About This Guide
Country by Country guides are necessarily only summaries. They provide quite literally a guide, and not a comprehensive and detailed analysis. Professional advice should always be obtained before acting on the information contained in such a guide, regardless of how comprehensive it is.
Country summary guides are often long and repetitive. This guide, compiled by ITSG members across the world, is designed to be a short quick reference of useful and accurate information. It achieves its goal of being brief by referring to the general descriptions contained in the section below entitled Explanation of Terms. For many people, these terms will be obvious as they are well accepted within the international tax community. However, to avoid uncertainty, and make this guide as useful and accurate as possible, the commonly used terms of technical significance are explained for ease of reference and use. Please refer to them as necessary.
Explanation of Terms
The terms below follow the table of contents of each Country Guide, and are standard in all cases.
|1. Country||The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.|
|2. Corporate tax rate||The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.|
|3. Basis of Taxation||The basis of taxation for a corporation will typically be one of:|
|4. Branch Profits Tax/Branch Interest Tax||Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.|
|5. Business Entities and their Taxation||The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.|
|6. Capital Gains||Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.|
|7. Group Taxation||Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.|
|8. Special Exemptions and Incentives||Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.|
|9. Thin Capitalization||Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.|
|10. Transfer Pricing Rules||Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.|
|11. CFC Rules||Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.|
The general overview of CFC rules is described in simple terms.
|12. Profit Repatriation||Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:|
|13. Foreign Tax Credit||Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.|
|14. Losses||Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.|
|15. Tax Treaties, TIEA’s, LOB||It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.|
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
|16. Typical Withholding Tax Rates||Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.|
|17. Taxation Year||Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.|
|18. Tax Return Filing||This is the due date for filing a tax return. Where extensions are available, this is noted.|
|19. Tax Instalments||The typical tax instalment requirements are noted.|
|20. Payment of Tax||This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.|
|21. Statutes of Limitations||This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.|
|22. Exchange Controls||If a country has exchange controls, this is noted, together with the main requirements.|
|23. VAT||A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.|
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
|24. Stamp Duty (Land Transfer Tax)||Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.|
|25. Capital Tax||If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.|
|26. Other Taxes||Where significant, other taxes are noted.|
|27. Anti-Avoidance Rules||Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.|
|28. Sale of Corporation||Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.|
|29. Step Up on Acquisition||Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.|
|30. Use of Rulings||In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.|
|31. Other||Other important aspects of the tax system are noted.|