Asia Tax Bulletin - Autumn 2026

Offshore Trusts Tax Measures

The PRC has introduced new tax regulations that generally treat a resident individual’s transfer of property into an offshore trust as a deemed disposition, imposing 20% individual income tax on any resulting gain, rather than on the gross value of the transferred property.

On 24 July 2026, China’s Ministry of Finance (“MoF”) and State Taxation Administration (“STA”) jointly issued Announcement No. 21 of 2026 (Announcement Regarding Individual Income Tax Matters for Offshore Trusts), alongside the STA’s procedural companion, Announcement No. 15 of 2026.

These rules establish a comprehensive taxation framework for offshore trusts funded by Chinese tax residents or nonresidents. This measure is a significant effort to tighten oversight of offshore wealth arrangements. While the primary tax liability falls on the relevant individual taxpayer, the regulations purport to impose significant new accounting, cooperation, and filing obligations directly on offshore trustees.

Prior to these announcements, the taxation of offshore trusts in China lacked trust-specific attribution and timing rules. Chinese residents’ global income has always been subject to individual income tax, but the specific application of the law to trust structures was undefined.

The new rules adopt a tax attribution approach to trusts and specified offshore entities; they do not purport to invalidate the trust or negate its civil law effects under the governing trust law. The framework effectively treats the trust and its nonqualifying underlying offshore entities as pass-through vehicles for tax calculation purposes.

The scope of the regulations is broad. It applies not only to trusts formally settled by Chinese tax residents, but also to:

• Property nominally contributed by a nonresident individual where the contributed property is, in fact, controlled by a resident of the People’s Republic of China (“PRC”);
• Trusts funded by nonresidents that make actual or deemed distributions to resident individuals; and
• Trusts succeeded by resident individuals.

Crucially, the rules focus on the “resident individual who contributed or is deemed to have contributed property to the trust” (the “resident contributor”), rather than strictly on the nominal settlor named in the trust deed. Individuals who actually fund, bear the cost of, or control the property transferred through intermediaries are deemed to be the contributors.

Where two or more resident individuals contribute property to the same offshore trust, the trust property and income are allocated among them, based on the relative market value of their respective contributions. Where both resident and nonresident individuals contribute to the same trust, all contributed property is treated as resident-funded.

The regulations establish distinct tax treatments depending on whether the property was contributed by a resident or a nonresident individual.

Trust income and income from specified offshore entities that the trust holds, controls, or manages are attributed to the resident contributor annually, regardless of whether the income is distributed.

A critical nuance in the regulations is the treatment of underlying offshore entities. The rules do not automatically pierce through all entities held by a trust.

Under Article 14, an individual is deemed to “control” an offshore entity if that person meets either a quantitative or qualitative test directly or indirectly holding 25% or more of the equity, voting rights, shares, rights to income or profits, or similar interests (with a look-through rule treating intermediate layers of more than 50% as 100%) or exercises substantive control over capital, operations, purchases and sales, or distributions, even if the 25% threshold is not met.

Announcement No. 21 defines “offshore entity” using four risk indicators (e.g., passive income exceeding 50%, a lack of substantive operations, and payment of personal expenses). However, it explicitly excludes regulated financial institutions (e.g., banks, insurance companies, securities firms) that face unspecified customers and bear risk, as well as other organisations that can prove they have a reasonable commercial purpose and engage in substantive business operations.

Separately, financial products issued by regulated financial institutions that face unspecified customers, independently conduct business, and bear risk are excluded from the “other legal arrangements with trust-like functions” limb of the offshore trust definition. This exclusion applies to the financial product as a legal arrangement. An outer trust properly settled under foreign trust law would not exit the scope of Announcement No. 21 simply because it holds qualifying insurance or financial products.

While the tax liability falls on individuals, STA Announcement No. 15 imposes direct obligations on appointed trustees as a matter of PRC tax administration. Announcement No. 15 does not impose a general withholding obligation on offshore trustees. Instead, it mandates specific compliance and support roles.

Article 17 of Announcement No. 21 establishes a 90-day statutory filing and payment period for specified historical liabilities. Timely payment avoids late payment surcharges, but the provision is not framed as a general amnesty or blanket waiver of tax penalties.

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Dividends Paid to Overseas Individuals Subject to 20% Tax

Courtesy of Deacons, on 1 September 2026, China’s Ministry of Finance and the State Taxation Administration jointly issued an Announcement on Matters concerning the Individual Income Tax Policies on Dividends Received by Foreign Individuals (“Announcement No. 27”), providing that, starting from 1 September 2026, a 20% individual income tax shall be levied on dividends received by foreign individual shareholders from foreign-invested enterprises and simultaneously repealing the 1994 provisions of the above two departments granting a temporary exemption from individual income tax on such dividends. Thus, this 32-year-old tax exemption, which had been implemented to attract foreign investment, has officially come to an end.

Announcement No. 27 also provides that a foreign-invested enterprise shall be responsible for withholding the tax when paying a dividend to a foreign individual and shall file a tax return and pay the tax within the first 15 days of the month following the month in which the dividend is paid; if the tax has not been withheld, the foreign individual shall pay the tax before 30 June of the year following the year in which the dividends are received; however, if the tax authority notifies the taxpayer to pay the tax within a specified time period, the foreign individual must pay the tax in accordance with the tax authority’s schedule. Announcement No. 27 is not clear on the tax payment policy applicable to dividends declared prior to 1 September 2026 but not actually paid until after. Based on a literal reading of the provisions of Announcement No. 27, foreign individuals in principle should pay a 20% income tax on the dividends received after 1 September 2026. For a dividend declared prior to 1 September 2026 but not yet actually paid, it would be prudent for the foreign-invested enterprise involved to consult with the local competent tax authority on whether any individual income tax is payable.  

The above-mentioned 20% tax rate is the uniform rate prescribed under Chinese tax law. If there is any bilateral tax treaty between China and the country of which the foreign individual shareholder is a tax resident that provides for a more favourable tax rate for eligible dividends, the foreign individual shareholder may enjoy the preferential treatment under the treaty but should prepare supporting documents for examination by the tax authority to prove its eligibility to enjoy the treaty benefits.

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Business Reorganisations Relaxations

Courtesy of IBFD, it was reported that China has modified the requirements for special tax treatment of business reorganisations. The special tax treatment is a tax deferral facility for reorganisations with taxpayers being able to retain tax bases of equities or assets and liabilities involved so that no capital gains will be recognised. The modification was announced in Announcement of State Taxation Administration [2026] No. 13 and applies to business reorganisations that take place as from 1 January 2026.

Under previous regulations, all resident enterprise shareholders of a merged or divided enterprise had to reach agreement with the absorbing (or split) enterprise on applying the special tax treatment. The Announcement has reduced the percentage to 50%. It provides that, if more than 50% of the resident enterprise shareholders of a merged or divided enterprise agree with the absorbing (or split) enterprise on applying the special tax treatment, the share equities held by the shareholders that reached the agreement, and the pertinent assets and liabilities transferred in the business reorganisation corresponding to the equity, may be subject to the special tax treatment. The equity held by the remaining shareholders, and the corresponding assets and liabilities, are subject to the general tax treatment.

The merging or dividing enterprise obtaining assets and liabilities that are subject to the general tax treatment may elect to retain the original tax bases of these assets and liabilities and treat the difference between the original tax base and the fair market value as a separate asset, and depreciate/amortise it over a period of 10 years, starting from the year in which the reorganisation is carried out. However, once the election is made, the decision is irreversible.

It is also required that resident enterprise shareholders holding more than 5% in the merged (or divided) enterprise at the time of the reorganisation and the first 10 resident enterprise shareholders have agreed on the application of the special tax treatment. They are not allowed to transfer the acquired shares within 12 consecutive months after the reorganisation, or the special tax treatment will not apply. Nor will it apply if other shareholders transfer their shares within 12 months after the reorganisation if it would leave the percentage of shareholders with consent to the special tax treatment below 50%.

Shareholders of merged or divided enterprises may include individuals, partnerships, contractual asset management products, and non-residents. The tax treatment of these shareholders remains unchanged.

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VAT Withholding on Taxable Services Provided by Domestic Individuals

Courtesy of IBFD, it was reported that the Ministry of Finance (“MoF”) and State Taxation Administration (“STA”) have issued administrative measures for the withholding of VAT by domestic entities for services provided by domestic individuals.

Announcement of the MoF and STA [2026] No. 28, issued on 3 September 2026, implements article 35 of the VAT Implementation Regulations, which provides that domestic entities paying for taxable transactions conducted by natural persons are required to act as withholding agents and withhold VAT from the payments.

From 1 November 2026, entities (purchasers) making payments to domestic natural persons providing research and development (“R&D”), software, design, consulting, radio and television programme (work) production, or cultural and educational services (“regulated taxable transactions”) must withhold VAT on the services where the taxable threshold on a per-transaction basis is exceeded. Where an individual is eligible for a VAT incentive or exemption, he or she should notify the withholding agent.

The VAT amount to be withheld is calculated by applying the applicable tax collection rate to the sales amount. Other applicable surtaxes and fees collected along with VAT will also be withheld.

The VAT must be paid by the withholding agent to the competent tax authority within 15 days of the month following the month of the transaction. The withholding agent is also subject to other compliance and administrative requirements, including retaining records of transaction payments, tax payments, invoices, and individuals’ identification information and documentation on the application of tax incentives, as well as reporting cases in which an individual provides incorrect information to the tax authority and refuses to correct it.

The Announcement does not apply to individuals conducting regulated taxable transactions through internet platforms if their VAT declarations are handled by internet platform enterprises.

The STA issued Announcement of the STA [2026] No. 19, providing the withholding tax returns for this purpose and associated explanatory notes.

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No More Tax Exemption on Dividends and Bonuses Paid to Foreign Individuals

Based on Announcement of the Ministry of Finance and State Taxation Administration [2026] No. 27, China has abolished the longstanding tax exemption on dividends or bonuses derived by foreign individuals from foreign-invested enterprises. From 1 September 2026, such dividends and bonuses are subject to individual income tax at a rate of 20%.

“Foreign-invested enterprise” is the collective term for enterprises previously denominated as wholly foreign-owned enterprises, Sino-foreign cooperative joint ventures, and Sino-foreign equity joint ventures. Dividends and bonuses paid by such enterprises have been exempt from individual income tax since 1994 (under Cai Shui Zi No. 20 of 1994).

The tax will be withheld by the foreign-invested enterprise paying the dividends and bonuses and will be paid to the tax authorities on the 15th day of the month following the month of the payment. Double tax treaty relief may be available depending on the jurisdiction of tax residence of the recipient.

