The local government will be exempted from income tax when investing in the mainland, once a new deal under the Mainland-Macau agreement to avoid double taxation comes into effect, the Macau Government Information Bureau (GCS) said in a statement on Thursday.
The Fourth Protocol to the Arrangement between the Mainland and the Macau Special Administrative Region (MSAR) on the Avoidance of Double Taxation and Prevention of Evasion of Income Tax exempts from income tax investments made by the local government in the mainland, namely via the Guangdong-Macau Cooperation and Development Fund.
The tax pact was signed by Chief Executive Fernando Chui Sai On and State Taxation Administration Commissioner Wang Jun during a ceremony at Government Headquarters in Praia Grande.
Once the accord comes into effect, investments made by the Guangdong-Macau Cooperation and Development Fund will be exempted from an income tax estimated at about 800 million yuan (917 million), the statement said.
Currently, a 10-per cent income tax is levied on investments made in the mainland by the Guangdong-Macau Cooperation and Development Fund.
“The measures in the new pact clearly demonstrate the strong support from the central government in advancing Macau’s effort for adequate economic diversification,” the statement said.
According to the statement, the measures can effectively reduce the fiscal costs concerning the local government’s investments in the mainland, increase the profitability of such investments, diversify its investment portfolio and enhance the value appreciation of the MSAR’s fiscal reserve, and contribute to boosting the development of the local financial services industry.
In order to align with the “Action Plan on Base Erosion and Profit Shifting” by the Paris-based Organisation for Economic Cooperation and Development (OECD), the new pact contains a number of updates to the Arrangement on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, such as provisions on minimum requirements, so as to reflect the latest development in the international taxation system, the statement pointed out.
According to the Macau Post Daily, the Guangdong-Macau Cooperation and Development Fund has completed its scheduled injection of capital. Based on relevant terms – in addition to the guaranteed return of 3.5 percent on the actual investment – the local government will be entitled to extra returns if the fund’s returns exceed a certain threshold, the statement underlined.
The Arrangement between the Mainland and the MSAR on the Avoidance of Double Taxation and Prevention of Evasion of Income Tax was signed in 2003, with subsequent updates – namely the First Protocol, Second Protocol, and the Third Protocol – in 2009, 2011 and 2016 respectively.