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Worldwide Tax News

Approved Changes (1)

Malaysia

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Malaysia Publishes Income Tax Exemption Order for New MSC Companies

Malaysia published Income Tax (Exemption) (No. 2) Order 2015 in its Official Gazette on 19 March 2015. The Order sets the conditions for the income tax exemption incentive provided for companies that have Multimedia Super Corridor (MSC) status. MSC status is available for companies engaged in qualifying activities related to IT and multimedia products and services. The status provides a number of benefits, including tax exemptions.

The exemptions provided for by the Order apply for companies resident in Malaysia that have applied for and obtained MSC status on or after 1 January 2015, and have not conducted the qualifying activities prior to the time the application is made. The exemption amount depends on whether the qualifying activities are conducted outside or within the areas determined by the government as MSC cyber cities or cyber centers as follows:

  • Companies conducting qualifying activities outside MSC cyber cities or cyber centers are eligible for a tax exemption on 70% of their statutory income derived from qualifying activities for a period of 5 years
  • Companies conducting qualifying activities within MSC cyber cities or cyber centers are eligible for a tax exemption on 100% of their statutory income derived from qualifying activities for an extended period of 5 + 5 years

In either case, restrictions may apply such as when a company is already claiming incentives under other schemes.

Proposed Changes (2)

Italy

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Italy Considering a Digital Activities Tax on Virtual PEs

According to recent reports, the Italian government is currently considering the introduction of a withholding tax on payments made by Italian customers to a foreign supplier when the supplier is considered to have a significant virtual presence in Italy without a physical permanent establishment. Although not yet finalized, a foreign supplier would be deemed to have a significant virtual presence if sales to Italy exceed EUR 1 million in a 6-month period.

The rate would be 25% for payments to companies and 30% for payments to individuals. Banks or other financial intermediaries facilitating the payment would be responsible for the withholding.

Slovak Republic

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Slovakia Planning VAT and Participation Exemption Changes

The Slovak government is currently planning a number of changes to be introduced in upcoming tax legislation, including the introduction of new rules for value added tax (VAT) and participation exemption restrictions in line with recent amendments to the EU Parent-Subsidiary Directive. The main changes are summarized as follows.

VAT Cash Basis Accounting

The VAT changes include the introduction of an optional cash basis accounting scheme for small taxpayers with annual revenue not exceeding EUR 75,000. Under the scheme qualifying taxpayers would be able to delay the declaration of output VAT until the related customer payment is actually received. Likewise, input VAT may not be claimed by the taxpayer until the related payment is made.

VAT Reverse Charge Expansion

The government is also considering expanded the scope of the VAT reverse charge to all supplies of goods by non-established suppliers, excluding distance sales. Under the reverse charge system, customers registered for VAT in Slovakia are responsible to account for the VAT due on payments to foreign suppliers. Currently the reverse charge generally only applies for goods included with installation or assembly.

Participation Exemption Restriction

The government will introduce restrictions on claiming the participation exemption for dividends. Dividends will be taxable in the hands of the Slovak recipient if:

  • The company distributing the dividends treats the distribution as deductible; or
  • The dividends result from a transaction or series of transactions with no valid business reasons or with the main purpose or one of the main purposes of obtaining a tax advantage

The new rules are in line an amendment made to the EU Parent-Subsidiary Directive to counter double non-taxation resulting from hybrid mismatch arrangement in July 2014, and anti-abuse amendment made to the Directive in January 2015.

The legislation for the changes must be finalized and approved, and is expected to enter into force 1 January 2016.

Treaty Changes (5)

Hungary-Turkey

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Hungary Ratifies SSA with the Turkey

On 31 March 2015, Hungary ratified the pending social security agreement with Turkey. The agreement, signed 24 February 2015, is the first of its kind between the two countries. It will enter into force on the first day of the third month following the exchange of the ratification instruments.

Hungary-United States

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Hungary Ratifies SSA with the U.S.

On 31 March 2015, Hungary ratified the pending social security agreement with the United States. The agreement, signed 3 February 2015, is the first of its kind between the two countries. It will enter into force on the first day of the second month following the exchange of the ratification instruments.

Mexico-Indonesia

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Mexico Approves Protocol to the Tax Treaty with Indonesia

On 28 April 2015, the Mexican Senate approved the pending protocol to the 2002 income tax treaty with Indonesia. The protocol, signed 16 October 2013, is the first to amend the treaty since it was signed. It amends the Mexican taxes covered by adding the business flat rate tax, and replaces Article 26 (Exchange of Information) bringing it in line with the OECD standard for information exchange.

The protocol will enter into force 30 days after the ratification instruments are exchanged, and will generally apply from that date.

Norway-Romania

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Tax Treaty between Norway and Romania Signed

On 27 April 2015, officials from Norway and Romania signed a new income tax treaty. Once in force and effective, the new treaty will replace the 1982 income tax treaty between the two countries, which currently applies.

Additional details will be published once available.

Oman-Portugal

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Tax Treaty between Oman and Portugal Signed

On 28 April 2015, officials from Oman and Portugal signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

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