Q1 2024 international updates: Tax and legislative updates from across the globe

Take a look at the updates below and reach out to your Plante Moran advisor if you have any questions about how these items may affect you.

• Brazil
• Canada
• China
• Germany
• India
• Japan
• Mexico
• United Kingdom

Brazil

Visa requirements reinstated for U.S. nationals beginning April 10, 2024

After a three-month postponement, the Brazilian government will reinstate visa requirements for all U.S. nationals visiting Brazil. Beginning April 10, 2024, all U.S. nationals will need a visa to enter Brazil. Qualified applicants may apply for an e-visa.

For questions about the e-visa application procedures, visit the Brazilian government-authorized website.

Canada

Canadian Revenue Agency rules and regulations updates

The CRA has released many recent regulatory updates, and some are coming effective for 2024 years:

• New CRA rules enacted in December 2022 will require many trusts to report additional information on their annual income tax return for 2023 and 2024 filings (years ending after Dec. 30, 2023). These new rules may also require many trusts that were previously disregarded for income tax reporting purposes to file an income tax return for calendar year 2023 and beyond.
• Another revision to the draft Digital Services Tax was released on Nov. 30, 2023. The tax hasn’t been enacted yet.
• While still in draft form, Canada taxpayers may need to account for the Excessive Interest and Financing Expenses Limitation rules in their first quarter reporting for 2024.
• The government intends to deny income tax deductions for expenses incurred to earn short-term rental income, including interest expenses in provinces and municipalities that have prohibited short-term rentals and for short-term rental operators who aren’t compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.
• The government proposed to make the exemption for international shipping income in the Income Tax Act generally available to Canadian resident companies. This would allow shipping companies with management in Canada to continue their operations in line with both the Pillar Two international shipping exclusion and the exemption in the Income Tax Act. This measure would also effectively remove the incentive provided by current tax rules for shipping companies with management in Canada to incorporate and carry on certain international shipping activities in foreign jurisdictions. This measure would apply to taxation years that begin after Dec. 30, 2023.

China

China issues new amendment to the Company Law

At the end of 2023, China’s National People’s Congress passed the amendment to the China Company Law. The new Company Law, introducing a series of important changes on capital contribution, shareholder rights, and corporate governance systems, will come into force on July 1, 2024. Here’s a summary of the key changes in the new Company Law:

• Five-year limit for full contribution of registered capital. In China, the capital contribution subscribed by the shareholders of a company is referred to as “registered capital.” Under the current Company Law, there is no limit to the amount and time for the registered capital contribution of shareholders of limited liability companies (LLC) in China. However, the new Company Law requires a five-year maximum time limit for full capital contribution, meaning that the shareholders of LLCs must fully pay their registered capital within five years of the date of the company’s establishment. For those existing LLCs that don’t comply with the five-year requirement, there is a grace period of three years from July 1, 2024 to June 30, 2027, for companies to adjust their capital contribution schedule to comply with the five-year requirement. After June 30, 2027, the companies will have to make full contribution within five years, which is until June 30, 2032.
• Supervisors are no longer necessary for small LLCs and LLCs with few shareholders. Under the current Company Law, companies are required to appoint a supervisor or set up a board of supervisors to monitor, investigate, and supervise the company’s operation in view of protecting the interests of the company. However, in practice, the supervisor generally doesn’t have many useful functions. The new Company Law has changed this rule, allowing small-sized LLCs and LLCs with few shareholders not to set up supervisor(s) if all shareholders reach unanimous consent. Also, another option is that companies can establish an “audit committee” to replace the supervisors’ functions. More details on the audit committee are below.
• Introducing the “audit committee” to the board of directors. A major change of the new Company Law is to allow companies to establish an “audit committee” within the board of directors, which consists of directors and can exercise the power of board decisions and the obligation of supervision. The audit committee could be an alternative to the supervisor(s) in the company’s management structure.
• An employee representative is required for companies with over 300 employees. The new Company Law requires that a company with over 300 employees, regardless of the state-owned or private companies, must have at least one employee representative on the board of directors, unless the employee representative(s) is already on the board of supervisors. The employee representative must be elected by the company’s employees through the employees’ congress or meetings.
• Expanding the personnel options for the legal representative. The current Company Law requires that the legal representative should be either the chairman, executive director, or general manager of the company, which sometimes can be difficult to implement in practice. The new Company Law expands the options of legal representatives to all directors or general managers who actually execute the business operations on behalf of the company.
• Allowing one-person joint-stock companies. The new Company Law allows one individual person to set up a joint-stock company. Under the current Company Law, at least two people are required to do so. This change helps to lower the entry barriers for business startups by providing smaller businesses with the option of establishing a joint-stock company, which offers a more flexible financial model and stock investment possibility.
• Company liquidation-related changes. The new Company Law stipulates the provisions for simplified dissolution, making it clear that companies without any debts or having paid off all debts can choose to apply for the simplified dissolution process, upon the commitment of all shareholders. Compared with the regular dissolution, which requires a 45-day waiting period for public announcement and creditor’s claim notification, the simplified dissolution process requires only a 20-day waiting period to proceed with deregistration filing. The new Company Law creates a “recovery rule” for companies to be allowed to resume operation after a voluntary dissolution, after the amendment of the company’s AoA by the shareholders’ resolution, and under the condition that the property hasn’t yet been distributed to shareholders. The new Company Law also emphasizes that directors should serve as liquidators in the case of liquidation. The company directors are the members of the liquidation group by default, and the directors shall form a liquidation group within 15 days after the cause of dissolution arises. If the liquidation obligor fails to perform the liquidation obligation in time and causes losses to the company or creditors, they shall be liable for compensation.
• Directors and senior management’s liability for illegal capital withdrawal. Other than applying for the regular capital reduction, shareholders are generally forbidden to withdraw their capital contributions from the company via other methods. In the event of a violation, the shareholders shall return the withdrawn capital contributions. The directors, supervisors, and senior management personnel of the company who are responsible for any such illegal withdrawal will also be jointly liable for any losses caused to the company. Moreover, the company registration authority may impose a penalty against the responsible directors, supervisor, and senior management, ranging from RMB30,000 to RMB300,000.

