TREASURY AND TAX MANAGEMENT

COMMONLY APPLICABLE TAX

Tax Management Across Markets

Singapore benefits from open tax treaties with more than 85 countries and territories. There are incentives for approved finance

and treasury centers like reduced corporate tax rates of 8% on income derived from

qualifying (FTC) services.

Across manufacturing-dominant markets like Vietnam, strong government reform

have rapidly evolved the economy. Vietnam has tax treaties with over 80 different

countries and territories making it very attractive for treasurers in the last few years.

Across markets like Hong Kong, their tax authorities (the IRD), do not tax offshore

income. Hong Kong is a well-established trade, shipping and logistics industry. They are highly

dependent on these cross-border flows and as such, offer attractive tax incentives,

with no tariffs on imports.

Taiwan has tax treaties with over 30 different countries and territories and has

one of the lowest corporate income tax rates in Asia. They also hold an Economic

Cooperation Framework Agreement (ECFA) with China making for virtually no tariffs

(pending ratification by authorities).

Keep abreast of differing debt to equity ratios

When dealing with companies in different markets, it’s important to understand current and forecast debt to equity ratios. If the prescribed ratio is likely to exceed, the company may prefer to fund using bank debt or equity instead of an inter company loan. In certain markets like Malaysia and Japan, additional earning stripping rules are in place to limit tax deductibility of interest payments.

Be aware of tax exemptions on interest acquired offshore

Most markets have withholding tax on cross-border interest payments. However, there are exemptions to this. Some markets do not tax interest on offshore expenses like those that flow via treasury centers or IHBs). This is often dependent on the tax law of the payee country.

Understand domestic withholding taxes on interest

Some markets have withholding tax on domestic interest payments as well. Domestic withholding tax is generally claimable against taxable income as long as it hasn’t been marked as final withholding tax.

Review benefits and costs of transacting via treasury centres

Some centers across markets can have smaller profits. Typically, this is not enough to offset withholding tax credits so this inter company interest is often not recoverable. Treasurers could be better off locating their treasury centers and IHBs in markets that have a wide tax treaty network with lower withholding tax rate.

DBS Treasury Prism helps you better optimise cash management by computing costs arising from tax, and providing advice on applicable regulations.

Explore a spectrum of opportunities on DBS Treasury Prism to best suit your organisation, including how to compute the net after tax benefits

of various cash management arrangements.

Model your cash management structures easily and validate

the applicable taxes and regulations for the markets your business operates in.

SIMULATE

Calculate and compute the benefits, i.e. withholding tax, net profit after tax, for various cash

management arrangements suitable for your business.

COMPUTE

References:https://treasuryprism.dbs.com/treasury-concepts/treasury-tax-managementhttps://treasuryprism.dbs.com/treasury-management-market-profiles/indiahttps://treasuryprism.dbs.com/treasury-management-market-profiles/china

https://treasuryprism.dbs.com/treasury-management-market-profiles/indonesiahttps://treasuryprism.dbs.com/treasury-management-market-profiles/singaporehttps://treasuryprism.dbs.com/treasury-management-market-profiles/hongkong

Key Considerations for Treasurers in Tax Management

Regardless of the type of market, there are key tax amplifications and considerations that all treasurers need to take.

There are two principal tax issues related to funding and cash management; the impact on funding decisions on a company’s balance sheets and withholding taxes on interest. Below, we dissect these issues further into key considerations for treasurers.

Organisations often transact and operate in a variety of locations, ranging from open financial markets such as Singapore and Hong Kong that have existing free

trade agreement and tax treaties, as well as tax incentives, to markets that are more regulated with currency and capital restrictions.

Equip yourself with key insights on a market’s banking, regulations, tax and available

cash management systems, all from a central source.

EQUIP

Gain qualified guidance on applicable taxes i.e. withholding tax

across markets in order to drive efficiencies and uncover relevant solutions to help treasurers select

and apply the appropriate cash management structure.

VALIDATE

In India, where there is a massive domestic supply hub, tax incentives and exemptions are available to certain industries operating

in Special Economic Zones (SEZs).

In China, consideration is to be made for, Value Added Tax (VAT) that is imposed

on interest (replacing its previous business tax on interest). Withholding tax is charged at 10% on interest for

non-resident and dividends.

In countries like Indonesia, domestic withholding tax include premiums, discounts and loan guarantee fees (but certain interest payments such as time or saving deposits are

final withholding tax in nature).

FOREIGN EXCHANGE

Incomestatement

Incomestatement

Taxes on funding transactions such as stamp tax

Taxes on interest such as withholding taxes and VAT/GST

Note: Every company has its own unique tax profile, so it is essential to validate all arrangements with your tax or banking advisor.

HOW DBS TREASURY PRISM CAN HELP

Customs duties on movement of goods

Specific rules for calculating corporate income tax such as calculating tax on derivatives on a realisation (or cash) basis rather than on a mark to market(or fair value) basis

Taxes on derivative transactions including foreign exchange

Tax on capital structures

Taxes on dividends and deemed dividends such as withholding tax