If the paying enterprise fails to withhold the tax, the foreign individual recipient is required to file a tax return and pay the tax before 30 June of the year following the year of the payments. Where the tax authority has set a time limit for the payment of the tax, that time limit must be observed.

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Tax Deferral for Integrated Circuit and Industrial Machine Tools Businesses

Based on Announcement of the MoF, STA and NDRC and the Ministry of Industry and Information [2026] No. 23, China has announced that, from 1 January 2026 to 31 December 2028, gains from non-monetary asset exchanges that are derived by integrated circuit enterprises or industrial machine tool enterprises may be recognised over a maximum five-year period for enterprise income tax purposes.

The announcement was jointly issued by the MoF, State Taxation Administration, National Development and Reform Committee, and the Ministry of Industry and Information.

Losses from non-monetary asset exchanges are not allowed to be spread out in the same way. Non-monetary assets are assets other than monetary assets (such as cash, bank deposits, accounts receivable, notes receivable and bond investments). A non-monetary asset exchange refers to an enterprise exchanging non-monetary assets for other non-monetary assets.

Where the enterprise enjoying this tax treatment transfers the asset exchanged or is liquidated or deregistered within the five-year period, the remainder of the tax due must be settled in the year of the transfer or deregistration.

This tax treatment does not apply to the enterprises that exchange the non-monetary assets with the integrated circuit or industrial machine tool enterprises, unless they are also integrated circuit or machine tool enterprises.

Furthermore, the Announcement states that, in respect of the enterprise income tax treatment of non-monetary investments, Cai Shui [2014] No. 116 and Cai Shui [2016] No. 101 continue to apply, and, if the asset exchange is also eligible for the tax deferral treatment under the regulation on business reorganisation (Cai Shui [2009] No. 59 and Cai Shui [2014] No. 109), the taxpayer may elect for either of the treatments under reorganisation or under this Announcement. Once elected, the decision is irreversible.

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VAT Treatment of Non-Taxable Transactions

The MoF and the STA have jointly issued an announcement on the value added tax (“VAT”) treatment of non-taxable transactions and other related matters. Announcement No. 25 of 2026, issued on 28 August 2026, provides further clarification following the implementation of the new VAT Law and its implementing regulations.

A key clarification under the Announcement concerns the deductibility of input VAT attributable to non-taxable transactions. The Announcement distinguishes between non-taxable transactions for which the related input VAT remains deductible and those for which the input VAT is non-deductible.

Under the Announcement, the following six circumstances do not fall within the category of non-taxable transactions for which input VAT is prohibited from deduction under article 22 of the VAT Implementing Regulations. Accordingly, input VAT attributable to these transactions may, subject to the general VAT rules, be deducted from output VAT:

• Insurance proceeds received by an insured party;
• Monetary or non-monetary asset donations received;
• Liquidated damages or similar amounts received where a contract was not performed and no taxable transaction occurred;
• Services provided free of charge, other than the gratuitous transfer of financial products;
• The transfer of accounts receivable or other receivables arising from the taxpayer’s own taxable transactions, excluding securities; and
• Fiscal subsidies received in accordance with relevant policies that are not directly linked to the taxpayer’s sales of goods, services, intangible assets, or real estate or to the volume of such sales.

The following four circumstances fall within the non-deductible category under article 22 of the VAT Implementing Regulations (i.e., input VAT attributable to these transactions may not be deducted):

• Transactions involving the sale of goods, services, intangible assets, or real estate that do not constitute taxable transactions occurring within China under article 4 of the VAT Law;
• Transfers for consideration of equity interests other than securities;
• Dividends received from equity interests other than securities and dividends received from ordinary shares of joint stock companies; and
• Commodity futures transactions, excluding the physical delivery stage.

The clarification is particularly relevant to taxpayers engaged in equity investment, cross-border activities, financial transactions, and group-wide service arrangements, as the deductibility of related input VAT will depend on the nature of the underlying non-taxable transaction.

The Announcement also provides further clarification on a number of VAT administration and preferential treatment matters, including the application of input VAT deduction rules, the scope of certain VAT exemptions, the treatment of asset reorganisations, and the treatment of specific transactions involving discounts and bundled supplies.

The Announcement took effect on 1 September 2026. Importantly, it provides that matters arising between 1 January and 31 August 2026 that have not yet been processed will be handled in accordance with the Announcement. This transitional rule is particularly relevant for taxpayers that have already encountered non-taxable transactions during the first 8 months of 2026 but have not yet applied the corresponding VAT treatment.

International Tax Developments

Norway: On 16 June 2026, the new double tax treaty between the PRC and Norway went into force. The treaty replaces the previous tax treaty and has effect for withholding tax on 1 January 2027.

Hong Kong’s Tax (Incentive) Plans for the Next Five Years

On 16 September 2026, Hong Kong published its inaugural medium-term development blueprint, the First Five-Year Plan for Economic and Social Development of the Hong Kong Special Administrative Region (2026-2030), alongside the 2026 Policy Address. The documents lay out a series of targeted tax-related measures aimed at enhancing Hong Kong’s competitive edge in the global market, particularly in the fields of treasury management, commodity trading, and high-value-added industrial activities.

All the tax-related measures sit within Hong Kong’s overarching policy framework of “effective market and capable government.” Implementation will be realised via amendments to the Inland Revenue Ordinance and subsidiary legislation where legislative change is required.

Preferential Tax Rates for Strategic Enterprises

Under the preferential policy package for attracting enterprises and investment, Hong Kong plans to introduce legislation by the end of 2026 to provide selected enterprises operating in key sectors with a preferential tax rate of 5% or half of the applicable standard rate. The targeted activities include finance, advanced manufacturing, R&D in innovation and technology, headquarters activities, and logistics and supply chain management.

The Policy Address further states that a 5% or half-rate (i.e., 8.25%) profits tax concession may be offered to qualifying enterprises depending on their investment plans and actual economic contribution to Hong Kong, with the aim of encouraging high value-added enterprises to establish headquarters or regional headquarters in Hong Kong and undertake supply chain and sourcing activities there.

Commodity and Gold Trading Incentives

Hong Kong will also implement a half-rate tax concession for physical commodity trading, intended to encourage Mainland Chinese and international commodity traders to establish or expand their operations in Hong Kong.

In addition, Hong Kong will explore tax concessions for qualifying activities within the gold and commodity trading ecosystem, with Legislative Council consultation planned for 2027. The measures complement Hong Kong’s broader plans to develop an international gold-trading market and strengthen its position within the London Metal Exchange’s global warehousing network.

Corporate Treasury Centres and Wealth Management

The government completed a review of the tax concessions applying to corporate treasury centres (“CTCs”) and a public consultation on proposals to provide preapproved CTCs and their associated companies with additional tax benefits and greater flexibility.

The current plans suggest a two-tier regime. Under Tier 1, the government would broaden interest deduction rules, allow deferred deductions in certain cross-border financing arrangements, and clarify key requirements, such as substantial activities and qualifying treasury transactions to enhance tax certainty. Tier 2 would introduce a preapproval mechanism for eligible CTCs and their associated companies. Approved groups could enjoy additional tax benefits for a five-year period, including relief from the dedicated CTC condition and safe harbour rule, a 50% tax exemption on qualifying interest income derived by Hong Kong associated companies, and relief from the subject-to-tax requirement on interest paid to preapproved non-Hong Kong associated companies. The anti-tax arbitrage rule for preapproved Hong Kong associated companies will also be removed. Such corporations may claim a full tax deduction for expenses paid or payable to the preapproved qualifying CTC, subject to a cap on interest expense deductions at 30% of EBITDA.

An amendment bill is expected to be introduced in the Legislative Council in the first half of 2027.

The 5-Year Plan also calls for enhanced tax concessions and other measures to encourage Mainland Chinese and overseas groups to establish CTCs in Hong Kong.

Hong Kong will meanwhile continue to enhance its preferential tax regimes for funds, single-family offices, and carried interest to attract more funds, family offices, and international capital to the territory.

REIT Stamp Duty Exemption

To support the development of the real estate investment trust (“REIT”) market, Hong Kong plans to introduce legislation in the first half of 2027 providing a stamp duty waiver for transfers of non-residential properties into REITs seeking listing in Hong Kong. Separate legislation is planned in 2026 to facilitate the privatisation or restructuring of REITs.

Tax Deductions for Intellectual Property Expenditure

Hong Kong will introduce legislation in 2026 to provide tax deductions for capital expenditure incurred on the acquisition of intellectual property rights or licences to use such rights. The measure is intended to reduce IP trading costs and support Hong Kong’s development as a regional IP trading centre.

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International Tax Developments

Nigeria: On 13 July 2026, Hong Kong and Nigeria signed a tax agreement.

Overhaul of the PAN and Tax ID rules

Courtesy of JSA, the landscape of tax identification in India has undergone significant transformation with the Income-tax Act, 2025 and the Income-tax Rules, 2026 (“IT Rules 2026”) coming into effect from 1 April 2026. The Permanent Account Number (“PAN”) framework has been comprehensively overhauled, with substantial revisions to the rules governing allotment, documentation requirements, and mandatory quoting obligations.

These changes carry significant implications for Indian companies, Non-resident Indians (“NRIs”), Resident but not Ordinarily Resident Individuals (“RNORs”), and foreign nationals and overseas companies with Indian operations or investments.

Key Changes in the PAN Framework

Under the revised IT Rules 2026, a more structured, documentation-intensive and compliance-focused PAN regime has been introduced. The earlier Form 49A and Form 49AA have been replaced with four separate application forms: (a) Form No. 93 for Indian citizen individuals (including NRIs and RNORs); (b) Form No. 94 for Indian entities; (c) Form No. 95 for foreign individuals (not being citizens of India); and (d) Form No. 96 for foreign entities.

This restructuring marks a fundamental shift as the applicable form is now determined by citizenship and place of incorporation rather than residential status alone, resulting in distinct compliance requirements for Indian and foreign applicants. The revised rules also introduce additional disclosure requirements, including details relating to Taxpayer Identification Numbers (“TINs”), Authorised Representatives (“ARs”), and Representative Assessees (“RAs”).

PAN requirements for Indian citizens and Indian entities

For individual Indian citizens applying through Form No. 93, the IT Rules 2026 have significantly narrowed the role of Aadhaar. While Aadhaar continues to remain an acceptable proof of identity and address, it is no longer recognised as proof of date of birth. Applicants must now furnish separate documentary evidence, such as a passport, driver’s licence, birth certificate, matriculation certificate, or marriage certificate. Consequently, an Aadhaar card alone will no longer suffice for a complete PAN application. Additionally, residential status must now be disclosed at the application stage, requiring applicants to specify whether they are residents, non-residents, or RNORs.

