Macau Corporate Tax Guide

Macau

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Macau GMT +8

EY

21/F, 39 Macau

61 Avenida de Almeida Ribeiro

Macau SAR

Business Tax Advisory

May Leung

+853 8506-1888

Fax: +853 2878-7768, +853 2832-2500

+852 2629-3089 (resident in Hong Kong)

Fax: +852 2118-4150 Email: may.leung@hk.ey.com

Alan Ng +852 2629-3305 (resident in Hong Kong)

Fax: +852 3185-4524 Email: alan.ng@hk.ey.com

This chapter relates to the tax jurisdiction of the Macau Special Administrative Region (SAR) of China.

A. At a glance

Corporate Income Tax Rate (%) 12 (a)

Capital Gains Tax Rate (%) 12 (a)(b)

Branch Tax Rate (%) 12 (a)

Withholding Tax (%) (c)

Dividends 0 (d)

Interest 0

Royalties from Patents, Know-how, etc. 0 Branch Remittance Tax 0

Net Operating Losses (Years)

Carryback 0

Carryforward 3 (e)

(a) For the 2021 tax year, complementary tax is imposed on taxable profits in excess of MOP600,000 at a rate of 12%.

(b) For details regarding the taxation of capital gains, see Section B. (c) Macau law does not contain any specific measures imposing withholding taxes except for service fees paid to individuals. Under certain circumstances, interest or royalties received by nonresidents from Macau may be regarded as income from commercial or industrial activities in Macau and taxed at the normal corporate income tax rates.

(d) Dividends are not taxable if they are distributed by entities that have paid corporate income tax at the corporate level on the distributed income.

(e) For details regarding tax losses, see Section C.

B. Taxes on corporate income and gains

Corporate income tax. Companies and individuals carrying on commercial or industrial activities in Macau are subject to complementary tax in Macau. An entity established in Macau is regarded as carrying on business in Macau, and its profits are subject to complementary tax. Non-Macau entities that derive profits from commercial or industrial activities in Macau are also subject to complementary tax.

Rates of corporate income tax. The same complementary tax rates apply to companies and individuals. The following are the complementary tax rates for the 2021 tax year.

on lower Rate on Exceeding

Taxable profits

exceeding amount excess MOP

MOP

For the 2022 tax year, income derived from Portuguese-speaking countries is exempt from Macau corporate income tax, provided that it is taxed in those countries.

In addition, the interest income and gains from the sale or re demption of bonds issued by the China Mainland government and state-owned enterprises are exempt from Macau complemen tary tax under the Macau Complementary Tax Law. For the 2022 tax year, all interest income and gains from the sale or redemp tion of bonds issued in Macau is exempt from Macau complementary tax under the Law 21/2021 Fiscal Budget.

Capital gains. The Macau Complementary Tax Law does not dis tinguish between a “capital gain” and “revenue profit.” Companies carrying on commercial or industrial activities in Macau are subject to complementary tax on their capital gains derived in Macau.

Administration. The tax year is the calendar year.

For tax purposes, companies are divided into Groups A and B. These groups are described below.

Group A. Group A companies are companies with capital of over MOP1 million (USD125,000) or average annual taxable profits over the preceding three years of more than MOP1 million. Other companies maintaining appropriate accounting books and records may also elect to be assessed in this category by filing an applica tion with the Macau Financial Services Bureau before the end of the tax year. Companies that are considered as the Ultimate Parent Entities (UPEs) of multinational groups are also classified as Group A companies.

Income of Group A companies is assessed based on their finan cial accounts submitted for tax purposes. These companies are required to file between April and June of each year complemen tary tax returns with respect to the preceding year. The tax returns must be certified by local accountants or auditors registered with the Macau Financial Services Bureau.

Group A companies may carry forward tax losses to offset tax able profits in the following three years.

Group B. All companies that are not Group A companies are clas sified as Group B taxpayers.

For Group B companies, tax is levied on a deemed profit basis. Financial information in tax returns submitted by Group B com panies normally serves only as a reference for tax assessment.

Group B companies are normally deemed to earn profits for each year of assessment, regardless of whether the taxpayers have earned no income or incurred losses for the year.

Group B companies are required to file annual tax return forms for the preceding year between February and March. Certification of the tax return forms by registered accountants or auditors is not required.

Group B companies may not carry forward tax losses.

Dividends. Dividends are normally paid out of after-tax profits. Consequently, no tax is imposed on dividends.

Group A companies (see Administration) may claim deductions for dividends declared out of current-year profits. Under such circumstances, the recipients of the dividends are subject to complementary tax on the dividends.

Foreign tax relief. Macau does not grant relief for foreign taxes paid except for those specified under double tax treaties with Macau.

C. Determination of trading income

General. As discussed in Section B, companies are divided for tax purposes into Groups A and B. For Group A companies, taxable profits are based on the profits shown in the signed complemen tary tax return, subject to adjustments required by the tax law. Group B companies are taxed on a deemed profit basis.

To be deductible, expenses must be incurred in the production of taxable profits. Certain specific expenses are not allowed, such as life insurance and fines. The deduction of provisions is restricted.

For the 2022 tax year, subject to satisfaction of certain condi tions, for costs incurred for innovation and technology development purposes by Group A taxpayers, the first MOP3 million are eligible for a three times tax deduction, and the remaining expenses for the same purpose are entitled to a two times tax deduction, up to a maximum total deduction of MOP15 million.

