Paulo Cordeiro de Sousa
It was recently made public that the Legislative Assembly of Macao just approved a bill (generally subject to further internal discussion) aiming at revoking the Macanese offshore regime.
The offshore regime was enacted by Decree-Law No. 58/99/M, of 18 October, which entered into force on 1 November 1999. This regime provides for some tax benefits to the entities licensed to operate under the regime. Only some specifically identified activities qualify for the offshore regime, notably (i) financial activities, (ii) fiduciary assets management, (iii) commercial activities and (iv) the provision of services. The activities must be carried out with non-residents and cannot be denominated in the Macanese currency, the Pataca.
The tax benefits are, inter alia, the exemption from corporate income tax (CIT), the exemption from inheritance and gifts tax and from transfer tax upon the transfer of movable and immovable assets allocated to the offshore activities, and the exemption from stamp duty for certain operations.
The offshore entities must be companies incorporated according to the general rules in force in the Macao SAR (save for some exceptions, as mentioned below) or branches of foreign entities. The companies may be incorporated with any number of shareholders (whilst a company limited by shares – a “Sociedade Anónima” – requires a minimum number of three shareholders under the general rules), and both companies and branches are subject to tax, accounting and social security obligations as any other entity in Macao. They are not required to present CIT returns, as long as the income is derived exclusively from the offshore activity.
It follows from the offshore regime that offshore companies (with the exception of the number of shareholders) and branches are normal entities under the general rules in force in the Macao SAR and, as I see it, are also entitled to perform non-offshore activities – provided that such activities are clearly segregated from their offshore activities. Although they require a licence to operate under the offshore regime, such licence concerns only their offshore activities and the income derived from such activities, but not the entities themselves. In other words, it is not the entities that are tax-exempt, but the activities that they are licensed to perform.
The Macao SAR has made commitments to international organisations, and especially to the OECD and the European Union, to change or revoke the Macao Offshore regime. It has now decided to revoke it. The draft bill that was passed by the Legislative Assembly sets forth that the licences granted to operate under the Macao Offshore Regime shall expire on 1 January 2021.
The draft bill is, however, silent regarding what shall happen to the entities that lose their licence and that do not make the necessary changes by 1 January 2021. Will they cease to exist? It is very clear to me that the entities that already comply with the requirements of the general law (notably, those companies that already comply with the number of shareholders) shall continue to exist as normal entities. They may have to change their name and corporate purpose – they will not have to pay any taxes and fees if they do this within 90 days counting from the licence expiration (meaning that, if after such delay, payment may be due). But what will happen to those companies that do not comply with those requirements, and that do not change their name and/or corporate purpose to accord with the general rules? The draft bill should provide for a compulsory dissolution in those cases.
In addition, one should not forget that the companies (even those that comply with the requirements of the general law) were incorporated specifically to operate under the Macao Offshore Regime. The shareholders may not be interested in maintaining a company in Macao for other purposes.
Therefore, my view is that the Legislative Assembly should consider setting up an expeditious method to dissolve and liquidate the entities that were licensed to operate under the Macao Offshore Regime, with no costs to shareholders – which is still possible, taking into account that the draft bill has not been published yet.
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