For Indian companies and other entities incorporated or formed in India, including limited liability partnerships, partnership firms, trusts, Hindu undivided families, associations of persons, and bodies of individuals, Form No. 94 is the prescribed application. This form requires disclosure of entity-specific details, including registration number (mandatory for companies and limited liability partnerships), date of incorporation or formation, registered office address, and details of principal officers or partners.

Indian companies and entities must also mandatorily appoint an AR or RA with an Indian address, and provide supporting documentation under Part E of Form No. 94, along with a declaration certifying the accuracy of the information. The declarant assumes personal liability for any false declaration, representing a stricter accountability framework than previously applicable.

PAN requirements for foreign individuals and overseas entities

For foreign individuals applying through Form No. 95, the compliance requirements are enhanced. A significant change is the mandatory disclosure of citizenship status, classified as (a) foreigner, (b) person of Indian origin, or (c) overseas citizen of India, a categorisation previously required only for foreign portfolio investors and qualified foreign investors under the Securities Exchange Board of India regulations. Foreign individuals and entities must also furnish a TIN issued by their jurisdiction of residence or incorporation, a requirement previously limited to certain categories of foreign investors.

For foreign entities applying through Form No. 96, disclosure of AR or RA details is mandatory. Applicants must furnish the AR/RA’s name, PAN, or Aadhaar (where applicable), contact details, Indian address, and supporting documentation, establishing a formal compliance point of contact in India.

The AR/RA must have an Indian address and sign the verification declaration forming part of Form No. 96, thereby confirming the accuracy and completeness of the information furnished. A representative assessee in relation to a non-resident may include the agent of the non-resident, including any person in India who is employed by or on behalf of the non-resident, has a business connection with the non-resident, receives income from or through the non-resident, or otherwise. An authorised representative may be appointed in writing including tax professionals, such as chartered accountants, company secretaries, and advocates enrolled with the Bar Council of India, subject to applicable statutory and professional requirements.

Given these obligations, individuals undertaking an AR/RA role would need to document the scope of their authority, ensure appropriate contractual protections and indemnities are in place, and establish arrangements for ongoing compliance support.

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Foreign Income, Asset Disclosure Schemes for Small Taxpayers

The Central Board of Direct Taxes (“CBDT”) has introduced the Foreign Assets of Small Taxpayers – Disclosure Scheme (“FAST-DS”) Rules, 2026 (the “scheme”). The scheme is a one-time voluntary disclosure scheme to enable eligible small taxpayers to declare certain undisclosed foreign assets, undisclosed foreign income, or undeclared foreign assets, on payment of a specified tax or fee. The scheme is effective from 16 August 2026 to 31 December 2026.

The scheme is available to resident, non-resident, and not-ordinary resident taxpayers.

The declaration can be made under two broad categories:

• Category A: Where the aggregate value of undisclosed foreign assets or foreign income previously not subject to tax does not exceed INR 10 million; and
• Category B: Where foreign assets that were already offered to tax or acquired while the taxpayer was a non-resident but were not reported in the relevant return schedule, their aggregate value being up to INR 50 million.

For this purpose, the assets must be valued as at 31 March 2026. Special valuation rules are provided for immovable property, unlisted securities, and artwork.

The tax payable under these categories is calculated as follows:

• Category A: 30% tax, plus an additional amount equal to 100% of that tax (effective tax rate of 60%); and
• Category B: A flat fee of INR 100,000.

The declaration must be filed electronically via Form 1. The CBDT will issue an order in Form 2 determining the amount payable. Payment is generally required to be made within two months, and the details must be furnished to the CBDT in Form 3. Upon receipt of a valid payment, the CBDT will issue a certificate in Form 4, electronically acknowledging the payment. The declarant will therefore receive immunity from further tax, penalty, and prosecution under the Black Money Act, 2015 in respect of the declared income or asset.

However, the scheme does not apply to assets representing proceeds of crime covered by proceedings under the Prevention of Money-laundering Act, 2002, or to cases where an assessment under the Black Money Act has already been completed.

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Safe Harbour for Offshore Funds Managed Out of India

Courtesy of Khaitan & Co, it was reported that Indian tax law provides a “safe harbour” for the offshore funds managed from India. Broadly, the fund management activities carried out by an eligible fund manager in India (“Fund Manager”) with respect to an eligible investment fund (“Fund”), do not result in such Fund constituting a taxable presence (business connection) in India or being treated as a tax resident in India.

However, this safe harbour is subject to various conditions, compliance with which is practically challenging for the offshore funds. To address these challenges, the Ministry of Finance, through the Taxation and Other Laws (Amendment) Bill, 2026 (“Bill”), has proposed significant relaxations to simplify the safe harbour regime by removing several stringent quantitative and structural conditions.

The key conditions proposed to be amended by the Bill are set out in the table below:

Key Conditions	Existing Provision	Proposed Amendment
Residential status	Fund should be a non-resident in India	Retained
Jurisdiction	Fund should be resident of / established in a treaty or notified jurisdiction	Retained
Participation by Indian resident	Direct participation by Indian residents should not exceed 5% of the corpus (carve-out for manager contributions up to INR 250 million during the first three years)	Retained
Investor protection regulations	Fund and its activities should be subject to applicable investor protection regulations in the home jurisdiction	Removed
Minimum members	Fund should have a minimum of 25 members (who are not connected persons)	Removed
Single-member cap	No single member (together with connected persons) should hold more than 10% interest in the Fund	Removed
Aggregate concentration cap	Ten or fewer members (together with connected persons) should hold less than 50% interest in aggregate	Removed
Single-entity investment cap	Fund should not invest more than 25% of its corpus in any single entity	Removed
Associate investment	Fund should not invest in an associate entity	Removed
Minimum corpus	Monthly average corpus of the Fund should be at least INR 1 billion	Removed
No business in India	Fund should not undertake or control or manage any business in India	Retained
No other business connection	Fund should not carry out any other activity that may create a business connection in India	Retained
Manager remuneration	Fund should pay an arm’s-length remuneration to the Fund Manager, as prescribed	Removed

No amendment has been proposed with respect to the conditions applicable to the Fund Manager, and, therefore, it remains important to ensure that the Fund Manager is (a) registered as a fund manager or an investment adviser in India, (b) not an employee of the Fund or a connected person of the Fund, (c) rendering services in the ordinary course of business, and (d) not entitled to more than 20% of the profits arising or accruing to the Fund.

The proposed amendments signal a deliberate recalibration of India’s fund manager regime, from a condition-laden framework to a leaner safe harbour resting on a single principle: that the Fund does not itself carry on any business in India.

By proposing to remove broad-based eligibility requirements (25 members, 10% single-member cap, and 50% aggregate cap), minimum corpus requirement of INR 1 billion, diversification and associate investment caps (25% single-entity cap and the associate entity prohibition), the Bill addresses the very impediments that deterred offshore funds from onshoring their management functions.

Collectively, these changes would make the safe harbour substantially easier to access, reducing both structuring complexity and the compliance burden. The proposals shall be effective from 1 April 2026 once the Bill is passed in the Parliament and approved by the President of India.

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International Tax Developments

United Kingdom: On 15 July 2026, the India – United Kingdom Social Security Agreement entered into force. The agreement is a reciprocal arrangement that will guarantee that employees working temporarily in the other country for up to three years, and their employers, will be required to contribute to only one national social security system during the period of assignment, thus avoiding a disruption of their social security records. The agreement will also ensure that employees moving between India and the United Kingdom will only be liable for paying social security contributions in one country at a time. 

Four E-Commerce Platforms to Withhold Income Tax from Domestic Traders

On 1 July 2026, the Directorate General of Taxes (“DGT”) appointed four major e-commerce platforms as withholding agents for income earned by domestic sellers, marking the first implementation phase of the Minister of Finance Regulation No. 37 of 2025 (“PMK 37/2025”), which came into effect on 14 July 2025.

PT Global Digital Niaga Tbk (Blibli), PT Shopee International Indonesia, PT Tokopedia, and PT Ecart Webportal Indonesia (Lazada) must collect withholding tax under article 22 of the Income Tax Law on behalf of marketplace sellers. The withholding obligation will take effect one month after the appointment date.

PMK 37/2025 applies broadly to domestic sellers using electronic trading platforms, although small sellers with annual turnover below IDR 500 million may qualify for exemption, subject to notification requirements. The appointed platforms must withhold, remit, and report income tax on behalf of domestic merchants earning income through their marketplaces. The tax is generally levied at 0.5% of gross turnover (excluding value added tax and luxury goods tax) and is collected at the point of payment.

The withheld tax is treated as either a final tax or a creditable prepayment, depending on the taxpayer’s status under Indonesia’s income tax regime.

Consumption Tax Cut for Food and Beverages

Courtesy of IBFD, on 15 September 2026, the Japanese Cabinet approved an outline of a tax reform package providing for a temporary reduction in the consumption tax rate applicable to food and beverages from 1 April 2027 through 31 March 2029. The government plans to submit the relevant bill to an extraordinary session of the Diet convening in October. On 15 September 2026, the National Tax Agency launched a dedicated website and published related materials, including FAQs.

Temporary 1% Rate for Food and Beverages

At the core of the package is a special measure that would reduce the consumption tax rate to 1% on supplies of food and beverages made between 1 April 2027 and 31 March 2029. The measure would cover food and beverages currently subject to the reduced rate of 8%, with the existing scope remaining unchanged. Specific transitional rules would determine when the 1% rate takes effect for supplies under ongoing supply contracts and distance-selling arrangements, including online sales. These rules would address cases where businesses cannot promptly amend existing contract terms to reflect the new rate.

Greater Flexibility for Exempt and Simplified-Taxation Businesses

Japan’s consumption tax is a value added tax under which the net tax payable is generally calculated by deducting creditable input tax from output tax on taxable supplies. A business supplying food and beverages may move from a net payment position to a refund position, because the reduction in the applicable rate from 8% to 1% would substantially reduce its output tax.

Although the small business exemption, which provides a full exemption from consumption tax liability, and the simplified taxation rules, which allow input tax credits to be calculated by applying a prescribed ratio to output tax, may previously have produced favourable consumption tax outcomes, businesses applying either regime generally cannot claim refunds when input tax exceeds output tax.

To accommodate businesses that may enter a refund position as a result of the new 1% rate, the package would relax the applicable election deadlines, allowing businesses to opt out of the small business exemption or withdraw an election to apply the simplified taxation rules more readily. It would also ease restrictions on how frequently a business may elect to apply, or withdraw from, the simplified taxation rules, including the minimum two-year application period.