Inventories. Inventories are normally valued at the lower of cost or net realizable value. Cost can be determined using the weighted average or first-in, first-out (FIFO) methods.

Provisions. The following are the rules for the tax-deductibility of provisions in Macau:

• Provision for bad debts: deductible up to 2% of trade debtor’s year-end balance

• Provision for inventory loss: deductible up to 3% of the value of the closing inventory at the end of the year

• Provision for taxes: not deductible

• Other provisions: subject to approval by the tax authorities

Tax depreciation. Tax depreciation allowances are granted for capital expenditure incurred in producing taxable profits. These allowances are calculated based on the actual cost of pur chase or construction, or, if the amount of the cost is not available, the book value accepted by the Macau Financial Services Bureau. The following are the maximum straight-line deprecia tion rates in Macau.

Asset Maximum rate (%)

Industrial buildings (including hotels)

First year 20

Subsequent years 4

Commercial and residential buildings

First year 20

Subsequent years 2

Central air-conditioning plant 14.29

Central telecommunication, telephone and telex systems 10

Elevators and escalators 10

Vessels, dredgers and floating cranes 10 Transport equipment

Light vehicles 20

Heavy vehicles 16.66

Furniture Office 20 Residential 16.66

Computers, minicomputers and word processors 25

Other office equipment 20

Non-electronic equipment and machinery 14.29 Electronic equipment and machinery 20 Computer software 33.33

Molds 33.33

Patents 10 Other assets Various

Relief for losses. Group A companies (see Section B) may carry forward losses for three years. Loss carrybacks are not allowed. Groups of companies. Macau does not allow consolidated returns or provide other relief for groups of companies.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate

Property tax, levied annually on owners of real property in Macau; the tax is applied to the actual rental income for leased property and to the deemed rental value for other property as determined by the Macau Financial Services Bureau; up to 10% of the rent or rental value may be deducted to cover repairs and maintenance, and other expenses related to the property; certain buildings are exempt including industrial buildings occupied by their owners for industrial purposes, new residential or commercial buildings for the first 6 years on the islands of Coloane and Taipa and for the first 4 years in other parts of Macau, and new industrial buildings for the first 10 years on Coloane and Taipa and for the first 5 years in other parts of Macau Rental property (tax incentive granted under Law No. 21/2021 for the reduction of property tax for leased properties to 8% for 2022) 8%

1050

Nature of tax Rate

Other property 6%

Stamp duty, on selling price or assessable value of transferred property; payable by purchaser

1% to 3% (plus 5% surcharge)

Additional stamp duty; payable on the acquisition of residential properties by corporations or non-Macau residents 10%

Additional stamp duty; payable on the acquisition of a second residential property by an individual or corporation who owns a residential property 5% Additional stamp duty; payable on the acquisition of a third residential property or additional residential properties by an individual or corporation who owns residential properties 10%

Special stamp duty, on transaction price; payable by transferor of residential properties, shops, offices and car parks; subject to exemptions under certain special circumstances Property acquired by the vendor on or after 14 June 2011(for residential properties) and 30 October 2012 (for shops, offices and car parks) and sold within one year after acquisition (from the issuance date of the stamp duty demand note) 20%

Property acquired by the vendor on or after 14 June 2011 (for residential properties) and 30 October 2012 (for shops, offices and car parks) and sold in the second year after acquisition (from the issuance date of the stamp duty demand note) 10%

E. Miscellaneous matters

Foreign-exchange controls. The currency in Macau is the pataca (MOP). Since 1977, the pataca has been closely aligned with the Hong Kong dollar (HKD), moving within a narrow band around an exchange rate of MOP103 to HKD100. Because the Hong Kong dollar is officially pegged to the US dollar, the value of the pataca is closely associated with the value of the US dollar. The current exchange rate is approximately MOP8:USD1.

Macau does not impose foreign-exchange controls.

Debt-to-equity rules. Except for the banking and financial services sector, no statutory debt-to-equity requirements or capitalization rules are imposed in Macau.

Country-by-Country Reporting. A company that is the UPE of a multinational group is classified as a Group A taxpayer and must comply with the Country-by-Country (CbC) Reporting require ment.

The CbC Report filing threshold, which is set in accordance with the Organisation for Economic Co-operation and Development (OECD) recommendation, is consolidated turnover exceeding MOP7 billion in the preceding year.

The primary obligation for CbC Report filing falls on the UPEs of multinational groups that are resident in Macau. A CbC Report must be prepared for each accounting period beginning on or after 1 January 2019.

Macau UPEs that hold overseas subsidiaries should file a notifi cation with the Macau Financial Services Bureau within three months after the end of the relevant accounting period. For those UPEs that have consolidated turnover exceeding MOP7 billion, an annual notification form must be filed within three months after the end of the relevant accounting period and the deadline for filing a CbC Report is 12 months after the end of the relevant accounting period.

F. Tax treaties

Macau has entered into double tax treaties with Cape Verde, China Mainland, the Hong Kong SAR, Mozambique, Portugal and Vietnam. Macau has signed a double tax treaty with Belgium and Cambodia, but these treaties are not yet in force.