China is the most complex jurisdiction for financial compliance in APAC, while Hong Kong is the simplest, according to research from TMF Group.
‘Accounting & tax: The global and local complexities holding multinationals to account’ report ranks 77 jurisdictions by the complexity of accounting and tax rules. It found China’s financial environment to be the region’s most complex, followed by Vietnam, South Korea, Malaysia and Indonesia. By contrast, Hong Kong, Australia, Singapore, New Zealand and the Philippines were seen as the least complex for multinational companies regarding accounting and tax laws and practices.
Amongst the reasons for China’s ranking was that many multinational companies find Chinese legislation more “layered” than other jurisdictions, with significant regional variations in tax rates. China’s national corporate income tax rate is 25%, but regions, provinces and cities provide preferential rates to attract certain industries. Tax rates, policies and subsidies can differ depending on whether a location is in a free trade zone, a special economic zone, or a hi-tech industrial development zone. These policy changes are frequent, especially the 2019 VAT reform and the new 2020 crown related policies and regulations changes. Tax system digitisation, complying with international standards (e.g., Base Erosion and Profit Shifting and Transfer Pricing) will require global businesses to consider both local and global requirements.
Thun Lee, Head of China and Taiwan market, TMF Group, said, “The current financial environment should not be a deterrent for China to be a partner of choice for businesses. The Chinese government is taking several steps to improve the business environment, like converging Chinese accounting standards with international norms, implementing new fiscal policies to achieve larger tax reductions, and implementing inclusive tax relief measures to help small enterprises. With help from local experts, foreign companies can address any complexities presented by languages and local financial rules effectively and efficiently.”
At the other end of the scale, Hong Kong is ranked as the least complex jurisdiction in APAC. It maintains one of the simplest tax systems globally, one of the key attributes of why many foreign companies choose Hong Kong over other jurisdictions. Hong Kong boasts only three major taxes for companies: profits tax, salaries tax, and custom and excise taxes. Hong Kong has no value-added tax, capital gains tax, dividend tax or goods and service tax. In addition, Hong Kong adopts a “territorial” tax system, and so only profits derived in Hong Kong are taxed; thus, some companies can be effectively tax-free.
Emine Constantin, Global Solutions Director, Accounting and Tax, TMF Group, said, “Traditional taxation principles don’t seem to apply in today’s world, where electronic flows replace physical flows, and the tracking of goods and services becomes more complex. Consequently, corporate taxation has become a highly contentious topic…Since the pandemic emerged, we have seen digitisation accelerate and the groundwork laid for taxation of the digital economy. Digital services tax will soon become the ‘norm’ rather than the exception as adoption increases. Within APAC, Australia, India, Japan, New Zealand, South Korea and Taiwan have already introduced such tax rules on the cross-border supply of digital services. While Singapore and Malaysia become the first South-East Asian nations to do so, their neighbours have followed suit. COVID-19 will continue to pose great challenges for businesses, but it’s also acting as a catalyst for simplification. This could lead to significant changes to the global business landscape as we see jurisdictions take dramatic and unprecedented actions to stimulate their economies.”
Paul Arkwright
Publisher