Special 100% Ratio in Simplified-Taxation Rules

A further special measure would apply to businesses that remain under the simplified taxation regime. For taxable supplies of food and beverages subject to the new 1% rate, the ratio used to calculate the deemed input tax credit would be set at 100%. The output tax on those supplies would therefore be fully offset by the deemed input tax credit. The existing simplified taxation rules would continue to apply unchanged to all other taxable transactions.

Adjustments to Interim Consumption Tax Payments

Businesses whose annual consumption tax liabilities decline as a result of the temporary rate reduction could otherwise face excessive interim payment obligations, because such payments are generally calculated by reference to the consumption tax paid for the preceding year. The package therefore provides for measures to prevent or mitigate excessive interim payments.

Transitional Relief from Tax-Inclusive Price Display Requirements

Japan generally requires consumer-facing prices to be displayed on a tax-inclusive basis. Since some businesses may be unable to replace price tags and update other price displays by the effective date of the rate change, the package would provide temporary transitional relief.

Implementation Support and Point-of-Sale System Upgrades

The government would swiftly launch a public information campaign to enable food and beverage manufacturers, distributors, retailers, and their system vendors to begin preparations at an early stage. Support would also be provided to small and medium-sized enterprises and other eligible businesses upgrading or modifying their point-of-sale systems. More broadly, the government intends to promote systems that can flexibly accommodate changes in consumption tax rates.

Liquidity Support for the Agriculture and Fisheries Sectors

The package also includes liquidity support for agricultural and fisheries businesses affected by the temporary rate reduction. The support would address the decline in output tax collected on sales, taking into account the financing costs borne by affected businesses. Targeted grants would be introduced for farmers and fisheries businesses that are exempt from consumption tax or apply the simplified taxation rules and would have difficulty switching to the general taxation rules to claim refunds. This measure is intended to prevent substantial unrecoverable input tax costs from jeopardising their businesses.

Support for the Restaurant Sector

Restaurant services would remain subject to the standard 10% consumption tax rate, while qualifying sales of food and beverages would be taxed at 1%. The resulting rate differential could enable food retailers to offer lower tax-inclusive prices than restaurants, potentially shifting consumer spending from dining out to food purchased for consumption elsewhere. In view of the potential impact on the restaurant sector, the government would provide liquidity assistance and other targeted support measures.

Software and Service Fees to be Treated as Business Profits

Courtesy of Yoon & Yang, on 25 June 2026, in a case concerning the income characterisation of payments made under a software and services agreement between a foreign SaaS company and a Korean conglomerate, the Supreme Court of Korea affirmed the lower court’s holding that—even where such payments include some consideration for software use—they constitute business income rather than royalty income if the essential nature of the agreement is the provision of services (appeal dismissed).

The decision offers important guidance on the income characterisation of, and withholding practice for, cross-border payments arising under digital service, SaaS, and database-driven business models. In particular, it makes clear that the mere use of “licence” or “licence fee” terminology does not permit taxation as royalties where the substance of the transaction is the provision of services.

The facts were as follows. A US SaaS company (“Company A”) entered into an Integration and Services Agreement with a Korean electronics manufacturer (“Company B”) under which Company A’s caller identification, spam-blocking, and directory search services (the “WP Services”) were integrated into the native applications of Company B’s smartphones for use by end users. For this purpose, Company A delivered a client program in object code form (the “Client”) to Company B, and, from 2016 to 2021, Company B paid a fixed annual fee (an annual “licence fee”).

Treating these payments as royalty income under the Korea-US tax treaty, Company B withheld tax at the reduced rate of 15%. Company A took the position that the payments were business income of a foreign corporation with no permanent establishment in Korea (and therefore not taxable in Korea), filed a refund claim, and, after the claim was denied, brought an action to revoke the denial.

The issue was whether payments made by a Korean company to a foreign SaaS company for software and services should be characterised as (i) royalty income for the use of intangibles (know-how or copyright) or (ii) business income for the provision of services. Royalty income is subject to 15% withholding, whereas business income is not taxable in Korea absent a permanent establishment.

The trial court dismissed the claim, relying on factors that included the agreement expressly characterised the payments as “Licence Fees”; the software was not general purpose software, but was developed and adapted for Company B’s smartphones; Company A provided continuous testing, modification, and maintenance; and the technology was used domestically in the manufacture and provision of services, even if the smartphones were partly produced overseas. On that basis, it treated the payments as royalty income for the use of Company A’s know-how and technology (Whitepages Technology).

The appellate court reached the opposite conclusion.

• It emphasised that Company B did not itself adopt or use Company A’s technology but, instead, had Company A provide services to end users in order to sell smartphones featuring caller ID and spam-blocking functions;
• that Company A was the party that actually operated the database servers and performed the caller ID and spam-blocking; that the Client embedded in the smartphones was a general purpose program, neither independently sold nor used, functioning merely as a user interface for accessing the services; that modifications made at Company B’s request were technical changes for integration rather than the creation of new software;
• that, although Company A owned proprietary databases and know-how, it did not transfer them to Company B but performed the services itself; that installing the application was a technical step for service provision rather than commercial exploitation of copyright; and
• that the consideration was a fixed annual fee rather than a running royalty tied to production or sales. Taken as a whole, the court held the payments to be consideration for services—that is, business income.

The court added that, even if the payments included some element of consideration for the use of copyrighted material, because the essence of the agreement was the provision of services to end users and the use of the Client was merely a technical prerequisite, the entire consideration should be treated as payment for services, nor was there any basis to separately value the portion attributable to the Client.

On 25 June 2026, the Supreme Court dismissed the tax authority’s appeal and affirmed the appellate decision. On appeal, the tax authority argued vigorously that the payments were royalties, pointing to Article 5.1 of the contract, which expressly labels them “Licence Fees”; to Company B’s express grant of a licence and consequent “use” of intangibles; and to the Supreme Court en banc decision in Case No. 2021Du59908 on the meaning of “use.” The Supreme Court did not accept these arguments and upheld the lower court’s conclusion that the substance of the transaction was the provision of services. The taxpayer’s victory is now final and conclusive.

The decision confirms, at the Supreme Court level, the principle that, even in cross-border transactions involving software, payments are characterised as business income where their essential nature is the provision of services and as royalty income only where they constitute consideration for the transfer or use of technology. It is particularly significant in making clear that the presence of “licence” terminology is not decisive and that, where software serves merely as a means of accessing services, the substance-over-form principle precludes treating the payments as royalties.

More broadly, the case shows that, in agreements between foreign SaaS or platform companies and Korean counterparties, the contractual language, the method of determining consideration, and the scope of technology provided can materially change the income characterisation and the resulting tax outcome. Korean companies that have routinely withheld tax as royalties on fixed fees paid for SaaS, subscription, or database-linked services should reassess that practice and carefully evaluate both the possibility of recovering previously paid tax through a refund claim and their go-forward withholding obligations.

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Tax Treaty Benefits for US LLCs

Courtesy of Shin & Kim, the Supreme Court of Korea recently addressed two significant issues under the Korea-US Tax Treaty: first, whether US limited liability companies organised as fiscally transparent entities may claim treaty benefits in their own right and, second, whether proceeds received from the transfer of patent rights should be characterised as royalty income or gains from the transfer of property.

The taxpayers were Delaware LLCs in a multi-tier investment structure that included several intermediate LLCs and limited partnerships. In 2014 and 2015, the taxpayers transferred semiconductor-related patent rights to a Korean semiconductor company for approximately USD 6.4 million. The transfer agreements provided for fixed consideration.

The taxpayers contended that the proceeds were not subject to Korean taxation under the Korea-US Tax Treaty. The National Tax Service, by contrast, treated the payments as royalty income subject to Korean withholding tax.

The dispute therefore turned on two principal questions. The first was whether the LLCs qualified as US residents entitled to treaty benefits notwithstanding their fiscally transparent status. The second was whether the fixed consideration paid for the patent transfers constituted royalty income or gains from the transfer of property.

The lower court ruled in favour of the taxpayers. It accepted treaty entitlement based on certificates of residence issued by the US Internal Revenue Service (“IRS”) and concluded that the patents constituted “capital assets” under the Korea-US Tax Treaty, with the result that the gains were exempt from Korean taxation.

The Supreme Court reversed the lower court’s reasoning in part and reaffirmed Korea’s look-through approach to fiscally transparent entities. The Court held that a fiscally transparent entity is not, merely by virtue of its organisation in the United States, treated as a US resident for treaty purposes. Rather, treaty benefits are available only to the extent that the relevant income is treated as income of members or investors who are themselves US tax residents and subject to US taxation on that income.

On that basis, the Court held that a letter of US residency certification issued by the IRS in the name of an LLC alone is insufficient to establish treaty entitlement. Taxpayers relying on treaty benefits through fiscally transparent entities must be able to substantiate the residence and tax status of the ultimate members or investors with respect to the relevant income.

The Court then turned to the characterisation of the patent transfer proceeds. Under the Korea-US Tax Treaty, consideration for the transfer of intellectual property is treated as royalty income only where the amount payable is contingent on the productivity, use, or disposition of the relevant intellectual property. By contrast, the fixed consideration determined at the time of the transaction is more appropriately characterised as consideration for the transfer of property rather than as royalty income.

Applying that principle, the Court concluded that the payments at issue were not royalties. The price had been fixed in advance and was not dependent on the future performance, productivity, use, or exploitation of the patents.

The Court nevertheless rejected the taxpayers’ further argument that the gains were automatically exempt as gains from the transfer of “capital assets” under the treaty. The term “capital assets” is not defined in the Korea-US Tax Treaty, and the Court found no corresponding definition in Korean domestic tax law that resolved the issue. In those circumstances, the Court interpreted the term by reference to US tax law, reflecting the treaty context in which the term was used.

Under the U.S. Internal Revenue Code, property used in a trade or business and subject to depreciation or amortisation is generally excluded from the definition of a capital asset. Because the patents at issue fell within that category, the Court held that they did not qualify as capital assets for purposes of the treaty.

As a result, the gains were not automatically exempt under the treaty’s capital gains provision. The taxability of the proceeds instead had to be determined by applying the relevant source rules under the treaty, including rules concerning the place of sale of the patent rights.

The decision is significant for both treaty entitlement and income characterisation.

First, the Supreme Court has reaffirmed Korea’s look-through approach to fiscally transparent entities, establishing that treaty benefits are not granted merely because an LLC is organised in the United States or holds a letter of US residency certification issued by the IRS in its own name. Instead, taxpayers must be prepared to demonstrate that the underlying members or investors are US tax residents and are subject to US taxation on the specific income for which treaty benefits are claimed.

