Tax rates in Asia continue to rise as the economies of several countries bloom due to an increase in production and trade. As the largest continent in the world, Asia is home to billions of people and taxpayers. There are tax purposes; government sees it as a means to ensure the flow of investments or to subsidize expenses. While business owners and people earning salaries or wages consider it a factor that helps determine if a certain jurisdiction fits their business model or work. There have been several significant changes to the ease of paying taxes in Asia. This is why most taxpayers enjoy filing their tax returns on time.
If you are interested in setting up a business in Asia or looking for work and want to know how Asian taxation policies work, here is a comprehensive guide that provides detailed information on tax in the continent and its numerous types.
Persons required to pay tax
The eligibility to pay taxes depends on the country where a taxpayer resides or the location of the business of a corporation. Residents pay taxes on their global income earned while Non-residents are charged for only income made in the state. This, however, varies from nation to nation.
Types of Tax
Several taxes which apply to persons, foreign businesses, and wage earners in Asia, exist. they include direct taxes such as corporate income tax (CIT), individual income tax (IIT), withholding tax (WHT), and indirect taxes such as value-added tax (VAT) and goods and services tax (GST). Each tax has its tax rates, but there is no fixed tax rate across the continent.
Corporate income tax
CIT is a tax charged on the gains made by a business. This may be levied by the state government or its provincial governments on income generated by organizations, establishments, firms, etc. with permanent residency within the continent.
The CIT rates differ from country to country, with some states fixing it at 17% and others at 40%. Defining what a corporation is to determine if it is liable to pay tax, differs. Some nations impose CIT on legal firms operating within their territory while others impose on only income derived in their states. For branches of foreign businesses, only the income generated from business activities carried out in the continent is charged to a CIT.
Individual Income Tax
IIT is a tax deducted from the income of all employees within a given jurisdiction. All Asian countries have a progressive IIT class where individuals pay taxes according to what they earn, except Cambodia, which has a fixed rate of 20%, and Brunei, no IIT tax. For some countries, the maximum rate is up to 45%, while some keep it as low as 17%.
Indirect Tax
This tax varies from other types of taxes for numerous reasons. It is imposed on sold goods and services and has no link to a person’s income or a corporation’s revenue. However, in some counties, this tax does not exist.
Two forms of this tax exist; a value-added tax (VAT) or a goods and services tax (GST). The tax revenues accrued are distributed to the central and local governments. Indirect tax increases the price of a commodity or a service that requires payment. This hikes the cost of such a good or service, thus sometimes consumers indirectly pay either VAT or GST without being aware.
Withholding Tax
This is a tax deducted and held from the income earned by an employee and then paid directly to the government by the employer. In Asia, withholding tax is split into dividends, interest, and royalties payments, but the amount differs slightly in each country. India does not charge dividends but there is a fixed rate for royalties payments.
