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November and December 2014
An Introduction to Taxation
in Asia
– By Edward Barbour-Lacey, Samuel Wrest and Matthew Zito, Dezan Shira & Associates
As the economies of emerging Asia continue to develop, the
region’s tax rates are becoming increasingly influential. From the
perspective of Asia’s governments, taxes can be used to either
ensure that investments flow in to their own jurisdiction, or as a
means to subsidize government spending. Conversely, from the
standpoint of companies and individual wage earners, they can
help determine whether a particular jurisdiction suits their business
model and occupation.
There are numerous taxes which will be applicable for foreign
businesses and wage earners in Asia, including corporate income
tax (CIT), individual income tax (IIT), withholding tax, and indirect
taxes such as value added tax (VAT) and goods and services tax
(GST). Understanding how these various taxes function is integral
both for companies wishing to access Asia’s emerging markets, and
individuals looking to work in the region.
In this section, we provide an introduction to all of the rates of
taxation covered in this magazine. We explain what these taxes
are, briefly discuss how they apply to Asia’s various countries, and
conclude by taking a look at how Asia’s countries compare in the
World Bank’s latest ease of paying taxes rankings
CIT
Corporate Income Tax
A corporate income tax (CIT) is a tax levied on the profits of a
company, most commonly by a given country’s state government
but also occasionally by its provincial governments.
In Asia, the rate of CIT varies considerably from nation to nation,
with some jurisdictions fixing it at as little as 17 percent and others
at a massive 40 percent. The rate of CIT that a country enforces
can be informed by a myriad of factors, including the priorities of
government (whether more emphasis is placed on state revenue or
investment), the nature of its economy (how reliant it is on foreign
investment), the country’s size, and its level of development.
The definition of what a corporation is and whether it is subject
to CIT tax varies from country to country, with several jurisdictions
in Asia imposing CIT on legal entities that others would not.
For example, Malaysia’s CIT hinges on an entity’s residence – on
whether control and management of the corporation is actually
within Malaysia – but this concept has almost no bearing in Hong
Kong, where CIT is often imposed regardless of residence. For more
details on a company’s eligibility for CIT in a given Asian jurisdiction,
see our CIT chart on page 7.
VAT
&
GST
Indirect Tax
In essence, an indirect tax adds to the price of a purchasable product
or a payable service, thereby increasing the cost of that product or
service and causing consumers to indirectly pay its rate of taxation.
This differentiates indirect tax from other forms of taxation, such as
corporate income and individual income tax; both of which require
a business or an individual to pay the applicable amount directly
to a government.
Indirect taxes differ from other taxes in several other ways. For
instance, because they are attached to purchasable items and
services generally, they are not reduced or increased according to
an individual’s income or a corporation’s profits.
In Asia, countries employ either a value added tax (VAT) or goods
and services tax (GST) as their system of indirect taxation, although
some do not have an indirect tax at all. Several countries have
either reformed or only just introduced their indirect tax systems
in the past ten years, including both India and China. The tax
revenue generated is commonly shared between central and local
governments
WT
Withholding Tax
Awithholding tax is a tax that is kept back froman employee’s salary
and subsequently paid directly to the government. Withholding
taxes are commonly employed by countries throughout the world
to help combat tax evasion.
Countries in Asia typically divide withholding tax into dividends,
interest and royalties payments, with the amount of each varying
considerably in each country. India, for instance, does not have any
withholding tax on dividends, but has a 30 percent tax on royalties.