This aspect of the decision is particularly relevant for multinational investment structures involving LLCs, partnerships, and other transparent or hybrid entities. Taxpayers using such structures should ensure that they maintain sufficient documentation regarding ownership, investor residency, and tax liability at the investor level. In practice, entity-level residency certificates may not be sufficient if the entity is deemed fiscally transparent.

Second, the decision provides useful guidance on the distinction between royalties and proceeds from the transfer of intellectual property. Fixed consideration paid for an outright transfer of patent rights should generally be treated as transfer proceeds rather than royalty income. In contrast, contingent consideration tied to future productivity, use, or exploitation of the intellectual property may be characterised as a royalty.

Third, the Court’s interpretation of the undefined treaty term “capital assets” is noteworthy. When a treaty term is not defined in the treaty and Korean domestic law does not provide a clear corresponding definition, the Court may look to the domestic law of the other contracting state to determine its meaning. This rationale may have implications beyond patent transfers, and could influence the interpretation of other undefined terms in Korea’s tax treaties moving forward.

For multinational groups engaged in intellectual property transfers, licensing arrangements, and cross-border investment structures, the ruling highlights the importance of carefully documenting both the legal form and the economic substance of the transaction. In particular, ownership chains, investor-level treaty eligibility, the fixed or contingent nature of consideration, and the place of sale may all serve as decisive factors in determining the Korean tax treatment of cross-border intellectual property transactions. 

Foreign-Sourced Income Tax Exemption for Unit Trusts until 31 December 2030

The Ministry of Finance (MoF) has extended the income tax exemption for qualifying unit trusts on foreign-sourced income received in Malaysia until 31 December 2030 (previously until 31 December 2026).

The extension was gazetted through the Income Tax (Unit Trust in relation to Income Received in Malaysia from Outside Malaysia) (Exemption) 2024 (Amendment) Order 2026 (PU(A) 270/2026) on 27 July 2026. PU(A) 270/2026 will come into operation on 1 January 2027.

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Tax exemption of gains from the sale of Foreign Capital Assets extended until 2030

Based on PU(A) 270/2026 with effect from 1 January 2027, the MoF has extended the income tax exemption of gains from the disposal of foreign capital assets received in Malaysia by resident companies, limited liability partnerships, trust bodies, and co-operative societies. The exemption, which was previously scheduled to expire on 31 December 2026, will now remain available until 31 December 2030.

The extension was gazetted as the Income Tax (Exemption) (No. 3) Order 2024 (Amendment) Order 2026 (PU(A) 275/2026) on 29 July 2026. The measure had been previously announced under the Budget for 2026. By way of background, in order to qualify for said exemption, these entities must comply with conditions set by the MoF as specified in the guidelines issued by the Director General, including employing an adequate number of employees in Malaysia and incurring an adequate amount of operating expenditures in Malaysia (also referred to as the economic substance requirement). Any deductions related to the exempted income should be disregarded when determining the taxable person’s chargeable income.

Gains or profits from the disposal of intellectual property rights (“IPR”) are excluded from the CGT exemption, provided that the taxable person is the owner or licensee of the IPR. IPR signifies any rights arising from a patent, utility innovation and discovery, copyright, trademark and service mark, industrial design, layout design of integrated circuit, secret processes or formulae and know-how, geographical indication, and the grant of protection of a plant variety, or other similar rights, whether or not registered or registrable.

The CGT exemption is not applicable to a person carrying on the business of banking, insurance, sea transport, or air transport.

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E-Invoicing Threshold Raised to MYR 3 Million

The Inland Revenue Board (“IRB”) has recently announced that the annual income or sales threshold for the implementation of e-invoicing will be increased from MYR 1 million to MYR 3 million, with effect from 1 September 2026.

Consequently, businesses, including Micro, Small, and Medium Enterprises (“MSMEs”), with annual income or sales not exceeding MYR 3 million, are exempt from mandatory e-invoicing.

While exempt businesses are not required to participate, the government encourages voluntary adoption of e-invoicing as part of its objective of promoting business digitalisation.

The IRB’s announcement followed the Prime Minister’s National Day 2026 address on 30 August 2026 during which the government announced a higher e-invoicing implementation threshold to reduce compliance costs and administrative burdens for taxpayers, particularly small businesses.

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Qualifying Secondment Services are Not Subject to Service Tax

The Director-General of Customs has issued Public Ruling No. 5/2026 - Determination of the Meaning of Secondment of Employees for Employment Services (“P.R. 5/2026”), which took effect on 12 August 2026. The objective of P.R. 5/2026 is to explain the meaning of secondment of employees in the context of employment services under the service tax regime.

Effective from 1 September 2018, employment services are taxable services under item (j), column (2), Group G, First Schedule of the Service Tax Regulations 2018, except for the following employment services:

• the provision of employment services in the form of secondment of employees; and
• the provision of employment services for employment outside Malaysia.

To qualify as a tax-exempt secondment of employees, all of the following conditions must be complied with:

• There is an employee secondment agreement between the original employer and the company to which the employee is seconded (“seconded company”);
• The business activity of the original employer is other than the provision of employment services (including employment agencies and professional employer organisations);
• An employee is temporarily transferred by the original employer to perform duties at another place for a specified period, and, upon completion of those duties, the employee will return to the original employer to continue his or her employment;
• The employee continues to be employed by the original employer, and the continuity of such employment remains uninterrupted;
• During the secondment period, the employee shall work only for the seconded company;
• The seconded company has full control over the employee;
• The salary and any other allowances (at cost value) shall be paid by the seconded company, either directly or indirectly, and no other additional charges shall be imposed; and
• The secondment period is to be less than six months in a year of such secondment and does not continue into the following year.

The provision of employees on a temporary basis (secondment of employees) that does not satisfy all of the above conditions constitutes a taxable service and is subject to service tax.

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Capital vs. Revenue Case Relating to Settlement Payments

Courtesy of Shearn Delamore, it was reported that, in the recent case of Upayapadu (M) Sdn Bhd (“Taxpayer”) v Ketua Pengarah Hasil Dalam Negeri, the Taxpayer was successful in its judicial review application against the Director General of Inland Revenue’s (“DGIR”) decision to subject certain sums received by the Taxpayer pursuant to a settlement agreement (“Settlement Agreement”) to income tax, even though the Settlement Agreement was entered into in consideration for the relinquishment of certain rights and licences held by the Taxpayer to the relevant authorities (“the Rights”).

Under the Settlement Agreement, the parties agreed that specified sums be paid to the Taxpayer as compensation for loss of income, exemplary damages, and damages for loss of goodwill and reputation, respectively (collectively, “the Settlement Amount”).

However, the DGIR subsequently issued assessments and additional assessments for the Years of Assessment 2020 to 2023 (“Disputed Assessments”), purportedly on the basis that the entire Settlement Amount was subject to income tax, despite only a portion thereof being attributable to compensation for loss of income. Additionally, the DGIR also imposed penalties under section 113(2) of the Income Tax Act 1967 (“ITA”).

The High Court allowed the Taxpayer’s application for judicial review and quashed all the Disputed Assessments, including the penalties imposed, for the following reasons.

The Court held that the Settlement Agreement had clearly identified and distinguished the nature of the respective payments, and only the amount corresponding to the compensation for loss of income constituted taxable income, for which tax had already been paid. Further, it was held that the exemplary damages and damages for loss of goodwill and reputation were capital in nature and not subject to income tax, being awarded not to generate profit for the Taxpayer but to punish the wrongdoer. Similarly, the Court also held that damages awarded for the loss of goodwill and reputation were in the nature of compensation for the impairment of a capital asset of the Taxpayer.

The Court also held that the DGIR had acted inconsistently and arbitrarily. While an earlier tax investigation conducted by the Inland Revenue Board (“IRB”) on the Taxpayer had been concluded without any additional tax or adjustment, less than two years later, another audit was conducted by a different branch of the IRB taking a diametrically contrary position from the first investigation though covering the same years of assessment. Relying on the Federal Court decision in Kind Action (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri, the Court held that the DGIR could not be permitted to act inconsistently or to “approbate and reprobate.”

Accordingly, the Court quashed the Disputed Assessments, including the penalties imposed, and held that only the compensation for loss of income was taxable.

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Transfer Pricing Guidelines on Related Party Loans

The Inland Revenue Board (“IRB”) issued transfer pricing guidelines on intra-group loans on 31 July 2026 (the “Guidelines”). The Guidelines provide guidance on determining whether intra-group loans comply with the arm’s length principle under the Income Tax Act 1967 (ITA), Income Tax (Transfer Pricing) Rules 2023, and the Malaysia Transfer Pricing Guidelines 2024.

Application of Arm’s Length Principle to Controlled Financial Transactions

• The arm’s length principle for financial transactions requires accurate delineation of the transaction, including functional and risk analyses.
• Taxpayers must also determine whether a purported loan should be treated as debt or equity before the arm’s length interest rate can be established.
• Transactions lacking the characteristics of a genuine loan may be recharacterised as equity contributions, which may result in the denial of interest deductions and give rise to additional tax liabilities and surcharges.

Intra-Group Loans

• When assessing intra-group loans, the Guidelines require consideration of both the lender’s and borrower’s perspectives.
• The borrower’s creditworthiness is a key factor in determining an arm’s length interest rate.
• The Guidelines also recognise that implicit support arising from multinational group membership may enhance a borrower’s credit profile and reduce borrowing costs without additional payment or transfer pricing adjustment.

Determining Arm’s Length Interest Rates

• The pricing approach must reflect the accurately delineated transaction and represent the most appropriate method.
• Under the comparable uncontrolled price (“CUP”) method, potential internal CUPs include independent loans received or granted by the taxpayer or related group entities. An MNE group’s average external borrowing rate is generally unsuitable as an internal CUP.
• In the absence of comparable uncontrolled transactions, the cost of funds method may be used to determine the arm’s length interest rate.
• Eligible taxpayers may also elect designated rates under the simplified method without detailed comparability analysis. Under the simplified method, the designated rates are Bank Negara Malaysia’s deposit rate and average lending rate, subject to the eligibility criteria.
• The Director General of Inland Revenue (“DGIR”) may substitute or impute interest rates as necessary to reflect arm’s-length interest rates and impose any resulting transfer pricing adjustments, where appropriate.

Documentation and Compliance Requirements

• Taxpayers must prepare contemporaneous transfer pricing documentation (“CTPD”). Taxpayers who are not required to prepare CTPD must nevertheless comply with the arm’s length principle for all controlled transactions entered into, including intra-group loans.
• CTPD is not submitted with the tax return but must be submitted within 14 days from the date the DGIR serves a written notice. Failure to comply may constitute an offence under section 113B of the ITA. 

