Why is Macau considered a tax haven?

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Why is Macau considered a tax haven?

Macau, dubbed the “Las Vegas of Asia,” is regarded as a tax haven due to its favorable personal and corporate tax structures. Residents and non-residents alike benefit from very low taxes on professional and company income. Macau, located on China’s southern coast, is the country’s sole legal gaming territory. Macau, a Portuguese territory until 1999, had its own stable currency, the Macanese pataca (MOP), as well as political independence with independent administrative, legislative, and judicial functions.

Key Takeaways

  • Because of its tax rules and regulations, Macau is considered a tax haven.
  • Macau also has a vibrant casino and gambling culture.
  • Macau, like Hong Kong, is a Greater China special administrative region (SAR) that follows the “One Country, Two Systems” philosophy.
  • Macau does not tax foreign profits, although residents of the SAR must pay personal income taxes.

Individual Taxation

Citizens and foreigners who establish residence in Macau benefit from much lower tax rates than those in other prosperous Asia-Pacific states such as Japan. Citizens and foreign nationals who work in the city also benefit from lower tax rates. As of 2019, Macau’s nominal per capita GDP of $81,151 ranked third in the world, after only Luxembourg and Switzerland. Foreigners cannot normally become citizens, but they may earn residence by investing in the local economy. Residents are taxed on income obtained from Macanese firms, while foreign profits are not taxed. Personal taxes is free for the first 144,000 MOP earned, after which the highest tier is charged at 12%. Non-resident rates are the same as resident rates, although there is a 5% minimum tax rate for non-residents.

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Property taxes are levied on all residential, commercial, and industrial properties based on assessed value or actual rental revenue, whichever is greater. Rental income is taxed at 10%, while assessed value is taxed at 6%. In Macau, there is no inheritance, gift, or capital gains tax; nonetheless, stamp duties are paid on transfers of physical or intangible property.

Like Hong Kong, Macau has wide but restricted autonomy in most political and economic activities under the One Country, Two Systems policy.

Corporate Taxation

Corporations profit from doing business on the peninsula because capital gains and corporate income are taxed at far lower rates than in Europe and the US. The favourable tax status attracts a huge number of firms, the bulk of which are casinos, which account for a considerable portion of Macau’s GDP.

In terms of corporation taxes, the first 600,000 MOP is tax-free. Following that, income beyond the exempt level is taxed at a maximum rate of 12%. In terms of company taxes, both residents and non-residents are treated equally. Within the Macau special administrative territory, all profits are taxed.

There are two types of corporate entities. Group A enterprises must follow correct accounting procedures and have capital levels at or above 1,000,000 MOP. Group B enterprises are either first-time filers or do not fulfill the capital criteria of group A businesses. Group B firms are taxed based on assessed profit measures, while Group A businesses are taxed based on verified tax reports filed with the Macau Finance Bureau.

Macau’s Gambling Industry

Because of its tourist and casino industries, Macau is similar to Las Vegas. The region’s GDP has been heavily influenced by its casinos and entertainment business. Foreign casinos were initially permitted in Macau in 2003, and the business quickly grew to the point that the area surpassed Las Vegas as a gambling destination. According to World Bank figures, the GDP of Macau increased from $7 billion in 2002 to $55.1 billion in 2018.

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However, Time magazine’s Simon Lewis estimated in 2016 that the GDP had declined by more than 20% as a result of Chinese President Xi Jinping’s war on corruption and money laundering. When China tightened restrictions on money leaving the mainland, Macau’s tax base, which was mostly comprised of casino earnings, started to dwindle, and the economy suffered as a consequence. Nonetheless, Macau is being watched.

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