May 2023 with the intention of finalizing any resulting amendments in summer 2023.

  • United States
    • IRS Releases Inflation Reduction Act Strategic Operating Plan

      The Internal Revenue Service (IRS) released its Inflation Reduction Act Strategic Operating Plan that focuses spending on enforcement and operations. The Plan further outlined how the IRS will use USD 80 billion in funding it received from the Inflation Reduction Act through fiscal year 2031.

      The 150-page plan specifically highlighted the following as priority spending items:

      • improvement to taxpayer services;
      • efficient resolution of taxpayer issues;
      • expanding enforcement on taxpayers with complex filings and high-dollar noncompliance;
      • delivery of more effective technology and analytics; and
      • attraction and retention of the agency's workforce.

      The Plan's spending was segmented into:

      • USD 45.6 billion for enforcement;
      • USD 25.3 billion for operations support;
      • USD 4.8 billion for the business system modernization; and
      • USD 3.2 billion for taxpayer services.

      The operating plan has 42 initiatives designed to achieve agency goals and outlines 190 key projects and more than 200 specific milestones. The IRS stated that it will identify additional projects and milestones as its work continues.

      The plan emphasizes that IRS will be working to ensure fair enforcement of the nation's tax laws and compliance with existing laws while respecting taxpayer rights. The IRS will focus on identifying compliance issues involving large corporations, larger partnerships and high-wealth individuals. The plan additionally states that, in accordance with Treasury Secretary Janet Yellen's directive, its audit rates will not increase on small businesses and households earning USD 400,000 or less per year.

    • IRS to Extend Foreign Tax Credit Transition Period for Single-Country Exception Documentation Requirements

      On 3 April 2023, the IRS released Notice 2023-31 notifying taxpayers of their intent to extend the transition period for an exception to pay foreign royalty withholding taxes once proposed Treasury Regulation (issued 21 November 2022) is finalized. The Internal Revenue Service (IRS) extension period - from 17 May 2023 to 180 days after the date the proposed regulations are finalized and filed with the Federal Register – would apply to the Foreign Tax Credit (FCT) proposed single-country exception, issued as part of the IRS's 21 November 2022 proposed regulations.

      Under these proposed regulations, a royalty withholding tax would qualify as an FTC if the company has a licensing agreement in a given country to use the intellectual property that generates the royalty, and as long as the IP is used only in that country. To qualify for the proposed single-country exception, taxpayers may need to revise existing license agreements to satisfy the above documentation requirement. Rather than having to revise licensing agreements that will allow taxpayers to meet the single-country exception by 17 May 2023, the proposed Treasury Regulations would give taxpayers additional breathing room. They will now have at least 180 days after the date final regulations are filed with the Federal Register.

      Otherwise, taxpayers may rely on Notice 2023-31 for foreign taxes paid in taxable years beginning on or after 28 December 2021 and ending before the effective date of the final single-country exception rule, provided the foreign tax is otherwise eligible for the exception.

      Note: The Treasury and the IRS in 2021 issued FTC regulations providing that foreign withholding taxes on royalty payments are creditable only if the foreign law treats royalties as taxable income based upon the place of use, or the right to use, of the intangible property, consistent with how the Internal Revenue Code (IRC) imposes taxes on royalty income. Royalty withholding taxes were of particular concern to taxpayers, as many countries use rules to demand withholding taxes on royalty payments that are different from those that the US adopts. The result is that, absent a specific exception, many taxpayers would face ineligibility of foreign withholding taxes to qualify as FTCs. The above proposed regulations address this issue.

    • IRS Reports on Slower Year for Advance Pricing Agreements in 2022

      On 29 March 2023, the Internal Revenue Service (IRS) released Announcement 2023-10, which featured the 2022 Announcement and Report Concerning Advance Pricing Agreements (APA Report) providing that fewer APAs were executed with longer periods of time to completion than in 2021. The Report summarizes APAs by industry, transaction category, transfer pricing method selected, and profit-level indicator used for the APAs executed for the 2022 calendar year.

      According to the report, only 77 APAs were executed in 2022, compared to 124 in 2021. The 2022 percentage of APA renewals executed was reduced to 55%, compared to 63% in 2021, and the median completion time for an APA in 2022 increased to 43.4 months, compared to 35.1 months in 2021.

      However, the number of applications filed in 2022 increased to 183, compared to 145 filed in 2021. Additionally, the comparable profits and transactional net margin methods were selected in more than 75% of all covered transactions, with more than half of the APAs executed in 2022 involving transactions between non-US parents and US subsidiaries. Although most of the 2022 transactions covered in APAs executed in 2022 involved the sale of tangible goods or the provision of services, approximately 22% involved the use of intangible property.

      IRS representatives attribute the decrease in the number of executed APAs to the fact that the APA Program was able to close its pre-pandemic cases and routine APAs during 2021, leaving more complex cases and newer APAs for 2022, which are more time consuming to complete. Further, the need for virtual meetings delayed the advancement of new 2022 advance pricing agreements. Despite these complexities, no APAs were revoked or cancelled in 2022 and only an average of 6 were withdrawn during the year.

      Note: Under an APA, the government signs off on a company's transfer pricing arrangements over a set period, providing tax certainty between both sides on how the transactions are valued by the countries involved.