Pillar 2 – Global Minimum Tax

Unlike most other jurisdictions in the Far East of Asia, the Philippines has not yet implemented global minimum tax legislation. However, it was announced that the Department of Finance has commenced a nationwide consultation on a draft bill that proposes, among other measures, increasing the tax-exempt income threshold for individual taxpayers and introducing a 15% global minimum tax on large multinational enterprise groups.

The bill, titled Promoting Growth, Revenue, and Equity towards Socio-Economic Sustainability (“ProGRESS”) Bill, also proposes to provide relief to smaller businesses by exempting micro and small enterprises from the minimum corporate income tax (MCIT). It also includes measures that aim to promote a more equitable tax system, namely, by imposing a higher excise tax on vehicles valued over PHP 8 million, increasing the tax on nonessential goods and expanding the scope to include private sea vessels and aircraft.

The first phase of the consultation was held on 3 September 2026, while the second was held on 11 September 2026.

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Implementing Guidelines for E-Invoicing

On 22 September 2026, the Bureau of Internal Revenue (“BIR”) issued Revenue Memorandum Circular (RMC) 98-2026. It prescribes the policies and guidelines for taxpayers covered by e-invoicing rules pursuant to section 237 of the National Internal Revenue Code (“NIRC”), as amended, and as implemented by Revenue Regulations (RR) 8-2022, RR 11-2025, and RR 26-2025.

The RMC applies to the following taxpayers:

• Those engaged in e-commerce or internet transactions and classified as small, medium, or large taxpayers;
• Those under the jurisdiction of the Large Taxpayers Service (“LTS”);
• Those classified as a large taxpayer under Republic Act (RA) 11976 or the Ease of Paying Taxes (“EOPT”) Act and RR 8-2024;
• Those using a computerised accounting system (“CAS”) or computerised books of accounts (“CBA”) with accounting records (with e-invoicing) and other invoicing software; and
• Other taxpayers as may be required by the Commissioner of Internal Revenue.

Micro taxpayers (i.e., those with gross sales of less than PHP 3 million in a taxable year) are exempt from the requirement to issue e-invoices.

Before generating or issuing e-invoices, taxpayers must obtain from the BIR a Permit to Issue (PTI) Electronic Invoices. The PTI authorises them to issue e-invoices using duly registered and compliant e-invoicing software or systems.

An invoice will qualify as an e-invoice only if all the following requirements are met:

• It is generated by a duly registered, approved, or accredited accounting or invoicing software or system in a structured electronic format;
• It is electronically generated and transmitted to the buyer, purchaser, or client in digital format through email, online viewing, QR code, mobile applications, web-based platforms, or other electronic means; and
• The invoice data contained therein can be electronically extracted, processed, and transmitted to the BIR for electronic sales reporting purposes.

Upon request by the buyer, a printed copy of the e-invoice should be provided by the taxpayer-seller.

All covered taxpayers will be required to issue e-invoices and comply with the provisions of RMC 98-2026 by 31 December 2026. Taxpayers not covered by section 237 of the NIRC may issue e-invoices in lieu of manual invoices.

The e-invoicing requirement is separate from the e-sales reporting requirement under section 237-A of the NIRC.

Tax-exempt funds

The Monetary Authority of Singapore (“MAS”) published a new circular on 31 July 2026 (“Circular”) about the conditions for tax exemption for qualifying funds. Such funds could be Singapore or foreign companies or LPs and are tax exempt on qualifying income (generally dividends, interest, gains) from designated investments (most assets provided they do not concern or are involved with trading of real property assets in Singapore). In recent years, there has been a significant increase in the number of Singapore limited liability companies in Singapore emerging as qualifying funds (both private equity funds and family office vehicles) for private equity or debt investments in Asia, as they combine a well-regarded regulated jurisdiction with double tax treaty benefits (reduced withholding tax rates). 

In the circular, the MAS introduced the following relaxations:

• Removal of the condition to maintain annual minimum assets under management invested in designated investments for funds that are not single family office vehicles;
• Removal of the 5% cap on investments in physical investment precious metals; and
• More time for single-family office vehicles to comply with the minimum number of qualifying investment professionals in Singapore (i.e., three for the enhanced tier type of exempt fund and two for other exempt funds). Instead of having to satisfy this requirement from the start of the award, MAS allows this to be met by the end of the first full year of assessment of the fund.

Furthermore, on 19 August 2026, the MAS announced a package of proposed measures to enhance Singapore’s value proposition as a global asset management hub. Partly in response to recent measures proposed by Hong Kong, the MAS measures are designed to promote the continued growth of Singapore’s asset management industry by focusing on expanding the pool of talent and deepening capabilities, as well as anchoring high-value activities in Singapore.

A tax exemption for profit-related returns arising from the provision of fund management services to qualifying funds would be introduced from the Year of Assessment 2027. The exemption is expected to apply to “qualifying profit-related returns” received under commercial fund arrangements, where a share of a qualifying fund’s profits is contractually received directly or indirectly by corporate entities, partnerships, or individuals for the provision of fund management services. The proposed exemption therefore appears to cover such arrangements as carried interest. Qualifying funds are those that benefit from tax exemption under section 13D, 13O, 13OA, 13U, or 13V of the Income Tax Act 1947 and are managed by Singapore-based fund managers. The exemption would not apply to other forms of compensation for fund management services, such as salaries, bonuses, or other forms of employment remuneration. Further details are expected to be announced in the upcoming Budget 2027.

The proposed exemption appears to be a response to Hong Kong’s recent moves to expand tax-free treatment of carried interest and performance fees and signals Singapore’s intent to maintain its competitiveness as an asset management hub amid intensifying competition for capital and talent. By announcing the measure ahead of Budget 2027, the government appears to offer some assurance to asset managers currently making location decisions. From a tax perspective, the exemption should also help clarify a longstanding area of uncertainty. While performance fees are generally taxable, the tax treatment of carried interest has been comparatively unclear. The proposed exemption would clarify the treatment of a form of compensation that is a standard feature of the industry.

Singapore would also introduce a new hedge fund investment programme to grow its hedge fund sector, including ancillary service providers and prime brokerages. Under this programme, MAS would invest with hedge fund managers that are committed to locating or deepening their business presence in Singapore. Further details will be announced in due course.

The third measure involves the introduction of a new Investment Management Track within Singapore’s ONE Pass framework, expanding access to the ONE Pass for global leaders and senior investment professionals in the asset management industry. The new track may include refinements to salary assessment criteria to reflect established compensation structures in the asset management industry, such as recognising performance- or returns-linked remuneration.

Briefly, the ONE Pass is valid for up to five years with subsequent renewals of up to five years. Unlike Employment Pass holders, ONE Pass holders are allowed to work for multiple companies at any one time (subject to employment contract terms, where relevant) and need not reapply for a pass when changing employment. MAS and Singapore’s Ministry of Manpower would announce further details in due course. 

Inheritance and Gift Tax

On 21 August 2026, the Legislative Yuan (Congress) passed amendments to several provisions of the Inheritance and Gift Tax Act. The amendments clarify the method for calculating inheritance tax on property transferred by the deceased to certain relatives (including the deceased’s spouse, heirs of all orders, and their spouses) within two years prior to the deceased’s death. Under the revised rules, these relatives are liable for inheritance tax attributable to the gifted property. The amendments also include provisions for calculating the deduction related to the surviving spouse’s right to claim the difference in the couple’s remaining property. The key points of the amendment are summarised below.

• Article 6: Property gifted to specific relatives within two years before the deceased’s death will be included in the total taxable estate. The inheritance tax will be calculated based on the proportion of each gifted property to the total estate, and each gifted person will be liable for tax. The previous provision, which stated that the executor of the will that is held liable for inheritance tax, has been removed. Where an executor has been appointed, the executor may file and pay taxes on behalf of the taxpayers, and may also apply for administrative review or appeal on behalf of the taxpayers.
• Article 17-1: For the purpose of calculating the deduction amount related to the surviving spouse’s claim for the distribution of the remaining property, property gifted to the spouse within two years before the deceased’s death will be treated as the existing property of the deceased.
• Article 23: A new provision establishes the filing deadline and commencement date of the assessment period of inheritance tax in cases where the ownership of an estate property is determined by court judgment after the deceased’s death.
• Article 30: The previous restriction where inheritance tax payable must exceed TWD 300,000 for instalment payments has been abolished. New provisions allow heirs, through majority vote, to use funds from the estate to pay the inheritance tax. In addition, a donee may apply to pay the inheritance tax using funds from estates, provided all heirs consent to the application.

The amendments will enter into force on a date to be determined by the Executive Yuan (Administrations) following the President’s official announcement.

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Stock Options Taxation

On 27 August 2026, the Legislative Yuan (Congress) passed amendments to several articles of the Industrial Innovation Statute. The amendments focus on increasing the amount of deferred taxation on employee stock options to support corporate talent retention and recruitment policies and to assist start-up enterprises in obtaining long-term funding. The key points are summarised below.

• Article 19-1 of the Industrial Innovation Act stipulates that the income tax deferral for gains derived from the exercise of employee stock options has served as an important tool for talent retention and recruitment. However, the deferral limit has remained unchanged for more than 10 years. As such, this amendment increases the maximum amount eligible for tax deferral from TWD 5 million to TWD 10 million. This will help strengthen industries’ ability to retain and recruit talent internationally.
• The tax benefits of transparent taxation for venture capital investments established as limited partnerships in start-up enterprises have been revised to better reflect practical realities in terms of investment ratio thresholds. Article 23-1 revises the minimum investment thresholds for venture capital investments in start-up enterprises. For the third, fourth, and fifth years, the required investment ratios are set at 10%, 20%, and 30%, respectively, of the venture capital fund’s total paid-in capital. In addition, a new sixth year threshold of 40% has been introduced, enabling start-up enterprises to benefit from venture capital funding for a longer period. Furthermore, the definition of foreign companies with actual operations in the domestic market has been expanded to include foreign companies that directly or indirectly control subsidiaries or branches in the domestic market. This amendment is intended to reflect the realities of multinational operational expansion and cross-border holding structures for start-up enterprises.
• Article 23-2 grants tax incentives to angel investors by allowing individuals who make cash investments in qualifying companies established for less than five years and designated as high-risk start-up enterprises by the central competent authority to claim special deductions from taxable income. The minimum establishment period for start-up enterprises under article 23-2 has been extended from less than five years to less than eight years. The corresponding minimum establishment period under article 23-1 has also been extended to eight years. These changes are intended to make the measure more closely aligned with the actual research and development (“R&D”) and growth cycle of start-up enterprises.

The amendments to article 19-1 will take effect on 1 January 2027. The amendments to article 23-1 and article 23-2 will enter into force on the date of promulgation.

