Introduction to Macau Corporate Income Tax
Carrying out commercial or industrial activities in Macau comes with certain tax obligations. The major obligations affecting all businesses in Macau are the industrial tax and profits tax. However, in recent years, industrial taxes have been exempted by the Macau Government and the profits tax threshold has also been increased in 2018. As such, Macau is one the region with the lowest corporate tax liability in Asia.
Complementary tax is imposed on the worldwide income earned by Macau-registered entities, irrespective of where their residence or headquarters are situated and irrespective of the nature of the income (except rental income). In the case where a foreign entity is engaged in commercial/industrial activities and/or rendering services in Macau, the resultant gain from such commercial/industrial activities and/or services rendered will be subject to complementary tax.
Other than income from ordinary course of business, capital gain and interest income received by a Macau company is also subject to Complementary Income Tax.
For the purpose of Complementary Income Tax, taxpayers are classified in two groups, Groups A and B. Group A taxpayers need to their financial statements audited and tax losses can be carried forward for a maximum of three years. Group B taxpayers are not required to have their financial statements audited, however, they are not allowed to carry forward their tax losses.
In recent years, the Macau Government have signed a number of agreements of avoiding double taxation with partner countries and regions, such as Mainland China, Hong Kong and Portugal. Those DTAs further benefiting individuals and companies operating businesses in Macau.
Complementary Income Tax, also known as corporate income tax or profits tax, is charged on adjusted profits obtained from commercial or industrial activities carried out in Macau. Complementary tax is imposed on the total income earned in Macao by individuals or corporations irrespective of where their residence or headquarters are situated, excluding rental income from buildings situated in Macao.
The Macau Government borrows its tax filing system from Portugal and classifies all taxpayers into 2 categories namely, Group A and Group B. Most of the taxpayers fall into Group B. The difference between Group A and B taxpayers are as follows:
|Group A Taxpayers||Group B Taxpayers|
|Criteria||(i) Companies limited by shares
(ii) All forms of business entities having a capital of no less than MOP1,000,000 or whose average taxable profit in the last three consecutive years is higher than MOP 500,000
(iii) Those who elect to be a Group A taxpayer.
|(i) All sole proprietorship business
(ii) All limited companies with a turnover less than MOP1,000,000
(iii) All forms of business entities whose average taxable profit in the last three consecutive years is less than MOP500,000
The major different of the Group is that Group A Taxpayer is required to have financial statement being audited by Accountant or Auditor – this group is being taxed on their actual audited profits. On the other hand, Group B Taxpayer is being taxed on the estimated profit which is determined by the Financial Services Bureau of Macau.
According to the Macau Complementary Income Tax Law, complementary income tax is imposed on a progressive rate scale ranging from 3% to 9% for taxable profits below or equal to MOP$300,000 and 12% for taxable profits over MOP$300,000. Taxable profits below MOP 32,000 are exempt from tax.
With effect from 2014, exemption allowance for profit tax assessment has been increased to MOP$600,000. That is, the first MOP$600,000 is tax free and the remaining is subject to Complementary Tax at 12%. Tax rates are as follows:
|Annual Taxable Income (MOP)||Rate (%)|
|Up to 600,000||0|
4． Taxable Income
Taxable income is the amount remaining from gross taxable income (including business income, interest income and capital gains) in a year after deducting allowable expenses, losses and tax-exempt items. Expenses incurred in the production of taxable income are deductible, except those identified as non-deductible or that exceed the tax allowable limited.
Gains from the realisation of capital assets of a corporate taxpayer are treated as current revenue items for complementary tax purposes. Losses realised from disposed of capital assets are also allowed as deductible expenses.
Interest income received by or accrued to a corporate taxpayer in Macau is subject to Complementary Income Tax.
Dividends from all sources are subject to complementary tax in the hands of a recipient incorporated in Macau unless the dividends were paid out of profits that have been taxed at the corporate level in Macau. Where dividends to shareholders are paid out of profits of a Macau entity that have not been taxed in Macau, Complementary Income Tax will technically be charged on the dividend distribution to the shareholders.
The following income are exempted from Complementary Income Tax:
(1) Income received by cooperatives from utilising its own funds;
(2) Income received by recognised religious entity or organisation;
(3) Individuals or entities which pay tax in accordance with special regulation or as exempted by relevant regulation or ordinance;
(4) benefits derived purely from employment;
(5) Income obtained through the operation of aircraft business and its other supplementary activities in Macau by air transport companies whose residence or place of effective management is outside Macau, if equivalent exemption is granted to companies of the same nature whose residence or place of effective management is in Macau, and reciprocity is recognized in the Air Transport Agreement or the Chief Executive’s resolution published in Macau’s official gazette.
Group A taxpayers may carry forward losses and offset future taxable profits for three years, but Group B taxpayers are not entitled to carry forward losses. The carry-back of losses is not permitted. Group relief is also not available.
6． Filing and Payment
Regardless whether a business entity is in Group A or Group B, it is required to file an annual tax return with the Macau Financial Services Bureau. The annual tax returns must be filed with the Financial Services Bureau by the following dates:
(1) Group A taxpayers – 1 April to 30 June
(2) Group B taxpayers – 1 February to 31 March
Upon receipt of the tax returns, the Financial Services Bureau will issue notice of assessment to those taxpayers demanding the payment of taxes. Normally, payment of tax shall be made by two equal instalments normally in September and November. However, if the amount is not greater than MOP$3,000, payment shall be made by one instalment, normally in September.
Taxpayers who under report their taxable income, fail to file their tax returns or fail to make payment of tax on a timely basis are subject to penalties ranging from MOP100 to MOP20,000. Interest will also be charged on late payment of tax. Such penalties and interest are not deductible for Complementary Income Tax purpose.
7． Tax Exemptions
According to the Budget and the revised Budget for the financial year 2020 approved by the Legislative Assembly (2020 Budget), the tax-free income threshold for complementary tax has been increased from MOP$32,000 to MOP$600,000 for income derived in the tax year 2019 (taxable income in excess of MOP$600,000 is taxed at 12%), and there is a reduction of up to MOP$300,000 in the complementary income tax payment.
Also, companies, which have already registered as Group A taxpayer in the FSB, will be able to deduct from their taxable revenues 300% of the first MOP$3 million spent on qualifying research and development activities, and 200% of any additional R & D expenditure, subject to a cap of MOP$15 million.
In 2020, the income obtained or generated in Portuguese-speaking countries shall be exempt from Profits Tax, when the relevant profits tax has been paid in that countries.
During the Year 2020, cash or goods donated in response to Coronavirus will be regarded as an expenditure or loss to the fiscal year if the taxpayer donates to social organizations of public interest and charitable organizations in Macau or in Mainland China, as well as national institutions and their departments at or above country-level government in Mainland China.
(1) Double Taxation Treaty and Arrangements
A Double Tax Agreement (DTA) is a bilateral agreement between two countries that seeks to eliminate the double taxation of income. The main purpose of a DTA is to modify the tax rights of the respective jurisdictions. DTAs generally over-ride domestic law. As of 30 June 2020, the Macau Government has concluded DTAs with 6 jurisdictions, including, Vietnam, Cape Verde, Mozambique, Portugal, Hong Kong and Mainland China.
(2) Tax Information Exchange Agreements
Tax Information Exchange Agreements (TIEAs) are intended to complement DTAs or for use with countries for which a DTA is not deemed appropriate, mainly because they have no, or low, taxes on income or profits. As of 30 June 2020, Macau has signed TIEAs with more than 10 countries or regions, including Ireland, Guernsey, Sweden and Japan etc.