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Approved Changes (5)

Argentina

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Argentina Extends Domestic Capital Goods Manufacturing Incentive

Argentina has published Decree No. 593/2017 of 28 July 2017 in the Official Gazette. The Decree amends and extends to 31 December 2017 the incentive provided under Decree No. 379/2001 for the domestic manufacture of certain goods, including capital goods, IT and telecommunications equipment, and agricultural machinery. The incentive is in the form of a tax credit equal to 14% of the value of the goods produced (with some adjustment) that can be applied against value added tax, income tax, excise taxes, and minimum presumed income tax payments.

For the incentive to apply, taxpayers must submit an affidavit by 31 December 2017 confirming that the number of registered employees has not decreased from the number of employees registered as of December 2011. Taxpayers have until 31 March 2018 to apply for the credit for sales invoiced by 31 December 2017.

The Decree is effective 1 July 2017.

Hungary

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Hungary Publishes Guidance on Tax Incentive for Energy Efficiency Investment

On 28 July 2017, the Hungarian National Tax and Customs Administration published guidance on the application of the country's corporate tax incentive for investments in improving energy efficiency. The incentive provides for a tax credit for capital investment in qualifying tangible and intangible assets directly related to improving efficiency. The tax credit is equal to 30% of the investment amount (capped at EUR 15 million) and may offset up to 70% of taxable income in the year of investment or the following year, and up to the following five years. For medium-sized companies, the credit percentage is increased to 40% and for small-sized companies, the credit percentage is 50%.

Companies that apply the credit are subject to record-keeping and energy efficiency certification requirements and must be subject to an audit within three years from the year the credit is first applied. Further, investment for which the energy efficiency credit is claimed may not benefit from other tax incentives, including the development tax credit.

Kenya

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Kenya Enacts Finance Act 2017

Kenya has enacted the Finance Act 2017, which was published in the Official Gazette on 23 June 2017. The Act includes the measures proposed as part of the 2017/2018 Budget with some changes. The main measures include:

  • A reduced corporate rate for new motor vehicle assemblers of 15% for the first five years of operation, which subject to conditions, may be extended a further five years (standard 30%);
  • New Special Economic Zone (SEZ) incentives:
    • 100% investment deduction for capital expenditure on buildings and machinery for use in SEZs in the year of first use (150% for SEZs outside Nairobi and Mombasa);
    • Withholding tax exemption on dividend payments to non-residents (standard 10%); and
    • 5% withholding tax on interest and royalty payments to non-residents (standard 15% and 20% respectively), as well as for professional, management, and training fees;
  • An increase in the individual income tax bands by 10% as follows:
    • up to KES 147,580 - 10%
    • over KES 147,580 up to 286,623 - 15%
    • over KES 286,623 up to 425,666 - 20%
    • over KES 425,666 up to 564,709 - 25%
    • over KES 564,709 - 30%
  • New definitions and provisions in relation to Islamic finance arrangements for VAT, income tax, and stamp duty purposes;
  • VAT changes, including:
    • A VAT exemption for:
      • Materials for the construction of grain storage facilities;
      • Compliant Islamic finance services and Sukuk;
      • Imported spare aircraft parts by aircraft operators and persons engaged in aircraft maintenance;
      • Equipment for use in specialized hospitals with minimum bed capacity of 50;
      • Locally assembled tourist vehicles;
      • Inputs for pesticide manufacture;
      • Cargo transportation to destinations outside Kenya;
      • Materials, articles, and equipment used for educational, scientific or cultural advancement of disabled persons; and
      • Transfer of assets into real estate investment trusts and asset backed securities;
    • A change from VAT exemption to zero-rated for cassava flour, corn flour, wheat/meslin flour and ordinary bread, goods supplied to marine fisheries and fish processors, milk and cream, and agricultural pest control products;
  • Consolidation and an increase in the income tax rates for betting, gaming and lottery enterprises to a single rate of 35%; and
  • Administrative changes, including:
    • Expanded powers for tax officers to enter and search any premises or vessels and seize, collect and detain evidence and produce such evidence in any proceedings before a court of law or tax appeals tribunal;
    • New provisions that the registration of the tax representative shall be in the name of the non-resident person being represented, and that a person may be a tax representative for more than one non-resident person, in which case the person shall have a separate registration for each non-resident;
    • The extension of the tax amnesty program to 30 June 2018 for taxpayers that voluntarily declare and reinvest their foreign held assets and business earnings in Kenya (was to expire 31 Dec 2017), with the additional provision that for funds not yet transferred within the amnesty period, a further five years is provided for remittance but with a 10% penalty; and
    • The deadline for remitting VAT withheld is set at the 20th day of the month following the month in which the VAT was withheld.