Germany

Luxembourg and Austrian tax treaty clarifications

The German Ministry of Finance and its counterparts in Luxembourg and Austria have clarified certain provisions in the tax treaties regarding the treatment of income from employment, pensions, and government services for cross-border workers. The clarifications highlight that commute time isn’t included in the calculation of work performed, and that work performed in a third country will be allocated to the employee’s country of residence.

German tax court clarifies limitation of benefits criteria

For the second time, the tax court of Cologne upheld that asset management companies domiciled in Germany with ultimate shareholders in low-tax jurisdictions can claim a tax refund for withholding taxes paid on dividends. The ruling determined that investment management companies may have the appropriate substance to qualify for a refund, as the companies weren’t solely established for tax avoidance purposes. Specifically, the court considers passive investment management to be sufficient for an economic activity that doesn’t bar a claim for a withholding tax refund.

German controlled foreign corporation regime changes

On Dec. 22, 2023, the German Minister of Finance released revised administrative guidance related to the country’s controlled foreign corporation (CFC) regulations. The guidance provides insight into the treatment of the following:

• Detailed rules for determining the passive character of income types of German-owned CFCs located in low-tax jurisdictions. This includes that trading activities may be deemed as passive if performed in Germany on behalf of a foreign entity.
• Rules for determining control over a foreign corporation. The guidance indicates that control over a foreign corporation exists when a domestic resident, together with related parties, owns more than half of the foreign corporation’s voting rights, nominal capital, or its profit and liquidation proceeds.
• Requires a minimum tax rate of 25% for a company's income to be deemed “high taxed” and exempt from the CFC rules.

India

Interim budget 2024 

The budget announcement by the Indian government on Feb. 1, 2024, emphasizes various government initiatives as follows: 

• Infrastructure development: The development of three main railway corridors to improve port connectivity and transfer key materials, including energy, minerals, and cement. The investment in this infrastructure is expected to equal 3.4% of 2025 GDP or Rs. 11 trillion.
• Promoting foreign direct investment (FDI): The Indian government is in negotiations with foreign parties for bilateral investment treaties to continue the growth of FDI in India. The government is also party to the India-Middle East-Europe Economic Corridor, which is expected to drive a significant amount of FDI within India.
• Tax developments: The Indian government has announced the extension of sunset dates from March 31, 2024, to March 31, 2025, for certain tax benefits to startups, investments made by sovereign wealth funds/pension funds, and some International Financial Services Centre units. Further, to improve the ease of living and ease of doing business in India, the Indian government has made it mandatory for the tax authorities to forgive tax liabilities up to Rs.25,000 for certain prior tax years. Finally, input tax credit on services for offices of the same legal entity is required to be mandatorily distributed through the Input Service Distributor (ISD) mechanism by the office receiving the invoice.
• Research and innovation activities: The Indian government has granted a budget for Rs. 1 trillion of 50-year interest-free loans to the private sector to invest in research and development activities.

