Asia and Global Tax 15%
In June 2021, 130 nations and territories have reached a broad agreement, publishing a statement, about the establishment of a minimum global tax of 15% on corporate income, targeting about 100 big-tech companies making at least 23.7 billion USD (20 billion EUR) in revenue with a profit margin of 10%.
The detailed plan would be put forward for a final agreement by October 2021, aiming at putting the new mechanism into force in 2023.
By adhering to the proposed Global Tax Rate, countries will be able to tax the income of their multinational groups with a presence in areas with lower taxation. For instance, a Chinese company that generates foreign income in jurisdictions with taxes below the 15% threshold can be taxed in China, which has joined the statement on the agreement, thus dissuading the use of entities in low-tax regions and countries. This will affect the strategy of multi-national groups which use special purpose vehicles in tax havens to make foreign investments, stock market listings, and expansions into new regions.
China joined the Global Tax and has a corporate income tax (CIT) of 25%, with a lower rate of 15% for high-tech investments and in the Western provinces and Hainan Island.
Low tax jurisdictions in Asia are primarily located in the Middle East, with both the United Arab Emirates and Bahrain having a 0% effective corporate income tax rate, while Qatar collects 10% and Oman and Kuwait levy a 15% tax rate on businesses. Nevertheless, all the mentioned countries, apart from Kuwait, have joined the statement, together with Armenia, Georgia, Israel, Jordan, Saudi Arabia, and Turkey in Western Asia.
India, after rolling out its own digital tax similarly to China and the US, has also joined the statement. India is considered a high-tax jurisdiction. With reference to the other major Asian economies, Japan and South Korea have also joined. Japan has a CIT of 23.2% and South Korea 25%. In the Eastern Asian region, Mongolia has also joined the statement.
In Southern Asia, further than India, also Pakistan and the Maldives have joined the statement. Iran, Bangladesh, and Sri Lanka have not joined, despite their CIT rates being all higher than 20%, together with Nepal, Afghanistan, and Bhutan.
In Southeast Asia the average corporate income tax is 20%, which allows Singapore to position itself as an ideal hub for business in the Far East with a 17% corporate income tax rate and other benefits which incentivize business in the region. Malaysia has a CIT at 24%, Indonesia currently levies a 22% tax rate, which will be lowered to 20% in 2022, while Thailand’s and Vietnam’s rates are 20%. They have all agreed to join the statement, together with Brunei. Contrariwise, Cambodia, Laos, Myanmar, Philippines, and Timor-Leste have not joined the statement.
Looking at the Central Asian countries, only Kazakhstan has agreed to join the statement. Kazakhstan imposes a CIT of 20%, while 15% and 10% are levied by Uzbekistan and Kyrgyzstan respectively. Conversely, Tajikistan has two different impositions of 13% for entities producing goods and 23% for all others, whereas Turkmenistan collects 8% from domestic entities and 20% from foreign companies.
The proposed harmonization of a Global tax rate for corporation could impact regional investment strategies with multiple entities in different jurisdictions in Asia, favoring countries and regions with taxation above the threshold mark.