Worldwide: Doing Business In APAC: What You Need To Know About Tax Rates

Last Updated: 5 March 2018
Article by TMF Group

The Asia Pacific region is characterised by fast-growing, innovative economies, but businesses looking to operate in the area should make sure that they fully understand the local tax rates and other linked requirements.

In late 2017, we provided an overview of corporate tax rates and considerations in the Association of Southeast Asian Nation (ASEAN) countries. Since its inception in 2015 the ASEAN Economic Community (AEC) has provided increased investment opportunities in the region, reducing trade barriers and attracting more business.

This article will focus on the other Asia Pacific countries where we have a presence. Tax systems continue to be one of the main drivers of complexity in the region, as evidenced in our inaugural Financial Complexity Index. The Index ranked 94 jurisdictions across Europe, the Middle East, Africa, Asia Pacific and the Americas, grouping them within three key areas of challenges: regulation, knowledge, and technology.

It is interesting to note that there were top-10 spots for China (7th) and India (10th), two of the largest economies in the Asia Pacific region and two of the most attractive for foreign investors.

The core requirement for all statutory accounting reporting to be undertaken in both Chinese language and Chinese renminbi (RMB) is a major factor in the market's high complexity ranking, while an accounting system used for a Chinese entity's booking and reporting must be pre-approved by the country's Finance Bureau.

Meanwhile in India, cross-border compliance, compounding of taxes on domestically-produced goods and services, and several central and state taxes exacerbate the complexity of the system.

Here is a snapshot of the corporate tax rates across the region and other factors to be aware of. You can contact our local experts in each country for further information and how we can support your operations.

Australia

The corporate tax rate in Australia is 27.5% for smaller companies classed as 'base rate entities', and 30% for larger organisations. This has stayed consistent from the previous tax year. The country's government is seeking to respond to falls in the UK and US by cutting corporate tax for all companies to 25% by 2025, which it believes will stimulate further growth.

Companies looking to operate in Australia should be aware of the Goods and Services Tax (GST), which is a broad-based tax of 10% on most goods, services and other items sold or consumed in the country. It applies to most Australian businesses.

China

The corporate tax rate in China currently stands at 25%. For VAT invoice purchases, companies must apply for an invoice quota in volume and value digits and purchase can only be done by a registered tax specialist. To increase the invoice quota, companies must go through a lengthy application process with the required documents.

In December 2017 China introduced Cai Shui [2017] No.88, a New Enterprise Income Tax Law which allows foreign companies to temporarily avoid withholding tax by investing profits into certain categories of domestic enterprise.

Hong Kong

In Hong Kong, the corporate tax rate is 16.5%. There are some tax incentives for special business operations, such as tax exemption for profits derived by offshore funds and profits derived from operating ships in Hong Kong. Hong Kong is one of the least complex jurisdictions in the world for tax matters and financial reporting (with an Index ranking of 91st out of 94).

Taiwan

The corporate income tax rate in Taiwan is 17%. A non-resident company is taxed on income derived from Taiwanese sources. An additional 10% profit retention tax is imposed on any current earnings of a corporation that remain undistributed by the end of the following year. Taiwanese branches of foreign companies are not subject to this profit retention tax.

New Zealand

The current corporate tax rate in New Zealand stands at 28%. It's on something of a downward trend, having averaged 33.95% from 1981 to 2018, with a high of 48% in 1986. Most products and services sold in New Zealand incur GST at a rate of 15%. The main exceptions are financial services and the export of goods and services overseas.

India

A flat rate of 25% corporate tax is levied on the income earned by a domestic corporate in India. A surcharge of 5% is levied in case the turnover of a company is more than Rs.1 Crore for a specific financial year. Corporate tax is also levied on the global earnings of the domestic company. There are various statutes governing taxation and foreign investment – such as the Foreign Exchange Management Act (FEMA), the Income Tax Act (ITA), tax laws of 29 states and seven union territories.

The GST Council, in its 23rd meeting in November 2017, recommended widespread changes in the GST. The council agreed to keep the highest 28% tax on luxury and sinful items, and as a result 177 items have been shifted to the 18% bracket. The government has categorised items in five brackets – 0%, 5%, 12%, 18% and 28%.

Japan

Japan's corporate tax rate is 30.86%. It was announced in December 2017 that the Japanese government is considering rewarding businesses that increase wages and invest in productivity growth by offering tax breaks that could lower the effective tax rate to 20%. In a push on innovation, companies that invest in new technology, such as artificial intelligence and the 'internet of things' will receive additional tax breaks.

South Korea

The rate on companies in South Korea whose taxable income exceeds 300bn won increased to 25% in 2018, from a previous level of 22%. Resident corporations are taxed on their worldwide income, whereas non-resident corporations with a Permanent Establishment (PE) in the country are taxed only to the extent of their Korean-source income. Non-resident corporations without a PE in South Korea are generally taxed through a withholding tax on each separate item of Korean-source income.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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