In addition to the above, a new arm's length rule for resident related parties (section 18A) is added in the Income Tax Act, which provides that where a resident entity operating in a preferential tax regime carries on business:

  • with a related resident entity not operating in a preferential tax regime; and
  • the business produces to the entity not operating in a preferential regime either no profits or less profits than would be expected between independent parties,

then, the gains or profits of that resident entity will be deemed to be the amount expected if at arm's length. For this purpose, a preferential tax regime, with respect to an item of income or profit, means any legislation, regulation or administrative practice that provides a preferential rate of taxation to such income or profit, including reductions in the tax rate or the tax base.

The VAT measures, the tax officer search and seizure powers, and the new arm's length rule apply from 3 April 2017, while the other measure of the Act generally apply from 1 January 2018.

Lithuania-European Union

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Proposed Council Implementing Decision to Approve Lithuania's Increased VAT Registration Threshold

The European Commission has published a proposal for a Council Implementing Decision dated 3 August 2017 to authorize Lithuania's derogation from Article 287 of the VAT Directive (2006/112/EC) by maintaining the VAT registration threshold at EUR 45,000. The authorization is to apply until the earliest of 31 December 2020 or the entry into force of a Directive amending the provisions of the VAT Directive on a special scheme for small enterprises.

The EUR 45,000 threshold was set as a conversion from Lithuanian litas when Lithuania adopted the euro effective 1 January 2015.

Malaysia

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Malaysia Publishes Tourism Tax Regulations and Effective Date Order

On 1 August 2017, Malaysia published in the Official Gazette the Tourism Tax Regulation 2017 and the effective date order for the Tourism Tax Act 2017. The tax itself is effective from 1 August 2017 and applies to tourists staying at accommodation premises operated in Malaysia at rates of MYR 2.5 to 20 per night depending on the orchid/star rating of the accommodation (previous coverage), while the provisions of the Act concerning returns, refunds, penalties, etc. are effective from 1 September 2017.

Proposed Changes (1)

Israel

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Israel to Allow Tax Deduction for Listing Expenses

Israel's Knesset (parliament) has announced that on 30 July 2017, the Finance Committee approved draft legislation in the first reading to allow companies to deduct for tax purposes the expenses incurred in connection with the issuance of shares registered for trading on the Tel Aviv Stock Exchange. The legislation is meant to encourage the listing of Israeli companies and is subject to a second and third reading before gaining final approval.

Treaty Changes (3)

Brazil-Russia

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Brazil brings Tax Treaty with Russia into Force

On 4 August 2017, the Brazilian Ministry of Finance announced the issuance of Executive Decree 9.115 of 31 July 2017, which brings the 2004 income tax treaty with Russia into force in Brazil. The treaty was recently approved by the National Congress and ratified through the exchange of notes with Russia in June. The treaty, signed 22 November 2004, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Brazilian federal income tax, and covers Russian tax on profits of organizations and income tax on individuals.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 20% of the paying company's capital; otherwise 15%
  • Interest - 15%
  • Royalties - 15%

Note - the final protocol to the treaty provides that royalties include payments of any kind received as consideration for the rendering of technical services and technical assistance, and that payments of any kind concerning any transactions with respect to computer software shall be taxable by a Contracting State in accordance with its domestic legislation.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 28 (Limitation of Benefits) provides that the competent authorities of a Contracting State may deny the benefits of the treaty to any person, or with respect to any transaction, if in their opinion the granting of such benefits would constitute an abuse of the Convention in view of its purposes. Article 28 also provides that if a Contracting State introduces legislation in terms of which offshore income derived by a company from:

  • shipping;
  • banking, financing, insurance, investment or similar activities; or
  • being the headquarter, coordination center or similar entity providing administrative services or other support to a group of companies which carry on business primarily in other States,

is not taxed in that State or is taxed at a rate of tax which is significantly lower than the rate of tax which is applied to income from similar onshore activities, the other Contracting State is not be obliged to apply any limitation imposed under the treaty on its right to tax the income derived by the company from such offshore activities or on its right to tax the dividends paid by the company.

In addition to Article 28, Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) each include that the provisions of those articles will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment.

Effective Date

The treaty generally applies from 1 January 2018.

Korea, Rep of-Tanzania

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South Korea to Negotiate Tax Treaty with Tanzania

According to a release from South Korea's Ministry of Foreign Affairs, officials from Korea and Tanzania met 2 August 2017 to discuss bilateral relations, including Korea's hope to negotiate and conclude an income tax treaty as soon as possible. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.

San Marino-Vanuatu

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TIEA between San Marino and Vanuatu has Entered into Force

The tax information exchange agreement between San Marino and Vanuatu entered into force on 8 July 2017. The agreement, signed 19 May 2011, is the first of its kind between the two countries. It applies for criminal tax matters on the date of its entry into force and for other matters from 1 January 2018.

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