03 February 2025 Macau promulgates new tax law with rules on transfer pricing, tax agents and limitations periods
On 30 December 2024, the Macau Special Administrative Region (Macau) of China promulgated Law No. 24/2024 — Approving the Tax Code (New Legislation), which will come into full effect on 1 January 2026. The New Legislation integrates the tax procedures, tax litigation procedures and tax enforcement procedures of each tax law (e.g., Macau Complementary Tax, Macau Professional Tax, Stamp Duty). The New Legislation also introduces a number of new regulations and makes important amendments to the current tax laws, including by incorporating transfer pricing and advance pricing arrangement regulations, establishing statutes of limitations for tax debts and designating the need for tax agents and tax residence under certain circumstances. The New Legislation adds chapters to the Macau Complementary Tax Regulations that introduce transfer-pricing principles. Transfer pricing refers to the pricing of commercial or financial transactions between Macau taxpayers and their related parties in other tax jurisdictions. The New Legislation stipulates that Macau taxpayers should conduct transactions with their related parties in accordance with the arm's-length principle, which means that the terms and conditions agreed upon, accepted and implemented in transactions between Macau taxpayers and their related parties should be substantially the same as those typically agreed upon, accepted and implemented in comparable transactions between unrelated parties. Under the New Legislation, a related party is defined as an enterprise, organization or individual that has significant influence on relevant management decisions under any of the following three situations:
The New Legislation provides that if a Macau taxpayer or its related parties do not comply with the arm's-length principle, the Financial Services Bureau (FSB) may apply the transfer pricing methodologies specified in Article 43-E and make indirect assessments and tax adjustments accordingly. In addition, if the competent tax authority of the related party's jurisdiction adjusts the assessable profits of the related party, the FSB may also make corresponding tax adjustments in accordance with the tax treaty between Macau and the corresponding jurisdiction. If the FSB makes adjustments to the Macau taxpayer's assessable profits due to noncompliance with the arm's-length principle, the FSB must provide relevant justifications for such adjustments. To assess and adjust Macau taxpayers' assessable profits, the FSB will apply the following transfer pricing methodologies, which are generally consistent with the methods recognized by the Organisation for Economic Co-operation and Development (OECD) and include the:
If the terms and conditions that unrelated parties typically reach, accept and implement cannot reliably be determined under the above methodologies, other methods may also be considered. The New Legislation specifies that Macau taxpayers should prepare all important documents related to transfer pricing within nine months after the end of each fiscal year and retain the documents for at least seven years following the end of the relevant fiscal year. Additionally, the New Legislation requires applicable taxpayers to include with their annual tax return a table summarizing the controlled transactions conducted between the Macau taxpayer and its related parties outside Macau. The New Legislation introduces the advance pricing arrangement (APA) regime. Specifically, if the annual total of controlled transactions of a Macau taxpayer reaches 40 million Macanese pataca (MOP40m) or more, the taxpayer may enter into an APA with the FSB on the appropriate transfer pricing methods and calculation approach to determine the arm's-length nature of the controlled transactions over a specified period. The FSB may adjust and monitor the calculation basis of assessable profits of the settled tax years for controlled transactions based on the APA concluded with the taxpayer. When submitting the formal APA application to the FSB, Macau taxpayers are required to provide appropriate justifications along with the required documents and pay the relevant fees. Particularly, the APA application should specify the applicable years for the APA, the related parties and controlled transactions involved, proposed transfer pricing methods and calculation approach, as well as other important information that may assist in the review of the request. The APA should cover no more than five years, including the covered tax years. Additionally, as long as the facts and circumstances of the controlled transactions for the relevant tax years are consistent with or similar to those stipulated in the APA, the taxpayer may also request for rollback for up to two tax years preceding the signing date of the APA. Taxpayers are required to submit to the FSB within seven months after the end of each covered tax year an annual compliance report on the APA's implementation and retain all relevant records and information related to the APA for at least seven years from the termination date of the APA. The New Legislation stipulates that natural-person taxpayers who reside outside Macau, as well as natural-person taxpayers who reside in Macau but have been away for more than 183 days in the same calendar year, are obliged to designate a tax agent with permanent residence in Macau to represent the taxpayer before the tax administration, ensure the fulfilment of his/her subordinate obligations and the exercise of his/her rights, including the right to lodge an administrative complaint. If the taxpayer chooses to receive notifications electronically in accordance with the provisions of the New Legislation, it is exempted from appointing a tax agent. In addition, legal persons and legal-equivalent entities that have ceased their activities, as well as legal persons and legal-equivalent entities that have income but no domicile, de facto management body or permanent establishment in Macau, are also obliged to designate a person with a domicile in Macau. The New Legislation stipulates that taxpayers should declare their unique tax residence to the FSB in a manner permitted by law within one year from the effective date of the New Legislation. (Under the New Legislation, if the taxpayer does not declare a unique tax residence, the FSB will use the address of the taxpayer's latest filing.) The New Legislation provides that the statute of limitations for tax debts is 15 years, unless a shorter period is provided for by tax law. The New Legislation changes the annual filing period for Macau Group B Complementary taxpayers to January to March, and the annual filing period for Macau Group A Complementary taxpayers to April to July. With the implementation of the New Legislation, the FSB likely will gradually increase its scrutiny on transfer pricing arrangements. While the New Legislation does not specify the transfer pricing documentation requirements, Macau taxpayers should prepare relevant documentation to demonstrate that the controlled transactions with related parties are conducted at arm's length. This documentation should typically include an overview of the taxpayer's organizational structure and business operation, details of controlled transactions and corresponding transfer pricing policies, functional and risk analysis, selection of appropriate transfer pricing methods, as well as the process and result of comparability analysis. Moreover, taxpayers should properly plan and regularly review their transfer pricing arrangements to ensure compliance with the arm's-length principle and help mitigate potential transfer pricing risks.
Document ID: 2025-0387 | ||||||