Other policy objectives in the budget include a Green Energy Initiative, Developments in Electric Vehicle (EV), Viksit Bharat Vision (i.e., Developed India), which is meant to drive India’s development progress.

Japan

Corporate tax law changes in 2024 tax reform proposals

The government agreed on various tax proposals for 2023 tax reform in an agreement reached on Dec. 14, 2023. The package is just an outline of various proposals and actual legislation will be dependent on legislation from the Diet. However, the reform bill is expected to be enacted by the end of March 2024.

Major proposals include:

• Tax credits for employers who provide salary increases to employees, including small and medium-sized businesses and loss-making companies.
• Creation of an Innovation Box regime specific to programs using artificial intelligence-related technologies.
• Various amendments to the global minimum tax and CFC regime included in 2023 tax reforms.
• Introduction of platform taxation measures to collect consumption tax on B2C digital services offered by foreign suppliers through digital platforms to ensure proper compliance in the evolving digital landscape.

Notably, the provision for tax credits for employers goes hand in hand with a government initiative to increase wages in line with inflationary pressures. Given this trend of increasing compensation expenses, the applicability of any related tax credit should be considered for employers of all sizes.

Mexico

Upcoming elections in Mexico

Mexico will hold presidential elections on June 2, 2024, with the newly elected president taking office on Oct. 1, 2024, from current President Andrés Manuel López Obrador (AMLO). Mexico holds presidential elections every six years, and the elected candidate remains in power for a single six-year term. Notable candidates include Claudia Sheinbaum from the ruling Morena party; Senator Xóchitl Gálvez from the coalition of PAN, PRI, and PRD; and Jorge Álvarez from MC.

Current polls suggest the Morena party is likely to retain power, which would mark a historic milestone of Mexico having its first female president. This year’s presidential elections in Mexico will align with presidential elections in the United States, an event that happens every 12 years.

Annual tax returns in Mexico

The 2023 annual return must be submitted to the Mexican tax authorities (SAT) no later than March 31, 2024, and no extensions are permitted.

While not an all-inclusive list, the following are some tips to properly file the Mexican tax return:

• It’s critical that monthly tax declarations are properly submitted. Such information will later be prepopulated in the annual tax return format. Plan in advance as any monthly return change/amendment takes some time to be updated in the SAT’s system, which could ultimately result in a delay.
• The SAT also can reconcile financial and tax information through several tools. As such, we recommend that you maintain proper control over the following items:
  • Electronic accounting 
  • Electronic invoicing/complementos de pago 
  • Digitally stamped paystubs, etc.
• Recurrent issues have been observed with the SAT’s annual return platform. Plan in advance to avoid delays on the filing of the annual tax return.

United Kingdom

Spring budget announcement

The Spring Budget provides updates on the U.K. economy, projections from the Office for Budget Responsibility, and fiscal plans for the upcoming year. The economic backdrop for this budget includes stagnant growth, diminished living standards, and above-target inflation within the U.K. In his Spring Budget statement on March 6, Chancellor Jeremy Hunt unveiled significant personal tax changes:

• National insurance: NIC contributions for employees and self-employed have been cut by 2%, effective April 6, 2024.
• Non-U.K. domiciled individuals: Beginning April 6, 2025, the remittance basis of taxation for non-U.K. domiciled individuals will be abolished. As a result, any individual who has been a U.K. tax resident for more than four years will pay U.K. tax on their foreign income and gains. A transition regime for existing nondomiciled individuals will be introduced.

For businesses, there are fewer surprises in the Spring Budget. The corporate income tax rate remains at the 25% rate. However, business-related items in the statement include:

• The VAT registration threshold was raised from £85,000 to £90,000.
• Full expensing for leased assets was proposed but will not be enacted until economic conditions allow.