The tax system of Macao is basically derived from Portugal. Amendments and improvements have been made constantly on the tax regulations so as to let the tax system adapt more closely to the Territory. As the tax system of Macao is territorial in nature, all activities of commercial or industrial nature that are being conducted in the territory are taxable.
The tax system of Macao has an attractive characteristic of the lowest tax rates as compared to other South East Asian countries. In fact, as the Territory is still in its developing stage, low tax rates are essential for attracting foreign, as well as local investments. The main reason why such low tax rate can be maintained is that direct and indirect taxes are not the principal components of total public revenue. High tax rates and as a result, large tax revenues are what is often seen in other countries. But in the case of Macao, the major source of public revenue comes from revenues from franchises granted, which are actually the rent, the profit tax and other revenues collected from the gambling industry. With the gambling industry supporting most of the Territory’s revenues, the tax burden on local and foreign business and economic activities is highly bearable due to the benefits derived from low tax rate. As a result, the economy of Macao has been developing at a remarkable speed.
The principal governing law for each type of tax imposed in Macao is the respective tax regulation enacted by the Governor and the Legislative Assembly.
Taxation is centrally administered by the Finance Department, which holds wide discretionary powers in interpreting tax regulations, carrying out tax audits, and in imposing penalties within the limits set forth in the tax regulations.
An appeal to a decision made by the Finance Department has to be submitted first to the Board of Review and thereafter to the Macao Court.
The tax year is the calendar year (From 1 January to 31 December).
Taxation of trusts
Trust law is not recognized in Macao.
Companies, which are incorporated in the Territory, are regarded as resident companies. They are taxed on their revenue derived worldwide. On the contrary, which companies that are not incorporated in the Territory are regarded as non-resident and only revenue derived from the Territory will be subjected to Macao taxation.
For individuals, the distinction between resident or non-resident is not crucial, since only personal revenue derived from work rendered in the Territory will be subjected to Professional Tax. An individual can be subjected to both Professional Tax and Profit Tax. Married couples will be assessed separately for Professional Tax purposes, but jointly for Profit Tax.
Double Taxation Treaty
Macao does not conclude any tax treaty with foreign country and thus no credit is granted for foreign taxes paid.
But in practice, any foreign tax paid can be treated as expenses and can therefore be deducted from the taxable revenue.
Macao has entered into a tax treaty with Portugal in 1999. Under this treaty, the territory of source has the prior right of tax, and the territory of residence provides tax relief in the form of either an exemption or tax credit with effect from 1 January, 2000.
In June 2006, Macau and Portugal signed the “The People’s Republic of China and the Macao Special Administrative Region of the Republic of Portugal to set their office and staff of the applicable tax privileges Agreement.” Under this agreement, the two sides set up representative offices in the agreement of the other party, including China and Macau Economic and Trade Office in Portugal, the Consulate General of Portugal in Macau, the Macao Special Administrative Region of the Portuguese Foreign Trade Council and the Instituto Português do Oriente, where the office premises, staff panel members and their families members will receive tax exemption.
Meanwhile, a double tax treaty was signed in December 2003 between Macau and Mainland China which is effective from January 1st, 2004.
In July 2007, Macau and Mainland China have signed a protocol which acts as an amendment for the double tax treaty signed in December 2003.
Registered accountants or auditors must certify the following tax return:
1. Profit tax returns of Group A taxpayers;
2. Stamp duty return of banks.