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PRESS RELEASE

(Source : Government Information Centre)

Government welcomes Macao's modification of offshore institution regime

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The Hong Kong Special Administrative Region Government has welcomed the announcement on Monday (June 13) by the Macao Special Administrative Region Government on the modification of its Offshore Institution Regime.

"We welcome the modification of the Offshore Institution Regime by the Macao SAR Government," a government spokesman said. "We think that the modification is to cope with Macao's recent developments. It is conducive to co-ordinating a balanced development in the Greater Pearl River Delta and to eliminating the imbalanced tax competition within the region."

The spokesman pointed out that Hong Kong practised a territorial basis of taxation, in that only profits arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong were chargeable to profits tax. As for the tax avoidance arrangements that make use of overseas companies, the Inland Revenue Department is constantly on the lookout for improper transactions resulting in possible loss of revenue to Hong Kong. There are anti-avoidance provisions in the Inland Revenue Ordinance and well-established procedures for assessing whether Hong Kong companies have siphoned off profits improperly to offshore affiliates, as well as clear stipulations on the penalties for such offence.

The spokesman said the Hong Kong SAR Government would soon begin discussion with the Macao SAR Government on a comprehensive double taxation agreement and it was hoped the agreement could be finalised as soon as possible. Clauses will be added in the agreement to facilitate the exchange of relevant tax information between the two SAR governments so that the tax enforcement authorities can combat tax avoidance activities more effectively.

The Macao Offshore Institution Regime was introduced by the former Macao Government in 1999, reflecting the then economic conditions, before the Macao SAR Government was established. The purpose of the regime was to help develop Macao into an offshore commercial centre. Concessions that are available under the scheme include the exemption of profits tax, business tax and stamp duty on purchase of offices by offshore institutions; and the exemption to professional tax (equivalent to salaries tax of Hong Kong) on the offshore institution's non-Macao resident managers and specialised technicians for the first three years.

Qualifying offshore institutions must pursue the offshore activities indicated in a table approved by a decision of the Chief Executive of the Macao SAR Government. Effective from June 14, 2005, (the day after the Administrative Order was published), the scope of the approved offshore activities is restricted from the original 20 items to eight items, which are mainly technical support activities.

Ends/Wednesday, June 15, 2005

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