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International Tax Developments

Korea: On 4 August 2026, the exchange of letters (“EoL”), signed on 28 April 2026 by Korea and on 4 August 2026 by Taiwan, amending their double tax treaty, entered into force. The EoL modifies the wording of the agreement to update references to the Korean competent authorities in the definitions contained in the agreement. The EoL generally applies from 4 August 2026. 

Incentive In Order to Adopt Electronic Tax Systems

Thailand’s Cabinet has approved the proposal from the Ministry of Finance to extend the incentive period for businesses to invest in electronic tax systems until 31 December 2027. In addition, the Cabinet also approved the extension of the reduced withholding tax rate of 1% for certain payments made via the electronic withholding tax system until 31 December 2027. Both measures were previously available until 31 December 2025.

Under the approved draft royal decree, companies or juristic partnerships may continue to benefit from the additional corporate income tax deduction for qualifying expenses incurred from 1 January 2026 to 31 December 2027. Eligible expenses include the following:

• Investments in e-Tax Invoice, e-Receipt, and e-Withholding Tax systems;
• Payments to service providers for the use of e-Tax Invoice, e-Receipt, and e-Withholding Tax systems; and
• Payments to service providers for the use of information system evaluation services for preparing or submitting electronic data, paid to the Electronic Transactions Development Agency (“ETDA”).

Separately, the approved draft Ministerial Regulation extends the reduced withholding tax rate of 1% for certain payments made through the e-Withholding Tax system until 31 December 2027. The reduced rate applies to payments of assessable income to legal entities (excluding foundations or associations) and individuals via the e-WHT system and replaces the standard withholding tax rates of 2%, 3%, and 5% from 1 January 2026 until 31 December 2027.

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Enhanced Tax Incentives to Support Social Enterprises

Through Public Announcement 17/2569, the Cabinet has approved in principle a draft royal decree enhancing existing tax incentives to support social enterprises in Thailand. The measures are intended to strengthen social development and support Thailand’s progress toward achieving the United Nations Sustainable Development Goals.

The new royal decree will amend the tax measures under Royal Decree No. 735 issued under the Revenue Code, which were introduced to support social enterprises through the Revenue Department’s electronic donation (“e-Donation”) system and expired on 31 December 2023.

Key changes include:

• Making permanent the 100% tax deduction for companies that donate money or property to support social enterprises. This incentive expired on 31 December 2023;
• Allowing individual taxpayers to claim a 100% deduction for cash donations made to support social enterprises;
• Increasing the corporate and personal income tax deduction for donations to the Social Enterprise Promotion Fund from 100% to 200% for donations made between 1 January 2024 and 31 December 2028; and
• Extending the exemption from income tax, value added tax, specific business tax, and stamp duty for individuals, companies, or juristic partnerships, effective from 1 January 2024, on:
  • income received from the transfer of property, sale of goods;
  • the execution of instruments arising from a transfer of property to a social enterprise without consideration; or
  • the donation of property to the Social Enterprise Promotion Fund.

The tax benefits will be available only when the support or donation is made through the Revenue Department’s e-Donation system.

A grace period will be granted for social enterprises to register with the Revenue Department to qualify for the tax benefits after the statutory registration deadline. Social enterprises and their supporters will become eligible for the tax benefits starting from the accounting period or tax year following the period of registration.

The Director General of the Revenue Department also announced that, once the royal decree comes into force, Revenue Department Notification No. 38 will also be amended to relax the criteria for claiming deductions and expense allowances for investments in shares or partnership interests for the establishment or capital increase of social enterprises. Under the revised rules, investors will be required to hold shares or partnership interests in the social enterprise for at least 10 years from the date of investment rather than indefinitely as currently required. This amendment will also apply to investments made before the effective date of the new royal decree.

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Tightening of Registration Requirements for Businesses with Foreign Investors and Directors

Courtesy of IBFD, through Order No. 2/2569 issued on 14 July 2026, the Central Partnership and Company Registration Office introduced stricter documentation requirements for the registration of partnerships and limited companies involving foreign investors or directors.

The new rules aim to enhance confidence in the partnership and company registration system and to prevent the use of Thai nominees to circumvent the laws governing foreign participation in businesses in Thailand.

The new rules took effect on 1 August 2026 under Central Partnership and Company Registration Office Order No. 2/2569 (2026), replacing earlier orders issued in 2025 and 2026.

Applicants must provide supporting documents in the following cases:

• Where a partnership or limited company has foreign partners or shareholders holding less than 50% of the total investment or registered capital; and
• Where a limited company does not have a foreign shareholder but a foreign director is authorised to sign or jointly sign on behalf of the company.

The documents required include the following:

• An investment explanation letter in the prescribed format;
• Bank statements for Thai investors covering the preceding three months and showing the withdrawals used to fund the investment; and
• Bank statements for the business account showing receipt of the investment funds.

Key Changes for Amendments to Business Registrations

Applicants must submit a confirmation of investment letter in the prescribed format, together with supporting documents for the following amendments to a business registration:

• A partnership where all partners are Thai nationals, or in which foreign partners invest 50% or more of the capital, makes an amendment that results in foreign partners investing less than 50% of the capital, with no foreigner serving as a managing partner; and
• A limited company whose directors are all Thai nationals changes its director structure, resulting in a foreign director gaining authority to sign or jointly sign on behalf of the company.

Where a partnership or limited company is registered for incorporation on or after 1 August 2026, and the above changes are submitted within one year from the date on which it was registered as a juristic person, the applicant must also submit a written explanation concerning the investment in the entity and bank statements showing receipt of the funds invested. 

New Personal Income Tax Law

On 30 June 2026, the Government issued Decree No. 253/2026/ND-CP guiding the implementation of the Law on Personal Income Tax No. 109/2025/QH15. The Decree is effective from 1 July 2026.

PIT on Share Transfers and Real Estate-related Transactions

The draft decree initially proposed replacing the current 0.1% tax on gross proceeds with a 20% tax on gains for transfers of shares in non-public or unlisted joint stock companies. The final Decree removes this distinction. Accordingly, share transfers in all joint stock companies (public and non-public) remain subject to a 0.1% tax on gross proceeds. Where an individual transfers a 100% private company or a limited liability company owned by that individual through a capital transfer transaction associated with real estate, the transaction shall be treated as the transfer of real estate.

Taxable and Non-taxable Incomes

The Decree updates the treatment of certain PIT-exempt income and further clarifies several newly introduced concepts, including:

• Meal allowances: Cash meal allowances of up to VND 1.2 million per month are exempt from PIT; amounts in excess remain taxable.
• Overtime and related payments: Payments for overtime, night work at the workplace, and unused annual leave are non-taxable if compliant with the Labour Law.
• Severance and job loss allowances: Amounts paid in excess of statutory requirements are also exempt from PIT, provided they are supported by the employer’s formal policies.
• High-tech incentive: A new regime provides a five-year PIT exemption on employment income for qualified professionals in the digital technology and high-tech sectors.
• Green finance and carbon market income: Certain income is clarified as PIT-exempt, including proceeds from the initial transfer of recognised greenhouse gas emission reduction results, transfers of carbon credits allocated to individuals, interest income from green bonds, and gains from the first transfer of green bonds after issuance.

Overall, these changes expand the scope of PIT-exempt income.

Clear Guidance on Allowable Deductions

The Decree introduces caps on certain deductible expenses under the 2025 PIT Law. In particular:

• Medical expenses: Deductible medical expenses incurred at domestic health care providers are capped at VND 23 million per year.
• Education and training expenses: Expenses at domestic institutions are capped at VND 24 million per year.

These deductions apply to both employees and their dependants’ expenses, subject to proper supporting documentation and invoicing requirements. In addition, taxpayers claiming eligible deductions (e.g., charitable or humanitarian contributions, medical expenses, and education and training expenses) are required to finalise their PIT directly with the tax authority.

Share Awards and Employee Stock Options

Upon the transfer of shares, employees are subject to PIT on both employment income and income derived from the transfer of securities. For the employment income purpose, the securities company or custodian bank where the individual maintains a depository account is responsible for tracking awarded shares and ESOP shares held by each individual and withholding PIT upon income distribution. PIT is withheld at a rate of 10% on taxable income arising from such shares. Individuals are required to include this income in their annual PIT finalisation in accordance with applicable regulations.

PIT Withholding and Finalisation on Employment Income

The Decree revises certain thresholds and provides additional clarification on PIT withholding and finalisation:

• Withholding threshold: This has been increased from VND 2 million to VND 5 million per payment for individuals without employment contracts or having an employment contract with a term of less than three months; below this threshold, withholding applies only upon request.
• Scope of application: This withholding obligation also applies to payments made to individuals after termination of their employment contracts with the income-paying entity.
• Finalisation threshold: Income from other sources up to VND 15 million per month (average) may be excluded from employer finalisation if subject to 10% withholding. Individuals who opt to finalise PIT directly with the tax authorities are required to consolidate all employment income earned during the year and the corresponding PIT withheld.

The Ministry of Finance has issued Circular No. 87/2026/TT-BTC guiding the 2025 PIT Law and Decree No. 253/2026/ND-CP. The Circular takes effect from 1 July 2026; guidance on employment income for tax residents applies from 1 January 2026. It clarifies the conditions for claiming dependants for family circumstance relief and the PIT treatment of derivative securities transfers.

The Circular introduces PIT guidance for derivative securities transfers: 0.1% on the transfer price per transaction. For futures contracts, the transfer price is based on the settlement price, contract multiplier, number of contracts, and initial margin ratio. The taxable event is when buy/sell orders are matched or when the contract matures.

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Related Party Transactions

Courtesy of PWC Vietnam, it was reported that the Vietnam Government has issued Decree 255/2026/ND-CP (“Decree 255”) on tax administration for related-party transactions, replacing Decree 132/2020/ND-CP and Decree 20/2025/ND-CP. The new Decree retains the core transfer pricing framework while introducing targeted refinements in several areas of administration and compliance.

Key updates include a prescribed hierarchy for benchmarking data sources, revisions to the TP documentation exemption regime, and more detailed Country-by-Country Reporting (“CbCR”) requirements. Decree 255 also introduces transparency obligations for tax authorities regarding CbCR exchange mechanisms, which may affect the practical application of local filing requirements.

Decree 255 is effective from 1 July 2026 and applies from the 2026 corporate income tax period.

Decree 255 introduces targeted refinements to certain definitions by explicitly cross-referencing the Law on Tax Administration and related legal frameworks, including such concepts as the ultimate parent entity (“UPE”) and the interpretation of tax treaties. In parallel, it reaffirms the requirement for transfer pricing documentation (“TPD”) to be prepared no later than the corporate income tax (“CIT”) finalisation deadline and to be maintained for submission upon request. While these points are broadly consistent with the existing regime, the more explicit wording reinforces expectations around the timely preparation and maintenance of TPD.

A notable enhancement is the introduction of a prescribed hierarchy for selecting data sources used in comparability analyses, with the following order of priority:

• Public or official sources, including stock exchange data, commodity/service exchanges, national databases, and other publicly available official sources;
• Commercial databases; and
• Tax-authority databases.

This reflects a clear preference for transparent, independently verifiable data, which may strengthen the defensibility of TP positions where appropriately applied.

Decree 255 refines the framework for TP documentation exemptions, including:

• An increase in the revenue threshold for the exemption from preparing TPD under the prescribed profitability safe harbour rules (from VND 200 billion to below VND 500 billion in specific cases); and
• The removal of qualitative criteria, such as “simple functions,” when assessing eligibility under the same regime.

These changes reduce ambiguity and may simplify the application of exemption rules in practice.

Decree 255 provides further clarification on Vietnam’s CbCR framework:

• The consolidated group revenue threshold is aligned to the equivalent of EUR 750 million, replacing the previous VND 18,000 billion threshold.
• The threshold is determined based on the preceding financial year, with a specific foreign exchange conversion rule referencing State Bank exchange rates.
• If an overseas headquartered company in Vietnam is required to submit its group’s CbCR, the CbCR must be submitted in XML format and within 12 months from the end of the UPE’s fiscal year.
• A designated taxpayer is required to submit Form No. 01/TB-BCLN to notify the tax authority of the group’s CbCR filing entity in Vietnam no later than the last day of the UPE’s fiscal year.
• Form No. 01/TB-BCLN is a one-time notification; updated notifications are required only upon a change in the previously reported information and must be submitted within 90 days of such change.
• CbCR data is not intended as a basis for tax and TP adjustments.

Decree 255 sets out more detailed conditions under which a Vietnamese taxpayer with an overseas UPE must or need not file CbCR locally.

• Overseas filing by the UPE or a designated filing entity: Local filing is not required where the CbCR is filed by the UPE or another designated group entity and the relevant information exchange conditions are satisfied.
• Systemic failure: Local filing is required where the foreign jurisdiction fails to exchange CbCR information with Vietnam despite having an agreement in place.
• Threshold mismatch cases: Local filing is not required where the UPE is exempt in its home jurisdiction due to differences in thresholds, currency conversion, or revenue calculation rules.
• Conditions for local CbCR filing in Vietnam: Local filing applies only where Vietnam meets international standards on confidentiality, consistency, and appropriate use of CbCR data, as formally announced by the tax authority. While Decree 132 addressed local filing at a high level, these provisions introduce greater clarity and specificity. This provides a clearer framework for assessing local filing obligations but also increases the need for multinational groups to closely monitor exchange status, overseas filing arrangements, and notification obligations. These changes may require updates to internal compliance processes and greater coordination with group tax functions.

A distinctive feature of new decree is the introduction of transparency requirements for tax authorities in relation to the enforcement of local CbCR filing obligations. Specifically, the tax authority in Vietnam is required to publicly confirm compliance with internationally accepted conditions on confidentiality, consistency, and appropriate use of CbCR data on its official website. The tax authority must also publish annual updates on the status of CbCR exchange relationships, including:

• Jurisdictions with effective exchange relationships; and
• Jurisdictions where exchange mechanisms are not functioning effectively. From a practical perspective, the application of local filing requirements is now linked to these publicly disclosed conditions.

Taxpayers should therefore closely monitor these disclosures, particularly where they rely on overseas filing and exchange mechanisms, and ensure coordination with group-level tax functions to assess potential fallback filing obligations in Vietnam.

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Interesting Aspects of the New Law on Tax Administration

The government has recently issued Decree 252/2026/ND-CP guiding the implementation of the Law on Tax Administration 108/2025/QH15.

Public Disclosure of Information of Taxpayers Who Commit Tax Violations

The tax authorities may publicly disclose the information of taxpayers that commit tax violations, such as tax evasion, nonpayment of taxes or penalties for over 90 days, noncompliance with requests from the tax authorities, or actions affecting other taxpayers’ tax obligations, as well as taxpayers that do not operate at their registered address, have suspended operations, or have not completed tax code termination procedures. The tax authorities may discontinue or update the disclosure once the taxpayer fulfils its tax obligations.

Disclosed information would generally include the taxpayer’s tax identification number, name, address, and the reason for disclosure, with additional relevant details provided when necessary. Information will be published primarily on the tax authorities’ websites and may also be released through media, public notices, press conferences, or other legal channels.

Tax Finalisation Period for Resident Foreign Individuals

The tax finalisation period for a tax resident individual is generally based on the calendar year. A foreign individual who is present in Vietnam for fewer than 183 days in a calendar year, but whose total presence in Vietnam reaches 183 days or more within a period of 12 consecutive months starting from the day of his or her first arrival in Vietnam, will be required to file their personal income tax (PIT) finalisation return for the first tax year (i.e., for the 12 consecutive months counted from the date of first arrival in Vietnam).

The deadline for submitting the PIT finalisation return is the last day of the fourth month following the end of that initial 12-month period of continuous presence in Vietnam.

Threshold for Cases Subject to Exit Suspension

Taxpayers that have not fulfilled their tax liabilities may be temporarily suspended from leaving Vietnam, with the following thresholds:

• Business individuals and household business owners subject to tax enforcement measures due to tax debts of VND 50 million or more, and whose tax arrears have been overdue for payment for 120 days or more; and
• Beneficial owners and legal representatives of businesses subject to tax enforcement measures due to tax debts of VND 500 million or more that have remained overdue for 120 days or more.

The measure also applies to:

• Business individuals and household business owners, beneficial owners, and legal representatives of businesses officially deemed inactive at their registered address who fail to restore or terminate their tax code within 120 days from receipt of the tax authorities’ notice; and
• Exiting foreign nationals and Vietnamese citizens leaving the country for migration overseas who have outstanding overdue tax liabilities.

Abolition of ”Zero” Tax Return Filings

The requirement to file nil/zero tax returns has been abolished, reducing administrative compliance burdens where there is no tax withholding or no relevant income payment during the reporting period.

The following taxpayers are no longer required to submit “zero” tax returns in certain situations where no tax withholding obligation arises:

• organisations and individuals who are required to file monthly or quarterly PIT returns are not required to file a PIT return for a month or quarter in which no PIT is withheld from income recipients;
• an organisation or individual who does not make any salary or wage payment is not required to submit the annual PIT finalisation return in respect of employment income; and
• Vietnamese parties responsible for withholding and remitting VAT and corporate income tax (i.e., foreign contractor withholding taxes) on behalf of foreign contractors, and filing on a monthly basis, are not required to submit a monthly tax return for periods in which no withholding occurs.

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Electronic Invoices and Electronic Documents

The government issued Decree 254/2026/ND-CP, providing detailed regulations on electronic invoices (e-invoices) and electronic documents (e-documents) in accordance with the Law on Tax Administration. The Ministry of Finance also issued Circular 91/2026/TT-BTC, which provides further details on this topic, including changes to the scope of the regulations on e-invoices, flexibility on the timing of issuance of invoices, and clarification on mandatory e-invoicing. Decree 254 replaced Decree 123/2020/ND-CP and its subsequent amendments and supplements under Decree 41/2022/ND-CP and Decree 70/2025/ND-CP.

Foreign organisations, including operators of foreign e-commerce platforms and digital platforms, that conduct business on e-commerce platforms and other services that generate taxable revenue in Vietnam (so-called “foreign suppliers”) may voluntarily register to use e-invoices. Buyers may claim creditable input VAT supported by electronic invoices issued by such foreign suppliers.

Decree 254 expands the list of sectors permitted to use e-invoices without the tax authority’s codes to include the securities, crypto assets, and carbon-exchange transaction support services industries. This amendment reflects the legal framework’s adaptation to emerging asset classes and new forms of commercial transactions.

The issuance of invoices for certain specific goods and services businesses is regulated with greater flexibility to better align with the operational characteristics of the respective industries.

In certain cases, such as transactions involving the sale of goods or provision of services on a large scale and on a recurring basis, where data reconciliation takes time, taxpayers are permitted to issue invoices upon completion of the reconciliation process. However, invoices must be issued no later than the seventh day of the month following that in which the transaction arises, the tenth day of the following month for air transport services (including cases where agents sell tickets at the prescribed price in order to receive commissions), or within seven days from the end of the agreed billing period.

Sellers without automated invoicing software are also permitted to issue invoices on the next working day for transactions arising during nighttime hours.

This amendment provides greater flexibility in determining the time for issuing invoices for certain transactions while reducing the administrative burden on taxpayers.

Decree 254 further clarifies that the receipt of a deposit under a contractual arrangement to perform services, as provided under the Civil Code, is not subject to invoicing. Previously, under Decree 123/2020/ND-CP, this exemption applied to certain services.

The use of e-invoices with the tax authority’s codes or e-invoices generated from cash registers is mandatory for household businesses and individual business operators with annual revenue exceeding VND 1 billion and those selling assets that require the registration of ownership or usage rights. An e-invoice with the tax authority’s code is an e-invoice that is issued by the tax authority before the seller sends it to the buyer.

Household businesses engaged in direct retail sales to consumers, such as supermarkets, restaurants, hotels, etc., are not required to register further for e-invoices generated from cash registers if they have already registered to use e-invoices with or without the tax authority’s code.

Invoicing Procedures for Business Cooperation Contracts

Where parties to a business cooperation contract (“BCC”) share revenue and agree to appoint one party as the representative responsible for issuing invoices to customers, the other parties to the BCC must issue invoices to the representative party for the portion of revenue allocated to each party in accordance with the contract.

Where the parties to a BCC share costs and agree to appoint one party as the representative responsible for receiving invoices from the seller, the representative party receiving such invoices must issue invoices to allocate the corresponding portion of costs to the other parties in accordance with the contract.

Entities assigned to handle public assets that are suspended from issuing invoices may now be issued e-invoices on a per-occurrence basis by the tax authority.

At the same time, the tax authority will cease issuing invoices on a per-occurrence basis to enterprises that have completed dissolution or bankruptcy procedures or whose tax identification numbers are invalid.

Circular 91 provides detailed guidance on the process of issuing invoices and handling incorrect invoices for each specific case, which taxpayers should be aware of to handle their situations correctly and effectively.

Decree 254 and Circular 91 were issued on 30 June 2026 and took effect on 1 July 2026. However, with respect to self-printed and pre-printed paper receipts issued under the previous regulations, enterprises may continue to use such receipts until 31 December 2026, after which they will be required to convert to electronic receipts.